HP 2006 Annual Report Download - page 93

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Stock-Based Compensation (Continued)
The fair value of share-based payment awards was estimated using the Black-Scholes option
pricing model with the following assumptions and weighted average fair values:
Stock Options(1) ESPP
2006 2005 2004 2005 2004
Weighted average fair value of grants .................... $9.38 $5.63 $6.72 $6.01 $4.95
Risk-free interest rate ............................... 4.35% 3.93% 2.77% 2.66% 1.11%
Dividend yield .................................... 1.0% 1.5% 1.4% 1.6% 1.5%
Expected volatility .................................. 29% 28% 35% 30% 28%
Expected life in months .............................. 57 54 60 6 6
(1) The fair value calculation was based on stock options granted during the period.
Option activity under the principal option plans as of October 31, 2006 and changes during fiscal
2006 were as follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Term Value
In thousands In years In millions
Outstanding at October 31, 2005 ................. 531,233 $30
Granted and assumed through acquisitions .......... 52,271 $31
Exercised .................................. (100,986) $22
Forfeited/cancelled/expired ...................... (36,778) $40
Outstanding at October 31, 2006 ................. 445,740 $31 4.7 $4,861
Vested and expected to vest at October 31, 2006 ...... 437,109 $31 4.6 $4,742
Exercisable at October 31, 2006 .................. 316,341 $33 4.0 $3,081
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the
difference between HP’s closing stock price on the last trading day of fiscal 2006 and the exercise price,
multiplied by the number of in-the-money options) that would have been received by the option
holders had all option holders exercised their options on October 31, 2006. This amount changes based
on the fair market value of HP’s stock. Total intrinsic value of options exercised in fiscal 2006 was
$1,190 million. Total fair value of options vested and expensed in fiscal 2006 was $265 million, net of
taxes.
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