XML 34 R11.htm IDEA: XBRL DOCUMENT v3.8.0.1
Stock-Based Compensation
 3 Months Ended
Jan. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
HP’s stock-based compensation plans permit the issuance of restricted stock awards, stock options and performance-based awards.
Stock-based compensation expense and the resulting tax benefits were as follows:
 
Three months ended January 31
 
2018
 
2017
 
In millions
Stock-based compensation expense
$
85

 
$
75

Income tax benefit
(19
)
 
(24
)
Stock-based compensation expense, net of tax
$
66

 
$
51

Restricted Stock Awards
Restricted stock awards are non-vested stock awards that may include grants of restricted stock or restricted stock units. For the three months ended January 31, 2018 and 2017, HP granted only restricted stock units. HP uses the closing stock price on the grant date to estimate the fair value of service-based restricted stock units. HP estimates the fair value of restricted stock units subject to performance-adjusted vesting conditions using a combination of the closing stock price on the grant date and the Monte Carlo simulation model. The weighted-average fair value and the assumptions used to measure the fair value of restricted stock units subject to performance-adjusted vesting conditions in the Monte Carlo simulation model were as follows:
 
Three months ended January 31
 
2018
 
2017
Weighted-average fair value(1)
$
24

 
$
20

Expected volatility(2)
29.8
%
 
30.5
%
Risk-free interest rate(3)
1.9
%
 
1.4
%
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.
A summary of restricted stock unit activity was as follows:
 
Three months ended January 31, 2018
 
Shares
 
Weighted-Average
Grant Date Fair Value
Per Share
 
In thousands
 
 
Outstanding at beginning of period
31,822

 
$
14

Granted
13,428

 
$
21

Vested
(12,670
)
 
$
14

Forfeited
(216
)
 
$
16

Outstanding at end of period
32,364

 
$
17


As of January 31, 2018, there was $350 million of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock units, which HP expects to recognize over the remaining weighted-average vesting period of 1.5 years.
Stock Options
HP utilizes the Black-Scholes-Merton option pricing formula to estimate the fair value of stock options subject to service-based vesting conditions. HP estimates the fair value of stock options subject to performance-contingent vesting conditions using a combination of the Monte Carlo simulation model and a lattice model, as these awards contain market conditions. HP did not grant any stock options for the three months ended January 31, 2018 and 2017. A summary of stock option activity was as follows:
 
Three months ended January 31, 2018
 
Shares
 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value
 
In thousands
 
 
 
In years
 
In millions
Outstanding at beginning of period
18,067

 
$
13

 
 
 
 

Exercised
(3,277
)
 
$
13

 
 
 
 

Forfeited and expired
(10
)
 
$
14

 
 
 
 

Outstanding at end of period
14,780

 
$
13

 
3.9
 
$
123

Vested and expected to vest
14,628

 
$
13

 
3.8
 
$
122

Exercisable
11,156

 
$
13

 
3.3
 
$
96


The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that option holders would have realized had all option holders exercised their options on the last trading day of the first quarter of fiscal year 2018. The aggregate intrinsic value is the difference between HP’s closing stock price on the last trading day of the first quarter of fiscal year 2018 and the exercise price, multiplied by the number of in-the-money options. The total intrinsic value of options exercised for the three months ended January 31, 2018 was $30 million.
As of January 31, 2018, there was $4 million of unrecognized pre-tax, stock-based compensation expense related to unvested stock options, which HP expects to recognize over the remaining weighted-average vesting period of 0.6 years.
In January 2018, the Board approved an amendment and restatement of the HP’s 2004 Stock Incentive Plan, which included retiring 80 million shares from the plan’s share reserves.