Equity Method Investments

12 Months Ended

Oct. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

The Company includes investments which are accounted for using the equity method, under Investments in equity interests on the Company's Consolidated Balance Sheets. As of October 31, 2019 and October 31, 2018, the Company's Investments in equity interests were $2.3 billion and $2.4 billion, respectively, primarily related to a 49% equity interest in H3C Technologies ("H3C").

Investment in H3C

In the periods presented, the Company recorded its interest in the net earnings of H3C along with an adjustment to eliminate unrealized profits on intra-entity sales, and the amortization of basis difference, within Earnings (loss) from equity interests in the Consolidated Statements of Earnings.

During fiscals 2019 and 2018, the Company received a cash dividend of $156 million and $164 million, respectively, from H3C. This amount was accounted for as a return on investment and reflected as a reduction in the carrying balance of the Company's Investments in equity interests in its Consolidated Balance Sheets.

The difference between the sale date carrying value of the Company's investment in H3C and its proportionate share of the net assets fair value of H3C, created a basis difference of $2.5 billion, which was allocated as follows:



	In millions
Equity method goodwill	$	1,674
Intangible assets	749
In-process research and development	188
Deferred tax liabilities	(152		)
Other	75
Basis difference	$	2,534

The Company recorded earnings from equity interests of $20 million and $38 million in fiscal 2019 and 2018, respectively, and loss from equity interests of $23 million in fiscals 2017 in the Consolidated Statements of Earnings, the components of which are as follows:



	Fiscal years ended October 31,
	2019			2018			2017
	In millions
Earnings from equity interests, net of taxes	$	167		$	192		$	127
Basis difference amortization	(152		)	(151		)	(155		)
Elimination of profit on intra-entity sales adjustment	5			(3		)	5
Earnings (loss) from equity interests	$	20		$	38		$	(23	)

The Company amortizes the basis difference over the estimated useful lives of the assets that gave rise to this difference. The weighted-average life of the H3C intangible assets is five years and is being amortized using the straight-line method. As of October 31, 2019 and 2018, the Company determined that no impairment of its equity method investments existed.

The Company also has commercial arrangements with H3C to buy and sell HPE branded servers, storage and networking products and HPE Pointnext services. During fiscals 2019, 2018 and 2017, HPE recorded approximately $897 million, $1.3 billion and $1.2 billion of sales to H3C and $202 million, $273 million and $331 million of purchases from H3C, respectively. Payables due to H3C as of October 31, 2019 and 2018 were approximately $39 million and $43 million, respectively. Receivables due from H3C as of October 31, 2019 and 2018 were approximately $32 million and $10 million, respectively.