HP 2010 Annual Report Download - page 102

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 3: Net Earnings Per Share
HP calculates basic earnings per share using net earnings and the weighted-average number of
shares outstanding during the reporting period. Diluted EPS includes any dilutive effect of outstanding
stock options, PRUs, restricted stock units, restricted stock and convertible debt.
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:
2010 2009 2008
In millions, except per share
amounts
Numerator:
Net earnings(1) ............................................ $8,761 $7,660 $8,329
Adjustment for interest expense on zero-coupon subordinated convertible
notes, net of taxes ....................................... — — 3
Net earnings, adjusted ...................................... $8,761 $7,660 $8,332
Denominator:
Weighted-average shares used to compute basic EPS ................ 2,319 2,388 2,483
Effect of dilutive securities:
Dilutive effect of employee stock plans ........................ 53 49 81
Zero-coupon subordinated convertible notes .................... — — 3
Dilutive potential common shares .............................. 53 49 84
Weighted-average shares used to compute diluted EPS ............... 2,372 2,437 2,567
Net earnings per share:
Basic ................................................... $ 3.78 $ 3.21 $ 3.35
Diluted ................................................. $ 3.69 $ 3.14 $ 3.25
(1) Net earnings available to participating securities were not significant for fiscal years 2010, 2009 and
2008. HP considers restricted stock that provides the holder with a non-forfeitable right to receive
dividends to be a participating security.
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 years 2010, 2009 and
2008, HP excluded from the calculation of diluted EPS options to purchase 5 million shares, 85 million
shares and 54 million shares, respectively. HP also excluded from the calculation of diluted EPS
options to purchase an additional 2 million shares, 2 million shares and 28 million shares in fiscal years
2010, 2009 and 2008, 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.
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.
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