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 March 31, 2012, 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
FACEBOOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 2012 and for the three months ended March 31, 2011 and 2012 is unaudited)
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 and 3 million Post-2011 RSUs for the year ended December 31, 2011 and the three months ended March 31, 2011, respectively, because the impact would be antidilutive. No shares were excluded from the calculation for the three months ended March 31, 2012.
Basic and diluted EPS are the same for each class of common stock because they are entitled to the same liquidation and dividend rights.
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, Three Months Ended March 31,
2009 2010 2011 2011 2012 Class A Class B Class A Class B Class
A Class B Class A Class B Class A Class B (unaudited) (unaudited) Basic EPS:
Numerator:
Net income . . . $— $ 229 $ 18 $ 588 $ 85 $ 915 $ 18 $ 215 $ 18 $ 187 Less: Net income attributable
to participating securities . . — 107 7 227 28 304 6 74 6 62
Net income attributable to common
stockholders . . . $— $ 122 $ 11 $ 361 $ 57 $ 611 $ 12 $ 141 $ 12 $ 125
Denominator:
Weighted average shares
outstanding . . . — 1,026 32 1,081 110 1,189 98 1,147 117 1,233
Less: Shares subject to
repurchase . . . — 6 — 6 — 5 — 5 — 3
Number of shares used for basic EPS
computation . . . — 1,020 32 1,075 110 1,184 98 1,142 117 1,230
FACEBOOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 2012 and for the three months ended March 31, 2011 and 2012 is unaudited)
Year Ended December 31, Three Months Ended March 31,
2009 2010 2011 2011 2012 Class A Class B Class A Class B Class
A Class B Class A Class B Class A Class B
Diluted EPS: (unaudited) (unaudited)
Numerator:
Net income attributable to common
stockholders . . . $ — $ 122 $ 11 $ 361 $ 57 $ 611 $ 12 $ 141 $ 12 $ 125
Reallocation of net income attributable to
participating
securities . . . 12 — 30 — 31 — 9 — 5 —
Reallocation of net income as a result of conversion of Class B to Class A
common stock . . . 122 — 361 — 611 — 141 — 125 —
Reallocation of net income to Class B common stock . . . — 12 — 32 — 37 — 10 — 6 Net income attributable to common stockholders for diluted EPS . . . $ 134 $ 134 $ 402 $ 393 $ 699 $ 648 $ 162 $ 151 $ 142 $ 131 Denominator:
Number of shares used for basic EPS
computation . . . — 1,020 32 1,075 110 1,184 98 1,142 117 1,230
Conversion of Class B to Class A common
stock . . . 1,020 — 1,075 — 1,184 — 1,142 — 1,230 —
Weighted average effect of dilutive securities: Employee stock options . . . 334 334 295 295 204 204 240 240 169 169 RSUs . . . — — — — 5 5 — — 9 9 Shares subject to repurchase . . . 5 5 4 4 3 3 4 4 2 2 Warrants . . . 7 7 8 8 2 2 4 4 — — Number of shares used for diluted EPS computation . 1,366 1,366 1,414 1,382 1,508 1,398 1,488 1,390 1,526 1,410 Diluted EPS . . . $ 0.10 $ 0.10 $ 0.28 $ 0.28 $ 0.46 $0.46 $0.11 $0.11 $0.09 $0.09
FACEBOOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 2012 and for the three months ended March 31, 2011 and 2012 is unaudited) 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 and March 31, 2012. 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 March 31, 2012, we would have recorded $965 million of share-based compensation expense on that date related to these RSUs, net of associated tax effect of $325 million, resulting in a net reduction of $640 million to net income.
Year Ended December 31, 2011
Three Months Ended March 31, 2012
Class A Class B Class A Class B
Pro Forma Basic EPS: Numerator:
Net income as reported . . . $ 85 $ 915 $ 18 $ 187
Reallocation of net income due to pro forma
adjustments . . . (31) 31 (6) 6
Net income attributable to participating
securities . . . — (2) — —
Net income attributable to common stockholders for pro forma basic EPS
computation . . . $ 54 $ 944 $ 12 $ 193
Denominator:
Weighted average shares used for basic EPS
computation . . . 110 1,184 117 1,230
Pro forma adjustment to reflect assumed conversion of preferred stock to Class B
common stock . . . — 548 — 546
Pro forma adjustment to reflect assumed vesting of
Pre-2011 RSUs . . . — 188 — 233
Number of shares used for pro forma basic
EPS computation . . . 110 1,920 117 2,009
Pro forma basic EPS . . . $ 0.49 $ 0.49 $ 0.10 $ 0.10
Pro Forma Diluted EPS: Numerator:
Net income attributable to common stockholders
for pro forma basic EPS computation . . . $ 54 $ 944 $ 12 $ 193
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 — 193 —
Reallocation of net income to Class B common
stock . . . — 9 — 1
Net income attributable to common stockholders for pro forma diluted EPS
FACEBOOK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information as of March 31, 2012 and for the three months ended March 31, 2011 and 2012 is unaudited) Year Ended
December 31, 2011
Three Months Ended March 31, 2012
Class A Class B Class A Class B
Denominator:
Number of shares used for pro forma basic EPS
computation . . . 110 1,920 117 2,009
Conversion of Class B to Class A common
stock . . . 1,920 — 2,009 —
Weighted average effect of dilutive securities:
Employee stock options . . . 204 204 169 169
RSUs . . . 93 93 64 64
Shares subject to repurchase . . . 3 3 2 2
Warrants . . . 2 2 — —
Number of shares used for pro forma
diluted EPS computation . . . 2,332 2,222 2,361 2,244
Pro forma diluted EPS . . . $ 0.43 $ 0.43 $ 0.09 $ 0.09