Note 5: 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 April 30						Six months ended April 30
	2015			2014			2015			2014
	In millions
Stock-based compensation expense	$	129		$	130		$	316		$	300
Income tax benefit		(42	)		(43	)		(102	)		(96	)

Stock-based compensation expense, net of tax	$	87		$	87		$	214		$	204

Restricted Stock Awards

Restricted stock awards are non-vested stock awards that may include grants of restricted stock or restricted stock units. For the six months ended April 30, 2015, HP granted only restricted stock units.

A summary of restricted stock award activity is as follows:

	Six months ended April 30, 2015
	Shares			Weighted- Average Grant Date Fair Value Per Share
	In thousands
Outstanding at beginning of period		40,808		$	24
Granted		15,722		$	37
Vested		(16,325	)	$	24
Forfeited		(1,540	)	$	26

Outstanding at end of period		38,665		$	30

At April 30, 2015, there was $746 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 April 30						Six months ended April 30
	2015			2014			2015			2014
Weighted-average fair value of grants per option(1)	$	6.77		$	7.03		$	7.98		$	7.43
Expected volatility(2)		27.7	%		30.4	%		26.3	%		33.5	%
Risk-free interest rate(3)		1.4	%		1.6	%		1.7	%		1.8	%
Expected dividend yield(4)		2.2	%		2.1	%		1.7	%		2.2	%
Expected term in years(5)		5.2			5.2			5.8			5.7

(1)	The weighted-average fair value was based on stock options granted during the period.
(2)	For all awards granted in fiscal 2015, expected volatility was estimated using the implied volatility derived from options traded on HP's common stock. For awards granted in fiscal 2014, expected volatility for awards subject to service-based vesting was estimated using the implied volatility derived from options traded on HP's common stock, whereas for performance-contingent awards, expected volatility was estimated using the historical volatility of 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 historical exercise and post-vesting termination patterns; and for performance-contingent awards, the expected term represents an output from the lattice model.

A summary of stock option activity is as follows:

	Six months ended April 30, 2015
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
	In thousands					In years		In millions
Outstanding at beginning of period		57,853		$	27
Granted and assumed through acquisition		8,081		$	37
Exercised		(9,213	)	$	19
Forfeited/cancelled/expired		(15,281	)	$	41

Outstanding at end of period		41,440		$	26		5.5	$	371


Vested and expected to vest at end of period		38,683		$	26		5.5	$	349


Exercisable at end of period		18,702		$	25		4.3	$	191

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 the second quarter of fiscal 2015. The aggregate intrinsic value is the difference between HP's closing stock price on the last trading day of the second quarter of fiscal 2015 and the exercise price, multiplied by the number of in-the-money options. Total intrinsic value of options exercised for the three and six months ended April 30, 2015 was $35 million and $169 million, respectively.

At April 30, 2015, there was $77 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 1.9 years.