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Taxes on Earnings | 12 Months Ended
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Oct. 31, 2018
Income Tax Disclosure [Abstract] |
Taxes on Earnings | Taxes on Earnings Provision for Taxes The domestic and foreign components of earnings from continuing operations before taxes were as follows:
| For the fiscal years ended October 31,
| 2018 |  | 2017 |  | 2016
| In millions
U.S.(1) | $ | (2,805 | ) |  | $ | (1,929 | ) |  | $ | (1,758 | )
Non-U.S.(1) | 3,073 |  |  | 2,201 |  |  | 5,618 |
| $ | 268 |  |  | $ | 272 |  |  | $ | 3,860 |
(1) | F iscal 2017 and 2016 amounts have been reclassified to conform with the current period presentation.
The Benefit (provision) for taxes on earnings from continuing operations were as follows:
| For the fiscal years ended October 31,
| 2018 |  | 2017 |  | 2016
| In millions
U.S. federal taxes: |  |  |  |  |  |  |  |
Current | $ | (2,177 | ) |  | $ | 560 |  |  | $ | 940 |
Deferred | 150 |  |  | (1,366 | ) |  | (959 | )
Non-U.S. taxes: |  |  |  |  |  |  |  |
Current | 419 |  |  | 64 |  |  | 874 |
Deferred | (188 | ) |  | 25 |  |  | (58 | )
State taxes: |  |  |  |  |  |  |  |
Current | 52 |  |  | (107 | ) |  | 36 |
Deferred | — |  |  | 660 |  |  | (210 | )
| $ | (1,744 | ) |  | $ | (164 | ) |  | $ | 623 |
The differences between the U.S. federal statutory income tax rate and the Company's effective tax rate were as follows:
| For the fiscal years ended October 31,
| 2018 |  | 2017 |  | 2016
U.S. federal statutory income tax rate | 23.3 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal tax benefit | 4.3 | % |  | 3.0 | % |  | 1.0 | %
Lower rates in other jurisdictions, net | (121.4 | )% |  | (426.3 | )% |  | (24.5 | )%
Valuation allowance | (59.8 | )% |  | 310.0 | % |  | (14.7 | )%
U.S. permanent differences | 39.3 | % |  | 27.8 | % |  | (2.3 | )%
Uncertain tax positions | (694.8 | )% |  | (8.4 | )% |  | 23.1 | %
Impacts of the Tax Act(1) | 158.0 | % |  | — | % |  | — | %
Other, net | 0.4 | % |  | (1.4 | )% |  | (1.5 | )%
| (650.7 | )% |  | (60.3 | )% |  | 16.1 | %
(1) | Impacts of the Tax Act is inclusive of valuation allowances recorded as a result of the U.S. law change.
The jurisdictions with favorable tax rates that had the most significant impact on the Company's effective tax rate in the periods presented include Puerto Rico and Singapore. In fiscal 2018, the Company recorded $2.0 billion of net income tax benefits related to items unique to the year. These amounts primarily included $2.0 billion of income tax benefits related to the settlement of certain pre-Separation tax liabilities for which the Company shares joint and several liability with HP Inc. and for which the Company is partially indemnified by HP Inc. under the Tax Matters Agreement, $208 million of income tax benefits related to Everett pre-divestiture tax matters and valuation allowances, $125 million of income tax benefits on restructuring charges, separation costs, transformation costs and acquisition and other related charges and $65 million of net excess tax benefits related to stock-based compensation, the effects of which were partially offset by $422 million of income tax charges related to impacts of the Tax Act. In addition, the Company recorded $5.0 billion of certain foreign loss carryforwards and U.S. domestic capital losses carryforwards against which a full valuation allowance was recorded; the effective tax rate above reflects this activity on a net basis. In fiscal 2017, the Company recorded $554 million of net income tax benefits related to items unique to the year. These amounts primarily included $699 million of income tax benefits in connection with the Everett and Seattle Transactions and $326 million of income tax benefits on restructuring charges, separation costs, transformation costs and acquisition and other related charges, the effects of which were partially offset by $473 million of income tax charges to record valuation allowances on U.S. state deferred tax assets, and $88 million of income tax charges related to pre-Separation tax matters. In