HPE Software Financial Results Update

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION. THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

3 April 2017

Micro Focus International plc

HPE Software financial results update

On 31 March 2017 Micro Focus International plc ("Micro Focus" or the "Company") announced the launch of its US$5.5bn debt syndication process. Micro Focus today publishes updated results and additional financial disclosure for the software business segment ("HPE Software") of Hewlett Packard Enterprise Company ("HPE") for the three financial years ended 31 October 2014, 31 October 2015 and 31 October 2016.

On 7 September 2016, Micro Focus and HPE announced that they had reached a definitive agreement on the terms of a transaction (the "Transaction") pursuant to which the Company agreed to acquire HPE Software by way of a merger (the "Merger") of a wholly owned subsidiary of Micro Focus with Seattle SpinCo. Inc. a wholly owned subsidiary of HPE incorporated to hold the business of HPE Software for the purposes of the Transaction. Micro Focus has previously disclosed the following financial information in relation to HPE Software:

· Unaudited historical financial information prepared under U.S. generally accepted accounting principles ("US GAAP") and US Securities and Exchange Commission ("SEC") carve out accounting rules, representing the perimeter of the HPE Software business as it existed at the time of the statements. Financial information prepared on this basis will be referred to as "As-Managed" herein

o The basis for US GAAP and SEC carve out accounting rules can be found in Appendix II

o On an As-Managed basis, Micro Focus disclosed HPE Software Statements of Earnings, Assets & Liabilities and Summary Cash Flows, in each case excluding taxes, for the financial years ended 31 October 2013, 31 October 2014 and 31 October 2015

· Selected additional historical financial information derived from the As-Managed financial information but adjusted for various changes in the business' perimeter and certain other items. The Micro Focus Board believes these adjustments more accurately reflect the performance and business perimeter of HPE Software as it is being acquired. Financial information prepared on this basis will be referred to as "As-Acquired" herein

o On an As-Acquired basis, Micro Focus disclosed HPE Software financial information relating to Revenue and Underlying Adjusted EBITDA measures and a reconciliation from an As-Managed basis for the financial years ended 31 October 2014, 31 October 2015 and the twelve months ended 30 April 2016

On 23 November 2016, following publication of HPE's financial results for the financial year ended 31 October 2016, Micro Focus disclosed the following unaudited financial information in relation to HPE Software:

· On an As-Managed basis, Fourth Quarter and Full Year Revenues, as well as HPE Software Non-GAAP Operating Profits for the three months and twelve months to 31 October 2016

· On an As-Acquired basis, Fourth Quarter and Full Year Revenues for the three months and twelve months to 31 October 2016

Today Micro Focus discloses the following further unaudited financial information for HPE Software:

· On an As-Acquired basis,

o Underlying Adjusted EBITDA for the financial year ended 31 October 2016

o Underlying Adjusted EBITDA excluding overhead and corporate costs in relation to shared services of HPE expected to not transfer to Micro Focus as part of the Transaction (the "horizontal costs") for the financial years ended 31 October 2014, 31 October 2015 and 31 October 2016

o Cash Conversion for the financial years ended 31 October 2014, 31 October 2015 and 31 October 2016 (set out in Appendix I)

· On an As-Managed basis, financial statements, excluding taxes, for the financial years ended 31 October 2014, 31 October 2015 and 31 October 2016 (set out in Appendix II)

· Additionally, a reconciliation from HPE Software Non-GAAP Operating Profit to As-Acquired Underlying Adjusted EBITDA for the financial years ended 31 October 2014, 31 October 2015, 31 October 2016 and the twelve months ended 30 April 2016

Since the announcement made on 7 September 2016, there have been certain amendments to the US GAAP financial information of HPE Software for the financial years ended 31 October 2014 and 31 October 2015; further information on these adjustments is given in Appendix II. The independent audit of the 2016 carve out financial statements of Seattle SpinCo, Inc., (HPE Software) for the Board of Directors and Stockholders of HPE is in process and is expected to be completed in the near term.

Summary financial information

The table below outlines financial information for HPE Software under US GAAP carve out accounting as provided by HPE on an As-Acquired basis for the financial years ended 31 October 2014, 31 October 2015 and 31 October 2016, in addition to the twelve months ended 30 April 2016.

