Google 2007 Annual Report Download - page 92

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Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 2. Net Income Per Share of Class A and Class B Common Stock
We compute net income per share of Class A and Class B common stock in accordance with SFAS No. 128, Earnings
per Share (“SFAS 128”) using the two class method. Under the provisions of SFAS 128, basic net income per share is
computed using the weighted average number of common shares outstanding during the period except that it does not
include unvested common shares subject to repurchase or cancellation. Diluted net income per share is computed using
the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period.
Potential common shares consist of the incremental common shares issuable upon the exercise of stock options, warrants,
restricted shares, restricted stock units and unvested common shares subject to repurchase or cancellation. The dilutive
effect of outstanding stock options, restricted shares, restricted stock units and warrants is reflected in diluted earnings per
share by application of the treasury stock method. The computation of the diluted net income per share of Class A
common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B
common stock does not assume the conversion of those shares.
The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are
identical, except with respect to voting. Further, there are a number of safeguards built into our Certificate of
Incorporation, as well as Delaware law, which preclude our board of directors from declaring or paying unequal per share
dividends on our Class A and Class B common stock. Specifically, Delaware law provides that amendments to our
Certificate of Incorporation which would have the affect of adversely altering the rights, powers or preferences of a given
class of stock (in this case the right of our Class A common stock to receive an equal dividend to any declared on our Class
B common stock) must be approved by the class of stock adversely affected by the proposed amendment. In addition, our
Certificate of Incorporation provides that before any such amendment may be put to a stockholder vote, it must be
approved by the unanimous consent of our Board of Directors. As a result, and in accordance with EITF 03-6,
Participating Securities and the Two-Class Method under FASB Statement No. 128, the undistributed earnings for each year
are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for
the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated
on a proportionate basis. Further, as we assume the conversion of Class B common stock in the computation of the diluted
net income per share of Class A common stock, the undistributed earnings are equal to net income for that computation.
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