HP 2011 Annual Report Download - page 98

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
(4) HP uses historic volatility for PRU awards, as implied volatility cannot be used when simulating
multivariate prices for companies in the S&P 500.
Non-vested PRUs as of October 31, 2011 and 2010 and changes during fiscal 2011 and 2010 were
as follows:
2011 2010
Shares in thousands
Outstanding Target Shares at beginning of year ........................... 18,508 21,093
Granted ....................................................... 5,950 7,388
Vested ........................................................ — (7,186)(1)
Change in units due to performance and market conditions achievement for PRUs
vested in the year(2) ............................................. (10,862) (108)
Forfeited ....................................................... (2,214) (2,679)
Outstanding Target Shares at end of year ............................... 11,382 18,508
Outstanding Target Shares of PRUs assigned a fair value at end of year ......... 5,867(3) 10,201(4)
(1) Vested shares relate to awards vested under the 2008 PRU plan.
(2) The minimum level of TSR was not met for PRUs granted in fiscal 2009, which resulted in the
cancellation of approximately 10.9 million Target Shares on October 31, 2011.
(3) Excludes Target Shares for the third year for PRUs granted in fiscal 2010 and for the second and
third years for PRUs granted in fiscal 2011, as the measurement date has not yet been established.
The measurement date and related fair value for the excluded PRUs will be established when the
annual cash flow goals are approved.
(4) Excludes Target Shares for the third year for PRUs granted in fiscal 2009 and for the second and
third years for PRUs granted in fiscal 2010, as the measurement date has not yet been established.
At October 31, 2011, there was $82 million of unrecognized pre-tax stock-based compensation
expense related to PRUs with an assigned fair value, which HP expected to recognize over the
remaining weighted-average vesting period of 1.4 years. At October 31, 2010, there was $222 million of
unrecognized pre-tax stock-based compensation expense related to PRUs with an assigned fair value,
which HP expected to recognize over the remaining weighted-average vesting period of 1.2 years.
Stock Options
HP utilized the Black-Scholes option pricing model to value the service-based stock options
granted under its principal equity plans. HP examined its historical pattern of option exercises in an
effort to determine if there were any discernable activity patterns based on certain employee
populations. From this analysis, HP identified three employee populations for which to apply the
Black-Scholes model. The table below presents the weighted-average expected life in months of the
combined three identified employee populations. The expected life computation is based on historical
exercise patterns and post-vesting termination behavior within each of the three populations identified.
The risk-free interest rate for periods within the contractual life of the award is based on the U.S.
Treasury yield curve in effect at the time of grant. HP estimates the fair value of the
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