Google 2012 Annual Report Download

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Here’s to Lady Ada Lovelace.
In 1843, she foresaw the future of computing.

Table of contents

  • Page 1
    Here's to Lady Ada Lovelace. In 1843, she foresaw the future of computing.

  • Page 2
    ...of extraordinary things, limited only by the creativity of its programmer-nearly a century before the first computers were built. Ada was inspired by her colleague Charles Babbage's Analytic Engine. She saw Babbage's engine as a machine that could manipulate symbols in accordance with a set of rules...

  • Page 3
    ... closing sale price of such shares on the Nasdaq Global Select Market on June 29, 2012) was $134,705,433,770. At January 23, 2013, there were 267,500,149 shares of the registrant's Class A common stock outstanding and 62,163,063 shares of the registrant's Class B common stock outstanding. DOCUMENTS...

  • Page 4

  • Page 5
    ... Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...21 Selected Financial Data ...24 Management's Discussion and Analysis of Financial Condition and Results of Operations ...25 Quantitative and Qualitative Disclosures About Market Risk...41 Financial Statements and...

  • Page 6
    4 Contents

  • Page 7
    ... Google Network Members' websites, which will have a positive impact on our operating margins; our expectation that we will continue to pay most of the fees we receive from advertisers to our Google Network Members; our expectations about the impact of our acquisition of Motorola Mobility Holdings...

  • Page 8
    ...are located at 1600 Amphitheatre Parkway, Mountain View, California 94043, and our telephone number is (650) 253-0000. We completed our initial public offering in August 2004 and our Class A common stock is listed on the Nasdaq Global Select Market under the symbol "GOOG." Business 2012 Corporate...

  • Page 9
    ... 2013 that it has agreed to sell approximately 10.6 million shares of its common stock, valued at $150.0 million, to Comcast Corporation with the closing of the Comcast investment and the Home business disposition expected to occur simultaneously. As provided for in the Motorola Agreement, the...

  • Page 10
    ... a user clicks on one of its ads. We also offer AdWords on a cost-per-impression basis that enables advertisers to pay us based on the number of times their ads appear on our websites and our Google Network Members' websites as specified by the advertiser. Our AdSense program enables websites that...

  • Page 11
    ... Search (for online retail enterprises). We also provide versions of our Google Maps Application Programming Interface (API) for businesses (including fully interactive Google Maps for public and internal websites), as well as Google Earth Enterprise (a behind-thecompany-firewall software solution...

  • Page 12
    ... and leading internet companies. We have built a multi-product sales force, with teams selling campaigns that include search, display (including DoubleClick and YouTube), and mobile advertising. We provide customer service to our advertiser base through our global support organization. Our...

  • Page 13
    ... multiple media, both online and o ine. Mobile applications on iPhone and Android devices, which allow users to access information directly from a publisher without using search engines. Providers of online products and services. A number of our online products and services, including Gmail, YouTube...

  • Page 14
    ... formats. The United States accounted for approximately 47% of our revenues in 2012. Information regarding financial data by geographic areas is set forth in Item 7 and Item 8 of this Annual Report on Form 10-K. See Note 15 of Notes to Consolidated Financial Statements under Item 8. Seasonality...

  • Page 15
    ... competitors in different industries, including general purpose search engines, vertical search engines and e-commerce sites, social networking sites, traditional media companies, wireless mobile device companies, and providers of online products and services. Our current and potential competitors...

  • Page 16
    ...the online advertising market, including the increasing variety of online platforms for advertising, and the other markets in which we participate and the success of our investments in new business strategies, products, services, and technologies, such as our acquisition of Motorola. 10 GOOGLE INC...

  • Page 17
    ... the margin on revenues we generate from advertising on our websites. Additionally, the margin we earn on revenues generated from our Google Network Members could decrease in the future if we pay an even larger percentage of advertising fees to our Google Network Members. We are subject to increased...

  • Page 18
    ...Google AdSense, Motorola products, Google Books, Google News, Google Image Search, Google Chrome, Google Talk, Google Voice, and YouTube, infringe the intellectual property rights of others. Third parties have also sought broad injunctive relief against us by filing claims in the U.S. International...

  • Page 19
    ... intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results. We may be subject to legal liability associated with providing online services or content. We host...

