HP 2013 Annual Report Download - page 97

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
Advertising
HP expenses advertising costs as incurred or when the advertising is first run. Such costs totaled
approximately $878 million in fiscal 2013, $1.0 billion in fiscal 2012 and $1.2 billion in fiscal 2011.
Software Development Costs
HP capitalizes costs incurred to acquire or develop software for resale subsequent to the software
product establishing technological feasibility, if significant. HP amortizes capitalized software
development costs using the greater of the straight-line amortization method or the ratio that current
gross revenues for a product bear to the total current and anticipated future gross revenues for that
product. The estimated useful lives for capitalized software for resale are generally three years or less.
Software development costs incurred subsequent to a product establishing technological feasibility are
usually not significant. In those instances, HP expenses such costs as incurred.
Stock-Based Compensation
HP determines stock-based compensation expense for all share-based payment awards based on
the measurement date fair value. HP recognizes compensation cost only for those awards expected to
meet the service and performance vesting conditions on a straight-line basis over the requisite service
period of the award. HP determines compensation costs at the aggregate grant level for service-based
awards and at the individual vesting tranche level for awards with performance and/or market
conditions. HP estimates the forfeiture rate based on its historical experience.
Restructuring
HP records restructuring charges associated with management-approved restructuring plans to
reorganize one or more of HP’s business segments, to remove duplicative headcount and infrastructure
associated with business acquisitions or to simplify business processes and accelerate innovation.
Restructuring charges can include severance costs to eliminate a specified number of employees,
infrastructure charges to vacate facilities and consolidate operations, and contract cancellation costs.
HP records restructuring charges based on estimated employee terminations and site closure and
consolidation plans. HP accrues for severance and other employee separation costs under these actions
when it is probable that benefits will be paid and the amount is reasonably estimable. The rates used in
determing severance accruals are based on existing plans, historical experiences, and negotiated
settlements.
Foreign Currency Translation
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 at historical exchange rates for nonmonetary assets and liabilities.
Net revenue, costs and expenses are remeasured at monthly average exchange rates prevailing during
the period. HP includes gains or losses from foreign currency remeasurement in Interest and other, net
in the Consolidated Statement of Earnings. Certain non-U.S. 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 loss in the Consolidated Balance Sheets.
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