HP 2008 Annual Report Download - page 94

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
Advertising
HP expenses advertising costs as incurred or when the advertising is first run. Such costs totaled
approximately $1.0 billion in fiscal 2008, $1.1 billion in fiscal 2007 and $1.1 billion in fiscal 2006.
Taxes on Earnings
HP recognizes deferred tax assets and liabilities for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and their reported amounts using enacted tax
rates in effect for the year the differences are expected to reverse. HP records a valuation allowance to
reduce the deferred tax assets to the amount that is more likely than not to be realized.
Cash and Cash Equivalents
HP classifies investments as cash equivalents if the original maturity of an investment is three
months or less. Cash and cash equivalents consists primarily of highly liquid investments in time
deposits held in major banks and commercial paper. As of October 31, 2008 and 2007, the carrying
value of cash and cash equivalents approximates fair value due to the short period of time to maturity.
Interest income was approximately $401 million in fiscal 2008, $598 million in fiscal 2007 and
$623 million in fiscal 2006.
Allowance for Doubtful Accounts
HP establishes an allowance for doubtful accounts to ensure trade and financing receivables are
not overstated due to uncollectability. HP maintains bad debt reserves based on a variety of factors,
including the length of time receivables are past due, trends in overall weighted-average risk rating of
the total portfolio, macroeconomic conditions, significant one-time events, historical experience and the
use of third-party credit risk models that generate quantitative measures of default probabilities based
on market factors and the financial condition of customers. HP records a specific reserve for individual
accounts when HP becomes aware of a customer’s likely inability to meet its financial obligations, such
as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial
position. If circumstances related to customers change, HP would further adjust estimates of the
recoverability of receivables.
Inventory
HP values inventory at the lower of cost or market, with cost computed on a first-in, first-out basis.
Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for
estimated excess, obsolescence or impaired balances.
Property, Plant and Equipment
HP states property, plant and equipment at cost less accumulated depreciation. HP capitalizes
additions and improvements. HP expenses maintenance and repairs as incurred. HP provides
depreciation using straight-line or accelerated methods over the estimated useful lives of the assets.
Estimated useful lives are 5 to 40 years for buildings and improvements and 3 to 15 years for
machinery and equipment. HP depreciates leasehold improvements over the life of the lease or the
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