HP 2007 Annual Report Download - page 104

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
purchase. In fiscal 2007, ESPP compensation expense was $56 million, net of taxes. At October 31, 2007, approximately
161,000 employees were eligible to participate and approximately 51,000 employees were participants in the ESPP. 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 2007, participants
purchased approximately 8,744,000 shares of HP common stock at a weighted-average price of $39 per share. In fiscal 2006,
participants purchased approximately 11,076,000 shares of HP common stock at a weighted-average price of $30 per share.
In fiscal 2005, participants purchased approximately 20,673,000 shares of HP common stock at a weighted-average price of
$17 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 certain employment qualifications were eligible to receive stock options in fiscal 2007. There were approximately
99,000 employees holding options under one or more of the option plans as of October 31, 2007. 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 exercise price of a stock option is equal to the
fair market value of HP’ s common stock on the option grant date (as determined by the average of the highest and lowest
reported sale prices of HP’ s common stock on that date). The contractual term of options granted since fiscal 2003 was
generally eight years, while the contractual term of options granted prior to fiscal 2003 was generally ten years. Under the
principal option plans, HP may choose, in certain cases, to establish a discounted exercise price at no less than 75% of fair
market value on the grant date. HP has not granted any discounted options since fiscal 2003.
Under the principal option plans, HP granted certain employees cash, restricted stock awards, or both. Restricted stock
awards are nonvested stock awards that may include grants of restricted stock or grants of restricted stock units. Cash and
restricted stock awards are independent of option grants and 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 shares 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. HP expenses the cost of the restricted
stock awards, which HP has determined to be the fair market value of the shares at the date of grant, ratably over the period
during which the restrictions lapse. In fiscal 2007, HP granted 1,469,000 shares of restricted stock with a weighted-average
grant date fair value of $43. In fiscal 2006, HP granted 1,492,000 shares of restricted stock with a weighted-average grant
date fair value of $32. In fiscal 2005, HP granted 6,773,000 shares of restricted stock with a weighted-average grant date fair
value of $21. HP had 4,763,000 shares of restricted stock outstanding at October 31, 2007, 5,492,000 shares of restricted
stock outstanding at October 31, 2006 and 7,099,000 shares of restricted stock outstanding at October 31, 2005. In fiscal
2007, HP granted 151,000 shares of restricted stock units with a
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