HP 2011 Annual Report Download - page 95

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
and common stock equivalents and derivatives. See Note 9 for a further discussion on fair value of
financial instruments.
Derivative Financial Instruments
HP uses derivative financial instruments, primarily forwards, swaps, and options, to hedge certain
foreign currency and interest rate exposures. HP also may use other derivative instruments not
designated as hedges, such as forwards used to hedge foreign currency balance sheet exposures. HP
does not use derivative financial instruments for speculative purposes. See Note 10 for a full
description of HP’s derivative financial instrument activities and related accounting policies.
Retirement and Post-Retirement Plans
HP has various defined benefit, other contributory and noncontributory retirement and
post-retirement plans. HP generally amortizes unrecognized actuarial gains and losses on a straight-line
basis over the remaining estimated service life of participants. The measurement date for all HP plans
is October 31. See Note 16 for a full description of these plans and the accounting and funding
policies.
Loss Contingencies
HP is involved in various lawsuits, claims, investigations and proceedings that arise in the ordinary
course of business. HP records a loss provision when it believes it is both probable that a liability has
been incurred and the amount can be reasonably estimated. See Note 18 for a full description of HP’s
loss contingencies and related accounting policies.
Note 2: Stock-Based Compensation
HP’s stock-based compensation plans include incentive compensation plans and an employee stock
purchase plan (‘‘ESPP’’).
Stock-Based Compensation Expense and Related Income Tax Benefits
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.
Incentive Compensation Plans
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.
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