  • Page 20
    ... supply contracts have volume-based pricing or minimum purchase requirements, if the volume of our Motorola sales decreases or does not reach projected targets, we could face increased materials and manufacturing costs or other financial liabilities that could make our Motorola products more costly...

  • Page 21
    ... reduce our AdSense revenues, since some of these websites are AdSense partners. Interruption or failure of our information technology and communications systems could hurt our ability to effectively provide our products and services, which could damage our reputation and harm our operating results...

  • Page 22
    ... our ability to attract websites to our AdSense program. The mix in our revenues between those generated on our websites and those generated through our Google Network and other factors, such as changes in product mix, including a significant increase in mobile search queries and a deceleration in...

  • Page 23
    ... able to execute our business strategy. Our future success depends in a large part upon the continued service of key members of our senior management team. In particular, Larry Page and Sergey Brin are critical to the overall management of Google and the development of our technology. Along with our...

  • Page 24
    ... line with analyst expectations. Commentary by industry and market professionals about our products, strategies, and other matters affecting our business and results, regardless of its accuracy. The volume of shares of Class A common stock available for public sale. Sales of Class A common stock by...

  • Page 25
    ... of our company or our assets, for the foreseeable future. In addition, because our Class C capital stock carries no voting rights (except as required by applicable law), the issuance of the Class C capital stock, including in future stock-based acquisition transactions and to fund employee equity...

  • Page 26
    ... reported, Motorola is executing a significant consolidation of its portfolio, which will reduce the number of facilities worldwide, including manufacturing, sales and marketing, and research and development locations. We believe our existing facilities, both owned and leased, are in good condition...

  • Page 27
    ... no public market for our stock. The following table sets forth for the indicated periods the high and low sales prices per share for our Class A common stock on the Nasdaq Global Select Market. Fiscal Year 2012 Quarters Ended: March 31, 2012 June 30, 2012 September 30, 2012 December 31, 2012 Fiscal...

  • Page 28
    PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 4 Contents Stock Performance Graph This performance graph shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the ...

  • Page 29
    4 Contents ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PART II Results of Google's Transferable Stock Option (TSO) Program Under our TSO program, eligible employees are able to sell vested stock options to participating ...

  • Page 30
    ...,768 1,227 28,239 2009 $24,485 40,497 1,746 36,004 2011 $44,626 72,574 5,516 58,145 2012 $48,088 93,798 7,746 71,715 Consolidated Balance Sheet Data: Cash, cash equivalents, and marketable securities Total assets Total long-term liabilities Total stockholders' equity 24 GOOGLE INC. | Form 10-K

  • Page 31
    ... our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. Overview Google is a global technology leader focused on improving the ways people connect with information. We aspire to build products and provide services that improve the lives of...

  • Page 32
    ... our websites and our Google Network Members' websites. As we expand our advertising programs and other products to international markets, we continue to increase our exposure to ï¬,uctuations in foreign currency to U.S. dollar exchange rates. We have a foreign exchange risk management program that...

  • Page 33
    ... Home segment and the related financial results are presented as net loss from discontinued operations in the Consolidated Statements of Income. Subsequent to the acquisition in May 2012, we initiated a restructuring plan in our Motorola business. See Note 9 of Notes to Consolidated Financial...

  • Page 34
    ... mix due to tra c growth in emerging markets, where the average cost-per-click is typically lower, compared to more mature markets. In addition, the increase in advertising revenues for Google Network Members' websites from 2010 to 2011 was partially offset by the loss of a search partnership...

  • Page 35
    ...for our Google business, and shipping addresses of our customers for our Motorola Mobile business: Year Ended December 31, 2010 2011 48% 46% 11% 11% 41% 43% 2012 47% 10% 43% United States United Kingdom Rest of the world The growth in revenues from the United States as a percentage of consolidated...

  • Page 36
    ... access points is based on the historical average period of time they generate tra c and revenues. Cost of revenues also includes the expenses associated with the operation of our data centers, including depreciation, labor, energy, and bandwidth costs, credit card and other transaction fees related...

  • Page 37
    ... information technology assets and data center buildings and an increase in labor, energy, and bandwidth costs, and an increase in content acquisition costs of $236 million, primarily related to content displayed on YouTube, partially offset by a decrease in mobile phone costs. We expect cost...

