Google 2008 Annual Report Download - page 106

Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
amounts is unnecessary, the reversal of the liabilities would result in the recognition of tax benefits in the period we
determine the liabilities are no longer necessary. If our estimates of the federal, state, and foreign income tax
liabilities are less than the ultimate assessment, a further charge to expense would result.
Note 12. Stockholders’ Equity
Convertible Preferred Stock
Our Board of Directors has authorized 100,000,000 shares of convertible preferred stock, $0.001 par value,
issuable in series. At December 31, 2007 and 2008, there were no shares issued or outstanding.
Class A and Class B Common Stock
Our Board of Directors has authorized two classes of common stock, Class A and Class B. At December 31,
2008, there were 6,000,000,000 and 3,000,000,000 shares authorized and there were 240,099,511 and
75,040,973 shares legally outstanding of Class A and Class B common stock. The rights of the holders of Class A
and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is
entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share. Shares of
Class B common stock may be converted at any time at the option of the stockholder and automatically convert
upon sale or transfer to Class A common stock. We refer to Class A and Class B common stock as common stock
throughout the notes to these financial statements, unless otherwise noted.
At December 31, 2007 and December 31, 2008, there were 14,533,423 and 23,236,325 shares of common
stock reserved for future issuance.
Stock Plans
We maintain the 1998 Stock Plan, the 2000 Stock Plan, the 2003 Stock Plan, the 2003 Stock Plan (No. 2),
the 2003 Stock Plan (No. 3), the 2004 Stock Plan and plans assumed through acquisitions, all of which are
collectively referred to as the “Stock Plans.” Under our Stock Plans, incentive and nonqualified stock options or
rights to purchase common stock may be granted to eligible participants. Options are generally granted for a term
of 10 years. Options granted under the Stock Plans generally vest 25% after the first year of service and ratably
each month over the remaining 36 month period contingent upon employment with us on the date of vest. Options
granted under Stock Plans other than the 2004 Stock Plan may be exercised prior to vesting.
Under the stock plans, we have also issued RSUs and restricted shares. An RSU award is an agreement to
issue shares of our stock at the time of vest. RSUs issued to new employees vest over four years with a yearly cliff
contingent upon employment with us on the dates of vest. These RSUs vest from zero to 37.5 percent of the grant
amount at the end of each of the four years from date of hire based on the employee’s performance. RSUs under
the Founders’ Award programs are issued to individuals on teams that have made extraordinary contributions to
Google. These awards vest quarterly over four years contingent upon employment with us on the dates of vest.
We estimated the fair value of each option award on the date of grant using the BSM option pricing model.
Our assumptions about stock-price volatility have been based exclusively on the implied volatilities of publicly
traded options to buy our stock with contractual terms closest to the expected life of options granted to our
employees applying the guidance provided by Staff Accounting Bulletin No. 107, Share-Based Payment. Through
the third quarter of 2007, our assumptions about the expected term had been based on that of companies that
had option vesting and contractual terms, expected stock volatility and employee demographics and physical
locations that were similar to ours because we had limited relevant historical information to support the expected
sale and exercise behavior of our employees who had been granted options recently. Commencing in the fourth
quarter of 2007, we began to estimate the expected term based upon the historical exercise behavior of our
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