HP 2015 Annual Report Download - page 101

Table of Contents
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contracts are regularly revised during the life of a contract. Provisions for estimated losses on fixed-priced contracts are recognized in the period when such
losses become known. If reasonable and reliable cost estimates for a project cannot be made, HP uses the completed contract method and recognizes revenue
and costs upon service completion.
HP generally recognizes outsourcing services revenue in the period when the service is provided and the amount earned is not contingent on the
occurrence of any future event. HP recognizes revenue using an objective measure of output for unit-priced contracts. Revenue for fixed-price outsourcing
contracts with periodic billings is recognized on a straight-line basis if the service is provided evenly during the contract term. Provisions for estimated losses
on outsourcing arrangements are recognized in the period when such losses become probable and estimable.
HP recognizes revenue from operating leases on a straight-line basis as service revenue over the rental period.
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Sales-type and direct-financing leases produce financing income, which HP recognizes at consistent rates of return over the lease term.
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HP records amounts invoiced to customers in excess of revenue recognized as deferred revenue until the revenue recognition criteria are satisfied. HP
records revenue that is earned and recognized in excess of amounts invoiced on services contracts as trade receivables.
Deferred revenue represents amounts invoiced in advance for product support contracts, software customer support contracts, outsourcing startup services
work, consulting and integration projects, product sales or leasing income.
HP recognizes costs associated with outsourcing contracts as incurred, unless such costs are considered direct and incremental to the startup phase of the
contract, in which case HP defers these costs during the startup phase and subsequently amortizes such costs over the period that outsourcing services are
provided, once those services commence. HP amortizes deferred contract costs on a straight-line basis over the remaining term of the contract unless facts and
circumstances of the contract indicate a shorter period is more appropriate. Based on actual and projected contract financial performance indicators, HP
analyzes the recoverability of deferred contract costs using the undiscounted estimated cash flows of the contract over its remaining term. If such
undiscounted cash flows are insufficient to recover the carrying amount of deferred contract costs and long-lived assets directly associated with the contract,
the deferred contract costs are first impaired. If a cash flow deficiency remains after reducing the carrying amount of the deferred contract costs to zero, HP
evaluates any remaining long-lived assets related to that contract for impairment.
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HP includes costs related to shipping and handling in Cost of products.
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Source: HP INC, 10-K, December 16, 2015 Powered by Morningstar® Document Research℠
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