· Annual total As-Acquired Revenue was US$ 3,126m for the financial year ended 31 October 2016, up 0.8% from the prior year period on a constant currency basis

· As-Acquired Underlying Adjusted EBITDA excluding horizontal costs that are expected to not transfer as part of the Transaction of US$741m for the financial year ended 31 October 2016

· As-Acquired Cash Conversion was 90.0% for the financial year ended 31 October 2016, a c. 22 percentage point improvement from the prior-year period

* For the stated periods, As-Acquired Underlying Adjusted EBITDA has been further adjusted for overhead and corporate costs in relation to shared services of HPE expected to not transfer to Micro Focus as part of the Transaction

** Cash Conversion is defined as As-Acquired cash generated from operations as a percentage of As-Acquired Adjusted EBITDA post exceptional items

Detailed tables of the above metrics can be found in Appendix I.

As-Acquired financial information in the above table reflects HPE management's best estimates of the amount of Revenue and Underlying Adjusted EBITDA generated by the divested businesses during the periods presented up to the date of divestment, further adjusted for HPE management's estimate of overhead and other corporate costs that did not exit HPE Software on divestment of these businesses.

The financial information contained in any prospectus and/or circular published in relation to the Transaction may differ from the financial information included in this announcement. These adjustments include, but may not be limited to, the impact of conversion of the financial information to International Financial Reporting Standards as adopted by the European Union ("IFRS"). See Appendix II for further details.

For further information please contact:

Micro Focus International Plc

Kevin Loosemore (Executive Chairman)

Mike Phillips (Chief Financial Officer)

Tim Brill (Director, Corporate Communications & IR)

+44 16 3556 5605

Powerscourt (PR adviser)

Juliet Callaghan

+44 20 7250 1446

About Micro Focus

Micro Focus (LSE: MCRO.L) is a global enterprise software company supporting the technology needs and challenges of the Forbes Global 2,000 (the top 2,000 public companies in the world by as determined Forbes magazine). Our solutions help organisations leverage existing IT investments, enterprise applications and emerging technologies to address complex, rapidly evolving business requirements while protecting corporate information at all times. Micro Focus's Product Portfolios are Micro Focus and SUSE. Within Micro Focus our solution portfolios are COBOL Development and Mainframe Solutions, Host Connectivity, Identity and Access Security, IT Development and Operations Management Tools, and Collaboration and Networking. For more information, visit: www.microfocus.com. SUSE, a pioneer in Open Source software, provides reliable, interoperable Linux, cloud infrastructure and storage solutions that give enterprises greater control and flexibility. For more information, visit: www.SUSE.com.

About HPE Software

HPE Software is a leading global infrastructure software provider that allows customers to automate IT operations to simplify, accelerate and secure business processes. The company offers a broad range of software for enterprises of all sizes across four pillars (I) IT Operations Management, (II) Application Testing & Delivery Management, (III) Security and Information Governance and (IV) Big Data Platform Analytics. Its software offerings include licences, support, SaaS and Professional Services across its product portfolio.

The business operates a global footprint spanning the Americas, Asia Pacific & Japan and EMEA regions, with over 30,000 customers across the world. The business currently works with 98 of the Fortune 100 companies.

IMPORTANT NOTICE:

The information contained in this announcement is not for release, publication or distribution, in whole or in part, to persons in any jurisdiction where to do so would breach any applicable law. No public offer of securities is being made by virtue of this announcement.

This announcement has been prepared for the purposes of complying with the applicable laws and regulations of the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of the United Kingdom.

The release, publication or distribution of this announcement, in whole or in part, in, into or from jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

ROUNDING OF FIGURES

Certain figures contained in this announcement, including financial information, have been subject to rounding adjustments. Accordingly, in certain instances, the sum or percentage change of the numbers contained in this announcement may not conform exactly with the total figure given.

NO INCORPORATION OF WEBSITES

Except as otherwise explicitly stated, neither the content of the Micro Focus website nor the HPE website, nor any other website accessible via hyperlinks on either such website, is incorporated into, or forms part of, this communication. 