fiscal 2016, the Company recorded $250 million of net income tax charges related to items unique to the year. These amounts primarily included $714 million of income tax charges related to pre-Separation tax matters, of which $647 million was related to the effect of the potential settlement of certain pre-Separation Hewlett-Packard Company income tax liabilities, and $169 million of income tax charges resulting from a gain on the H3C divestiture, the effects of which were partially offset by $509 million of income tax benefits on restructuring charges, separation costs and acquisition and other related charges, and $124 million of income tax benefits resulting from a gain on the MphasiS divestiture. As a result of certain employment actions and capital investments the Company has undertaken, income from manufacturing and services in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, through 2024. The gross income tax benefits attributable to these actions and investments were $792 million ($0.51 diluted net EPS) in fiscal 2018, $378 million ($0.23 diluted net EPS) in fiscal 2017 and $401 million ($0.23 diluted net EPS) in fiscal 2016. Refer to Note 17, "Net Earnings Per Share" for details on shares used to compute diluted net EPS. Recent Tax Legislation The Tax Act requires the Company to incur a one-time Transition Tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign cash and certain other net current assets and 8.0% on the remaining income. The GILTI, BEAT and certain other provisions of the Tax Act will be effective for the Company beginning November 1, 2018. The Company has an October 31 fiscal year end; therefore, the lower corporate tax rate enacted by the Tax Act will be phased in, resulting in a U.S. statutory federal rate of 23.3% for the fiscal year ending October 31, 2018 and 21.0% for subsequent fiscal years. The Company has not completed its accounting for the tax effects of the Tax Act. Reasonable estimates of the impacts of the Tax Act are provided in accordance with guidance from the SEC that allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. Adjustments may materially impact the Company’s provision for income taxes and effective tax rate in the period in which the adjustments are made. The Company expects to complete the accounting under the Tax Act in the first quarter of fiscal 2019. For fiscal 2018, the Company recorded a provisional estimate of $1.7 billion of tax expense related to the Transition Tax, which was included in Benefit (provision) for taxes in the Consolidated Statements of Earnings. The final calculations of the Transition Tax may differ from estimates, potentially materially, due to, among other things, changes in interpretations of the Tax Act, analysis of proposed regulations and current and additional guidance from the Internal Revenue Service ("IRS"), the Company’s analysis of the Tax Act, or any updates or changes to estimates that the Company utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and assertions. No cash payment is anticipated due to the availability of sufficient tax credits to offset the Transition Tax. In addition, for fiscal 2018 the Company recorded $1.7 billion of net tax expense related to the remeasurement of U.S. deferred tax assets and liabilities as a result of the reduction of the U.S. corporate tax rate and a $3.7 billion tax benefit related to the reversal of previous deferred tax recognized on foreign earnings and profits, which was included in Benefit (provision) for taxes in the Consolidated Statement of Earnings. In addition, as part of evaluating the future effects of the Tax Act, the Company has reassessed the realizability of its U.S deferred tax assets, including tax credits and other non-credit deferred tax assets, based on the new method of taxation of non-U.S. earnings applicable beginning in fiscal 2019. The Company recorded a provisional estimate for valuation allowance of $687 million against its U.S. federal deferred tax assets. Regarding the new GILTI tax rules, the Company is required to make an accounting policy election to either treat taxes due on future GILTI inclusions in U.S. taxable income as a current period expense when incurred or reflect such portion of the future GILTI inclusions in U.S. taxable income that relate to existing basis differences in the Company's current measurement of deferred taxes. The Company's analysis of the new GILTI tax rules and how they may impact the Company is in process. Accordingly, the Company has not made a policy election regarding the treatment of the GILTI tax. Uncertain Tax Positions A reconciliation of unrecognized tax benefits is as follows:
