HP 2010 Annual Report Download - page 93

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
result from the use of the asset plus the net proceeds expected from disposition of the asset, if any, are
less than the carrying value of the asset. When HP identifies an impairment, HP reduces the carrying
amount of the asset to its estimated fair value based on a discounted cash flow approach or, when
available and appropriate, to comparable market values.
Fair Value of Financial Instruments
HP measures certain financial assets and liabilities at fair value based on the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants.
Financial instruments are primarily comprised of time deposits, money market funds, commercial
paper, corporate and other debt securities, equity securities and other investments in common stock
and common stock equivalents and derivatives. See Note 9 for a further discussion on fair value of
financial instruments.
Derivative Financial Instruments
HP uses derivative financial instruments, primarily forwards, swaps, and options, to hedge certain
foreign currency and interest rate exposures. HP also may use other derivative instruments not
designated as hedges such as forwards used to hedge foreign currency balance sheet exposures. HP
does not use derivative, financial instruments for speculative purposes. See Note 10 for a full
description of HP’s derivative financial instrument activities and related accounting policies.
Retirement and Post-Retirement Plans
HP has various defined benefit, other contributory and noncontributory retirement and
post-retirement plans. In addition, HP has assumed additional retirement and post-retirement plans in
connection with its acquisition of Electronic Data Systems Corporation (‘‘EDS’’) in August 2008. 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 HP plans is October 31 for fiscal
2010 and fiscal 2009. See Note 10 for a full description of these plans and the accounting and funding
policies.
Loss Contingencies
HP is involved in various lawsuits, claims, investigations and proceedings that arise in the ordinary
course of business. HP records a provision for a liability when it believes it is both probable that a
liability has been incurred and the amount can be reasonably estimated. Significant judgment is
required to determine both probability and the estimated amount. HP reviews these provisions at least
quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice
of legal counsel, and updated information. Litigation is inherently unpredictable and is subject to
significant uncertainties, some of which are beyond HP’s control.
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