Google 2009 Annual Report Download - page 86

Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
amount, if any, 2) an amount that is based on the number of times the content is displayed, or 3) an amount
calculated on a straight-line basis over the terms of the agreements.
Stock-based Compensation
We have elected to use the Black-Scholes-Merton (BSM) pricing model to determine the fair value of stock
options on the dates of grant.Restricted stock units (RSUs) are measured based on the fair market values of the
underlying stock on the dates of grant. Shares are issued on the vesting dates net of the statutory withholding
requirements to be paid by us on behalf of our employees. As a result, the actual number of shares issued will be
fewer than the actual number of RSUs outstanding. Furthermore, we record the liability for withholding amounts to
be paid by us as a reduction to additional paid-in capital when paid. Also, we recognize stock-based compensation
using the straight-line method.
We include as part of cash flows from financing activities the benefits of tax deductions in excess of the
tax-effected compensation of the related stock-based awards for options exercised and RSUs vested during the
period. During the years ended December 31, 2007, 2008, and 2009, the amount of cash received from the
exercise of stock options was $137.2 million, $72.5 million, and $350.2 million, and the total direct tax benefit
realized, including the excess tax benefit, from stock-based award activity was $463.2 million, $250.9 million, and
$260.2 million. We have elected to account for the indirect effects of stock-based awards—primarily the research
and development tax credit—through the income statement.
In the years ended December 31, 2007, 2008, and 2009, we recognized stock-based compensation and
related tax benefits of $868.6 million and $143.0 million, $1,119.8 million and $231.7 million, and $1,164.1 million
and $264.0 million.
Certain Risks and Concentrations
Our revenues are principally derived from online advertising, the market for which is highly competitive and
rapidly changing. In addition, our revenues are generated from a multitude of vertical market segments in countries
around the globe. Significant changes in this industry or changes in customer buying or advertiser spending
behavior could adversely affect our operating results.
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash
equivalents, marketable securities, foreign exchange contracts, and accounts receivable. Cash equivalents and
marketable securities consist primarily of highly liquid debt instruments of the U.S. government and its agencies,
municipalities in the U.S., debt instruments issued by foreign governments, time deposits, money market funds,
mortgage-backed securities, and corporate securities. Foreign exchange contracts are transacted with various
major corporations and financial institutions with high credit standing. Accounts receivable are typically unsecured
and are derived from revenues earned from customers located around the globe. In 2007, 2008, and 2009, we
generated approximately 52%, 49%, and 47% of our revenues from customers based in the U.S., with the majority
of customers outside of the U.S. located in Europe and Japan. Many of our Google Network members are in the
internet industry. We perform ongoing evaluations to determine customer credit and we limit the amount of credit
we extend, but generally we do not require collateral from our customers. We maintain reserves for estimated
credit losses and these losses have generally been within our expectations.
No advertiser or Google Network member generated greater than 10% of revenues in 2007, 2008, and
2009.
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