Google 2009 Annual Report Download - page 90

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Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
new accounting standards in the first quarter of 2010 using the prospective method and the adoption did not have
a material impact on our consolidated financial statements. Had we adopted these new standards in 2009, the
impact on our consolidated financial statements would have been immaterial.
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 using the two-class method. 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, 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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