NO PROFIT FORECAST

No statement in this announcement is intended as a profit forecast of Micro Focus, HPE or HPE Software or a profit estimate of Micro Focus, HPE or HPE Software and no statement in this announcement should be interpreted to mean that earnings per Micro Focus, HPE or HPE Software share for the current or future financial years would necessarily match or exceed the historical published earnings per Micro Focus, HPE or HPE Software share.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this announcement (including information incorporated by reference in this announcement), oral statements made regarding the proposed business combination between Micro Focus and HPE Software announced by Micro Focus on 7 September 2016 (the "Transaction"), and other information published by Micro Focus, HPE or HPE Software may contain certain statements about Micro Focus, HPE and HPE Software that constitute or are deemed to constitute "forward-looking statements" (including within the meaning of the U.S. Private Securities Litigation Reform Act of 1995). The forward-looking statements contained in this communication may include, but are not limited to, statements about the expected effects on Micro Focus, HPE and HPE Software of the Transaction, the anticipated timing and benefits of the Transaction, Micro Focus' and HPE Software's anticipated standalone or combined financial results and outlooks and all other statements in this document other than historical facts. Without limitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "intends", "will", "likely", "may", "anticipates", "estimates", "projects", "should", "would", "expect", "positioned", "strategy", "future" or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These statements are based on the current expectations of the management of Micro Focus, HPE or HPE Software (as the case may be) and are subject to uncertainty and changes in circumstances and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. As such, forward-looking statements should be construed in light of such factors. It should be noted that it is not possible to predict or identify all such factors. Consequently, while the list of factors presented or referred to here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Neither Micro Focus, HPE nor HPE Software, nor any of their respective associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur or that if any of the events occur, that the effect on the operations or financial condition of Micro Focus, HPE or HPE Software will be as expressed or implied in such forward-looking statements. Forward-looking statements contained in this communication based on past trends or activities should not be taken as a representation that such trends or activities will necessarily continue in the future. In addition, these statements are based on a number of assumptions that are subject to change. Such risks, uncertainties and assumptions include, but are not limited to: the satisfaction of the conditions to the Transaction and other risks related to the completion of the Transaction and actions related thereto; Micro Focus' and HPE's ability to complete the Transaction on anticipated terms and schedule, including the ability to obtain shareholder or regulatory approvals and the anticipated tax treatment of the Transaction; risks relating to any unforeseen liabilities of Micro Focus or HPE Software; future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, losses and future prospects of Micro Focus, HPE Software and the resulting combined company; business and management strategies and the expansion and growth of the operations of Micro Focus, HPE Software and the resulting combined company; the ability to successfully combine the business of Micro Focus and HPE Software and to realize expected operational improvement from the Transaction; the effects of government regulation on the businesses of Micro Focus, HPE Software or the combined company; the risk that disruptions from the Transaction will impact Micro Focus' or HPE Software's business; and Micro Focus', HPE Software's or HPE's plans, objectives, expectations and intentions generally. Additional factors can be found under "Risk Factors" in HPE's Annual Report on Form 10-K for the fiscal year ended October 31, 2016 and subsequent Quarterly Reports on Form 10-Q. For a discussion of important factors which could cause actual results to differ from forward looking statements relating to Micro Focus, refer to Micro Focus's Annual Report and Accounts 2016. Forward-looking statements included herein are made as of the date hereof, and none of Micro Focus, HPE Software or HPE undertakes any obligation to update publicly such statements to reflect subsequent events or circumstances.

Subject to any requirement under applicable law, none of Micro Focus, HPE or HPE Software undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future/subsequent events or otherwise. Investors should not place undue reliance on forward-looking statements, which speak only as of the date of this communication.

NO OFFER OR SOLICITATION

This announcement is for information purposes only and does not constitute a prospectus or offering memorandum or an offer in respect of any securities and is not intended to provide the basis for any decision in respect of Micro Focus, HPE, HPE Software or any other entity and should not be considered as a recommendation that any investor should subscribe for or purchase any such securities. Neither the issue of this announcement nor any part of its contents constitutes an offer to sell or invitation to purchase any securities of Micro Focus, HPE, HPE Software or any other entity and no information set out in this announcement or referred to in other written or oral information is intended to form the basis of any contract of sale, investment decision or any decision to purchase any securities in it.

