HP 2006 Annual Report Download - page 100

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6: Acquisitions (Continued)
Other Acquisitions in fiscal 2006
HP also completed seven other acquisitions during fiscal 2006. Total consideration for these
acquisitions and the buyout of a minority interest was approximately $473 million, which included direct
transaction costs. The largest of these transactions was the acquisition of substantially all of the assets
of Scitex Vision Ltd (‘‘Scitex’’). The Scitex asset acquisition is expected to expand HP’s leadership in
printing into the industrial wide-format market.
HP recorded approximately $193 million of goodwill and $205 million of purchased intangibles in
connection with these other acquisitions. HP also recorded approximately $18 million of IPR&D
related to these acquisitions in fiscal 2006.
In addition, HP paid approximately $17 million for the balance of the outstanding shares of Digital
Globalsoft Limited, a consolidated subsidiary of HP (‘‘DGS’’), and as a result increased HP’s ownership
from 98.5% to 100%. This subsidiary has enhanced HP’s capability in IT services, including expertise in
life cycle services such as migration, technical and application services.
HP has included the results of operations of these transactions prospectively from the respective
date of the transaction. HP has not presented the pro forma results of operations of the acquired
businesses because the results are not material to HP’s results of operations on either an individual or
an aggregate basis.
Mercury Acquisition
On November 2, 2006, HP completed its tender offer for Mercury Interactive Corporation
(‘‘Mercury’’), a leading IT management software and services company, and acquired approximately
96% of Mercury shares for cash consideration of $52 per common share. On November 6, 2006, HP
acquired the remaining outstanding shares, and Mercury became a wholly owned subsidiary of HP. The
aggregate purchase price was approximately $4.8 billion, consisting of cash paid for outstanding stock,
the value of vested employee stock options and estimated direct transaction costs. The acquisition will
combine Mercury’s application management, application delivery and IT governance capabilities with
HP’s broad portfolio of management solutions.
The acquisition will be recorded using the purchase method of accounting, and, accordingly, the
results of operations will be included in HP’s consolidated results as of the acquisition date. The
purchase price will be allocated to the tangible assets, liabilities and intangible assets acquired based on
their estimated fair values. These fair values will be determined based on independent third-party
valuations and management estimates which have not yet been completed. The excess purchase price
over those fair values will be recorded as goodwill. The goodwill will not be deductible for tax
purposes. The intangible assets consist primarily of developed and core technologies, customer
relationships, maintenance agreements and IPR&D. The IPR&D will be expensed in the first quarter
of fiscal year 2007. The remaining intangibles will be amortized over their estimated useful lives,
currently estimated to range from three to seven years. Pro forma results of operations have not been
presented as these results are not material to HP’s consolidated results of operations.
Management is currently assessing and formulating product roadmap decisions and integration
plans which may result in additional costs, including asset impairments and costs to terminate or
relocate employees. Exit costs related to Mercury activities and employees will be accrued by HP as a
liability in conjunction with recording the purchase of Mercury, which will result in an increase to
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