| As of October 31,
| 2018 |  | 2017 |  | 2016
| In millions
Balance at beginning of year | $ | 11,262 |  |  | $ | 11,411 |  |  | $ | 4,901 |
Increases: |  |  |  |  |  |  |  |
For current year's tax positions | 163 |  |  | 28 |  |  | 1,456 |
For prior years' tax positions | 66 |  |  | 311 |  |  | 820 |
Net transfers from former Parent through equity | — |  |  | — |  |  | 4,455 |
Decreases: |  |  |  |  |  |  |  |
For prior years' tax positions | (82 | ) |  | (202 | ) |  | (114 | )
Statute of limitations expiration | (86 | ) |  | (70 | ) |  | (47 | )
Settlements with taxing authorities | (2 | ) |  | (216 | ) |  | (60 | )
Settlements related to joint and several positions of former Parent | (2,495 | ) |  | — |  |  | — |
Balance at end of year | $ | 8,826 |  |  | $ | 11,262 |  |  | $ | 11,411 |
Up to $1.1 billion, $3.0 billion and $2.7 billion of Hewlett Packard Enterprise's unrecognized tax benefits at October 31, 2018, 2017 and 2016, respectively, would affect the Company's effective tax rate if realized. The $2.4 billion decrease in the amount of unrecognized tax benefits for the year ended October 31, 2018, is primarily related to the settlement of certain pre-Separation tax liabilities for which the Company shares joint and several liability with HP Inc. and for which the Company is partially indemnified by HP Inc. under the Tax Matters Agreement. The $2.0 billion of income tax benefits recognized in the Company's effective tax rate includes interest, penalties, and offsetting benefits not included in the table above. The $149 million decrease in the amount of unrecognized tax benefits for the year ended October 31, 2017, is primarily related to the settlement of a foreign tax audit concerning an intercompany transaction, partially offset by unrecognized tax benefits related to the timing of intercompany royalty revenue recognition, which does not affect the Company's effective tax rate. Hewlett Packard Enterprise recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in Benefit (provision) for taxes in the Consolidated Statements of Earnings. The Company had accrued $142 million and $304 million for interest and penalties as of October 31, 2018 and 2017, respectively. Hewlett Packard Enterprise engages in continuous discussion and negotiation with taxing authorities regarding tax matters in various jurisdictions. Hewlett Packard Enterprise does not expect complete resolution of any U.S. IRS audit cycle within the next 12 months. However, it is reasonably possible that certain federal, foreign and state tax issues may be concluded in the next 12 months, including resolution of certain intercompany transactions, joint and several tax liabilities and other matters. Accordingly, Hewlett Packard Enterprise believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $6.4 billion within the next 12 months. Hewlett Packard Enterprise is subject to income tax in the U.S. and approximately 110 other countries and is subject to routine corporate income tax audits in many of these jurisdictions. With respect to major foreign tax jurisdictions, HPE is no longer subject to tax authority examinations for years prior to 2005. With respect to major state tax jurisdictions, HPE is no longer subject to tax authority examinations for years prior to 2003. Hewlett Packard Enterprise believes it has provided adequate reserves for all tax deficiencies or reductions in tax benefits that could result from federal, state and foreign tax audits. The Company regularly assesses the likely outcomes of these audits in order to determine the appropriateness of the Company's tax provision. The Company adjusts its uncertain tax positions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular audit. However, income tax audits are inherently unpredictable and there can be no assurance that the Company will accurately predict the outcome of these audits. