We compute earnings per share (EPS) of Class A and Class B common stock using the two-class method required for participating securities. Our participating securities include all series of our convertible preferred stock and restricted stock awards. Undistributed earnings allocated to these participating securities are subtracted from net income in determining net income attributable to common stockholders. Basic EPS is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of our Class A and Class B common stock outstanding, adjusted for outstanding shares that are subject to repurchase.
For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities, including awards under our equity compensation plans. In addition, the computation of the diluted EPS of Class A common stock assumes the conversion from Class B common stock, while the diluted EPS of Class B common stock does not assume the conversion of those shares. Diluted EPS attributable to common stockholders is computed by dividing the resulting net income attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding.
Dilutive securities in our diluted EPS calculation do not include Pre-2011 RSUs. Vesting of these RSUs is dependent upon the satisfaction of both a service condition and a liquidity condition. The liquidity condition is satisfied upon the occurrence of a qualifying event, defined as a change of control transaction or six months following the completion of our initial public offering. As of December 31, 2011, such a qualifying event had not occurred and until it occurs, the holders of these RSUs have no rights in our undistributed earnings. Therefore, they are excluded from the effect of dilutive securities. Post-2011 RSUs are not subject to a liquidity condition in order to vest, and are thus included in the calculation of diluted EPS. We excluded 4 million and 2 million shares issuable upon exercise of employee stock options for the years ended December 31, 2009 and 2010, respectively, and 3 million Post-2011 RSUs for the year ended December 31, 2011 because the impact would be antidilutive.
Basic and diluted EPS are the same for each class of common stock because they are entitled to the same liquidation and dividend rights.
FACEBOOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The numerators and denominators of the basic and diluted EPS computations for our common stock are calculated as follows (in millions, except per share amounts):
Year Ended December 31,
2009 2010 2011
Class A Class B Class A Class B Class A Class B Basic EPS:
Numerator:
Net income $ — $ 229 $ 18 $ 588 $ 85 $ 915
Less: Net income attributable to participating securities — 107 7 227 28 304 Net income attributable to common stockholders $ — $ 122 $ 11 $ 361 $ 57 $ 611 Denominator:
Weighted average shares outstanding — 1,026 32 1,081 110 1,189
Less: Shares subject to repurchase — 6 — 6 — 5
Number of shares used for basic EPS
computation — 1,020 32 1,075 110 1,184
Basic EPS $ — $ 0.12 $ 0.34 $ 0.34 $ 0.52 $ 0.52
Diluted EPS: Numerator:
Net income attributable to common stockholders $ — $ 122 $ 11 $ 361 $ 57 $ 611 Reallocation of net income attributable to participating
securities 12 — 30 — 31 —
Reallocation of net income as a result of conversion of
Class B to Class A common stock 122 — 361 — 611 — Reallocation of net income to Class B common stock — 12 — 32 — 37
Net income attributable to common stockholders
for diluted EPS $ 134 $ 134 $ 402 $ 393 $ 699 $ 648 Denominator:
Number of shares used for basic EPS computation — 1,020 32 1,075 110 1,184 Conversion of Class B to Class A common stock 1,020 — 1,075 — 1,184 — Weighted average effect of dilutive securities:
Employee stock options 334 334 295 295 204 204
RSUs — — — — 5 5
Shares subject to repurchase 5 5 4 4 3 3
Warrants 7 7 8 8 2 2
Number of shares used for diluted EPS
computation 1,366 1,366 1,414 1,382 1,508 1,398 Diluted EPS $ 0.10 $ 0.10 $ 0.28 $ 0.28 $ 0.46 $ 0.46
FACEBOOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro Forma EPS (unaudited)
The following unaudited calculation of the numerators and denominators of basic and diluted EPS gives effect to the automatic conversion of all outstanding shares of our convertible preferred stock (using the as if-converted method) into Class B common stock as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later. In addition, the pro forma share amounts give effect to Pre-2011 RSUs that have satisfied the service condition as of December 31, 2011. These RSUs will vest and settle upon the satisfaction of a qualifying event, as previously defined. Share-based compensation expense associated with these Pre-2011 RSUs is excluded from this pro forma presentation. If the qualifying event had occurred on December 31, 2011, we would have recorded $968 million of share-based compensation expense on that date related to these RSUs, net of associated tax effect of $329 million, resulting in a net reduction of $639 million to net income.
Year Ended December 31, 2011 Class A Class B
Pro Forma Basic EPS:
Numerator:
Net income as reported $ 85 $ 915
Reallocation of net income due to pro forma adjustments (31) 31
Net income attributable to participating securities — (2)
Net income attributable to common stockholders for pro forma
basic EPS computation $ 54 $ 944
Denominator:
Weighted average shares used for basic EPS computation 110 1,184 Pro forma adjustment to reflect assumed conversion of preferred
stock to Class B common stock — 548
Pro forma adjustment to reflect assumed vesting of Pre-2011 RSUs — 188
Number of shares used for pro forma basic EPS computation 110 1,920
Pro forma basic EPS $ 0.49 $ 0.49
Pro Forma Diluted EPS:
Numerator:
Net income attributable to common stockholders for pro forma basic
EPS computation $ 54 $ 944
Reallocation of net income attributable to participating securities 2 — Reallocation of net income as a result of conversion of Class B to
Class A common stock 944 —
Reallocation of net income to Class B common stock — 9
Net income attributable to common stockholders for pro forma
diluted EPS computation $ 1,000 $ 953
Denominator:
Number of shares used for pro forma basic EPS computation 110 1,920
Conversion of Class B to Class A common stock 1,920 —
Weighted average effect of dilutive securities:
FACEBOOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)