Stock-Based Compensation

12 Months Ended

Oct. 31, 2022

Share-Based Payment Arrangement [Abstract]

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
	2022		2021		2020
	In millions
Stock-based compensation expense	$	343	$	330	$	278
Income tax benefit	(59)		(52)		(48)
Stock-based compensation expense, net of tax	$	284	$	278	$	230

Cash received from option exercises under the HP Inc 2004 Stock Incentive Plan, as amended and restated, and ESPP purchases under the HP Inc. 2011 Employee Stock Purchase Plan (the “2011 ESPP”) and HP Inc. 2021 Employee Stock Purchase Plan (the “2021 ESPP”) was $53 million in fiscal year 2022, $55 million in fiscal year 2021 and $56 million in fiscal year 2020. The benefit realized for the tax deduction from option exercises in fiscal years 2022, 2021 and 2020 was $4 million, $3 million and $2 million, respectively.

Stock-Based Incentive Compensation Plans

HP’s stock-based incentive compensation plan includes equity plan adopted in 2004, as amended and restated (“principal equity plan”). Stock-based awards granted under the equity plan includes 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 principal equity plan is 626.0 million.

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. HP also grants performance-adjusted restricted stock units which 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 plan are generally non-qualified stock options, but the principal equity plan permits 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. HP grants performance-contingent stock options that vest only on the satisfaction of both service and market conditions prior to the expiration of the awards.

RSU and stock option grants provide for accelerated vesting in certain circumstances as defined in the plans and related grant agreements, including termination in connection with a change in control.

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 a Monte Carlo simulation model. 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
	2022		2021		2020
Expected volatility(1)	41.6	%	41.0	%	27.6	%
Risk-free interest rate(2)	1.0	%	0.2	%	1.6	%
Expected performance period in years(3)	2.9		2.9		2.9

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

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

(3)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
	2022			2021			2020
	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	30,197	$	23	29,831	$	21	29,960	$	21
Granted(1)	15,337	$	36	15,517	$	25	18,109	$	20
Vested	(14,168)	$	22	(13,374)	$	21	(14,929)	$	20
Forfeited	(2,678)	$	25	(1,777)	$	22	(3,309)	$	21
Outstanding at end of year	28,688	$	30	30,197	$	23	29,831	$	21

The total grant date fair value of restricted stock units vested in fiscal years 2022, 2021 and 2020 was $314 million, $278 million and $297 million, respectively. As of October 31, 2022, total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock units was $394 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
	2022			2021			2020
Weighted-average fair value(1)	$	11		$	6		$	3
Expected volatility(2)	34.7		%	35.9		%	29.8		%
Risk-free interest rate(3)	1.5		%	1.0		%	1.6		%
Expected dividend yield(4)	2.7		%	3.2		%	4.0		%
Expected term in years(5)	6.0			5.5			6.0

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

(2)Expected volatility was estimated based on a blended volatility (50% historical volatility and 50% implied volatility from traded options 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, 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
	2022						2021						2020
	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	6,367	$	21				5,637	$	17				7,093	$	16
Granted	1,867	$	37				2,691	$	24				996	$	18
Exercised	(1,364)	$	18				(1,843)	$	15				(2,213)	$	14
Forfeited/cancelled/expired	(775)	$	26				(118)	$	18				(239)	$	19
Outstanding at end of year	6,095	$	26	7.2	$	34	6,367	$	21	7.4	$	68	5,637	$	17	6.4	$	10
Vested and expected to vest	5,903	$	25	7.2	$	34	6,367	$	21	7.4	$	68	5,637	$	17	6.4	$	10
Exercisable	2,749	$	18	6.0	$	26	2,392	$	16	5.3	$	34	3,196	$	15	4.4	$	9

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 2022, 2021 and 2020. 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 2022, 2021 and 2020 was $25 million, $18 million and $12 million, respectively. The total grant date fair value of options vested in fiscal years 2022, 2021 and 2020 was $9 million, $3 million and $3 million, respectively.

As of October 31, 2022, total unrecognized pre-tax stock-based compensation expense related to stock options was $9 million, which is expected to be recognized over a weighted-average vesting period of 1.4 years.

Employee Stock Purchase Plan

HP sponsors the 2021 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 2021 ESPP, employees purchase stock under the 2021 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 2021 ESPP was 50 million. The 2021 ESPP came into effect on May 1, 2021 upon expiry of the 2011 ESPP. The 2021 ESPP terms are similar to the previous ESPP.

Shares Reserved

Shares available for future grant and shares reserved for future issuance under the stock-based incentive compensation plans and the 2021 ESPP were as follows:


	As of October 31
	2022	2021	2020
	In thousands
Shares available for future grant(1)	174,264	170,123	229,334
Shares reserved for future issuance(1)	208,351	205,968	264,110

(1) For year 2020, shares authorized under the 2011 ESPP were included in the shares available for future grant and shares reserved for future issuance.