Zynga 2011 Annual Report Download - page 86

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Table of Contents
10. Net Income (Loss) Per Share of Common Stock
We compute net income (loss) per share of common stock using the two-
class method required for participating securities. Prior to the date
of the initial public offering, we considered all series of our convertible preferred stock to be participating securities due to their non-cumulative
dividend rights. Additionally, we consider shares issued upon the early exercise of options subject to repurchase and unvested restricted shares to
be participating securities, because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for
common shares. In accordance with the two-class method, earnings allocated to these participating securities, which include participation rights
in undistributed earnings (see Note 9 to the consolidated financial statements for a description), are subtracted from net income to determine total
undistributed earnings to be allocated to common stockholders.
Basic net income (loss) per common share is computed by dividing total undistributed earnings attributable to common stockholders by the
weighted-average number of common shares outstanding during the period. All participating securities are excluded from basic weighted-
average common shares outstanding. For the 2011 basic net income (loss) per common share calculation, convertible preferred shares were
weighted as participating securities through December 15, 2011, the effective date of the initial public offering. In computing diluted net income
(loss) attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities, including
stock options, warrants and unvested ZSUs. The computation of the diluted net income (loss) per share of Class A common stock assumes the
conversion of Class B and Class C common stock, while the diluted net income (loss) per share of Class B and Class C common stock does not
assume the conversion of those shares into Class A common stock. Diluted net income (loss) per share attributable to common stockholders is
computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding,
including potential dilutive common shares including both outstanding stock options and warrants.
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