  • Page 38
    ... of total revenues in 2013 and future periods, as we expand our business globally, increase advertising and promotional expenditures in connection with new and existing products, and increase the level of service we provide to our advertisers, Google Network Members, and other partners. General and...

  • Page 39
    ... exchange rates relative to the strike prices of the contracts, as well as the volatility of the foreign exchange rates. As we expand our international business, we believe costs related to hedging activities under our foreign exchange risk management program may increase in dollar amount in 2013...

  • Page 40
    ...Accounting Policies and Estimates below for additional information about our provision for income taxes. A reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in Note 14 of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report...

  • Page 41
    ...except per share amounts) (unaudited) Sep 30, 2012 Dec 31, 2012 Consolidated Statements of Income Data: Revenues: Google (advertising and other) Motorola Mobile (hardware and other) Total revenues Costs and expenses: Cost of revenues-Google (advertising and other) Cost of revenues-Motorola Mobile...

  • Page 42
    ... Costs and expenses: Cost of revenues-Google (advertising and other) Cost of revenues-Motorola Mobile (hardware and other) Research and development Sales and marketing General and administrative Charge related to the resolution of Department of Justice investigation Total costs and expenses Income...

  • Page 43
    ..., the decrease in cash from changes in working capital activities primarily consisted of an increase of $1,129 million in accounts receivable due to the growth in fees billed to our advertisers and an increase of $414 million in prepaid revenue share, expenses and other assets. These increases were...

  • Page 44
    ... agreements. In order to manage expected increases in internet tra c, advertising transactions, and new products and services, and to support our overall global business expansion, we expect to make significant investments in our systems, data centers, corporate facilities, information technology...

  • Page 45
    ... for market provisions. Purchase Obligations Purchase obligations represent non-cancelable contractual obligations at December 31, 2012. These contracts are primarily related to distribution arrangements, video and other content licensing revenue sharing arrangements, data center operations and...

  • Page 46
    ... operations, or cash ï¬,ows. See Note 11 of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding contingencies. Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired...

  • Page 47
    ... currencies at the balance sheet dates to compute the adverse impact these changes would have had on our income before income taxes in the near term. Interest Rate Risk We invest our excess cash primarily in U.S. government and its agency securities, money market and other funds, corporate debt...

  • Page 48
    ...100 basis points) increase in interest rates would have resulted in a decrease in the fair values of our marketable securities of approximately $934 million and $1.1 billion at December 31, 2011 and 2012, after taking into consideration the offsetting effect from interest rate derivative contracts...

  • Page 49
    ... Data Google Inc. Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm ...44 Financial Statements: Consolidated Balance Sheets ...46 Consolidated Statements of Income ...47 Consolidated Statements of Comprehensive Income...48 Consolidated Statements...

  • Page 50
    ... Data 4 Contents Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Google Inc. We have audited the accompanying consolidated balance sheets of Google Inc. as of December 31, 2011 and 2012, and the related consolidated statements of income...

  • Page 51
    ... accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Google Inc. as of December 31, 2011 and 2012, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash ï¬,ows for each of...

  • Page 52
    ... Balance Sheets 4 Contents Google Inc. Consolidated Balance Sheets (In millions, except share and par value amounts which are reï¬,ected in thousands, and par value per share amounts) As of December 31, 2011 As of December 31, 2012 ASSETS Current assets: Cash and cash equivalents Marketable...

  • Page 53
    ... Discontinued operations Net income per share of Class A and Class B common stock-diluted (1) Includes stock-based compensation expense as follows: Cost of revenues-Google (advertising and other) Cost of revenues-Motorola Mobile (hardware and other) Research and development Sales and marketing...

  • Page 54
    PART II ITEM 8. Consolidated Statements of Comprehensive Income 4 Contents Google Inc. Consolidated Statements of Comprehensive Income (In millions) Net income Other comprehensive income: Change in foreign currency translation adjustment Available-for-sale investments: Change in net unrealized...

  • Page 55
    ...8. Consolidated Statements of Stockholders' Equity PART II Google Inc. Consolidated Statements of Stockholders' Equity Class A and Class B Common Stock and Additional Paid-In Capital (In millions, except for share amounts which are reï¬,ected in thousands) Balance at January 1, 2010 Common stock...