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in the provision for taxes and therefore the resolution of one or more of these uncertainties in any particular period could have a material impact on net earnings or cash flows. Hewlett Packard Enterprise is joint and severally liable for certain pre-Separation tax liabilities of HP Inc. HP Inc. is subject to numerous ongoing audits by federal, state and foreign tax authorities. The IRS is conducting an audit of HP Inc.’s 2013, 2014 and 2015 income tax returns. Hewlett Packard Enterprise has not provided for U.S. federal income and foreign withholding taxes on $7.9 billion of undistributed earnings and basis differences from non-U.S. operations as of October 31, 2018 because the Company intends to reinvest such earnings indefinitely outside of the U.S. Such amounts have materially decreased from October 31, 2017, due to the impacts of the Tax Act that required U.S. taxation on largely all undistributed foreign earnings. Determination of the amount of unrecognized deferred tax liability related to these earnings and basis differences is not practicable. The Company will remit non-indefinitely reinvested earnings of its non-U.S. subsidiaries for which deferred U.S. federal and withholding taxes have been provided where excess cash has accumulated and the Company determines that it is advantageous for business operations, tax or cash management reasons. Deferred Income Taxes Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The significant components of deferred tax assets and deferred tax liabilities were as follows:
| As of October 31,
| 2018 |  | 2017
| In millions
Deferred tax assets: |  |  |
Loss and credit carry-forwards(1) | $ | 9,149 |  |  | $ | 4,775 |
Inventory valuation | 77 |  |  | 79 |
Intercompany transactions—royalty prepayments(2) | 48 |  |  | 4,267 |
Intercompany transactions—excluding royalty prepayments | 63 |  |  | 129 |
Warranty | 81 |  |  | 156 |
Employee and retiree benefits | 498 |  |  | 661 |
Restructuring | 101 |  |  | 186 |
Deferred revenue | 518 |  |  | 757 |
Intangible assets | 48 |  |  | — |
Other | 432 |  |  | 593 |
Total deferred tax assets | 11,015 |  |  | 11,603 |
Valuation allowance(3) | (8,209 | ) |  | (2,789 | )
Total deferred tax assets net of valuation allowance | 2,806 |  |  | 8,814 |
Deferred tax liabilities: |  |  |
Unremitted earnings of foreign subsidiaries(4) | (161 | ) |  | (3,824 | )
Fixed assets | (470 | ) |  | (385 | )
Intangible assets | — |  |  | (46 | )
Total deferred tax liabilities | (631 | ) |  | (4,255 | )
Net deferred tax assets and liabilities | $ | 2,175 |  |  | $ | 4,559 |
(1) | The increase is primarily due to certain foreign loss carryforwards recognized in the current year and increases in U.S. domestic capital loss carryforwards recognized in the current year.
(2) | During fiscal 2018, the Company executed an intercompany sale transaction that resulted in the reversal of $2.1 billion of deferred tax assets attributable to deferred revenue. The tax impacts of the transaction are considered prepaid under FASB guidance applicable to fiscal 2018. The additional decrease is primarily a result of deferred tax remeasurement related to the Tax Act.
(3) | The increase is primarily due to certain foreign loss carryforwards recognized in the current year and increases in U.S. domestic capital loss carryforwards recognized in the current year against which valuation allowances were required as well as a partial valuation allowance recorded against U.S. foreign tax credits carryforwards as a result of the Tax Act.
(4) | The decrease is primarily due to $3.7 billion benefit from the reversal of previous deferred tax recognized on foreign earnings and profits as a result of the Tax Act.
