v2.3.0.11
Business Combinations
 6 Months Ended
Jun. 30, 2011
Business Combinations  
Business Combinations

12. Business Combinations

Aprimo, Inc.

On January 21, 2011, Teradata completed its acquisition of 100 percent of the stock of Aprimo, pursuant to an Agreement and Plan of Merger, dated December 21, 2010. Aprimo is a global provider of integrated marketing software solutions. Aprimo is being integrated into Teradata's operations, and the Aprimo organization will support Teradata's applications strategy, including development, marketing, sales and services. The purpose of this acquisition is to advance Teradata's position in integrated marketing management, building on Aprimo's established and well-positioned business. Aprimo's operations are being integrated into, and its actual results are reflected in, the Company's three geographic operating regions.

The aggregate consideration payable with respect to all of the outstanding stock and equity interests (including all outstanding warrants, stock options and restricted stock units) of Aprimo in the acquisition was $525 million in cash, subject to potential adjustments for closing working capital and certain of Aprimo's indemnification obligations under the merger agreement. The purchase price was funded in part by using existing U.S. cash, and in part by drawing-down in full the Company's Credit Facility. Additionally, for the six months ended June 30, 2011, Teradata recognized approximately $3 million in acquisition-related expenses, which were recorded as General and Administrative expenses.

Pursuant to our business combinations accounting policy, the total preliminary purchase price for Aprimo was allocated to the net tangible and intangible assets based upon their preliminary fair values as of January 21, 2011 as set forth below. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill, which represents synergies of combining the businesses. The allocation of the purchase price was based upon a valuation and certain of our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). Areas of the purchase price allocation that are not yet finalized relate to the fair values of certain deferred taxes, tax contingencies and residual goodwill. It is expected that none of the goodwill will be deductible for tax purposes.

 

 Our purchase price allocation for Aprimo is as follows:

 

 

         
In millions       

Cash and cash equivalents

    $ 26   

Accounts receivables

      22   

Goodwill

      377   

Intangible assets

      123   

Other assets

      14   

Deferred revenue

      (25 ) 

Other liabilities

      (12 ) 
          

Total preliminary purchase price

    $ 525   
          

Valuations of Intangible Assets Acquired

The following table sets forth the components of intangible assets acquired in connection with the Aprimo acquisition:

 

             
Dollars in millions   

Fair Value

      Weighted Average
Useful Life

Customer relationships - subscription, hosting, maintenance and perpetual software

    $ 37       10 years

Customer relationships - professional services

      15       6 years

Developed technology

      61       7 years

Trademarks/trade names

      10       10years
               

Total intangible assets

    $ 123       8 years
               

Aster Data Systems

On April 5, 2011, Teradata completed its acquisition of all remaining equity of Aster Data Systems, Inc. ("Aster Data"), pursuant to an Agreement and Plan of Merger, dated March 2, 2011. Aster Data is a market leader in advanced analytics and the management of diverse, multi-structured data. The combination of Teradata and Aster Data technologies will enable businesses to perform better analytics on large sets of multi-structured data, also known as "big data."

The aggregate consideration with respect to all of the outstanding stock and equity interests (including all outstanding warrants and vested stock options) of Aster Data was $259 million. The aggregate consideration excluded the value of Teradata's pre-existing 11.2% equity investment in Aster Data. On April 5, 2011, the fair value of Teradata's previous 11.2% equity interest in Aster Data was $36 million. Teradata recorded a gain of $11 million related to this existing equity interest in Aster Data, and that gain was recorded in other income and (expense) in the Condensed Consolidated Statement of Income (Unaudited). Additionally, for the six months ended June 30, 2011, Teradata recognized approximately $4 million in acquisition-related expenses, which were recorded primarily as General and Administrative expenses.

Teradata financed the acquisition of Aster Data using a portion of the funds from a new $300 million five-year, unsecured term loan, which closed on April 5, 2011. Further information on the term loan is included in Note 9.

