HP 2015 Annual Report Download - page 57

Table of Contents
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In order to evaluate the sensitivity of the estimated fair value of our reporting units in the goodwill impairment test, we applied a hypothetical 10%
decrease to the fair value of each reporting unit. This hypothetical 10% decrease resulted in an excess of fair value over carrying amount for our reporting
units ranging from 7% to approximately 2,400% of the carrying amounts with the Software reporting unit having the lowest excess of fair value over carrying
amount of 7%. The fair value of the Software reporting unit is estimated using equal weighting of both the income and market approaches. Our Software
business is facing multiple challenges including the market shift to SaaS and go-to-market execution challenges. If we are not successful in addressing these
challenges, our projected revenue growth rates could decline resulting in a decrease in the fair value of the Software reporting unit. The fair value of the
Software reporting unit could also be negatively impacted by declines in market multiples of revenue for comparable publicly-traded companies, changes in
management's business strategy or significant and sustained declines in our stock price, which could result in an indicator of impairment.
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We review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Recoverability of our finite-lived intangible assets is assessed based on the estimated undiscounted future cash flows expected to result
from the use and eventual disposition of the asset. If the undiscounted future cash flows are less than the carrying amount, the finite-lived intangible assets
are considered to be impaired. The amount of the impairment loss, if any, is measured as the difference between the carrying amount of the asset and its fair
value. We estimate the fair value of finite-lived intangible assets by using an income approach or, when available and appropriate, using a market approach.
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We use derivative instruments to manage a variety of risks, including risks related to foreign currency exchange rates and interest rates. We use forwards,
swaps and at times, options to hedge certain foreign currency and interest rate exposures. We do not use derivative instruments for speculative purposes. As of
October 31, 2015, the gross notional of our derivative portfolio was $52.6 billion. Assets and liabilities related to derivative instruments are measured at fair
value, and were $1.1 billion and $0.5 billion, respectively as of October 31, 2015.
Fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the
measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market
observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction
that occurs at the measurement date. The determination of fair value often involves significant judgments about assumptions such as determining an
appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and differences in market transactions, weighting those
differences accordingly and then making the appropriate adjustments to those market transactions to reflect the risks specific to the asset or liability being
valued. We generally use industry standard valuation models to measure the fair value of our derivative positions. When prices in active markets are not
available for the identical asset or liability, we use industry standard valuation models to measure fair value. Where applicable, these models project future
cash flows and discount the future amounts to present value using market-based
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Source: HP INC, 10-K, December 16, 2015 Powered by Morningstar® Document Research℠
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