HP's stock-based compensation plans include incentive compensation plans and an employee stock purchase plan ("ESPP").

Total stock-based compensation expense before income taxes for fiscal 2011, 2010 and 2009 was $685 million, $668 million and $635 million, respectively. The resulting income tax benefit for fiscal 2011, 2010 and 2009 was $219 million, $216 million and $199 million, respectively.

Cash received from option exercises and purchases under the ESPP was $0.9 billion in fiscal 2011, $2.6 billion in fiscal 2010 and $1.8 billion for fiscal 2009. The actual tax benefit realized for the tax deduction from option exercises of the share-based payment awards in fiscal 2011, 2010 and 2009 was $220 million, $414 million and $252 million, respectively.

HP's incentive compensation plans include principal equity plans adopted in 2004 (as amended in 2010), 2000, 1995 and 1990 ("principal equity plans"), as well as various equity plans assumed through acquisitions under which stock-based awards are outstanding. Stock-based awards granted from the principal equity plans include performance-based restricted units ("PRUs"), stock options and restricted stock awards. Employees meeting certain employment qualifications are eligible to receive stock-based awards.

In fiscal 2008, HP implemented a program that provides for the issuance of PRUs representing hypothetical shares of HP common stock. PRU awards may be granted to eligible employees, including HP's principal executive officer, principal financial officer and other executive officers. Each PRU award reflects a target number of shares ("Target Shares") that may be issued to the award recipient before adjusting for performance and market conditions. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus company performance goals. Those goals are based on HP's annual cash flow from operations as a percentage of revenue and total shareholder return ("TSR") relative to the S&P 500 over the three-year performance period. Depending on the results achieved during the three-year performance period, the actual number of shares that a grant recipient receives at the end of the period may range from 0% to 200% of the Target Shares granted, based on the calculations described below.

Cash flow performance goals are established at the beginning of each fiscal year. At the end of each fiscal year, a portion of the Target Shares may be credited in the award recipient's name depending on the achievement of the cash flow performance goal for that year. The number of shares credited varies between 0%, if performance is below the minimum level, and 150%, if performance is at or above the maximum level. For performance between the minimum level and the maximum level, a proportionate percentage between 30% and 150% is applied based on relative performance between the minimum and the maximum levels.

Following the expiration of the three-year performance period, the number of shares credited to the award recipient during the performance period is adjusted by a TSR modifier. The TSR modifier varies between 0%, if the minimum level is not met, resulting in no payout under the PRU award, and 133%, if performance is at or above the maximum level. For performance between the minimum level and the maximum level, a proportionate TSR modifier between 66% and 133% is applied based on relative performance between the minimum and the maximum levels. The number of shares, if any, received by the PRU award recipient equals the number of shares credited to the award recipient during the performance period multiplied by the TSR modifier.

Recipients of PRU awards generally must remain employed by HP on a continuous basis through the end of the applicable three-year performance period in order to receive any portion of the shares subject to that award. Target Shares subject to PRU awards do not have dividend equivalent rights and do not have the voting rights of common stock until earned and issued, following the end of the applicable performance period. The expense for these awards, net of estimated forfeitures, is recorded over the requisite service period based on the number of Target Shares that are expected to be earned and the achievement of the cash flow goals during the performance period.

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 fair market value of HP's common stock on the option grant date (as determined by the reported sale prices of HP's common stock when the market closes on that date). The contractual term of options granted since fiscal 2003 was generally eight years, while the contractual term of options granted prior to fiscal 2003 was generally ten years. Prior to March 2010, HP could choose, in certain cases, to establish a discounted exercise price at no less than 75% of fair market value on the grant date. HP has not granted any discounted options since fiscal 2003. In fiscal 2011, HP granted performance-contingent stock options that require the satisfaction of both service and market conditions prior to the expiration of the awards in order for them to vest.

