HP 2010 Annual Report Download - page 85

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Hewlett-Packard Company, its
wholly-owned subsidiaries and its controlled majority-owned subsidiaries (collectively, ‘‘HP’’). HP
accounts for equity investments in companies over which HP has the ability to exercise significant
influence, but does not hold a controlling interest, under the equity method, and HP records its
proportionate share of income or losses in interest and other, net in the Consolidated Statements of
Earnings. HP has eliminated all significant intercompany accounts and transactions.
Reclassifications and Segment Reorganization
HP has made certain organizational realignments in order to optimize its operating structure.
Reclassifications of prior year financial information have been made to conform to the current year
presentation. None of the changes impacts HP’s previously reported consolidated net revenue, earnings
from operations, net earnings or net earnings per share. See Note 19 for a further discussion of HP’s
segment reorganization.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles (‘‘GAAP’’) requires management to make estimates and assumptions that affect the amounts
reported in HP’s Consolidated Financial Statements and accompanying notes. Actual results could
differ materially from those estimates.
Revenue Recognition
Net revenue is derived primarily from the sale of products and services. The following revenue
recognition policies define the manner in which HP accounts for sales transactions.
HP recognizes revenue when persuasive evidence of a sales arrangement exists, delivery has
occurred or services are rendered, the sales price or fee is fixed or determinable and collectibility is
reasonably assured. Additionally, HP recognizes hardware revenue on sales to channel partners,
including resellers, distributors or value-added solution providers at the time of sale when the channel
partners have economic substance apart from HP and HP has completed its obligations related to the
sale.
HP’s current revenue recognition policies, which were applied in fiscal 2010 and fiscal 2009,
provide that, when a sales arrangement contains multiple elements, such as hardware and software
products, licenses and/or services, HP allocates revenue to each element based on a selling price
hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence
(‘‘VSOE’’) if available, third party evidence (‘‘TPE’’) if VSOE is not available, or estimated selling
price (‘‘ESP’’) if neither VSOE nor TPE is available. In multiple element arrangements where
more-than-incidental software deliverables are included, revenue is allocated to each separate unit of
accounting for each of the non-software deliverables and to the software deliverables as a group using
the relative selling prices of each of the deliverables in the arrangement based on the aforementioned
selling price hierarchy. If the arrangement contains more than one software deliverable, the
arrangement consideration allocated to the software deliverables as a group is then allocated to each
software deliverable using the guidance for recognizing software revenue, as amended.
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