Note 8: Acquisitions
2013 Acquisitions
During 2013, we completed 12 acquisitions qualifying as business combinations in exchange for aggregate net cash consideration of $925 million. Most of the consideration was allocated to goodwill and acquisition-related developed technology intangible assets. Included in these acquisitions is our acquisition of Stonesoft Oyj (Stonesoft) to expand our network security solutions, specifically addressing next generation firewall products. We acquired Stonesoft in the third quarter of 2013 for net cash consideration of $381 million, substantially all of which was allocated to goodwill and acquisition-related developed technology intangible assets. Stonesoft's operating results are included in our software and services operating segments. For information on the assignment of goodwill to our operating segments for our acquisitions, see “Note 10: Goodwill,” and for information on the classification of intangible assets, see “Note 11: Identified Intangible Assets.” The completed acquisitions in 2013, both individually and in the aggregate, were not significant to our consolidated results of operations.
2012 Acquisitions
During 2012, we completed 15 acquisitions qualifying as business combinations in exchange for aggregate net cash consideration of $638 million. Substantially all of the consideration was allocated to goodwill and acquisition-related developed technology intangible assets. The completed acquisitions in 2012, both individually and in the aggregate, were not significant to our consolidated results of operations.
2011 Acquisitions
McAfee, Inc.
On February 28, 2011, we completed the acquisition of McAfee by acquiring all issued and outstanding common shares in exchange for cash. The acquired company continues to operate as McAfee and offers products for endpoint security, network and content security, risk and compliance, and consumer and mobile security. In addition to managing the existing McAfee business, the objective of the acquisition was to accelerate and enhance Intel’s combination of hardware and software security solutions, thereby improving the overall security of our platforms.
Total consideration to acquire McAfee was $6.7 billion (net of $943 million of cash and cash equivalents acquired) and comprised the following:
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| | | |
(In Millions) | |
Cash | $ | 6,652 |
|
Share-based awards assumed | 48 |
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Total | $ | 6,700 |
|
The fair value of the assets acquired and liabilities assumed by major class in the acquisition of McAfee was recognized as follows:
|
| | | |
(In Millions) | |
Marketable debt securities | $ | 329 |
|
Goodwill | 4,299 |
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Identified intangible assets | 3,552 |
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Deferred tax assets | 738 |
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Other assets | 417 |
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Deferred income | (1,049 | ) |
Deferred tax liabilities | (1,191 | ) |
Other liabilities | (395 | ) |
Total | $ | 6,700 |
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The goodwill of $4.3 billion arising from the acquisition is primarily attributed to synergies to enable a single company to combine security and hardware for the protection of online devices, as well as the assembled workforce of McAfee. Substantially all of the goodwill recognized is not deductible for tax purposes. For information on the assignment of goodwill to our operating segments for the acquisition, see “Note 10: Goodwill.”
The identified intangible assets assumed in the acquisition of McAfee were recognized as follows based upon their fair value as of February 28, 2011:
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| | | | | | | | |
| | Fair Value (In Millions) | | Estimated Useful Life (In Years) |
Developed technology | | $ | 1,221 |
| | 4 |
Customer relationships | | 1,418 |
| | 2 | – | 7 |
Total identified intangible assets subject to amortization | | $ | 2,639 |
| | | | |
In-process research and development | | 92 |
| | | | |
Trade names | | 821 |
| | | | |
Total identified intangible assets | | $ | 3,552 |
| | | | |
Acquired developed technology represents the fair value of McAfee products that have reached technological feasibility and were part of McAfee’s product offerings at the date of acquisition. Customer relationships represent the fair value of the underlying relationships and agreements with McAfee’s customers. In-process R&D represents the fair value of incomplete McAfee R&D projects that had not reached technological feasibility as of the date of acquisition. Incremental costs incurred for those projects are expensed as incurred in R&D. Since the acquisition was completed, most of the projects have been completed and the associated costs are being amortized. Trade names are indefinite-lived intangible assets and represent the fair value of brand and name recognition associated with the marketing of McAfee’s products and services.