Under the principal equity plans, HP granted certain employees cash-settled awards, restricted stock awards, or both. Restricted stock awards are non-vested stock awards that may include grants of restricted stock or grants of restricted stock units. Cash-settled awards and restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. Such awards generally vest one to three years from the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock has the same cash dividend and voting rights as other common stock and is considered to be currently issued and outstanding. Restricted stock units have dividend equivalent rights equal to the cash dividend paid on restricted stock. Restricted stock units do not have the voting rights of common stock, and the shares underlying the restricted stock units are not considered issued and outstanding. However, shares underlying restricted stock units are included in the calculation of diluted earnings per share ("EPS"). HP expenses the fair market value of restricted stock awards, as determined on the date of grant, ratably over the period during which the restrictions lapse.

HP estimates the fair value of a target PRU share using the Monte Carlo simulation model, as the TSR modifier contains a market condition. The following weighted-average assumptions were used to determine the weighted-average fair values of the PRU awards for fiscal years ended October 31:

	2011			2010			2009

Weighted-average fair value of grants per share	$	27.59	⁽¹⁾	$	57.13	⁽²⁾	$	40.56	⁽³⁾
Expected volatility⁽⁴⁾		30	%		38	%		35	%
Risk-free interest rate		0.38	%		0.73	%		1.34	%
Dividend yield		0.75	%		0.64	%		0.88	%
Expected life in months		19			22			30

⁽¹⁾: Reflects the weighted-average fair value for the third year of the three-year performance period applicable to PRUs granted in fiscal 2009, for the second year of the three-year performance period applicable to PRUs granted in fiscal 2010 and for the first year of the three-year performance period applicable to PRUs granted in fiscal 2011. The estimated fair value of a target share for the third year for PRUs granted in fiscal 2010 and for the second and third years for PRUs granted in fiscal 2011 will be determined on the measurement date applicable to those PRUs, which will be the date that the annual cash flow goals are approved for those PRUs, and the expense will be amortized over the remainder of the applicable three-year performance period.
⁽²⁾: Reflects the weighted-average fair value for the third year of the three-year performance period applicable to PRUs granted in fiscal 2008, for the second year of the three-year performance period applicable to PRUs granted in fiscal 2009 and for the first year of the three-year performance period applicable to PRUs granted in fiscal 2010.
⁽³⁾: Reflects the weighted-average fair value for the second year of the three-year performance period applicable to PRUs granted in fiscal 2008 and for the first year of the three-year performance period applicable to PRUs granted in fiscal 2009.
⁽⁴⁾: HP uses historic volatility for PRU awards, as implied volatility cannot be used when simulating multivariate prices for companies in the S&P 500.

Non-vested PRUs as of October 31, 2011 and 2010 and changes during fiscal 2011 and 2010 were as follows:

	2011

	Shares in thousands
Outstanding Target Shares at beginning of year		18,508		21,093
Granted		5,950		7,388
Vested		—		(7,186)	⁽¹⁾
Change in units due to performance and market conditions achievement for PRUs vested in the year⁽²⁾		(10,862	)	(108	)
Forfeited		(2,214	)	(2,679	)

Outstanding Target Shares at end of year		11,382		18,508

Outstanding Target Shares of PRUs assigned a fair value at end of year		5,867	⁽³⁾	10,201	⁽⁴⁾

⁽¹⁾: Vested shares relate to awards vested under the 2008 PRU plan.
⁽²⁾: The minimum level of TSR was not met for PRUs granted in fiscal 2009, which resulted in the cancellation of approximately 10.9 million Target Shares on October 31, 2011.
⁽³⁾: Excludes Target Shares for the third year for PRUs granted in fiscal 2010 and for the second and third years for PRUs granted in fiscal 2011, as the measurement date has not yet been established. The measurement date and related fair value for the excluded PRUs will be established when the annual cash flow goals are approved.
⁽⁴⁾: Excludes Target Shares for the third year for PRUs granted in fiscal 2009 and for the second and third years for PRUs granted in fiscal 2010, as the measurement date has not yet been established.

