Note 7 – Earnings Per Share

We apply the two-class method when computing earnings per share, which requires that net income per share for each class of shares entitled to dividends be calculated assuming all of our net income is distributed as dividends to these shareholders based on their contractual rights.

The following table presents the calculation of basic and diluted earnings per share of common stock outstanding:


	Year Ended June 30,
	2012				2011				2010
	Basic		Diluted		Basic		Diluted		Basic		Diluted
Numerator for Basic and Diluted Earnings per Share:
Income from continuing operations, net of income taxes	$	329,541	$	329,541	$	135,916	$	135,916	$	40,467	$	40,467
Less: Net income attributable to noncontrolling interest		0		0		0		0		5,289		5,289

Net income from continuing operations attributable to Harman International Industries, Incorporated		329,541		329,541		135,916		135,916		35,178		35,178
Income from discontinued operations, net of income taxes		0		0		0		0		123,591		123,591

Net income attributable to Harman International Industries, Incorporated	$	329,541	$	329,541	$	135,916	$	135,916	$	158,769	$	158,769

Denominator for Basic and Diluted Earnings per Share:
Weighted average shares outstanding		71,297		71,297		70,992		70,992		70,350		70,350
Employee stock options		0		786		0		643		0		245

Total weighted average shares outstanding		71,297		72,083		70,992		71,635		70,350		70,595

Earnings per Share:
Net income from continuing operations attributable to Harman International Industries, Incorporated	$	4.62	$	4.57	$	1.91	$	1.90	$	0.50	$	0.50
Income from discontinued operations, net of income taxes		0.00		0.00		0.00		0.00		1.76		1.75

Net income attributable to Harman International Industries, Incorporated	$	4.62	$	4.57	$	1.91	$	1.90	$	2.26	$	2.25

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities, as defined under GAAP, and are included in the computation of earnings per share pursuant to the two-class method.

Certain options were outstanding and not included in the computation of diluted net earnings per share because the assumed exercise of these options would have been antidilutive. Options to purchase 1,685,144, 1,661,273 and 2,350,820 shares of our common stock at June 30, 2012, 2011 and 2010, respectively, were outstanding and not included in the computation of diluted earnings per share because the exercise of these options would have been antidilutive. In addition, 3,000, 712 and 0 restricted shares and restricted stock units at June 30, 2012, 2011 and 2010 were outstanding, respectively, and not included in the computation of diluted earnings per share as they also would have been antidilutive.

The conversion terms of our $400 million of 1.25 percent convertible senior notes due October 2012 (“Convertible Senior Notes”) will affect the calculation of diluted earnings per share if the price of our common stock exceeds the conversion price of the Convertible Senior Notes. The initial conversion price of the Convertible Senior Notes was approximately $104 per share, subject to adjustment in specified circumstances as described in the indenture governing the Convertible Senior Notes, as amended (the “Indenture”). Upon conversion, a holder of the Convertible Senior Notes will receive an amount per Convertible Senior Note in cash equal to the lesser of $1,000 or the conversion value of the Convertible Senior Notes, determined in the manner set forth in the Indenture. If the conversion value exceeds $1,000, we will deliver $1,000 in cash and at our option, cash or common stock or a combination of cash and common stock for the conversion price in excess of $1,000. The conversion option is indexed to our common stock and therefore is classified as equity. The conversion option will not result in an adjustment to net income in calculating diluted earnings per share. The dilutive effect of the conversion option will be calculated using the treasury stock method. Therefore, conversion settlement shares will be included in diluted shares outstanding if the price of our common stock exceeds the conversion price of the Convertible Senior Notes. Refer to Note 9 – Debt for more information.