 

Preliminary Purchase Price Allocation

 

Pursuant to our business combinations accounting policy, the total preliminary purchase price for Aster Data was allocated to the net tangible and intangible assets based upon their preliminary fair values as of April 5, 2011 as set forth below. The excess of the preliminary purchase price over the preliminary net tangible and intangible assets was recorded as goodwill, which represents synergies of combining the businesses. The preliminary allocation of the purchase price was based upon a preliminary valuation and certain of our estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the purchase price allocation that are not yet finalized relate to the fair values of certain intangible assets,deferred taxes, tax contingencies and residual goodwill. It is expected that none of the goodwill will be deductible for tax purposes. We expect to continue to obtain information to assist us in determining the fair value related to certain of the net assets acquired at the acquisition date during the measurement period.

 

Our preliminary purchase price allocation for Aster Data is as follows:

 

         
In millions       

Cash and cash equivalents

    $ 14   

Goodwill

      199   

Intangible assets

      82   

Other assets

      3   

Deferred revenue

      (3 ) 
          

Total preliminary purchase price

    $ 295   
          

The difference between the total preliminary purchase price and the cash consideration paid represents the fair value of the Company's previous equity investment in Aster Data.

 

Preliminary Valuations of Intangible Assets Acquired

 

The following table sets forth the components of intangible assets acquired in connection with the Aster Data acquisition:

 

             
Dollars in millions    Preliminary
Fair Value		      Weighted Average
Useful Life

Customer relationships

    $ 3       4 years

Developed technology

      67       5 years

In-process research and development

      8       5 years

Trademarks/trade names

      3       5 years

Non-compete agreements

      1       2 years
               

Total intangible assets

    $ 82       5 years
               

Unaudited Supplemental Financial Information

The following table presents the unaudited amounts of Aprimo and Aster Data revenue and income included in Teradata's condensed consolidated results of operations for the six months ended June 30, 2011 (from their respective dates of acquisition), as well as pro forma results of Teradata (including Aprimo and Aster Data) for the six month periods ended June 30, 2011 and June 30, 2010, had both acquisitions been completed on January 1, 2010. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2010.

In addition to items already referenced above, the actual impact of results from Aprimo and Aster Data for the six months ended June 30, 2011 included:

 

  •  

a $14 million reduction in the recognition of deferred revenue and a $2 million reduction in the recognition of associated cost of revenue for which there was no further performance obligation, and

 

  •  

a $10 million increase in amortization of intangible assets as a result of purchase price allocations.

The unaudited pro forma results for the six months ended June 30, 2011 include:

 

  •  

$5 million in additional amortization charges for acquired intangible assets,

 

  •  

$12 million in additional revenue assuming that the majority of the required acquisition acounting-related revenue eliminations had taken place in the prior-year period, and

 

  •  

$9 million in eliminated transaction and integration expenses as if certain of those costs had been recognized in the prior-year period, and

           •  

  $1 million in interest expense for acquisition-related borrowings.

The unaudited pro forma results for the six months ended June 30, 2010 include:

 

  •  

$16 million in additional amortization charges for acquired intangible assets,

 

  •  

$14 million in elimination of deferred revenue recognition and $2 million in associated elimination of deferred cost of revenue for which there was no further performance obligation,

 

  •  

$16 million in transaction and integration expenses associated with the acquisition, and

 

  •  

$3 million in interest expense for acquisition-related borrowings.

Certain of these adjustments reflect preliminary estimates.

 

                 
In millions    Revenue      Net Income  

Actual impact of Aprimo and Aster Data results for six months ended June 30, 2011

    $ 28         ($7 ) 

Pro forma condensed combined results for six months ended June 30, 2011

    $ 1,107       $ 162   

Pro forma condensed combined results for six months ended June 30, 2010

    $ 935       $ 117   

Other Activity

On May 24, 2011, the Company completed the sale of an equity investment in Pliant Technology, Inc. The Company received proceeds of $30 million and recognized a net gain of $17 million on the transaction. The gain was recorded in other income and (expense) in the Condensed Consolidated Statement of Income (Unaudited).