Net Income Per Share

We compute net income per share of Class A and Class B common stock and Class C capital 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. Diluted net income per share is computed using the weighted-average number of common shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of stock options, restricted stock units, and other contingently issuable shares. The dilutive effect of outstanding stock options, restricted stock units, and other contingently issuable shares 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 and Class C capital 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 and Class C capital stock. Specifically, Delaware law provides that amendments to our certificate of incorporation which would have the effect of adversely altering the rights, powers, or preferences of a given class of 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 and Class C capital stock 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. The net income per share amounts are the same for Class A and Class B common stock and Class C capital stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. 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.

In the years ended December 31, 2014 and 2016, the net income per share amounts are the same for Class A and Class B common stock and Class C capital stock because the holders of each class are entitled to equal per share dividends or distributions in liquidation in accordance with the Amended and Restated Certificate of Incorporation of Alphabet Inc.

In the year ended December 31, 2015, the Class C Adjustment Payment was allocated to the numerator for calculating net income per share of Class C capital stock from net income available to all stockholders and the remaining undistributed earnings were allocated on a pro rata basis to Class A and Class B common stock and Class C capital stock based on the number of shares used in the per share computation for each class of stock. The weighted-average share impact of the Class C Adjustment Payment is included in the denominator of both basic and diluted net income per share computations for the year ended December 31, 2015.

The following table sets forth the computation of basic and diluted net income per share of Class A and Class B common stock and Class C capital stock (in millions, except share amounts which are reflected in thousands and per share amounts):



	Year Ended December 31,
	2014
	Class A			Class B			Class C
Basic net income per share:
Numerator
Allocation of undistributed earnings - continuing operations	$	5,700		$	1,107		$	6,813
Allocation of undistributed earnings - discontinued operations	216			42			258
Total	$	5,916		$	1,149		$	7,071
Denominator
Number of shares used in per share computation	282,877			54,928			338,130
Basic net income per share:
Continuing operations	$	20.15		$	20.15		$	20.15
Discontinued operations	0.76			0.76			0.76
Basic net income per share	$	20.91		$	20.91		$	20.91
Diluted net income per share:
Numerator
Allocation of undistributed earnings for basic computation - continuing operations	$	5,700		$	1,107		$	6,813
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	1,107			0			0
Reallocation of undistributed earnings	(20		)	(18		)	20
Allocation of undistributed earnings - continuing operations	$	6,787		$	1,089		$	6,833
Allocation of undistributed earnings for basic computation - discontinued operations	216			42			258
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	42			0			0
Reallocation of undistributed earnings	(1		)	(1		)	1
Allocation of undistributed earnings - discontinued operations	$	257		$	41		$	259
Denominator
Number of shares used in basic computation	282,877			54,928			338,130
Weighted-average effect of dilutive securities
Add:
Conversion of Class B to Class A common shares outstanding	54,928			0			0
Restricted stock units and other contingently issuable shares	4,572			0			6,563
Number of shares used in per share computation	342,377			54,928			344,693
Diluted net income per share:
Continuing operations	$	19.82		$	19.82		$	19.82
Discontinued operations	0.75			0.75			0.75
Diluted net income per share	$	20.57		$	20.57		$	20.57



	Year Ended December 31,
	2015
	Class A			Class B			Class C
Basic net income per share:
Numerator
Adjustment Payment to Class C capital stockholders	$	0		$	0		$	522
Allocation of undistributed earnings	$	6,695		$	1,196		$	7,935
Total	$	6,695		$	1,196		$	8,457
Denominator
Number of shares used in per share computation	289,640			51,745			343,241
Basic net income per share	$	23.11		$	23.11		$	24.63
Diluted net income per share:
Numerator
Adjustment Payment to Class C capital stockholders	$	0		$	0		$	522
Allocation of undistributed earnings for basic computation	$	6,695		$	1,196		$	7,935
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	1,196			0			0
Reallocation of undistributed earnings	(39		)	(14		)	39
Allocation of undistributed earnings	$	7,852		$	1,182		$	7,974
Denominator
Number of shares used in basic computation	289,640			51,745			343,241
Weighted-average effect of dilutive securities
Add:
Conversion of Class B to Class A common shares outstanding	51,745			0			0
Restricted stock units and other contingently issuable shares	2,395			0			5,909
Number of shares used in per share computation	343,780			51,745			349,150
Diluted net income per share	$	22.84		$	22.84		$	24.34



	Year Ended December 31,
	2016
	Class A			Class B			Class C
Basic net income per share:
Numerator
Allocation of undistributed earnings	8,332			1,384			9,762
Denominator
Number of shares used in per share computation	294,217			48,859			344,702
Basic net income per share	$	28.32		$	28.32		$	28.32
Diluted net income per share:
Numerator
Allocation of undistributed earnings for basic computation	$	8,332		$	1,384		$	9,762
Effect of dilutive securities in equity method investments and subsidiaries	(9		)	(2		)	(10		)
Allocation of undistributed earnings for diluted computation	8,323			1,382			9,752
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	1,382			0			0
Reallocation of undistributed earnings	(94		)	(21		)	94
Allocation of undistributed earnings	9,611			1,361			9,846
Denominator
Number of shares used in basic computation	294,217			48,859			344,702
Weighted-average effect of dilutive securities
Add:
Conversion of Class B to Class A common shares outstanding	48,859			0			0
Restricted stock units and other contingently issuable shares	2,055			0			8,873
Number of shares used in per share computation	345,131			48,859			353,575
Diluted net income per share	$	27.85		$	27.85		$	27.85