LinkedIn 2011 Annual Report Download - page 85

dividend as if they were holders of common stock (on an as-if converted basis). The holders of the Company’s
Series A and B convertible preferred stock and Series C and D redeemable convertible preferred stock did not
have a contractual obligation to share in the losses of the Company. The Company considered its preferred stock
to be participating securities and, in accordance with the two-class method, earnings allocated to preferred stock
and the related number of outstanding shares of preferred stock have been excluded from the computation of
basic and diluted net income (loss) per common share.
Under the two-class method, net income (loss) attributable to common stockholders is determined by
allocating undistributed earnings, calculated as net income less current period Series A and Series B convertible
preferred stock and Series C and D redeemable convertible preferred stock non-cumulative dividends, between
common stock and Series A and Series B convertible preferred stock and Series C and D redeemable convertible
preferred stock. In computing diluted net income (loss) attributable to common stockholders, undistributed
earnings are re-allocated to reflect the potential impact of dilutive securities. Basic net income (loss) per common
share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-
average number of common shares outstanding during the period. Shares of common stock subject to repurchase
resulting from the early exercise of employee stock options are considered participating securities and are
therefore included in the basic weighted-average common shares outstanding. Diluted net income per share
attributable to common stockholders is computed by dividing the net income attributable to common
stockholders by the weighted-average number of common shares outstanding, including potential dilutive
common shares assuming the dilutive effect of outstanding stock options using the treasury stock method.
Immediately prior to the consummation of the Company’s IPO of its Class A common stock in May 2011,
all outstanding shares of preferred stock and common stock were converted to Class B common stock. As a
result, Class A and Class B common stock are the only outstanding equity in the Company. The rights of the
holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each
share of Class A common stock is entitled to one vote per share and each share of Class B common stock is
entitled to ten votes per share. Shares of Class B common stock may be converted into Class A common stock at
any time at the option of the stockholder, and are automatically converted upon sale or transfer to Class A
common stock, subject to certain limited exceptions.
Basic net income per share is computed using the weighted-average number of common shares outstanding
during the period. 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. The Company’s potential
common shares consist of the incremental common shares issuable upon the exercise of stock options. The
dilutive effect of outstanding stock options 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 Class A common stock as Class A common stock is not convertible into Class B
common stock.
The undistributed earnings are allocated based on the contractual participation rights of the Class A and
Class B common shares as if the earnings for the year have been distributed. As the liquidation and dividend
rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of
Class B common stock is assumed 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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