HP 2008 Annual Report Download - page 114

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6: Acquisitions (Continued)
Of the total purchase price, a preliminary estimate of approximately $4.5 billion has been allocated
to amortizable intangible assets acquired and a preliminary estimate of approximately $1.9 billion has
been allocated to net tangible liabilities assumed in connection with the acquisition. Goodwill, which
represents the excess of the purchase price over the net tangible and intangible assets acquired, is not
deductible for tax purposes. The amortizable intangible assets are being amortized on a straight line
basis over their estimated useful lives as follows:
Weighted-
average
In millions useful life
Customer contracts and related relationships .......................... $3,199 8.0 years
Developed technology and trade name ............................... 1,349 4.6 years
Total amortizable intangible assets .................................. $4,548
Customer contracts and related relationship assets represent existing contracts that relate primarily
to underlying customer relationships. The preliminary estimated fair value of the customer contracts
and related relationships represents the sum of the present value of the expected cash flows
attributable to those customer relationships. The cash flows were determined from the revenue and
profit forecasts associated with existing contracts and renewals, as well as add-ons and growth
opportunities that are expected to be generated from these customer relationships.
The developed technology and trade name assets include patents, business processes and tools,
proprietary business methods and the EDS family brand. EDS’s technology can be leveraged to assist
and improve existing services.
IPR&D charges relate to amounts assigned to tangible and intangible assets to be used in research
and development projects that have no alternative future use and therefore are charged to expense at
the acquisition date. Accordingly, the portion of the purchase price allocated to in-process research and
development was charged to expense in HP’s fiscal quarter ended October 31, 2008.
HP has evaluated and continues to evaluate certain pre-acquisition contingencies relating to EDS
that existed as of the acquisition date. Additional information, which existed as of the acquisition date
but was at that time unknown to HP, may become known to HP during the remainder of the purchase
price allocation period, and may result in goodwill adjustments. If these pre-acquisition contingencies
become probable in nature and estimable after the end of the purchase price allocation period,
amounts would be recorded for such matters in HP’s results of operations.
Pro forma results for EDS acquisition
The following unaudited pro forma financial information presents the combined results of
operations of HP and EDS as if the acquisition had occurred as of the beginning of each of the periods
presented. The pro forma financial information is presented for informational purposes and is not
indicative of the results of operations that would have been achieved if the acquisition and related
borrowings had taken place at the beginning of each of the periods presented. The unaudited pro
forma financial information for the fiscal year ended October 31, 2008 combines the historical results
of HP for the year ended October 31, 2008, which includes post-acquisition results of EDS for the
period from August 26, 2008 to October 31, 2008, with the historical results for pre-acquisition EDS for
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