HP 2007 Annual Report Download - page 51

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
partially offset by $9.6 billion in cash provided from operations, $3.1 billion in proceeds from the issuance of our common
stock under employee stock plans and a $2.6 billion net increase in our debt and commercial paper.
We intend the discussion of our financial condition and results of operations that follows to provide information that will
assist in understanding our Consolidated Financial Statements, the changes in certain key items in those financial statements
from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles,
policies and estimates affect our Consolidated Financial Statements.
The discussion of results of operations at the consolidated level is followed by a more detailed discussion of results of
operations by segment.
For a further discussion of factors that could impact operating results, see the section entitled “Risk Factors” in Item 1A,
which is incorporated herein by reference.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
The Consolidated Financial Statements of HP are prepared in accordance with U.S. generally accepted accounting
principles, which require management to make estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Management bases its
estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates
with the Audit Committee of HP’ s Board of Directors. Management believes that the accounting estimates employed and the
resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or
conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions
about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been
used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements.
Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the
preparation of the Consolidated Financial Statements.
Revenue Recognition
We enter into contracts to sell our products and services, and, while the majority of our sales agreements contain
standard terms and conditions, there are agreements that contain multiple elements or non-standard terms and conditions. As
a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including whether
the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue
recognition purposes, and, if so, how the price should be allocated among the elements and when to recognize revenue for
each element. We recognize revenue for delivered elements only when the delivered elements have standalone value, fair
values of undelivered elements are known, uncertainties regarding customer acceptance are resolved and there are no
customer-negotiated refund or return rights affecting the revenue recognized for delivered elements. Changes in the
allocation of the sales price
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