HP to Book $8 Billion Impairment Charge

In a news release, HP said it expects to record a non-cash pre-tax charge for the impairment of goodwill within its Services segment of approximately $8 billion in the third quarter of its fiscal 2012.

HP said the impairment review stems from the recent trading values of HP’s stock, coupled with market conditions and business trends within the Services segment. Under accounting rules, when indicators of potential impairment are identified, companies are required to conduct a review of the carrying amounts of goodwill and other long-lived assets to determine if an impairment exists.

In a related story, the Wall Street Journal said the HP announcement
underscores the Services division’s struggles and how much the company overpaid for Electronic Data Systems in 2008. The Journal said the charge is one of the largest by a U.S. technology company, and an acknowledgment that HP’s $13.9 billion acquisition of Electronic Data Systems four years ago didn’t work out as intended. HP will now post its largest quarterly net loss — near $9 billion — when it reports results later this month.

HP also updated the amount of the pre-tax charge it expects to record in the third quarter of fiscal 2012 in relation to its restructuring program announced on May 23, 2012. The change is primarily driven by a higher than anticipated acceptance rate under its early retirement program and faster than expected implementation of the workforce reduction program. Accordingly, HP now expects to record a pre-tax charge of approximately $1.5 billion to $1.7 billion, an increase from its previous estimate of approximately $1 billion, in its third quarter of fiscal 2012 that will be included in its GAAP financial results.

To read the HP news release click here.

To read the full Wall Street Journal story click here