HP 2007 Annual Report Download - page 93

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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
HP has made certain organizational realignments in order to more closely align its financial reporting with its business
structure. These realignments are immaterial in size and reflect primarily revenue shifts among business units within the same
business segment. None of the changes impacts HP’ s previously reported consolidated net revenue, earnings from operations,
net earnings or net earnings per share.
HP has revised the presentation of its Consolidated Statements of Earnings and Consolidated Statements of Cash Flows
for the fiscal years ended October 31, 2006 and 2005 to provide improved visibility and comparability with the current year
presentation. This change does not affect previously reported results of operations for any period presented, or previously
reported subtotals within the Consolidated Statements of Cash Flows.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles 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 when HP
recognizes revenue on sales to channel partners, including resellers, distributors or value-added solution providers we do so
when the channel partners have economic substance apart from HP and we have completed our obligations related to the sale.
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 its relative fair value, or for software, based on vendor specific objective
evidence (“VSOE”) of fair value. In the absence of fair value for a delivered element, HP first allocates revenue to the fair
value of the undelivered elements and the residual revenue to the delivered elements. Where the fair value for an undelivered
element cannot be determined, HP defers revenue for the delivered elements until the undelivered elements are delivered or
the fair value is determinable for the remaining undelivered elements. HP limits the
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