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Stock-Based Compensation
 3 Months Ended
Jan. 31, 2014
Stock-Based Compensation  
Stock-Based Compensation

Note 2: Stock-Based Compensation

        HP's stock-based compensation plans include HP's principal equity plans as well as various equity plans assumed through business combinations. HP's principal equity 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,
2014		   Three months
ended
January 31,
2013		  
 
   In millions
  

Stock-based compensation expense

   $ 170   $ 184  

Income tax benefit

     (53 )   (57 )
           
​ ​ ​ ​ ​ ​ ​ ​

Stock-based compensation expense, net of tax

   $ 117   $ 127  
           
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
           

  • Restricted Stock Awards

        Restricted stock awards are non-vested stock awards that include grants of restricted stock and grants of restricted stock units. For the three months ended January 31, 2014, HP granted only restricted stock units.

        Non-vested restricted stock awards as of January 31, 2014, and changes during the three months ended January 31, 2014 were as follows:

 
   Three months ended
January 31, 2014		  
 
   Shares   Weighted-
Average
Grant Date
Fair Value
Per Share		  
 
   In thousands
    
  

Outstanding at beginning of period

     32,262   $ 21  

Granted

     21,013   $ 27  

Vested

     (11,918 ) $ 24  

Forfeited

     (557 ) $ 21  
             
​ ​ ​ ​ ​ ​ ​ ​

Outstanding at end of period

     40,800   $ 23  
             
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
             

        At January 31, 2014, there was $692 million of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards, which HP expects to recognize over the remaining weighted-average vesting period of 1.6 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 that are granted under its principal equity plans. 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:

 
   Three months
ended
January 31		  
 
   2014   2013  

Weighted-average fair value of grants per option(1)

   $ 7.45   $ 4.01  

Expected volatility(2)

     34 %   42 %

Risk-free interest rate(3)

     1.79 %   0.98 %

Expected dividend yield(4)

     2.15 %   3.77 %

Expected term in months(5)

     69     70  
(1)
The fair value calculation was based on stock options granted during the period.

(2)
For the three months ended January 31, 2014, expected volatility for stock options subject to service-based vesting was determined using implied volatility from traded options on HP's stock whereas for performance-contingent stock options, expected volatility was determined using historical volatility. For the three months ended January 31, 2013, expected volatility for stock options subject to service-based vesting and performance-contingent stock options was determined using implied volatility from traded options on HP's stock.

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

(4)
The expected dividend yield was determined using a constant dividend yield during the expected term of the option.

(5)
For stock options subject to service-based vesting, expected term was determined using historical exercise and post-vesting termination patterns; and for performance-contingent stock options, expected term represents an output from the lattice model.

        Option activity as of January 31, 2014, and changes during the three months ended January 31, 2014 were as follows:

 
   Three months ended January 31, 2014  
 
   Shares   Weighted-
Average
Exercise
Price		   Weighted-
Average
Remaining
Contractual
Term		   Aggregate
Intrinsic
Value		  
 
   In thousands
    
   In years
   In millions
  

Outstanding at beginning of period

     84,042   $ 27              

Granted

     8,600   $ 27              

Exercised

     (2,240 ) $ 17              

Forfeited/cancelled/expired

     (18,362 ) $ 32              
                         
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Outstanding at end of period

     72,040   $ 26     5.0   $ 481  
                         
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                         

Vested and expected to vest at end of period

     66,593   $ 26     4.8   $ 432  
                         
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                         

Exercisable at end of period

     34,307   $ 33     2.9   $ 138  
                         
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                         

        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 January 31, 2014. The aggregate intrinsic value is the difference between HP's closing stock price on the last trading day of the first quarter of fiscal 2014 and the exercise price, multiplied by the number of in-the-money options. Total intrinsic value of options exercised for the three months ended January 31, 2014 was $24 million.

        At January 31, 2014, there was $135 million of unrecognized pre-tax, stock-based compensation expense related to stock options, which HP expects to recognize over the remaining weighted-average vesting period of 2.2 years.