At October 31, 2011, there was $82 million of unrecognized pre-tax stock-based compensation expense related to PRUs with an assigned fair value, which HP expected to recognize over the remaining weighted-average vesting period of 1.4 years. At October 31, 2010, there was $222 million of unrecognized pre-tax stock-based compensation expense related to PRUs with an assigned fair value, which HP expected to recognize over the remaining weighted-average vesting period of 1.2 years.

HP utilized the Black-Scholes option pricing model to value the service-based stock options granted under its principal equity plans. HP examined its historical pattern of option exercises in an effort to determine if there were any discernable activity patterns based on certain employee populations. From this analysis, HP identified three employee populations for which to apply the Black-Scholes model. The table below presents the weighted-average expected life in months of the combined three identified employee populations. The expected life computation is based on historical exercise patterns and post-vesting termination behavior within each of the three populations identified. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. HP estimates the fair value of the performance-contingent stock options using a combination of the Monte Carlo simulation model and lattice model, as these awards contain market conditions.

The weighted-average fair value of stock options was estimated using the following weighted-average assumptions:

	2011			2010			2009

Weighted-average fair value of grants per share⁽¹⁾	$	7.85		$	13.33		$	13.04
Implied volatility		41	%		30	%		43	%
Risk-free interest rate		1.20	%		2.06	%		2.07	%
Dividend yield		1.97	%		0.68	%		0.92	%
Expected life in months		63			61			61

	2011									2010

	Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value		Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
	In thousands					In years		In millions		In thousands					In years		In millions
Outstanding at beginning of year		142,916		$	28						233,214		$	33
Granted and assumed through acquisitions		18,804		$	21						11,939		$	22
Exercised		(37,121	)	$	23						(75,002	)	$	34
Forfeited/cancelled/expired		(4,356	)	$	39						(27,235	)	$	55

Outstanding at end of year		120,243		$	28		3.0	$	460		142,916		$	28		2.7	$	2,140

Vested and expected to vest at end of year		117,066		$	28		2.9	$	442		141,082		$	28		2.7	$	2,114

Exercisable at end of year		97,967		$	29		2.0	$	332		125,232		$	28		2.1	$	1,895

In relation to fiscal 2011 acquisitions, HP assumed approximately 6 million shares of options with a weighted-average exercise price of $14 per share. In relation to fiscal 2010 acquisitions, HP assumed approximately 10 million shares of options with a weighted-average exercise price of $19 per share.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that option holders would have received had all option holders exercised their options on October 31, 2011 and 2010. The aggregate intrinsic value is the difference between HP's closing stock price on the last trading day of fiscal 2011 and fiscal 2010 and the exercise price, multiplied by the number of in-the-money options. Total intrinsic value of options exercised in fiscal 2011, 2010 and 2009 was $0.7 billion, $1.3 billion and $0.8 billion, respectively. Total grant date fair value of options vested and expensed in fiscal 2011, 2010 and 2009 was $95 million, $93 million and $172 million, respectively, net of taxes.

	Options Outstanding						Options Exercisable

Range of Exercise Prices	Shares Outstanding		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price Per Share		Shares Exercisable		Weighted- Average Exercise Price Per Share
	In thousands		In years				In thousands
$0-$9.99		2,456		6.8	$	6		2,028	$	6
$10-$19.99		14,307		4.6	$	15		7,652	$	15
$20-$29.99		56,375		2.5	$	22		43,818	$	22
$30-$39.99		23,838		2.5	$	32		22,965	$	32
$40-$49.99		20,336		3.4	$	43		19,078	$	43
$50-$59.99		1,171		5.3	$	52		666	$	51
$60 and over		1,760		0.7	$	75		1,760	$	75

		120,243		3.0	$	28		97,967	$	29

At October 31, 2011, there was $264 million of unrecognized pre-tax stock-based compensation expense related to stock options, which HP expected to recognize over a weighted-average vesting period of 2.3 years. At October 31, 2010, there was $280 million of unrecognized pre-tax stock-based compensation expense related to stock options, which HP expected to recognize over a weighted-average vesting period of 1.6 years.

