HP 2012 Annual Report Download - page 54

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
impairment charge within the Services segment as discussed in Note 7 to the Consolidated Financial
Statements in Item 8, which is incorporated herein by reference.
Our annual goodwill impairment analysis, which we performed during the fourth quarter of fiscal
2012, resulted in an impairment charge for goodwill and intangible assets related to the Autonomy
reporting unit within the Software segment as discussed in Note 7 to the Consolidated Financial
Statements in Item 8, which is incorporated herein by reference. Other than the impairment charges
discussed for the ES and Autonomy reporting units during fiscal 2012, there was no impairment for
HP’s remaining reporting units. The excess of fair value over carrying value for each of our reporting
units as of August 1, 2012, the annual testing date, ranged from approximately 9% to approximately
330% of carrying value. The Autonomy and the legacy HP software reporting units have the lowest
excess of fair value over carrying value at 10% and 9%, respectively.
In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test,
we applied a hypothetical 10% decrease to the fair values of each reporting unit. This hypothetical 10%
decrease resulted in the Autonomy and the legacy HP software reporting units having fair values below
their carrying values of 1% and 2%, respectively. For the remaining reporting units, excess fair values
over carrying values range from approximately 25% to approximately 290% of the carrying values.
We will continue to evaluate goodwill on an annual basis as of the beginning of our 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 our stock price, indicate that there may be a potential indicator of impairment.
During the third quarter of fiscal 2012, we approved a change to our branding strategy for
personal computers which triggered an interim impairment review of the ‘‘Compaq’’ trade name
indefinite-lived intangible asset. As a result, we recorded an impairment charge within the Personal
Systems Group as discussed in Note 7 to the Consolidated Financial Statements in Item 8, which is
incorporated herein by reference. In conjunction with the change in branding strategy, we also revised
our assumption as to the useful life of the ‘‘Compaq’’ trade name, which resulted in a reclassification of
the asset from an indefinite-lived intangible to a finite-lived intangible with a remaining useful life of
approximately five years.
Restructuring
We have engaged, and may continue to engage, in restructuring actions, which require
management to utilize significant estimates related to the timing and the expenses for severance and
other employee separation costs, including enhanced early retirement programs, realizable values of
assets made redundant or obsolete, lease cancellation and other exit costs. We accrue for severance and
other employee separation costs under these actions when it is probable that benefits will be paid and
the amount is reasonably estimable. The rates used in determining severance accruals are based upon
existing plans, historical experiences, and negotiated settlements. If the actual amounts differ from our
estimates, the amount of the restructuring charges could be materially impacted. For a full description
of our restructuring actions, refer to our discussions of restructuring in the Results of Operations
section and Note 8 to the Consolidated Financial Statements in Item 8, which are incorporated herein
by reference.
Stock-Based Compensation Expense
We recognize stock-based compensation expense for all share-based payment awards, net of an
estimated forfeiture rate. We recognize compensation cost for only those shares expected to meet the
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