HP 2006 Annual Report Download - page 91

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
The pro forma table below reflects net earnings and basic and diluted net earnings per share for
the following fiscal years ended October 31, if HP had applied the fair value recognition provisions of
SFAS 123:
2005 2004
In millions, except
per share amounts
Net earnings, as reported ............................................ $2,398 $3,497
Add: stock-based compensation included in reported net earnings, net of related tax
effects ........................................................ 144 33
Less: stock-based compensation expense determined under the fair-value based
method for all awards, net of related tax effects .......................... (621) (692)
Pro forma net earnings .............................................. $1,921 $2,838
Basic net earnings per share:
As reported .................................................... $ 0.83 $ 1.16
Pro forma ...................................................... $ 0.67 $ 0.94
Diluted net earnings per share:
As reported .................................................... $ 0.82 $ 1.15
Pro forma ...................................................... $ 0.66 $ 0.93
Employee Stock Purchase Plan
HP sponsors the Hewlett-Packard Company 2000 Employee Stock Purchase Plan, also known as
the Share Ownership Plan (the ‘‘ESPP’’), pursuant to which eligible employees may contribute up to
10% of base compensation, subject to certain income limits, to purchase shares of HP’s common stock.
Prior to November 1, 2005, employees were able to purchase stock semi-annually at a price equal to
85% of the fair market value at certain plan-defined dates. As of November 1, 2005, HP changed the
ESPP so that employees will purchase stock semi-annually at a price equal to 85% of the fair market
value on the purchase date. Since the price of the shares is now determined at the purchase date and
there is no longer a look-back period, HP recognizes the expense based on the 15% discount at
purchase. In fiscal 2006, ESPP compensation expense was $53 million, net of taxes. At October 31,
2006, approximately 147,000 employees were eligible to participate and approximately 53,000 employees
were participants in the ESPP. In fiscal 2006, participants purchased 11,076,000 shares of HP common
stock at a weighted-average price of $30 per share. In fiscal 2005, participants purchased 20,673,000
shares of HP common stock at a weighted-average price of $17 per share. In fiscal 2004, participants
purchased 25,868,000 shares of HP common stock at a weighted-average price of $14 per share.
Incentive Compensation Plans
HP stock option plans include principal plans adopted in 2004, 2000, 1995 and 1990 (‘‘principal
option plans’’), as well as various stock option plans assumed through acquisitions under which stock
options are outstanding. All regular employees meeting limited employment qualifications were eligible
to receive stock options in fiscal 2006. There were approximately 110,000 employees holding options
under one or more of the option plans as of October 31, 2006. Options granted under the principal
option plans are generally non-qualified stock options, but the principal option plans permit some
options granted to qualify as ‘‘incentive stock options’’ under the U.S. Internal Revenue Code. The
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