This announcement does not constitute an offer of securities for sale in the United States or an offer to acquire or exchange securities in the United States of America. No offer to acquire securities or to exchange securities for other securities has been made, or will be made, and no offer of securities has been made, or will be made, directly or indirectly, in or into, or by use of the mails, any means or instrumentality of interstate or foreign commerce or any facilities of a national securities exchange of, the United States of America or any other country or jurisdiction in which such offer may not be made other than (i) in accordance with the requirements under the US Securities Exchange Act of 1934, as amended, a registration statement under the US Securities Act of 1933, as amended, or the securities laws of such other country or jurisdiction, as the case may be, or (ii) pursuant to an available exemption therefrom.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

This communication relates to, amongst other things, the Transaction. The Transaction will be submitted to Micro Focus' shareholders for their consideration and approval. In connection with the Transaction, Micro Focus will file relevant materials with the SEC, including a registration statement containing a prospectus relating to Micro Focus' American Depositary Shares to be issued in connection with the Transaction, and Seattle SpinCo, Inc., a wholly owned subsidiary of HPE will file a registration statement with the SEC. Micro Focus will mail the prospectus contained in the registration statement to HPE's stockholders. This communication is not a substitute for the registration statements or other document(s) that Micro Focus and/or HPE may file with the SEC in connection with the Transaction. INVESTORS ARE URGED TO READ THE REGISTRATION STATEMENTS AND OTHER DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PARTIES AND THE TRANSACTION. Shareholders will be able to obtain copies of these documents (when they are available) and other documents filed with the SEC with respect to Micro Focus free of charge from the SEC's website at www.sec.gov. These documents (when they are available) can also be obtained free of charge from Micro Focus upon written request to Micro Focus' investor relations or HPE's investor relations.

Appendix I

The historical financial statements prepared under US GAAP and SEC carve out accounting rules, but excluding the impact of tax are set out in Appendix II, and represent the perimeter of the HPE Software business as it existed at the time of the statements (As-Managed basis). HPE Software has not in the past constituted a separate legal group and has not previously prepared or reported on any combined or consolidated financial information. The selected unaudited financial information set out in this Appendix is derived from the information in Appendix II but adjusted for various changes in the business's perimeter (As-Acquired basis) which the Micro Focus Board believes more accurately reflects the performance of the business as it is being acquired and as such may not accurately reflect the ongoing cost and EBITDA base of the HPE Software business on a standalone basis.

HPE Software has made a number of notable divestments at various points during the last three financial years including Tipping Point, Live Vault and iManage.

Furthermore, both HPPA Teleform and the Marketing Optimisation Business Unit ("MOBU"), previously part of HPE Software, were transferred to HPE's former parent, Hewlett-Packard Company (now known as HP Inc.) in the fourth quarter of the financial year ended 31 October 2015 in connection with the spinoff of HPE from HP Inc. The below table sets out the adjustments that account for the above mentioned corporate actions.

Note these numbers have not been adjusted to include the pre-acquisition results of Shunra, Voltage or Trilead.

Reconciliation to As-Acquired Revenue

Reconciliation to As-Acquired Underlying Adjusted EBITDA excluding horizontal costs expected to not transfer as part of the Transaction

Note: Twelve months ended 30 April 2016 refers to the trailing twelve months for the period 1 May 2015 through 30 April 2016.

* The add back of separation and divestiture costs excludes $5 million of stock based compensation expense incurred in connection with the separation of HPE Software from HPE for the twelve months ended 31 October 2016. This $5 million is included in the $70 million stock based compensation expense in the calculation above.

** HPE Software has undertaken a number of divestments including that of Tipping Point, iManage, Live Vault, HPPA Teleform and MOBU. The HPE management team has provided their best estimate of the amount of Revenue and EBITDA generated by these divested businesses during the periods presented, adjusted for management's estimate of overhead and other costs that did not exit HPE Software on divestment of these businesses.

*** For the stated periods, As-Acquired Underlying Adjusted EBITDA has been further adjusted for overhead and corporate costs in relation to services provided to HPE Software that are shared with other business units of HPE and that are expected not to transfer to Micro Focus as part of the Transaction

Since the announcement made on 7 September 2016, there have been certain amendments to the US GAAP financial information for the financial years ended 31 October 2014 and 31 October 2015; further information on these adjustments is given in Appendix II.

HPE Software Adjusted Cash Flow from Operations and Cash Conversion rates

The following financial information sets out HPE Software's Cash Conversion rates for the last three financial years ended 31 October 2014, 31 October 2015 and 31 October 2016. Cash Conversion rate is defined as pre-tax cash generated from operations divided by Adjusted EBITDA post-exceptionals, on the As-Acquired basis

* The deduction of separation and divestiture costs excludes $5 million of stock based compensation expense incurred in connection with the separation of HPE Software from HPE for the twelve months ended 31 October 2016.

