HP 2014 Annual Report Download - page 102

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
gains and losses using the corridor approach. See Note 4 for a full description of these plans and the
accounting and funding policies.
Advertising
Costs to produce advertising are expensed as incurred during production. Costs to communicate
advertising are expensed when the advertising is first run. Such costs totaled approximately $784 million
in fiscal 2014, $878 million in fiscal 2013 and $1.0 billion in fiscal 2012.
Restructuring
HP records 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.
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.
HP records accruals for uncertain tax positions when HP believes that it is not more likely than
not that the tax position will be sustained on examination by the taxing authorities based on the
technical merits of the position. HP makes adjustments to these accruals when facts and circumstances
change, such as the closing of a tax audit or the refinement of an estimate. The provision for income
taxes includes the effects of adjustments for uncertain tax positions, as well as any related interest and
penalties.
Accounts Receivable
HP establishes an allowance for doubtful accounts for accounts receivable. HP records a specific
reserve for individual accounts when HP becomes aware of specific customer circumstances, such as in
the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position.
If there are additional changes in circumstances related to the specific customer, HP further adjusts
estimates of the recoverability of receivables. HP maintains bad debt reserves for all other customers
based on a variety of factors, including the use of third-party credit risk models that generate
quantitative measures of default probabilities based on market factors, the financial condition of
customers, the length of time receivables are past due, trends in the weighted-average risk rating for
the portfolio, macroeconomic conditions, information derived from competitive benchmarking,
significant one-time events and historical experience. The past due or delinquency status of a receivable
is based on the contractual payment terms of the receivable.
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