  • Page 56
    ...by operating activities Investing activities Purchases of property and equipment Purchases of marketable securities Maturities and sales of marketable securities Investments in non-marketable equity securities Cash collateral related to securities lending Investments in reverse repurchase agreements...

  • Page 57
    ... 2012, we entered into an agreement to dispose Home, and the related financial results are presented as net loss from discontinued operations on the Consolidated Statements of Income. Assets and liabilities of Motorola Home are not presented as held for sale on the Consolidated Balance Sheets...

  • Page 58
    ...we review the access points for impairment by distribution partner, type, and geography, and we have not made any impairment to date. Cost of revenues also includes the expenses associated with the operation of our data centers, including depreciation, labor, energy, and bandwidth costs, credit card...

  • Page 59
    ..., and asset-backed securities. Foreign exchange contracts are transacted with various financial institutions with high credit standing. Accounts receivable are typically unsecured and are derived from revenues earned from customers located around the world. In 2010, 2011, and 2012, we generated...

  • Page 60
    ...we may sell these securities prior to their stated maturities. As we view these securities as available to support current operations, we classify securities with maturities beyond 12 months as current assets under the caption marketable securities in the accompanying Consolidated Balance Sheets. We...

  • Page 61
    ...local currency. We translate the financial statements of these subsidiaries to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenues, costs, and expenses. We record translation gains and losses in accumulated other comprehensive income...

  • Page 62
    ... outstanding Employee stock options, including warrants issued under Transferable Stock Option program Restricted stock units Number of shares used in per share computation Diluted net income (loss) per share: Continuing operations Discontinued operations Diluted net income per share Class B 2012...

  • Page 63
    ... Statements PART II Financial Instruments Fair Value Measurements We measure our cash equivalents, marketable securities, and foreign currency and interest rate derivative contracts at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset...

  • Page 64
    ... other income, net, in our accompanying Consolidated Statements of Income. The following table summarizes the estimated fair value of our investments in marketable securities, excluding marketable equity securities, designated as available-for-sale and classified by the contractual maturity date of...

  • Page 65
    ... agreements on the accompanying Consolidated Balance Sheets. For lending agreements collateralized by securities, we do not record an asset or liability as we are not permitted to sell or repledge the associated collateral. Derivative Financial Instruments We enter into foreign currency contracts...

  • Page 66
    ... exchange contracts Total Fair Value Prepaid revenue share, expenses and other assets, current and non-current $ 333 $ 4 $ 337 Accrued expenses and other current liabilities $ 5 $ 1 $ 6 Balance Sheet Location Derivative Assets: Level 2: Foreign exchange contracts Interest rate contracts...

  • Page 67
    ...(2) Year Ended December 31, 2010 2011 2012 $(35) $ (2) $(31) 29 (12) 23 $ (6 ) $(14 ) $ (8 ) Derivatives in Fair Value Hedging Relationship Foreign exchange contracts Hedged item Total Location Interest and other income, net Interest and other income, net (2) Losses related to the amount excluded...

  • Page 68
    ... on observable market prices of identical instruments in markets that are not active and was categorized accordingly as Level 2 in the fair value hierarchy. At December 31, 2012, future principal payments for the Notes were as follows (in millions): Years ending 2013 2014 2015 2016 Thereafter Total...

  • Page 69
    ... other comprehensive income NOTE 6. Acquisitions On May 22, 2012, we completed our acquisition of Motorola, a provider of innovative technologies, products and services that enable a range of mobile and wireline digital communication, information and entertainment experiences. The acquisition is...

  • Page 70
    ... operations included $70 million of amortization expense related to Home intangible assets. As of December 31, 2012, expected amortization expense for acquisition-related intangible assets for each of the next five years and thereafter was as follows (in millions): 2013 2014 2015 2016 2017...

  • Page 71
    ...workforce, reorganize management structure, close, consolidate and dispose certain facilities, as well as simplify our mobile product portfolio. These changes are designed to return Motorola's Mobile segment to profitability. For the year ended December 31, 2012, activities related to restructuring...

  • Page 72
    ... future rental income of $649 million related to the leases that we assumed in connection with our building purchases. Rent expense under operating leases, including co-location arrangements, was $293 million, $380 million, and $448 million in 2010, 2011, and 2012. Purchase Obligations At December...

