HP 2010 Annual Report Download - page 89

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation
Stock-based compensation expense for all share-based payment awards granted is determined
based on the grant-date fair value. HP recognizes these compensation costs net of an estimated
forfeiture rate, and recognizes compensation cost only for those shares expected to vest on a
straight-line basis over the requisite service period of the award, which is generally the vesting term of
the share-based payment awards. HP estimated the forfeiture rate based on its historical experience for
fiscal grant years where the majority of the vesting terms have been satisfied.
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 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 income (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 ninety
days or less. Cash and cash equivalents consist primarily of highly liquid investments in time deposits
held in major banks and commercial paper. As of October 31, 2010 and 2009, 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, money market funds, commercial paper,
corporate debt, other debt securities, and equity securities of publicly-traded and privately-held
companies.
HP classifies its investments in debt securities and its equity investments in public companies as
available-for-sale securities and carries them at fair value. HP determines fair values for investments in
public companies using quoted market prices and records a charge to Interest and other, net when the
change in fair values is determined to be an other-than-temporary change. HP carries equity
investments in privately-held companies at cost or at fair value when HP recognizes an
other-than-temporary impairment charge.
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