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Stock-Based Compensation
 12 Months Ended
Oct. 31, 2019
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
HP’s stock-based compensation plans include incentive compensation plans and an employee stock purchase plan.
Stock-Based Compensation Expense and Related Income Tax Benefits for Operations
Stock-based compensation expense and the resulting tax benefits for operations were as follows:
 
For the fiscal years ended October 31
 
2019
 
2018
 
2017
 
In millions
Stock-based compensation expense
$
297

 
$
268

 
$
224

Income tax benefit
(47
)
 
(59
)
 
(71
)
Stock-based compensation expense, net of tax
$
250

 
$
209

 
$
153


Cash received from option exercises and purchases under the HP Inc. 2011 Employee Stock Purchase Plan (the “2011 ESPP”) was $59 million in fiscal year 2019, $158 million in fiscal year 2018 and $118 million in fiscal year 2017. The benefit realized for the tax deduction from option exercises in fiscal years 2019, 2018 and 2017 was $3 million, $23 million and $15 million, respectively.
Stock-Based Incentive Compensation Plans 
HP’s stock-based incentive compensation plans include equity plans adopted in 2004 and 2000, as amended and restated (“principal equity plans”), as well as various equity plans assumed through acquisitions under which stock-based awards are outstanding. Stock-based awards granted under the principal equity plans include restricted stock awards, stock options and performance-based awards. Employees meeting certain employment qualifications are eligible to receive stock-based awards. The aggregate number of shares of HP’s stock authorized for issuance under the 2004 principal equity plan is 593.1 million. No further grants may be made under the 2000 principal equity plan and all outstanding awards under this plan will remain outstanding according to the terms of the plan.
Restricted stock awards are non-vested stock awards that may include grants of restricted stock or restricted stock units. Restricted stock awards and cash-settled awards are generally subject to forfeiture if employment terminates prior to the lapse of the restrictions. Such awards generally vest one to three years from the date of grant. During the vesting period, ownership of the restricted stock cannot be transferred. Restricted stock has the same dividend and voting rights as common stock and is considered to be issued and outstanding upon grant. The dividends paid on restricted stock are non-forfeitable. Restricted stock units do not have the voting rights of common stock, and the shares underlying restricted stock units are not considered issued and outstanding upon grant. However, shares underlying restricted stock units are included in the calculation of diluted net EPS. Restricted stock units have forfeitable dividend equivalent rights equal to the dividend paid on common stock. HP expenses the fair value of restricted stock awards ratably over the period during which the restrictions lapse. The majority of restricted stock units issued by HP contain only service vesting conditions. However, starting in fiscal year 2014, HP began granting performance-adjusted restricted stock units that vest only on the satisfaction of both service and the achievement of certain performance goals including market conditions prior to the expiration of the awards.
Stock options granted under the principal equity plans are generally non-qualified stock options, but the principal equity plans permit some options granted to qualify as incentive stock options under the U.S. Internal Revenue Code. Stock options generally vest over three to four years from the date of grant. The exercise price of a stock option is equal to the closing price of HP’s stock on the option grant date. The majority of stock options issued by HP contain only service vesting conditions. However, starting in fiscal year 2011 through fiscal year 2016, HP granted performance-contingent stock options that vest only on the satisfaction of both service and market conditions prior to the expiration of the awards.
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:
 
For the fiscal years ended October 31
 
2019
 
2018
 
2017
Weighted-average fair value(1)
$
27

 
$
24

 
$
20

Expected volatility(2)
26.5
%
 
29.5
%
 
30.5
%
Risk-free interest rate(3)
2.7
%
 
1.9
%
 
1.4
%
Expected performance period in years(4)
2.9

 
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 units activity is as follows:
 
As of October 31
 
2019
 
2018
 
2017
 
Shares
 
Weighted-
Average
Grant Date
Fair Value
Per Share
 
Shares
 
Weighted-
Average
Grant Date
Fair Value
Per Share
 
Shares
 
Weighted-
Average
Grant Date
Fair Value
Per Share
 
In thousands
 
 
 
In thousands
 
 
 
In thousands
 
 
Outstanding at beginning of year
30,784

 
$
18

 
31,822

 
$
14

 
28,710

 
$
13

Granted
17,216

 
$
22

 
16,364

 
$
21

 
15,858

 
$
16

Vested
(16,934
)
 
$
16

 
(15,339
)
 
$
15

 
(11,915
)
 
$
14

Forfeited
(1,106
)
 
$
20

 
(2,063
)
 
