Acquisitions Goodwill and Intangible Assets

6 Months Ended

Apr. 30, 2015

Acquisitions, Goodwill and Intangible Assets.

Acquisitions, Goodwill and Intangible Assets

Note 9: Acquisitions, Goodwill and Intangible Assets

Acquisitions

During the first six months of fiscal 2015, HP completed two acquisitions with a combined purchase price of $162 million, of which $98 million was recorded as goodwill and $50 million was recorded as intangible assets related to these acquisitions.

Other

In April 2015, HP reached an agreement to sell its web-based photo sharing and photo printing service, Snapfish, to digital imaging fulfillment services firm District Photo. Snapfish was previously reported within HP's Consumer Hardware business unit within the Printing segment. The transaction is expected to close in the second half of HP's fiscal 2015, subject to customary closing conditions.

Subsequent Events

In May 2015, HP completed its acquisition of Aruba Networks, Inc. ("Aruba"), a leading provider of next-generation network access solutions for the mobile enterprise, for $24.67 per share in cash. The equity value of the transaction is approximately $3.0 billion, and net of cash and debt is approximately $2.7 billion. Aruba's results of operations will be included in HP's Networking business unit within the EG segment, prospectively from the date of acquisition.

In May 2015, HP announced and completed the acquisition of ConteXtream, a provider of OpenDaylight-based, carrier-grade software-defined networking fabric for network functions virtualization. ConteXtream's results of operations will be included in HP's Industry Standard Servers ("ISS") business unit within the EG segment, prospectively from the date of acquisition.

In May 2015, HP and Tsinghua Holdings jointly announced a partnership that will bring together the Chinese enterprise technology assets of Hewlett-Packard and Tsinghua University to create a Chinese provider of technology infrastructure. Under the definitive agreement, Tsinghua Holdings subsidiary, Unisplendour Corporation, will purchase 51% of a new business called H3C, comprising HP's current H3C Technologies and China-based server, storage and technology services businesses, for approximately $2.3 billion. HP China will maintain 100% ownership of its existing China-based Enterprise Services, Software, HP Helion Cloud, Aruba Networks, Printing and Personal Systems businesses. Once the transaction closes, the new H3C will be the exclusive provider for HP's server, storage and networking portfolio, as well as HP's exclusive hardware support services provider in China, customized for that market. The transaction is expected to close near the end of 2015, subject to Unisplendour shareholder vote, regulatory approvals and other closing conditions.

Goodwill

Goodwill allocated to HP's reportable segments and changes in the carrying amount of goodwill were as follows:

	Six months ended April 30, 2015
	Personal Systems		Printing		Enterprise Group			Enterprise Services(2)			Software		HP Financial Services		Corporate Investments		Total
	In millions
Balance at beginning of period(1)	$	2,588	$	2,591	$	16,867		$	97		$	8,852	$	144	$	—	$	31,139
Goodwill acquired during period		—		—		—			—			98		—		—		98
Goodwill adjustments		—		—		(16	)		(3	)		—		—		—		(19	)

Balance at end of period(1)	$	2,588	$	2,591	$	16,851		$	94		$	8,950	$	144	$	—	$	31,218

(1)	Goodwill at April 30, 2015 and October 31, 2014 is net of accumulated impairment losses of $14.5 billion. Of that amount, $8.0 billion relates to the ES segment, $5.7 billion relates to Software, and the remaining $0.8 billion relates to Corporate Investments.
(2)	Goodwill relates to the MphasiS Limited reporting unit.

Goodwill is tested for impairment at the reporting unit level. As of April 30, 2015 our reporting units are consistent with the reportable segments identified in Note 2, except for ES, which includes two reporting units: MphasiS Limited; and the remainder of ES.

HP will continue to evaluate the recoverability of goodwill on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.

Intangible Assets

HP's intangible assets are composed of:

	As of April 30, 2015										As of October 31, 2014
	Gross		Accumulated Amortization			Accumulated Impairment Loss			Net		Gross		Accumulated Amortization			Accumulated Impairment Loss			Net
	In millions
Customer contracts, customer lists and distribution agreements	$	5,269	$	(3,459	)	$	(856	)	$	954	$	5,289	$	(3,228	)	$	(856	)	$	1,205
Developed and core technology and patents		4,264		(1,409	)		(2,138	)		717		4,266		(1,301	)		(2,138	)		827
Trade name and trade marks		1,690		(296	)		(1,336	)		58		1,693		(261	)		(1,336	)		96

Total intangible assets	$	11,223	$	(5,164	)	$	(4,330	)	$	1,729	$	11,248	$	(4,790	)	$	(4,330	)	$	2,128

During the first six months of fiscal 2015, $65 million of intangible assets became fully amortized and have been eliminated from gross intangible assets and accumulated amortization.

As of April 30, 2015, the estimated future amortization expense related to finite-lived intangible assets was as follows:

Fiscal year:	In millions
2015 (remaining 6 months)	$	435
2016		663
2017		254
2018		154
2019		115
2020		102
Thereafter		6

Total	$	1,729

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).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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