HP 2013 Annual Report Download - page 103

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
Stock-Based Compensation Expense and Related Income Tax Benefits
Stock-based compensation expense and the resulting tax benefits were as follows:
2013 2012 2011
In millions
Stock-based compensation expense ................................. $500 $635 $685
Income tax benefit ............................................ (158) (197) (219)
Stock-based compensation expense, net of tax ......................... $342 $438 $466
Cash received from option exercises and purchases under the ESPP was $0.3 billion in fiscal 2013,
$0.7 billion in fiscal 2012 and $0.9 billion in fiscal 2011. The benefit realized for the tax deduction from
option exercises of share-based payment awards in fiscal 2013, 2012 and 2011 was $13 million,
$57 million and $220 million, respectively.
Incentive Compensation Plans
HP’s incentive compensation plans include equity plans adopted in 2004 (as amended in 2013 and
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.
Under the principal equity plans, HP has granted certain employees restricted stock awards,
cash-settled awards or both. Restricted stock awards are non-vested stock awards that may include
grants of restricted stock or grants of restricted stock units. Restricted stock awards and cash-settled
awards are generally subject to forfeiture if employment terminates prior to the release of the
restrictions. Such awards generally vest one to three years from the date of grant. During that period,
ownership of the restricted stock cannot be transferred. Restricted stock has the same cash dividend
and voting rights as other common stock and is considered to be currently issued and outstanding.
Restricted stock units have dividend equivalent rights equal to the cash dividend paid on restricted
stock. Restricted stock units do not have the voting rights of common stock, and the shares underlying
the restricted stock units are not considered issued and outstanding. However, shares underlying
restricted stock units are included in the calculation of diluted net earnings per share (‘‘EPS’’). HP
expenses the fair value of restricted stock awards ratably over the period during which the restrictions
lapse.
Stock options granted under the principal equity plans are generally non-qualified stock options,
but the principal equity plans permit some options granted to qualify as ‘‘incentive stock options’’
under the U.S. Internal Revenue Code. Stock options generally vest over three to four years from the
date of grant. The exercise price of a stock option is equal to the fair market value of HP’s stock on
the option grant date (as determined by the reported sale prices of HP’s stock when the market closes
on that date). The majority of the stock options issued by HP contain only service vesting conditions.
However, starting in fiscal 2011, HP began granting performance-contingent stock options that vest only
upon the satisfaction of both service and market conditions prior to the expiration of the awards.
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