HP 2006 Annual Report Download - page 96

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
Shares Reserved
Shares available for the ESPP and stock-based compensation plans were 217,556,000 at
October 31, 2006, including 39,151,000 shares under the assumed Compaq plans, 260,669,000 at
October 31, 2005, including 32,449,000 shares under the assumed Compaq plans; and 257,554,000 at
October 31, 2004, including 29,123,000 shares under the assumed Compaq plans.
HP had 664,267,000 shares of common stock reserved at October 31, 2006, 794,750,000 shares of
common stock reserved at October 31, 2005, and 808,855,000 shares of common stock reserved at
October 31, 2004 for future issuance under all stock-related benefit plans. Additionally, HP had
21,494,000 shares of common stock reserved at October 31, 2006, 2005, and 2004 for future issuances
related to conversion of its outstanding zero-coupon subordinated notes.
Note 3: Net Earnings Per Share (‘‘EPS’’)
HP calculates basic EPS using net earnings and the weighted-average number of shares
outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of
common stock, such as stock issuable pursuant to the exercise of stock options and the assumed
conversion of convertible notes.
The reconciliation of the numerators and denominators of the basic and diluted EPS calculations
was as follows for the following fiscal years ended October 31:
2006 2005 2004
In millions, except per share
amounts
Numerator:
Net earnings ............................................. $6,198 $2,398 $3,497
Adjustment for interest expense on zero-coupon subordinated convertible
notes, net of taxes ....................................... 7 — 8
Net earnings, adjusted ...................................... $6,205 $2,398 $3,505
Denominator:
Weighted-average shares used to compute basic EPS ................ 2,782 2,879 3,024
Effect of dilutive securities:
Dilution from employee stock plans ........................... 62 30 23
Zero-coupon subordinated convertible notes .................... 8 — 8
Dilutive potential common shares .............................. 70 30 31
Weighted-average shares used to compute diluted EPS ............... 2,852 2,909 3,055
Net earnings per share:
Basic ................................................... $ 2.23 $ 0.83 $ 1.16
Diluted ................................................. $ 2.18 $ 0.82 $ 1.15
In fiscal 2006, 2005 and 2004, HP excluded options with exercise prices that were greater than the
average market price for HP’s common stock to purchase approximately 130 million, 255 million and
408 million, respectively, shares from the calculation of diluted EPS because their effect was
anti-dilutive. Also, as a result of adopting SFAS 123R on November 1, 2005, HP excluded an additional
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