Other 2011 Acquisitions
During 2011, in addition to the McAfee acquisition, we completed 13 acquisitions qualifying as business combinations in exchange for total consideration of $2.1 billion, substantially all cash consideration. Total net cash consideration to acquire the Wireless Solutions (WLS) business of Infineon Technologies AG, which operated as Intel Mobile Communications (IMC), was $1.4 billion. The WLS business offers mobile phone components such as baseband processors, radio frequency transceivers, and power management integrated circuits. In addition to managing the existing WLS business, the objective of the acquisition was to provide solutions that enable wireless connectivity for a broad range of computing applications. In 2013, we completed a reorganization of IMC into our Multi-Comm and existing Phone Group operating segments, see "Note 27: Operating Segments and Geographic Information."
The fair value of the assets acquired and liabilities assumed by major class in the acquisitions completed during 2011, excluding McAfee, was allocated as follows:
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| | | |
(In Millions) | |
Fair value of net tangible assets acquired | $ | 206 |
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Goodwill | 517 |
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Identified intangible assets | 1,409 |
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Total | $ | 2,132 |
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For information on the assignment of goodwill to our operating segments for the acquisitions, see “Note 10: Goodwill.”
The identified intangible assets assumed in the acquisitions completed during 2011, excluding McAfee, were recognized as follows:
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| | | | | | | | |
| | Fair Value (In Millions) | | Estimated Useful Life (In Years) |
Developed technology | | $ | 1,102 |
| | 3 | – | 9 |
Customer relationships | | 144 |
| | 5 | – | 8 |
Other intangible assets | | 44 |
| | 2 | – | 7 |
Total identified intangible assets subject to amortization | | $ | 1,290 |
| | | | |
In-process research and development | | 119 |
| | | | |
Total identified intangible assets | | $ | 1,409 |
| | | | |
Acquired developed technology represents the fair value of the acquirees’ products that have reached technological feasibility and are a part of the acquirees’ product lines at the time acquired. Customer relationships represent the fair value of the underlying relationships and agreements with the acquirees’ customers. In-process R&D represents the fair value of incomplete R&D projects that had not reached technological feasibility as of the date of acquisition. Since the acquisitions were completed, most of the projects have been completed and the associated costs are being amortized.
Actual and Pro Forma Results of Acquirees
Net revenue and net income attributable to acquisitions completed during 2011 have been included in our consolidated statements of income from their respective acquisition dates. The acquisitions completed during 2011 were not individually significant to our consolidated results of operations; however, they were significant in the aggregate. During 2011, the results of the businesses acquired in 2011 contributed approximately $3.6 billion to our net revenue and reduced our net income by approximately $275 million; substantially all of these impacts were attributable to McAfee and the former IMC and include the impacts of the amortization of acquired identified intangible assets.
McAfee is a non-reportable operating segment and is aggregated with similar non-reportable operating segments within the software and services operating segments category for segment reporting purposes. IMC has been reorganized into our Multi-Comm and existing Phone Group operating segments which are non-reportable operating segments and are aggregated with similar non-reportable operating segments within the other Intel architecture (Other IA) operating segments category for segment reporting purposes. For further information, see “Note 27: Operating Segments and Geographic Information.”
The unaudited pro forma financial results for 2011 combine the historical results of Intel for 2011 along with the historical results of the businesses acquired during 2011. The results include the effects of pro forma adjustments as if businesses acquired in 2011 were acquired on December 27, 2009.
The unaudited pro forma financial results presented below do not include any anticipated synergies or other expected benefits of the acquisitions. This is presented for informational purposes only and is not indicative of future operations or results that would have been achieved had the acquisitions been completed as of December 27, 2009.
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| | | | |
(In Millions, Except Per Share Amounts—Unaudited) | | 2011 |
Net revenue | | $ | 54,738 |
|
Net income | | $ | 13,028 |
|
Diluted earnings per share | | $ | 2.41 |
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