$
17

 
(831
)
 
$
14

Outstanding at end of year
29,960

 
$
21

 
30,784

 
$
18

 
31,822

 
$
14


The total grant date fair value of restricted stock units vested in fiscal years 2019, 2018 and 2017 was $273 million, $224 million and $162 million, respectively. As of October 31, 2019, total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock units for operations was $267 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.4 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 a Monte Carlo simulation model and a lattice model as these awards contain market conditions. The weighted-average fair value and the assumptions used to measure fair value were as follows:
 
 
For the fiscal years ended
October 31
 
2019
 
2018
 
2017
Weighted-average fair value(1)
$
3

 
$
5

 
$
4

Expected volatility(2)
29.8
%
 
29.4
%
 
28.0
%
Risk-free interest rate(3)
1.7
%
 
2.5
%
 
1.9
%
Expected dividend yield(4)
3.7
%
 
2.6
%
 
2.8
%
Expected term in years(5)
6.0

 
5.0

 
5.5

(1) 
The weighted-average fair value was based on stock options granted during the period.
(2) 
For all awards granted in fiscal year 2019 and 2018, expected volatility was estimated based on a blended volatility (50% historical volatility and 50% implied volatility from traded options on HP's common stock). For the awards granted in
fiscal year 2017, 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.
(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, the expected term was estimated using a simplified method; and for performance-contingent awards, the expected term represents an output from the lattice model.
A summary of stock options activity is as follows:
 
As of October 31
 
2019
 
2018
 
2017
 
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
 
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
 
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
 
In
thousands
 
 
 
In years
 
In
millions
 
In
thousands
 
 
 
In years
 
In
millions
 
In
thousands
 
 
 
In years
 
In
millions
Outstanding at beginning of year
7,086

 
$
14

 
 
 
 

 
18,067

 
$
13

 
 
 
 

 
28,218

 
$
12

 
 
 
 

Granted
2,451

 
$
17

 
 
 
 

 
54

 
$
21

 
 
 
 

 
104

 
$
19

 
 
 
 

Exercised
(2,429
)
 
$
13

 
 
 
 

 
(10,644
)
 
$
13

 
 
 
 

 
(9,407
)
 
$
11

 
 
 
 

Forfeited/cancelled/expired
(15
)
 
$
10

 
 
 
 

 
(391
)
 
$
16

 
 
 
 

 
(848
)
 
$
17

 
 
 
 

Outstanding at end of year
7,093

 
$
16

 
5.7
 
$
15

 
7,086

 
$
14

 
4.2
 
$
73

 
18,067

 
$
13

 
4.2
 
$
152

Vested and expected to vest
7,093

 
$
16

 
5.7
 
$
15

 
7,084

 
$
14

 
4.2
 
$
73

 
17,692

 
$
13

 
4.1
 
$
149

Exercisable
4,707

 
$
14

 
3.6
 
$
15

 
4,707

 
$
14

 
3.7
 
$
49

 
10,898

 
$
12

 
3.1
 
$
102


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 fiscal years 2019, 2018 and 2017. The aggregate intrinsic value is the difference between HP’s closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options. The total intrinsic value of options exercised in fiscal years 2019, 2018 and 2017 was $20 million, $109 million and $77 million, respectively. The total grant date fair value of options vested in fiscal years 2019, 2018 and 2017 was $9 million, $12 million and $19 million, respectively.
As of October 31, 2019, total unrecognized pre-tax stock-based compensation expense related to stock options was $8 million, which is expected to be recognized over a weighted-average vesting period of 2 years.
Employee Stock Purchase Plan
HP sponsors the 2011 ESPP, pursuant to which eligible employees may contribute up to 10% of base compensation, subject to certain income limits, to purchase shares of HP’s common stock. 
Pursuant to the terms of the 2011 ESPP, employees purchase stock under the 2011 ESPP at a price equal to 95% of HP’s closing stock price on the purchase date. No stock-based compensation expense was recorded in connection with those purchases because the criteria of a non-compensatory plan were met. The aggregate number of shares of HP’s stock authorized for issuance under the 2011 ESPP is 100 million.
Shares Reserved
Shares available for future grant and shares reserved for future issuance under the stock-based incentive compensation plans and the 2011 ESPP were as follows:
 
As of October 31
 
2019
 
2018
 
2017
 
In thousands
Shares available for future grant
265,135

 
305,767

 
419,071

Shares reserved for future issuance
301,608

 
343,076

 
468,531