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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
Foreign Currency Transactions
HP uses the U.S. dollar predominately as its functional currency. Assets and liabilities
denominated in non-U.S. dollars are remeasured into U.S. dollars at current exchange rates for
monetary assets and liabilities, and 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
period, except for those net revenue, cost of sales and expenses related to the previously noted balance
sheet amounts, which HP remeasures 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 income (loss).
Retirement and Post-Retirement Plans
HP has various defined benefit, other contributory and noncontributory retirement and
post-retirement plans. HP generally amortizes unrecognized actuarial gains and losses on a straight-line
basis over the remaining estimated service life of participants. The measurement date for all plans is
September 30 for fiscal 2006 and fiscal 2005. See Note 15 for a full description of these plans and the
accounting and funding policies, which is incorporated herein by reference.
Recent Pronouncements
In May 2005, FASB issued SFAS No. 154, ‘‘Accounting Changes and Error Corrections’’
(‘‘SFAS 154’’), which replaces APB Opinion No. 20 ‘‘Accounting Changes’’ and SFAS No. 3, ‘‘Reporting
Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.’’
SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of a correction of an error.
SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005 and is required to be adopted by HP in the first quarter of fiscal 2007. HP is
currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of
operations and financial condition but does not expect it to have a material impact.
In July 2006, the FASB issued FASB Interpretation No. 48, ‘‘Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109’’ (‘‘FIN 48’’). FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet
before being recognized in the financial statements. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and is required to be adopted by HP in the
first quarter of fiscal 2008. The cumulative effects, if any, of applying FIN 48 will be recorded as an
adjustment to retained earnings as of the beginning of the period of adoption. HP is currently
evaluating the effect that the adoption of FIN 48 will have on its consolidated results of operations and
financial condition and is not yet in a position to determine such effects.
In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’ (‘‘SFAS 157’’).
SFAS 157 provides guidance for using fair value to measure assets and liabilities. It also responds to
investors’ requests for expanded information about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value, and the effect of fair value
measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or
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