Stock-Based Compensation (Tables)

9 Months Ended

Jul. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Stock Based Compensation Expense and the Resulting Tax Benefits from Continuing Operations

Stock-based compensation expense and the resulting tax benefits from continuing operations were as follows:



	Three months ended July 31						Nine months ended July 31
	2016			2015			2016			2015
	In millions
Stock-based compensation expense⁽¹⁾	$	39		$	58		$	140		$	168
Income tax benefit	(13		)	(17		)	(48		)	(49		)
Stock-based compensation expense, net of tax	$	26		$	41		$	92		$	119

_______________________________________________________________________________

⁽¹⁾

In connection with the Separation and in accordance with the employee matters agreement, HP has made certain adjustments to the exercise price and number of stock-based compensation awards with the intention of preserving the intrinsic value of the awards prior to the Separation. The pre-tax stock-based compensation expense due to the adjustments was $2 million and was recorded during the three months ended January 31, 2016. All outstanding restricted stock awards and stock options for employees transferred to Hewlett Packard Enterprise were cancelled (the "Cancelled Awards") in connection with the Separation.

Schedule of Weighted-Average Fair Value and the Assumptions Used to Measure Fair Value

The weighted-average fair value and the assumptions used to measure fair value were as follows:



	Three months ended July 31						Nine months ended July 31
	2016			2015			2016			2015
Weighted-average fair value⁽¹⁾	$	2		$	6		$	4		$	8
Expected volatility⁽²⁾	31.6		%	26.7		%	36.2		%	26.3		%
Risk-free interest rate⁽³⁾	1.3		%	1.6		%	1.8		%	1.7		%
Expected dividend yield⁽⁴⁾	4.3		%	2.3		%	3.5		%	1.8		%
Expected term in years⁽⁵⁾	5.5			5.2			6.0			5.8

_______________________________________________________________________________


⁽¹⁾	The weighted-average fair value was based on stock options granted during the period.

⁽²⁾

For all awards granted in fiscal 2016, expected volatility was estimated using the leverage-adjusted average of the term-matching volatilities of peer companies due to the lack of volume of forward traded options, which precluded the use of implied volatility. For all awards granted in fiscal 2015, expected volatility was estimated using the implied volatility derived from options traded on HP's common stock.


⁽³⁾	The risk-free interest rate was estimated based on the yield on U.S. Treasury zero-coupon issues.


⁽⁴⁾	The expected dividend yield represents a constant dividend yield applied for the duration of the expected term of the award.

⁽⁵⁾

For awards subject to service-based vesting, due to the lack of historical exercise and post-vesting termination patterns of the post-Separation employee base, the expected term was estimated using a simplified method for all awards granted in fiscal 2016 and the expected term was estimated using historical exercise and post-vesting termination patterns for all awards granted in fiscal 2015; and for performance-contingent awards, the expected term represents an output from the lattice model.

The weighted-average fair value and the assumptions used to measure fair value of restricted stock units subject to performance-adjusted vesting conditions in the Monte Carlo simulation model were as follows:



	Nine months ended July 31
	2016			2015
Weighted-average fair value⁽¹⁾	$	13		$	47
Expected volatility⁽²⁾	32.5		%	33.6		%
Risk-free interest rate⁽³⁾	1.2		%	1.0		%
Expected performance period in years⁽⁴⁾	2.9			2.9

_______________________________________________________________________________


⁽¹⁾	The weighted-average fair value was based on performance-adjusted restricted stock units granted during the period.


⁽²⁾	The expected volatility was estimated using the historical volatility derived from HP's common stock.


⁽³⁾	The risk-free interest rate was estimated based on the yield on U.S. Treasury zero-coupon issues.


⁽⁴⁾	The expected performance period was estimated based on the length of the remaining performance period from the grant date.

Schedule of Restricted Stock Award Activity

A summary of restricted stock award activity was as follows:



	Nine months ended July 31, 2016
	Shares		Weighted-Average Grant Date Fair Value Per Share
	In thousands
Outstanding at beginning of period	29,717		$	32
Granted	27,968		$	9
Vested	(3,219	)	$	13
Cancelled Awards	(23,926	)	$	32
Forfeited	(1,751	)	$	13
Outstanding at end of period	28,789		$	13

Schedule of Stock Options Activity

A summary of stock option activity was as follows:



	Nine months ended July 31, 2016
	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	In thousands				In years	In millions
Outstanding at beginning of period	36,278		$	26
Granted	25,424		$	6
Exercised	(3,901	)	$	8
Cancelled Awards	(26,252	)	$	26
Forfeited and expired	(2,173	)	$	16
Outstanding at end of period	29,376		$	12	5.2	$	66
Vested and expected to vest at end of period	27,680		$	12	5.1	$	65
Exercisable at end of period	15,461		$	11	3.7	$	58