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Goodwill and Purchased Intangible Assets

12 Months Ended

Oct. 31, 2011

Goodwill and Purchased Intangible Assets

Goodwill and Purchased Intangible Assets

Note 7: Goodwill and Purchased Intangible Assets

Goodwill

Goodwill allocated to HP's business segments as of October 31, 2011 and 2010 and changes in the carrying amount of goodwill during the fiscal years ended October 31, 2011 and 2010 are as follows:

	Personal Systems Group			Services		Imaging and Printing Group			Enterprise Servers, Storage and Networking			HP Software			HP Financial Services		Corporate Investments			Total

	In millions
Balance at October 31, 2009	$	2,487		$	16,829	$	2,460		$	5,005		$	6,140		$	144	$	44		$	33,109
Goodwill acquired during the period		18			17		—			1,635			1,407			—		2,153			5,230
Goodwill adjustments		(5	)		121		(4	)		(30	)		(2	)		—		64			144

Balance at October 31, 2010	$	2,500		$	16,967	$	2,456		$	6,610		$	7,545		$	144	$	2,261		$	38,483
Goodwill acquired during the period		—			66		16			—			6,786			—		—			6,868
Goodwill adjustments/reclassifications		(2	)		247		(1	)		1,460			(268	)		—		(1,423	)		13
Impairment loss		—			—		—			—			—			—		(813	)		(813	)

Balance at October 31, 2011	$	2,498		$	17,280	$	2,471		$	8,070		$	14,063		$	144	$	25		$	44,551

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 HP's networking business from Corporate Investments to Enterprise Servers, Storage and Networking ("ESSN") and goodwill related to the communications and media solutions business from HP 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 on the information available at the time of the review, HP determined that there was no future value for the carrier relationships and the trade name but that the carrying value of the webOS technology approximates its fair value. HP estimated the fair value of the webOS technology based on several methods, including the market approach using recent comparable transactions and the discounted cash flow approach using estimated cash flows from potential licensing agreements. Based on that analysis, HP recognized an impairment loss of $72 million primarily related to the carrier relationships and the trade name. HP then performed a goodwill impairment test by comparing the carrying value of the relevant reporting unit to the fair value of that reporting unit. The fair value of the reporting unit was significantly below the carrying value due to HP's decision to wind down the sale of all webOS devices. As a result, HP recorded a goodwill impairment charge of $813 million. Both the goodwill impairment charge and the intangible asset impairment charge were included in the Impairment of Goodwill and Purchased Intangible Assets line item in the Consolidated Statement of Earnings. On December 9, 2011, HP announced that it had determined to contribute the webOS software to the open source community and support its development going forward. HP is currently evaluating the impact that this decision will have on the $273 million in related intangible assets and goodwill recorded on the Consolidated Balance Sheet.

During fiscal 2010, HP recorded approximately $5.2 billion of goodwill related to acquisitions based on its preliminary estimated fair value of the assets acquired and liabilities assumed. In addition, HP recorded goodwill adjustments primarily related to an increase to the deferred tax liability on outside basis differences of the foreign subsidiaries of Electronic Data Systems Corporation ("EDS") at acquisition. HP also recorded an increase to goodwill as a result of currency translation related to an acquired subsidiary whose functional currency is not the U.S. dollar. These increases to goodwill were partially offset by tax adjustments primarily related to tax deductible stock-based awards for certain acquisitions for which the acquisition date preceded the effective date of the new accounting standard for business combinations.

Purchased Intangible Assets

HP's purchased intangible assets associated with completed acquisitions for each of the following fiscal years ended October 31 are composed of:

	2011							2010

	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	In millions
Customer contracts, customer lists and distribution agreements	$	6,346	$	(2,376	)	$	3,970	$	7,075	$	(3,436	)	$	3,639
Developed and core technology and patents		7,226		(1,944	)		5,282		3,797		(1,418	)		2,379
Product trademarks		336		(121	)		215		199		(92	)		107

Total amortizable purchased intangible assets		13,908		(4,441	)		9,467		11,071		(4,946	)		6,125
IPR&D		9		—			9		301		—			301
Compaq trade name		1,422		—			1,422		1,422		—			1,422

Total purchased intangible assets	$	15,339		(4,441	)		10,898	$	12,794	$	(4,946	)	$	7,848

For fiscal 2011, HP recorded approximately $4.7 billion of purchased intangible assets and IPR&D related to acquisitions based on its preliminary estimated fair value of the assets acquired and liabilities assumed. For fiscal 2010, HP recorded approximately $2.7 billion of purchased intangible assets and IPR&D related to acquisitions based on its preliminary estimated fair value of the assets acquired and liabilities assumed. During fiscal 2011, HP reclassified approximately $290 million of IPR&D as developed technology.

At October 31, 2011 and at October 31, 2010, $4.7 billion and $2.5 billion, respectively, of intangible assets reached the end of their amortizable periods. The tables above reflect the elimination of the cost and accumulated amortization of such assets.

HP also performed its annual impairment test for all other reporting units and for the indefinite-lived Compaq trade name. As a result of the analysis, HP concluded that no impairment of goodwill existed as of August 1, 2011, apart from the impairment in the webOS device business discussed above. There was no impairment of goodwill and indefinite-lived intangible assets as of August 1, 2010. However, future impairment tests could result in a charge to earnings. The excess of fair value over carrying value for the indefinite-lived Compaq trade name is approximately $144 million as of August 1, 2011, the annual testing date. In order to evaluate the sensitivity of the fair value calculation, we applied a hypothetical 10% decrease to the fair value of the intangible, which resulted in an excess of fair value over carrying value of approximately $13 million. In addition, if a future change in HP's branding strategy resulted in the reclassification of the Compaq trade name from an indefinite-lived intangible to a definite-lived intangible, there would be a significant decrease in the fair value of the asset.

HP will continue to evaluate goodwill and indefinite-lived intangibles on an annual basis as of the beginning of its fourth fiscal quarter, or whenever events, changes in circumstances or changes in management's business strategy indicate that there may be a potential indicator of impairment.

The finite-lived purchased intangible assets consist of customer contracts, customer lists and distribution agreements, which have weighted-average useful lives of 8 years, and developed and core technology, patents and product trademarks, which have weighted-average useful lives of 7 years.

Estimated future amortization expense related to finite-lived purchased intangible assets at October 31, 2011 is as follows:

Fiscal year:	In millions

2012	$	1,885
2013		1,732
2014		1,410
2015		1,237
2016		1,073
Thereafter		2,130

Total	$	9,467

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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