HP 2007 Annual Report Download - page 109

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
HP had 549,045,000 shares of common stock reserved at October 31, 2007, 664,267,000 shares of common stock
reserved at October 31, 2006, and 794,750,000 shares of common stock reserved at October 31, 2005 for future issuance
under all stock-related benefit plans. Additionally, HP had 21,494,000 shares of common stock reserved at each of
October 31, 2007, October 31, 2006 and October 31, 2005 for future issuances related to conversion of its outstanding zero-
coupon subordinated notes.
Note 3: Net Earnings Per Share
HP calculates basic earnings per share (“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:
2007 2006 2005
In millions, except per share
amounts
Numerator:
Net earnings ....................................................................................................................................... $7,264 $6,198 $2,398
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes......... 7 7 —
Net earnings, adjusted........................................................................................................................ $7,271 $6,205 $2,398
Denominator:
Weighted-average shares used to compute basic EPS ....................................................................... 2,630 2,782 2,879
Effect of dilutive securities:
Dilution from employee stock plans .................................................................................................. 78 62 30
Zero-coupon subordinated convertible notes..................................................................................... 8 8 —
Dilutive potential common shares...................................................................................................... 86 70 30
Weighted-average shares used to compute diluted EPS .................................................................... 2,716 2,852 2,909
Net earnings per share:
Basic .................................................................................................................................................. $2.76 $2.23 $0.83
Diluted ............................................................................................................................................... $2.68 $2.18 $0.82
HP excludes options with exercise prices that are greater than the average market price from the calculation of diluted
EPS because their effect would be anti-dilutive. In fiscal 2007, 2006 and 2005, HP excluded 60 million shares, 130 million
shares and 255 million shares, respectively, from its diluted EPS calculation. Also, as a result of adopting SFAS 123R on
November 1, 2005, HP excluded from the calculation of diluted EPS options to purchase an additional 33 million shares and
48 million shares in fiscal 2007 and fiscal 2006, respectively, whose combined exercise price, unamortized fair value and
excess tax benefits were greater in each of those periods than the average market price for HP’ s common stock, as their effect
would be anti-dilutive. In addition, HP excluded approximately 8 million
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