HP 2008 Annual Report Download - page 109

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 3: Net Earnings Per Share (Continued)
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:
2008 2007 2006
In millions, except per share
amounts
Numerator:
Net earnings ............................................. $8,329 $7,264 $6,198
Adjustment for interest expense on zero-coupon subordinated convertible
notes, net of taxes .......................................377
Net earnings, adjusted ...................................... $8,332 $7,271 $6,205
Denominator:
Weighted-average shares used to compute basic EPS ................ 2,483 2,630 2,782
Effect of dilutive securities:
Dilution from employee stock plans ........................... 81 78 62
Zero-coupon subordinated convertible notes ....................388
Dilutive potential common shares .............................. 84 86 70
Weighted-average shares used to compute diluted EPS ............... 2,567 2,716 2,852
Net earnings per share:
Basic ................................................... $ 3.35 $ 2.76 $ 2.23
Diluted ................................................. $ 3.25 $ 2.68 $ 2.18
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 2008, 2007 and 2006, HP
excluded 54 million shares, 60 million shares and 130 million shares, respectively, from its diluted EPS
calculation. Also, in accordance with SFAS 123R, HP excluded from the calculation of diluted EPS
options to purchase an additional 28 million shares, 33 million shares and 48 million shares in fiscal
2008, 2007 and 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
because their effect would be anti-dilutive. As disclosed in Note 2, during the fiscal year ended
October 31, 2008, HP granted PRU awards representing approximately 9 million shares at target. HP
includes PRU awards in the dilutive potential common shares when they become contingently issuable
per SFAS No. 128, ‘‘Earnings per Share,’’ and excludes the awards when they are not contingently
issuable. The PRU awards granted during the fiscal year ended October 31, 2008 have been included in
the dilutive potential common shares above as the performance conditions of those awards have been
satisfied for fiscal 2008.
In October and November 1997, HP issued U.S. dollar zero-coupon subordinated convertible notes
due 2017 (the ‘‘LYONs’’), the outstanding principal amount of which was redeemed in March 2008. The
LYONs were convertible at the option of the holders at any time prior to maturity, unless previously
redeemed or otherwise purchased. For purposes of calculating diluted earnings per share above, the
interest expense (net of tax) associated with the LYONs was added back to net earnings, and the shares
issuable upon conversion of the LYONs were included in the weighted-average shares used to compute
diluted earnings per share for periods that the LYONs were outstanding.
103