HP 2011 Annual Report Download - page 94

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
part of the fair value of purchase consideration, and restructuring costs were included as a part of the
assumed obligation in deriving the fair value of purchase consideration allocation.
Goodwill and Purchased Intangible Assets
Goodwill and purchased intangible assets with indefinite useful lives are not amortized but are
tested for impairment at least annually. HP reviews goodwill and purchased intangible assets with
indefinite lives for impairment annually at the beginning of its fourth fiscal quarter and whenever
events or changes in circumstances indicate the carrying value of an asset may not be recoverable. For
goodwill, HP performs a two-step impairment test. In the first step, HP compares the fair value of each
reporting unit to its carrying value. In general, HP’s reporting units are consistent with the reportable
segments identified in Note 19. However, for the webOS business within the Corporate Investments
segment, the reporting unit is one step below the reporting segment level. HP determines the fair
values of its reporting units based on a weighting of income and market approaches. Under the income
approach, HP calculates the fair value of a reporting unit based on the present value of estimated
future cash flows. Under the market approach, HP estimates the fair value based on market multiples
of revenue or earnings for comparable companies. If the fair value of the reporting unit exceeds the
carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is
performed. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value
of the reporting unit, then HP must perform the second step of the impairment test in order to
determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting
unit’s goodwill exceeds its implied fair value, HP records an impairment loss equal to the difference.
HP estimates the fair value of indefinite-lived purchased intangible assets using an income
approach. HP recognizes an impairment loss when the estimated fair value of the indefinite-lived
purchased intangible assets is less than the carrying value.
HP amortizes purchased intangible assets with finite lives using the straight-line method over the
estimated economic lives of the assets, ranging from one to ten years.
Long-Lived Asset Impairment
HP evaluates property, plant and equipment and purchased intangible assets with finite lives for
impairment whenever events or changes in circumstances indicate the carrying value of an asset may
not be recoverable. HP assesses the recoverability of the assets based on the undiscounted future cash
flow and recognizes an impairment loss when the estimated undiscounted future cash flow expected to
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
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