HP 2009 Annual Report Download - page 110

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:
2009 2008 2007
In millions, except per share
amounts
Numerator:
Net earnings ............................................. $7,660 $8,329 $7,264
Adjustment for interest expense on zero-coupon subordinated convertible
notes, net of taxes ....................................... — 3 7
Net earnings, adjusted ...................................... $7,660 $8,332 $7,271
Denominator:
Weighted-average shares used to compute basic EPS ................ 2,388 2,483 2,630
Effect of dilutive securities:
Dilution from employee stock plans ........................... 49 81 78
Zero-coupon subordinated convertible notes .................... — 3 8
Dilutive potential common shares .............................. 49 84 86
Weighted-average shares used to compute diluted EPS ............... 2,437 2,567 2,716
Net earnings per share:
Basic ................................................... $ 3.21 $ 3.35 $ 2.76
Diluted ................................................. $ 3.14 $ 3.25 $ 2.68
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 2009, 2008 and 2007, HP
excluded from the calculation of diluted EPS options to purchase 85 million shares, 54 million shares
and 60 million shares, respectively. HP also excluded from the calculation of diluted EPS options to
purchase an additional 2 million shares, 28 million shares and 33 million shares in fiscal 2009, 2008 and
2007, 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 fiscal 2009 and 2008, HP granted PRU awards representing at
target approximately 14 million shares and 9 million shares, respectively. HP includes the shares
underlying PRU awards in the calculation of diluted EPS when they become contingently issuable and
excludes such shares when they are not contingently issuable. Accordingly, for fiscal 2009, HP has
included 6 million shares underlying the PRU awards granted in fiscal 2009 and 2008 when calculating
diluted EPS as those shares became contingently issuable upon the satisfaction of the cash flow from
operations condition with respect to the first year of the three-year performance period applicable to
the fiscal 2009 awards and the first and second years of the three-year performance period applicable
to the fiscal 2008 awards. HP has excluded all other shares underlying the fiscal 2009 and 2008 PRU
awards when calculating diluted EPS as those shares are not contingently issuable. For fiscal 2008, HP
has included 2 million shares underlying the PRU awards granted in fiscal 2008 when calculating
diluted EPS as those shares became contingently issuable upon the satisfaction of the cash flow from
operations condition with respect to the first year of the three-year performance period applicable to
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