HP 2012 Annual Report Download - page 91

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
In connection with organizational realignments implemented in the first quarter of fiscal 2012,
certain costs previously reported as cost of sales have been reclassified as selling, general and
administrative expenses to better align those costs with the functional areas that benefit from those
expenditures. HP has made certain segment and business unit 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 revenue recognition policies 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
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