HP 2013 Annual Report Download - page 104

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
HP’s PRU program provides for the issuance of PRUs representing hypothetical shares of HP
stock. Each PRU award reflects a target number of shares (‘‘Target Shares’’) that may be issued to the
award recipient before adjusting for performance and market conditions. The actual number of shares
the recipient receives is determined at the end of a three-year performance period based on results
achieved versus company performance goals and may range from 0% to 200% of the Target Shares
granted. No PRUs were granted in fiscal 2013. The performance goals for PRUs granted in fiscal 2012
are based on HP’s adjusted annual cash flow from operations as a percentage of revenue and on HP’s
adjusted annual revenue growth. The performance goals for PRUs granted prior to fiscal 2012 are
based on HP’s adjusted annual cash flow from operations as a percentage of revenue and on a market
condition based on total shareholder return (‘‘TSR’’) relative to the S&P 500 over the three-year
performance period.
Recipients of a PRU award generally must remain employed by HP on a continuous basis through
the end of the applicable three-year performance period in order to receive shares subject to that
award. Target Shares subject to PRU awards do not have dividend equivalent rights and do not have
the voting rights of common stock until earned and issued following the end of the applicable
performance period. The expense for these awards, net of estimated forfeitures, is recorded over the
requisite service period based on the number of Target Shares that are expected to be earned and the
achievement of performance goals during the performance period.
Restricted Stock Awards
Non-vested restricted stock awards as of October 31, 2013, 2012 and 2011 and changes during
fiscal 2013, 2012 and 2011 were as follows:
2013 2012 2011
Weighted- Weighted- Weighted-
Average Grant Average Grant Average Grant
Date Fair Value Date Fair Value Date Fair Value
Shares Per Share Shares Per Share Shares Per Share
In thousands In thousands In thousands
Outstanding at beginning
of year ............. 25,532 $31 16,813 $39 5,848 $45
Granted ............. 20,707 $15 20,316 $27 17,569 $38
Vested .............. (10,966) $33 (8,521) $38 (5,660) $41
Forfeited ............. (3,011) $24 (3,076) $34 (944) $43
Outstanding at end of
year ............... 32,262 $21 25,532 $31 16,813 $39
At October 31, 2013, 2012 and 2011, there was $330 million, $508 million and $526 million,
respectively, of unrecognized pre-tax stock-based compensation expense related to non-vested restricted
stock awards, which HP expected to recognize over the remaining weighted-average vesting period of
1.3 years, 1.3 years and 1.4 years, respectively.
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 that are granted under its principal equity plans. 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.
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