HP 2012 Annual Report Download - page 115

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 7: Goodwill and Purchased Intangible Assets (Continued)
the goodwill impairment charge and the purchased intangible assets impairment charge, totaling
$8.8 billion, were included in the Impairment of Goodwill and Purchased Intangible Assets line item in
the Consolidated Statements of Earnings.
Subsequent to the Autonomy purchase price allocation period, which concluded in the first quarter
of fiscal 2012, and in conjunction with HP’s annual goodwill impairment testing, HP identified certain
indicators of impairment. The indicators of impairment included lower than expected revenue and
profitability levels over a sustained period of time, the trading values of HP stock and downward
revisions to management’s short-term and long-term forecast for the Autonomy business. HP revised its
multi-year forecast for the Autonomy business, and the timing of this forecast revision coincided with
the timing of HP’s overall forecasting process for all reporting units, which is completed each year in
the fourth fiscal quarter in conjunction with the annual goodwill impairment analysis. The change in
assumptions used in the revised forecast and the fair value estimates utilized in the impairment testing
of the Autonomy goodwill and long-lived assets incorporated insights gained from having owned the
Autonomy business for the preceding year. The revised forecast reflected changes related to organic
revenue growth rates, current market trends, business mix, cost structure, expected deal synergies and
other expectations about the anticipated short-term and long-term operating results of the Autonomy
business, driven by HP’s analysis regarding certain accounting improprieties, incomplete disclosures and
misrepresentations at Autonomy that occurred prior to the Autonomy acquisition with respect to
Autonomy’s pre-acquisition business and related operating results. Accordingly, the change in fair
values represented a change in accounting estimate that occurred outside the purchase price allocation
period, resulting in the recorded impairment charge.
Based on the results of the annual impairment test for all other reporting units, HP concluded that
no other goodwill impairment existed as of August 1, 2012, apart from the impairment charges
discussed above. The excess of fair value over carrying value for each of HP’s reporting units as of
August 1, 2012, the annual testing date, ranged from approximately 9% to approximately 330% of
carrying value. The Autonomy and legacy HP software reporting units have the lowest excess of fair
value over carrying value at 10% and 9%, respectively. HP will continue to evaluate goodwill, on an
annual basis as of the beginning of its fourth fiscal quarter, and whenever events or changes in
circumstances, such as significant adverse changes in business climate or operating results, changes in
management’s business strategy or further significant declines in HP’s stock price, indicate that there
may be a potential indicator of impairment.
During fiscal 2011, HP recorded approximately $6.9 billion of goodwill related to acquisitions
based on its preliminary estimated fair values of the assets acquired and liabilities assumed. In
connection with organizational realignments implemented in the first quarter of fiscal 2011, HP also
reclassified goodwill related to the Networking business from Corporate Investments to ESSN and
goodwill related to the communications and media solutions business from Software to Services. In the
fourth quarter of fiscal 2011, HP determined that it would wind down the manufacture and sale of
webOS devices resulting from the Palm acquisition, including webOS smartphones and the HP
TouchPad. HP also announced that it would continue to explore alternatives to optimize the value of
the webOS technology, including, among others, licensing the webOS software or the related
intellectual property or selling all or a portion of the webOS assets. The decision triggered an
impairment review of the related goodwill and purchased intangible assets recorded in connection with
the Palm acquisition. HP first performed an impairment review of the purchased intangible assets,
which represents the value for the webOS technology, carrier relationships and the trade name. Based
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