HP 2006 Annual Report Download - page 52

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Amortization of Purchased Intangible Assets
The decrease in amortization expense in fiscal 2006 as compared to fiscal 2005 was due primarily
to a decrease in amortization expense related to certain intangible assets associated with prior
acquisitions including Compaq Computer Corporation (‘‘Compaq’’) acquisition that had reached the
end of their amortization period, partially offset by an increase in amortization expense related
primarily to the Scitex Vision Ltd. (‘‘Scitex’’), Peregrine Systems, Inc. (‘‘Peregrine’’), and OuterBay
Technologies, Inc. (‘‘OuterBay’’) acquisitions in fiscal year 2006.
The increase in amortization expense in fiscal 2005 as compared to fiscal 2004 was due primarily
to the amortization of intangible assets related to the acquisitions of Triaton in April 2004, Synstar PLC
(‘‘Synstar’’) in October 2004 and SAC, LLC (‘‘Snapfish’’) in April 2005, as well as accelerated
amortization related to the early termination of certain acquired customer contracts.
For more information on our amortization of purchased intangibles assets, see Note 7 to the
Consolidated Financial Statements in Item 8, which is incorporated herein by reference.
Acquisition-Related Charges
Acquisition-related charges in fiscal 2004 consisted of costs related to Compaq acquisition, which
included primarily the amortization of deferred compensation, merger-related inventory adjustments
and professional fees.
In-Process Research and Development Charges
We record in-process research & development (‘‘IPR&D’’) charges in connection with acquisitions
accounted for as business combinations, as more fully described in Note 6 to the Consolidated
Financial Statements in Item 8. In fiscal 2006, 2005 and 2004 we recorded IPR&D charges of
$52 million, $2 million and $37 million, respectively, related to acquisitions during those years.
Interest and Other, Net
Interest and other, net increased by $417 million in fiscal 2006 from fiscal 2005. The increase in
fiscal 2006 resulted primarily from higher net interest income over the prior year related to higher
short-term interest rates in fiscal 2006, net gains from sales of certain real estate properties, and lower
interest expenses due to our lower average debt balances. The increase in fiscal 2006 also was
attributable to a charge recorded in fiscal 2005 for estimated sales and use taxes and related interest
associated with pre-acquisition Compaq sales and use tax audits as described below.
Interest and other, net increased by $154 million in fiscal 2005 from fiscal 2004. The increase in
fiscal 2005 was the result primarily of higher short-term U.S. interest rates, which increased the interest
income from our cash balances and reduced the cost associated with foreign exchange hedges.
Increased interest expense and a charge related to a sales and use tax audit of Compaq prior to its
acquisition by HP for the fiscal years 1998-2002 partially offset the increase in interest and other, net
for fiscal 2005.
Gains (Losses) on Investments
Net gains in fiscal 2006 resulted primarily from gains on the sale of investments, which were offset
in part by impairment charges on our investment portfolio. Net losses in fiscal 2005 resulted primarily
from impairment charges on equity investments in our publicly-traded and privately-held investment
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