Non-vested restricted stock awards as of October 31, 2011 and 2010 and changes during fiscal 2011 and 2010 were as follows:

	2011					2010

	Shares			Weighted- Average Grant Date Fair Value Per Share		Shares			Weighted- Average Grant Date Fair Value Per Share
	In thousands					In thousands
Outstanding at beginning of year		5,848		$	45		6,864		$	44
Granted and assumed through acquisitions		17,569		$	38		4,821		$	48
Vested		(5,660	)	$	41		(5,202	)	$	46
Forfeited		(944	)	$	43		(635	)	$	46

Outstanding at end of year		16,813		$	39		5,848		$	45

The details of restricted stock awards granted and assumed through acquisitions were as follows:

	2011				2010

	Shares		Weighted- Average Grant Date Fair Value Per Share		Shares		Weighted- Average Grant Date Fair Value Per Share
	In thousands				In thousands
Restricted stock		335	$	42		1,543	$	48
Restricted stock units		17,234	$	38		3,278	$	48

		17,569	$	38		4,821	$	48

In fiscal 2011, there were no restricted stock units assumed through acquisitions. In fiscal 2010, approximately 3 million restricted stock units with a weighted-average grant date fair value of $48 per share were assumed through acquisitions.

The details of non-vested restricted stock awards at fiscal year end were as follows:

		2011

		Shares in thousands
Non-vested at October 31:
	Restricted stock		984	1,936
	Restricted stock units		15,829	3,912

			16,813	5,848

At October 31, 2011, there was $526 million of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards, which HP expected to recognize over the remaining weighted-average vesting period of 1.4 years. At October 31, 2010, there was $152 million of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards, which HP expected to recognize over the remaining weighted-average vesting period of 1.5 years.

HP sponsors the Hewlett-Packard Company 2011 Employee Stock Purchase Plan (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. Purchases made prior to fiscal year 2011 were made under the Hewlett-Packard Company 2000 Employee Stock Purchase Plan (the "2000 ESPP"), which expired in November 2010.

For purchases made on October 31, 2011, employees purchased stock under the 2011 ESPP at a price equal to 95% of the fair market value on the purchase date. Because all the criteria of a non-compensatory plan were met, no stock-based compensation expense was recorded in connection with those purchases. From May 1, 2009 to October 31, 2010, no discount was offered for purchases made under the 2000 ESPP. For purchases made on or before April 30, 2009, employees purchased stock under the 2000 ESPP semi-annually at a price equal to 85% of the fair market value on the purchase date, and HP recognized the expense based on a 15% discount of the fair market value for those purchases.

	2011		2010		2009

	In millions, except weighted-average purchase price per share
Compensation expense, net of taxes	$	—	$	—	$	24
Shares purchased		1.75		1.62		6.16
Weighted-average purchase price per share	$	25	$	47	$	33

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

		2011

		Shares in thousands
Shares available for future grant at October 31:
	HP plans		172,259	124,553	⁽¹⁾	95,311	⁽¹⁾
	Assumed Compaq and EDS plans		—	—		82,449	⁽²⁾

			172,259	124,553		177,760

Shares reserved for future issuance under all stock-related benefit plans at October 31			319,602	296,973		410,977

⁽¹⁾: Includes 30 million and 24 million shares that expired in November 2010 and November 2009, respectively.
⁽²⁾: In November 2009, HP retired the assumed Compaq and EDS plans for purposes of granting new awards. The shares that had been reserved for future awards under those plans were returned to HP's pool of authorized shares and will not be available for issuance under any other HP plans.