HP 2015 Annual Report Download - page 104

Table of Contents
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resellers and other customers and may require collateral, such as letters of credit and bank guarantees, in certain circumstances.
HP utilizes outsourced contract manufacturers around the world to manufacture HP-designed products. HP may purchase product components from
suppliers and sell those components to its contract manufacturers thereby creating receivable balances from contract manufacturers. The three largest contract
manufacturer receivable balances collectively represented 60% and 65% of HP's receivables from contract manufacturers of $1.0 billion as of October 31,
2015 and 2014, respectively. HP includes receivables from contract manufacturers in Other current assets in the Consolidated Balance Sheets on a gross basis.
HP's credit risk associated with these receivables is mitigated wholly or in part, by the amount HP owes to these outsourced contract manufacturers, as HP
generally has the legal right to offset its payables to contract manufacturers against these receivables. HP does not reflect the sale of these components in
revenue and does not recognize any profit on these component sales until the related products are sold by HP, at which time any profit is recognized as a
reduction to cost of sales.
HP obtains a significant number of components from single source suppliers due to technology, availability, price, quality or other considerations. The
loss of a single source supplier, the deterioration of HP's relationship with a single source supplier, or any unilateral modification to the contractual terms
under which HP is supplied components by a single source supplier could adversely affect HP's revenue and gross margins.
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HP values inventory at the lower of cost or market. Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis.
Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess or obsolescence.
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HP states property, plant and equipment at cost less accumulated depreciation. HP capitalizes additions and improvements and expenses maintenance
and repairs as incurred. Depreciation expense is recognized on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives are five
to 40 years for buildings and improvements and three to 15 years for machinery and equipment. HP depreciates leasehold improvements over the life of the
lease or the asset, whichever is shorter. HP depreciates equipment held for lease over the initial term of the lease to the equipment's estimated residual value.
The estimated useful lives of assets used solely to support a customer services contract generally do not exceed the term of the customer contract. On
retirement or disposition, the asset cost and related accumulated depreciation are removed from the Consolidated Balance Sheets with any gain or loss
recognized in the Consolidated Statements of Earnings.
HP capitalizes certain internal and external costs incurred to acquire or create internal use software, principally related to software coding, designing
system interfaces and installation and testing of the software. HP amortizes capitalized internal use software costs using the straight-line method over the
estimated useful lives of the software, generally from three to five years.
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Source: HP INC, 10-K, December 16, 2015 Powered by Morningstar® Document Research℠
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