HP 2012 Annual Report Download - page 95

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
monetary assets and liabilities and at historical exchange rates for nonmonetary assets and liabilities.
Net revenue, cost of sales and expenses are remeasured at average exchange rates in effect during each
new reporting period, and net revenue, cost of sales and expenses related to the previously reported
periods are remeasured at historical exchange rates. HP includes gains or losses from foreign currency
remeasurement in net earnings. Certain foreign subsidiaries designate the local currency as their
functional currency, and HP records the translation of their assets and liabilities into U.S. dollars at the
balance sheet dates as translation adjustments and includes them as a component of accumulated other
comprehensive loss.
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 equivalents consist primarily of highly liquid investments in time deposits held in
major banks, money market funds and mutual funds. As of October 31, 2012 and 2011, the carrying
value of cash and cash equivalents approximates fair value due to the short period of time to maturity.
Investments
HP’s investments consist principally of time deposits, institutional bonds, mutual funds, corporate
debt, other debt securities, and equity securities of publicly-traded and privately-held companies.
Debt and marketable equity securities are generally considered available-for-sale and are reported
at fair value with unrealized gains and losses, net of applicable taxes, recorded in accumulated other
comprehensive loss, a component of equity. The realized gains and losses for available-for-sale
securities are included in other income and expense in the Consolidated Statement of Earnings.
Realized gains and losses are calculated based on the specific identification method.
HP monitors its investment portfolio for impairment on a periodic basis. When the carrying value
of an investment in debt securities exceeds its fair value and the decline in value is determined to be an
other-than-temporary decline, and when HP does not intend to sell the debt securities and it is not
more likely than not that HP will be required to sell the debt securities prior to recovery of its
amortized cost basis, HP records an impairment charge to Interest and other, net in the amount of the
credit loss and the balance, if any, to other comprehensive income (loss). HP carries equity investments
in privately-held companies at cost or at fair value when HP recognizes an other-than-temporary
impairment charge.
Concentrations of Credit Risk
Financial instruments that potentially subject HP to significant concentrations of credit risk consist
principally of cash and cash equivalents, investments, accounts receivable from trade customers and
from contract manufacturers, financing receivables and derivatives.
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