HP 2015 Annual Report Download - page 100

Table of Contents
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Under HP's standard terms and conditions of sale, HP transfers title and risk of loss to the customer at the time product is delivered to the customer and
recognizes revenue accordingly, unless customer acceptance is uncertain or significant obligations to the customer remain. HP reduces revenue for estimated
customer returns, price protection, rebates and other programs offered under sales agreements established by HP with its distributors and resellers. HP records
revenue from the sale of equipment under sales-type leases as product revenue at the inception of the lease. HP accrues the estimated cost of post-sale
obligations, including standard product warranties, based on historical experience at the time HP recognizes revenue.
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HP recognizes revenue from perpetual software licenses at the inception of the license term, assuming all revenue recognition criteria have been satisfied.
Term-based software license revenue is generally recognized ratably over the term of the license. HP uses the residual method to allocate revenue to software
licenses at inception of the arrangement when VSOE of fair value for all undelivered elements, such as post-contract customer support, exists and all other
revenue recognition criteria have been satisfied. HP recognizes revenue from maintenance and unspecified upgrades or updates provided on a when-and- if-
available basis ratably over the period during which such items are delivered.
HP recognizes revenue for hosting or software-as-a-service ("SaaS") arrangements as the service is delivered, generally on a straight-line basis, over the
contractual period of performance. In hosting arrangements, HP considers the rights provided to the customer (e.g. whether the customer has the contractual
right to take possession of the software at any time during the hosting period without significant penalty and the feasibility of the customer to operate or
contract with another vendor to operate the software) in determining whether the arrangement includes the sale of a software license. In hosting arrangements
where software licenses are sold, license revenue is generally recognized according to whether perpetual or term licenses are sold, when all other revenue
recognition criteria are satisfied.
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HP recognizes revenue from fixed-price support or maintenance contracts, including extended warranty contracts and software post-contract customer
support agreements, ratably over the contract period and recognizes the costs associated with these contracts as incurred. For time and material contracts, HP
recognizes revenue as services are rendered and recognizes costs as they are incurred.
HP recognizes revenue from certain fixed-price contracts, such as consulting arrangements, as work progresses over the contract period on a proportional
performance basis, as determined by the percentage of labor costs incurred to date compared to the total estimated labor costs of a contract. HP recognizes
revenue on fixed-price contracts for design and build projects (to design, develop and construct software and systems) using the percentage-of-completion
method. HP uses the cost-to-cost method to measure progress toward completion as determined by the percentage of cost incurred to date compared to the
total estimated costs of the project. Estimates of total project costs for fixed-price
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Source: HP INC, 10-K, December 16, 2015 Powered by Morningstar® Document Research℠
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