Google 2009 Annual Report Download - page 107

Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. Except for options granted pursuant to the Exchange discussed below, 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 vesting date. 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 50.0% 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 vesting dates.
At December 31, 2008 and December 31, 2009, there were 23,236,325 and 27,042,948 shares of common
stock reserved for future issuance under our Stock Plans.
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. 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, 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 employees. The risk-free interest rate for periods within the contractual life of the award is based on the U.S.
Treasury yield curve in effect at the time of grant.
The following table presents the weighted-average assumptions used to estimate the fair values of the stock
options granted (excluding options granted in connection with the Exchange discussed below) in the periods
presented:
Year Ended December 31,
2007 2008 2009
Risk-free interest rate .................................................... 4.4% 3.2% 2.6%
Expected volatility ........................................................ 34% 35% 37%
Expected life (in years) .................................................... 5.1 5.3 5.8
Dividend yield ........................................................... — — —
Weighted-average estimated fair value of options granted during the year ...... $213.56 $203.58 $160.63
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