** Excludes the impact of taxes.

*** The estimated impact on cash generated from operations from Transfers and Divestitures is estimated to be 100% of the EBITDA related to those items.

It is possible that the financial information contained in any prospectus and/or circular published in relation to the Transaction may differ from the financial information included in the Appendices of this announcement. These adjustments include, but may not be limited to, the impact of conversion of the financial information to IFRS standards. See Appendix II for further details.

Appendix II

US GAAP pre-tax financial information for the financial years ended 31 October 2014, 31 October 2015 and 31 October 2016

The following financial information for HPE Software is prepared on a US GAAP basis, utilising SEC carve out accounting rules, representing the perimeter of the HPE Software business as it existed at the time of the statements (referred to herein as an 'As-Managed' basis) and excluding taxes.

Combined Statement of Earnings, Before Taxes

Results for the twelve months ended 31 October 2014 and 31 October 2015 have been extracted without adjustment from the audited US GAAP financial statements of HPE Software. Results for the twelve months ended 31 October 2016 have been extracted from the accounting records of HPE Software. The independent audit of the 2016 carve out financial statements of Seattle SpinCo, Inc. (HPE Software) for the Board of Directors and Stockholders of HPE is in process and is expected to be completed in the near term.

Combined Statements of Assets and Liabilities, Excluding Taxes

Balances as at 31 October 2014 and 31 October 2015 have been extracted from the schedules underlying the audited US GAAP financial statements of HPE Software, adjusted to exclude the impact of taxes. Balances as at 31 October 2016 have been extracted from the accounting records of HPE Software. The independent audit of the 2016 carve out financial statements of Seattle SpinCo, Inc. (HPE Software) for the Board of Directors and Stockholders of HPE is in process and is expected to be completed in the near term.

The above financial information has been prepared excluding the impact of taxes for all periods

Combined Summary Cash flow Information, Excluding Taxes

Amounts for the twelve months ended 31 October 2014 and 31 October 2015 have been extracted from the schedules underlying the audited US GAAP financial statements of HPE Software, adjusted to exclude the impact of taxes. Amounts for the twelve months ended 31 October 2016 have been extracted from the accounting records of HPE Software. The independent audit of the 2016 carve out financial statements of Seattle SpinCo, Inc. (HPE Software) for the Board of Directors and Stockholders of HPE is in process and is expected to be completed in the near term.

The above financial information has been prepared excluding the impact of taxes for all periods

Commentary on amendments to certain financial information for the financial years ended 31 October 2014 and 31 October 2015

The financial information for the financial years ended 31 October 2014 and 31 October 2015 contained herein reports certain differences when compared to the financial information for the same periods as contained in the Transaction announcement released on 7 September 2016.

These differences relate to adjustments and reclassifications which have been identified by HPE Software since 7 September 2016 in relation to the above mentioned periods.

Adjustments include the recognition of certain intercompany leases between a wholly owned subsidiary of HPE and one or more other wholly owned subsidiaries of HPE that will be part of HPE Software upon completion of the Transaction. Historically, these leases were treated as intercompany operating leases within HPE's financial statements, but are classified as capital leases in the carve out financial statements. Certain other amendments and reclassifications have arisen as a result of refinements to the carve out process for the above mentioned periods.

The most significant change relates to the Combined Summary Cash Flow Information, Before Taxes for the twelve months ended 31 October 2015. Differences relate to adjustments and reclassifications between cash flows from operating activities and cash flows from financing activities arising principally from changes in operating assets and liabilities. This resulted in a re-allocation of $106m from net cash provided by operating activities to net cash used in financing activities.

Summary of basis of preparation for US GAAP carve out accounting

The Combined Statements of Earnings, Before Taxes, Combined Statement of Assets and Liabilities, Excluding Taxes and Combined Summary Cash Flow Information, Excluding Taxes of HPE Software were derived from the Combined and Consolidated Financial Statements and accounting records of HPE as if HPE Software was operated on a standalone basis during the periods presented and were prepared in accordance with US GAAP.

Combined Statements of Earnings, Before Taxes

The Combined Statements of Earnings, Before Taxes of HPE Software reflect allocations of general corporate expenses from HPE including, but not limited to, executive management, finance, legal, information technology, employee benefits administration, treasury, risk management, procurement and other shared services.

These allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenue, expenses, headcount or other relevant measures. Management of HPE Software and HPE consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, HPE Software.