  • Page 73
    ..., Google AdWords, Google AdSense, Google Books, Google News, Google Image Search, Google Chrome, Google Talk, Google Voice, Motorola devices and YouTube, infringe the intellectual property rights of others. Adverse results in these lawsuits may include awards of substantial monetary damages, costly...

  • Page 74
    ...cate of Incorporation (New Charter), the adoption of which was approved by stockholders at our 2012 Annual Meeting of Stockholders held on June 21, 2012. We have announced the intention of our board of directors to consider a distribution of shares of the Class C capital stock as a dividend to our...

  • Page 75
    ... 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...

  • Page 76
    ... during 2010, 2011, and 2012 was $794 million, $674 million, and $827 million. These amounts do not include the aggregate sales price of options sold under our TSO program. As of December 31, 2012, there was $386 million of unrecognized compensation cost related to outstanding employee stock options...

  • Page 77
    ... of federal benefit Stock-based compensation expense Change in valuation allowance Foreign rate differential Federal research credit Tax exempt interest Non-deductible legal settlement Basis difference in investment in Home business Other permanent differences Provision for income taxes We have...

  • Page 78
    ... tax assets: Stock-based compensation expense State taxes Capital loss carryforward Settlement with the Authors Guild and AAP Vacation accruals Deferred rent Accruals and reserves not currently deductible Acquired net operating losses Tax credit Basis difference in investment in Home business Other...

  • Page 79
    ...a lapse of applicable statute of limitation Increases related to current year tax positions Balance as of December 31, 2010 Increases related to prior year tax positions Decreases related to prior year tax positions Increases related to current year tax positions Decreases related to settlement with...

  • Page 80
    ... for the Google segment and the ship-to-addresses of our customers for the Mobile segment. The following tables set forth revenues and long-lived assets by geographic area (in millions): Year Ended December 31, 2010 2011 Revenues: United States United Kingdom Rest of the world Total revenues $14,056...

  • Page 81
    ... as of December 31, 2012 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in Item 8 of this Annual Report on Form 10-K. Limitations on Effectiveness of Controls and Procedures In designing and evaluating the...

  • Page 82
    ...-Corporate Governance and Board Matters-Director Independence" in the 2013 Proxy Statement and is incorporated herein by reference. ITEM 14. Principal Accounting Fees and Services The information required by this item will be included under the caption "Independent Registered Public Accounting...

  • Page 83
    ... accounts are charged to expense. Additions to the allowance for sales credits are charged against revenues. For 2012, additions included the impact from the Motorola acquisition. All other schedules have been omitted because they are not required, not applicable, or the required information...

  • Page 84
    ... 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Date: January 29, 2013 GOOGLE INC. By: /s/ LARRY PAGE Larry Page Chief Executive Officer Power of Attorney...

  • Page 85
    ... Restated Bylaws of Registrant Specimen Class A Common Stock certificate Form of Warrant Agreement, dated April 20, 2007, among Google Inc., Citigroup Global Markets Inc. as Warrant Agent, and Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc., Credit Suisse Management LLC, and UBS AG...

  • Page 86
    ... stock unit agreement ♥ 2004 Stock Plan-Amendment to stock option agreements ♥ 2004 Stock Plan-Form of stock option agreement (TSO Program) ♥ Google Inc. 2012 Stock Plan ♥ Google Inc. 2012 Incentive Compensation Plan for Employees and Consultants of Motorola Mobility ♥ Motorola Mobility...

  • Page 87
    4 Contents Exhibit Index Exhibit Number Description 24.01 * Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K) 31.01 * Certification of Chief Executive O cer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section ...

  • Page 88
    ... registrant's internal control over financial reporting. (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Date: January 29, 2013 /s/ LARRY PAGE Larry Page Chief Executive Officer (Principal Executive Officer) 82 GOOGLE INC...

  • Page 89
    ..., process, summarize and report financial information; and registrant's internal control over financial reporting. (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Date: January 29, 2013 /s/ PATRICK PICHETTE Patrick Pichette...

  • Page 90
    ...(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Google Inc. Date: January 29, 2013 By: Name: Title: /s/ LARRY PAGE Larry Page Chief Executive...

  • Page 91
    ... Mountain View, California 94043 [email protected] You may also reach us by visiting the investor relations portion of our website at: http://investor.google.com If you wish to receive stockholder information online, you can register at: http://investor.google.com/notify.html Google's stock trades...

  • Page 92