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Stock-Based Compensation
 9 Months Ended
Jul. 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
July 31		   Nine months
ended
July 31		  
 
   2014   2013   2014   2013  
 
   In millions
  

Stock-based compensation expense

   $ 132   $ 107   $ 432   $ 398  

Income tax benefit

     (42 )   (36 )   (138 )   (125 )
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Stock-based compensation expense, net of tax

   $ 90   $ 71   $ 294   $ 273  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

  • 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 nine months ended July 31, 2014, HP granted only restricted stock units.

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

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

Outstanding at beginning of period

     32,262   $ 21  

Granted

     25,042   $ 28  

Vested

     (13,428 ) $ 24  

Forfeited

     (2,702 ) $ 22  
             
​ ​ ​ ​ ​ ​ ​ ​

Outstanding at end of period

     41,174   $ 24  
             
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
             

        At July 31, 2014, there was $587 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 1.5 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 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
July 31		   Nine months
ended
July 31		  
 
   2014   2013   2014   2013  

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

   $ 7.53   $ 6.53   $ 7.44   $ 4.08  

Expected volatility(2)

     28 %   36 %   33 %   42 %

Risk-free interest rate(3)

     1.65 %   1.14 %   1.78 %   0.98 %

Expected dividend yield(4)

     1.87 %   2.36 %   2.14 %   3.72 %

Expected term in months(5)

     63     62     68     70  
(1)
The fair value calculation was based on stock options granted during the period.

(2)
For awards granted in fiscal 2014, expected volatility for stock options subject to service-based vesting was determined using the implied volatility derived from options traded on HP's common stock, whereas for performance-contingent stock options, expected volatility was determined using the historical volatility of HP's common stock. For awards granted in fiscal 2013, expected volatility for stock options subject to service-based vesting and performance-contingent stock options was determined using the implied volatility derived from options traded on HP's common stock.

(3)
The risk-free interest rate was determined using 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 option.

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

        Options outstanding as of July 31, 2014 and changes during the nine months ended July 31, 2014 were as follows:

 
   Nine months ended July 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

     9,363   $ 27              

Exercised

     (8,760 ) $ 18              

Forfeited/cancelled/expired

     (23,434 ) $ 30              
                         
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Outstanding at end of period

     61,211   $ 27     4.5   $ 660  
                         
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                         

Vested and expected to vest at end of period

     57,123   $ 27     4.3   $ 597  
                         
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                         

Exercisable at end of period

     30,784   $ 33     2.4   $ 192  
                         
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                         

        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 July 31, 2014. The aggregate intrinsic value is the difference between HP's closing stock price on the last trading day of the third 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 and nine months ended July 31, 2014 was $60 million and $117 million, respectively.

        At July 31, 2014, there was $82 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 2.1 years.