These allocations may not, however, reflect the expenses HPE Software would have incurred as a standalone company for the periods presented. Actual costs that may have been incurred if HPE Software had been a standalone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.

Combined Balance Sheets, Excluding Taxes

The Combined Balance Sheets, Excluding Taxes, of HPE Software include HPE assets and liabilities that are specifically identifiable or otherwise attributable to HPE Software, including subsidiaries and affiliates in which HPE has a controlling financial interest or is the primary beneficiary.

HPE's cash has not been assigned to HPE Software for any of the periods presented because those cash balances are not directly attributable to HPE Software. HPE Software reflects transfers of cash to and from HPE's cash management system as a component of parent company investment in the Combined Balance Sheets, Excluding Taxes.

HPE's long-term debt has not been attributed to HPE Software for any of the periods presented because HPE's borrowings are not the legal obligation of HPE Software.

HPE maintains various benefit and stock-based compensation plans. HPE Software's employees participate in those programs and a portion of the cost of those plans is included in HPE Software's Combined Statements of Earnings, Before Taxes, Combined Statement of Assets and Liabilities, Excluding Taxes and Combined Summary Cash Flow Information, Excluding Taxes. However, HPE Software's Combined Balance Sheets, Excluding Taxes do not include any net benefit plan obligations as no HPE benefit plan included only active, retired and other former HPE Software employees.

HPE Software's Combined Balance Sheets, Excluding Taxes also do not include any equity related to stock-based compensation plans.

Intercompany transactions and accounts

All intercompany transactions and accounts within the combined businesses of HPE Software have been eliminated.

Intercompany transactions between HPE Software and HPE other than leases with HPE's wholly-owned leasing subsidiary are considered to be effectively settled in the Combined Statements of Earnings, Before Taxes, Combined Statement of Assets and Liabilities, Excluding Taxes and Combined Summary Cash Flow Information, Excluding Taxes at the time the Transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the Combined Summary Cash Flow Information, Excluding Taxes within financing activities and in the Combined Balance Sheets, Excluding Taxes within parent company investment. 

Pre-tax basis

The Combined Statements of Earnings Before Taxes, Combined Statements of Assets and Liabilities, Excluding Taxes and Combined Summary Cash Flow Information, Excluding Taxes for the year ended 31 October 2016 are presented on a pre-tax basis as the tax provision is still in the process of being prepared.

The Combined Statements of Earnings Before Taxes, Combined Statements of Assets and Liabilities, Excluding Taxes and Combined Summary Cash Flow Information, Excluding Taxes for the years ended 31 October 2014 and 31 October 2015 are presented on a pre-tax basis for comparability.

Differences between Micro Focus and HPE Software accounting policies

Micro Focus prepares its consolidated financial statements in accordance with IFRS whereas HPE Software prepares its combined financial statements under US GAAP.

As HPE Software is a reportable segment of HPE, Combined Statements of Earnings Before Taxes, Combined Statements of Assets and Liabilities, Excluding Taxes and Combined Summary Cash Flow Information, Excluding Taxes have been prepared for HPE Software for HPE's financial years ended 31 October 2014, 31 October 2015 and 31 October 2016 (collectively the "Carve Out Accounts").

The Carve Out Accounts have been prepared under US GAAP and the process to convert the unaudited Carve Out Accounts to IFRS is in process. Material differences between Micro Focus' IFRS accounting policies and the US GAAP policies used to present the Carve Out Accounts have been identified on a pre-tax basis. Material differences identified include: (i) increase in the expense recognised for share based payments; (ii) recognition of a net defined benefit pension liability and associated charge; and (iii) the presentation of certain income statement and balance sheet financial statement items are realigned to conform to Micro Focus' presentation. As the conversion exercise from HPE Software's accounting policies to Micro Focus' accounting policies is not yet finalised, the quantification of these adjustments is not yet available.

Under the terms of the Transaction agreements governing Micro Focus' combination with HPE Software, HPE has agreed to provide cash within HPE Software or, with Micro Focus' consent, pre funding in respect of the defined benefit pension plan liabilities that will be assumed by HPE Software as part of its separation from HPE prior to completion of the Transaction. The amount is subject to calculation and agreement. It is to be received by HPE Software prior to completion of the Transaction, and therefore no adjustment for these agreement terms has been reflected in the HPE Software financial information for the financial years ended 31 October 2014, 31 October 2015 or 31 October 2016.