Google 2008 Annual Report Download - page 67

On February 3, 2009, we commenced an exchange offer to allow employees the opportunity to exchange all
or a portion of their eligible outstanding stock options for the same number of new options. We expect that new
options will have an exercise price equal to the closing price per share of our common stock on March 6, 2009 and
that stock options with exercise prices above this closing price will be eligible for the exchange offer. Generally, all
employees with options are eligible to participate in the program (Eric Schmidt, Sergey Brin, and Larry Page do not
hold options). The exchange offer is currently set to expire at 6 a.m. Pacific Time on March 9, 2009.
The number of common shares subject to outstanding options will not change as a result of the exchange
offer. New options issued as part of the exchange offer will be subject to a new vesting schedule which adds 12
months to the original applicable vesting dates. In addition, new options will vest no sooner than six months after
the close of the offer period.
We expect to take a modification charge of approximately $400 million over the vesting periods of the new
options which will range from six months to five years. Assuming our exchange offer proceeds according to our
planned timeline, this modification charge will be recorded as additional stock-based compensation beginning in
the first quarter of 2009. This modification charge is estimated assuming an exchange price of approximately
$350 and that all eligible underwater options will be exchanged, and the actual amount of the modification charge
is likely to be different from the estimate provided above.
Before the modification charge discussed above, we expect stock-based compensation to be approximately
$1.0 billion in 2009 and $1.4 billion thereafter. These amounts do not include stock-based compensation related to
stock awards that have been and may be granted to employees and directors subsequent to December 31, 2008
and stock awards that have been or may be granted to non-employees. In addition, to the extent forfeiture rates
are different from what we have anticipated, stock-based compensation related to these awards will be different
from our expectations.
Impairment of Equity Investments
We have reviewed our equity investments for impairment in accordance with FSP SFAS 115-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP 115-1) and determined that
certain of these investments are impaired. After consideration of the duration and severity of the impairment, as
well as the reasons for the decline in value and the potential recovery periods, we believe that such impairments
are “other-than-temporary” at December 31, 2008. As a result, in the fourth quarter of 2008, we recorded a
non-cash impairment charge of $1.09 billion, primarily comprising of $726.0 million and $355.0 million related to
our investments in America Online, Inc. (AOL) and Clearwire Corporation (Clearwire). See Note 3 of Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
Interest Income and Other, Net
Interest income and other, net increased $48.7 million from the three months ended September 30, 2008 to
the three months ended December 31, 2008. This increase was primarily a result of a decrease in net foreign
exchange related costs of $32.1 million and an increase in realized gains on sales of marketable securities of $18.5
million.
Interest income and other, net decreased $273.2 million from the year ended December 31, 2007 to the year
ended December 31, 2008. This decrease was primarily driven by an increase in net foreign exchange related costs
of $155.7 million primarily due to more hedging activity under our foreign exchange risk management program,
and a decrease in interest income of $169.7 million due to lower yields on our cash and investment balances.
These decreases were partially offset by an increase in realized gains on sales of marketable securities of $43.0
million.
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