Deferred tax assets and liabilities included in the Consolidated Balance Sheets are as follows:
| As of October 31,
| 2018 |  | 2017
| In millions
Deferred tax assets | $ | 2,403 |  |  | $ | 4,663 |
Deferred tax liabilities | (228 | ) |  | (104 | )
Deferred tax assets net of deferred tax liabilities | $ | 2,175 |  |  | $ | 4,559 |
The Company periodically engages in intercompany advanced royalty payment and licensing arrangements that may result in advance payments between subsidiaries in different tax jurisdictions. When the local tax treatment of the intercompany licensing arrangements differs from U.S. GAAP treatment, deferred taxes are recognized. Hewlett Packard Enterprise executed intercompany advanced royalty payment arrangements resulting in advanced payments of $63 million and $439 million during fiscal 2018 and 2017, respectively. In these transactions, the payments were received in the U.S. from a foreign consolidated affiliate, with a deferral of intercompany revenues over the term of the arrangements. Intercompany royalty revenue and the amortization expense related to the licensing rights are eliminated in consolidation. In fiscal 2018, the Company recorded an adjustment of $55 million to reduce a deferred tax asset established in connection with the Separation as a reduction of additional paid-in capital in the Consolidated Statement of Stockholders' Equity. As of October 31, 2018, the Company had $769 million, $2.8 billion and $19.9 billion of federal, state and foreign net operating loss carryforwards, respectively. Amounts included in federal, state and foreign net operating loss carryforwards will begin to expire in fiscal 2030, 2019, and 2020, respectively. Hewlett Packard Enterprise has provided a valuation allowance of $160 million and $5.0 billion for deferred tax assets related to state and foreign net operating losses carryforwards, respectively. As of October 31, 2018, the Company also had $6.1 billion, $6.4 billion, and $58 million of federal, state, and foreign capital loss carryforwards, respectively. Amounts included in federal and state capital loss carryforwards will begin to expire in fiscal 2024; foreign capital losses can carry forward indefinitely. Hewlett Packard Enterprise has provided a valuation allowance of $1.2 billion, $238 million, and $13 million for deferred tax assets related to federal, state, and foreign capital loss carryforwards, respectively. As of October 31, 2018, Hewlett Packard Enterprise had recorded deferred tax assets for various tax credit carryforwards as follows:
| Carryforward |  | Valuation Allowance |  | Initial Year of Expiration
| In millions |  |
U.S. foreign tax credits | $ | 1,832 |  |  | $ | (687 | ) |  | 2021
U.S. research and development and other credits | 122 |  |  | — |  |  | 2019
Tax credits in state and foreign jurisdictions | 158 |  |  | (124 | ) |  | 2020
Balance at end of year | $ | 2,112 |  |  | $ | (811 | ) |  |
Deferred Tax Asset Valuation Allowance The deferred tax asset valuation allowance and changes were as follows:
| As of October 31,
| 2018 |  | 2017 |  | 2016
| In millions
Balance at beginning of year | $ | 2,789 |  |  | $ | 2,095 |  |  | $ | 1,572 |
Income tax expense | (166 | ) |  | 848 |  |  | (203 | )
Income tax expense related to the Tax Act | 687 |  |  | — |  |  | — |
Valuation allowance offsetting current year losses recorded | 5,028 |  |  | — |  |  | — |
Other comprehensive income, currency translation and charges to other accounts | (129 | ) |  | (154 | ) |  | 726 |
Balance at end of year | $ | 8,209 |  |  | $ | 2,789 |  |  | $ | 2,095 |
Total valuation allowances increased by $5.4 billion in fiscal 2018, due primarily to the increases in certain foreign loss carryforwards recognized in the current year and increases in U.S. domestic capital loss carryforwards recognized in the current year against which valuation allowances were required, and a partial valuation allowance recorded against U.S. foreign tax credit carryforwards as a result of the Tax Act. These were offset by partial valuation allowance releases against loss carryforwards in certain foreign jurisdictions due to law changes. Total valuation allowances increased by $694 million in fiscal 2017 due primarily to the valuation allowance recorded against foreign deferred tax assets related to pension assets and liabilities, partially offset by decreases in foreign deferred tax assets for net operating losses. Tax Matters Agreement and Other Income Tax Matters In connection with the Separation, the Company entered into a Tax Matters Agreement with HP Inc., formerly Hewlett-Packard Company. In connection with the Everett and Seattle Transactions, the Company entered into a DXC Tax Matters Agreement with DXC and a Micro Focus Tax Matters Agreement with Micro Focus, respectively. See Note 19, "Guarantees, Indemnifications and Warranties", for a description of the Tax Matters Agreement, DXC Tax Matters Agreement and Micro Focus Tax Matters Agreement.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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