Goodwill and Purchased Intangible Assets

9 Months Ended

Jul. 31, 2013

Goodwill and Purchased Intangible Assets

Goodwill and Purchased Intangible Assets

Note 5: Goodwill and Purchased Intangible Assets

Goodwill

Goodwill allocated to HP's reportable segments as of July 31, 2013 and changes in the carrying amount of goodwill for the nine months ended July 31, 2013 are as follows:

	Personal Systems		Printing		Enterprise Group		Enterprise Services			Software			HP Financial Services		Corporate Investments		Total

	In millions
Net balance at October 31, 2012⁽¹⁾	$	2,498	$	2,487	$	17,041	$	—		$	8,899		$	144	$	—	$	31,069
Goodwill acquired during the period		—		—		—		112			—			—		—		112
Goodwill adjustments/reclassifications		—		—		30		(14	)		(81	)		—		—		(65	)

Net balance at July 31, 2013⁽¹⁾	$	2,498	$	2,487	$	17,071	$	98		$	8,818		$	144	$	—	$	31,116

⁽¹⁾: Goodwill at October 31, 2012 and July 31, 2013 is net of accumulated impairment losses of $14,518 million. Of that amount, $7,961 million relates to Enterprise Services ("ES"), $5,744 million relates to Software, and the remaining $813 million relates to Corporate Investments.

In the first quarter of fiscal 2013, HP implemented certain organizational realignments. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group ("EG") segment and the ES segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The EG segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The ES segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously part of TS. As a result of the reporting segment changes described above, the net goodwill balance at October 31, 2012 includes the reclassification of $9.3 billion of goodwill related to the realignment of the TS business unit from the former Services segment to the EG segment. See Note 16 for a full description of the segment realignments.

In the second quarter of fiscal 2013, MphasiS Limited, a majority-owned subsidiary of HP, acquired Digital Risk LLC for $174 million. HP recorded $112 million of goodwill related to this acquisition.

HP reviews goodwill for impairment annually at 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 significant declines in HP's stock price, indicate the carrying amount of goodwill may not be recoverable. Based on its last annual goodwill impairment test, 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. Based on that same test, the Autonomy and legacy HP software reporting units, both of which were included in the Software segment, had the lowest excess of fair value over carrying value at 10% and 9%, respectively.

Purchased Intangible Assets

HP's purchased intangible assets associated with completed acquisitions are composed of:

	July 31, 2013										October 31, 2012

	Gross		Accumulated Amortization			Accumulated Impairment Loss			Net		Gross		Accumulated Amortization			Accumulated Impairment Loss			Net
	In millions
Customer contracts, customer lists and distribution agreements	$	5,784	$	(3,010	)	$	(856	)	$	1,918	$	5,807	$	(2,625	)	$	(856	)	$	2,326
Developed and core technology and patents		6,467		(2,964	)		(2,138	)		1,365		6,580		(2,501	)		(2,138	)		1,941
"Compaq" trade name		1,422		(47	)		(1,227	)		148		1,422		(18	)		(1,227	)		177
Other product trademarks		311		(151	)		(109	)		51		310		(137	)		(109	)		64
In-process research and development ("IPR&D")		3		—			—			3		7		—			—			7

Total purchased intangible assets	$	13,987	$	(6,172	)	$	(4,330	)	$	3,485	$	14,126	$	(5,281	)	$	(4,330	)	$	4,515

For the first nine months of fiscal 2013, the majority of the decrease in gross intangibles was related to $137 million of fully amortized intangible assets which have been eliminated from both the gross and accumulated amortization amounts.

Estimated future amortization expense related to finite-lived purchased intangible assets at July 31, 2013 is as follows:

Fiscal year:	In millions

2013 (remaining three months)	$	315
2014		1,028
2015		838
2016		682
2017		256
2018		145
Thereafter		218

Total	$	3,482

- 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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