HP 2012 Annual Report Download - page 100

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
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.
Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board issued new guidance on testing
goodwill for impairment. The new guidance will allow an entity to first assess qualitative factors to
determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An
entity no longer will be required to calculate the fair value of a reporting unit unless the entity
determines, based on a qualitative assessment, that it is more likely than not that its fair value is less
than its carrying amount. HP adopted this accounting standard in the fourth fiscal quarter of 2012. For
HP’s annual goodwill impairment test in the fourth quarter of fiscal 2012, HP performed a quantitative
test for all of its reporting units. Due to the recent trading values of HP’s stock price, HP believed it
was appropriate to have recent fair values for each of its reporting units in order to assess the
reasonableness of the sum of these fair values as compared to HP’s market capitalization.
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 2012, 2011 and 2010 was
$635 million, $685 million and $668 million, respectively. The resulting income tax benefit for fiscal
2012, 2011 and 2010 was $197 million, $219 million and $216 million, respectively.
Cash received from option exercises and purchases under the ESPP was $0.7 billion in fiscal 2012,
$0.9 billion in fiscal 2011 and $2.6 billion for fiscal 2010. The benefit realized for the tax deduction
from option exercises of the share-based payment awards in fiscal 2012, 2011 and 2010 was $57 million,
$220 million and $414 million, respectively.
Incentive Compensation Plans
HP’s incentive compensation plans include principal equity plans adopted in 2004 (as amended in
2010), 2000 and 1995 (‘‘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 restricted stock awards, stock options and performance-based restricted
units (‘‘PRUs’’). Employees meeting certain employment qualifications are eligible to receive stock-
based awards.
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