Google 2014 Annual Report Download

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Table of contents

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    ... GOOGLE INC. SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Class A Common Stock, $0.001 par value Name of each exchange on which registered Nasdaq Stock Market LLC (Nasdaq Global Select Market) Nasdaq Stock Market LLC (Nasdaq Global Select Market) Class C Capital...

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  • Page 5
    ... 76 Controls and Procedures 76 Other Information 76 Part III ITEM 10. ITEM 11. ITEM 12. ITEM 13. ITEM 14. 77 Directors, Executive Officers and Corporate Governance 77 Executive Compensation 77 Security Ownership of Certain Beneficial Owners and Management and related Stockholder Matters 77...

  • Page 6
    ... exposure to fluctuations in foreign currency exchange rates; the expected increase of costs related to hedging activities under our foreign exchange risk management program; our expectation that our cost of revenues, research and development expenses, sales and marketing expenses, and general and...

  • Page 7
    ... we have managed to do. Our innovations in search and advertising have made our website widely used and our brand one of the most recognized in the world. We generate revenues primarily by delivering online advertising that consumers find relevant and that advertisers find cost-effective. We were...

  • Page 8
    ...with advertisers' products and services, through videos, text, images, and other interactive ads that run across various devices. We help brand advertisers deliver digital videos and other types of ads to specific audiences for their brand-building marketing campaigns and in turn, generate revenue...

  • Page 9
    ... primary auction-based advertising program. Other operating systems and mobile device companies. Providers of online products and services that provide answers, information, and services. A number of our online products and services, including Gmail, YouTube, and Google Docs, compete directly with...

  • Page 10
    ..., and commercial queries typically increase significantly in the fourth quarter of each year. Available Information Our website is located at www.google.com, and our investor relations website is located at http://investor.google.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10...

  • Page 11
    ... are constantly developing innovations in search, online advertising, wireless mobile devices, operating systems, and many other web-based products and services. The research and development of new, technologically advanced products is also a complex and uncertain process requiring high levels of...

  • Page 12
    ... as a result of a number of factors, including as a result of increasing competition, changes in property mix, platform mix, and geographical mix, the challenges in maintaining our growth rate as our revenues increase to higher levels, the evolution of the online advertising market, including the...

  • Page 13
    ... further develop the acquired business or technology. Implementation or remediation of controls, procedures, and policies at the acquired company. Integration of the acquired company's accounting, human resource, and other administrative systems, and coordination of product, engineering, and sales...

  • Page 14
    ... searched and the ads posted by our users, our products and services, or content generated by our users. Furthermore, many of these laws do not contemplate or address the unique issues raised by a number of our new businesses, products, services and technologies. In addition, the applicability...

  • Page 15
    ... an adverse effect on our business, consolidated financial position, results of operations, or cash flows. Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services, and brand. Our patents, trademarks, trade secrets, copyrights...

  • Page 16
    ... could seriously harm our business is likely to increase as we expand the number of web-based products and services we offer, and operate in more countries. Regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection, including...

  • Page 17
    ...trade disputes and barriers, and customs classifications that may prevent us from offering products or providing services to a particular market and may increase our operating costs. Longer payment cycles in some countries, increased credit risk, and higher levels of payment fraud. Still developing...

  • Page 18
    ...) traffic on Google websites and our Google Network members' websites both on desktop and mobile devices. Revenue fluctuations caused by changes in property mix, platform mix, and geographical mix. The amount of revenues and expenses generated and incurred in currencies other than U.S. dollars, and...

  • Page 19
    ...the value or liquidity of our cash equivalents and marketable securities could decline and result in a material impairment, which could materially adversely affect our financial condition and operating results. We may have exposure to greater than anticipated tax liabilities. Our future income taxes...

  • Page 20
    ... of the board of directors. For further disclosure regarding this potential payment, please refer to Note 12 "Stockholders' Equity - Stock Split Effected in Form of Stock Dividend" of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Over...

  • Page 21
    ...sale of our company or our assets. This concentrated control could discourage others from initiating any potential merger, takeover, or other change of control transaction that other stockholders may view as beneficial. As noted above, the issuance of the Class C capital stock could have the effect...

  • Page 22
    ... and lease office and building space, research and development, and sales and support offices primarily in North America, Europe, South America, and Asia. We operate and own data centers in the U.S., Europe, South America, and Asia pursuant to various lease agreements and co-location arrangements...

  • Page 23
    ... the high and low sales prices per share for our Class A common stock on the Nasdaq Global Select Market, adjusted for the Stock Split (please see Note 12 of Part II, Item 8 of this Annual Report on Form 10-K for additional information related to the Stock Split). Fiscal Year 2014 Quarters Ended...

  • Page 24
    ...ITEM 5. market for Registrant's Common Equity, Related Stockholder matters and Issuer Purchases of Equity Securities Stock Performance Graph The following graph compares the 5-year cumulative total return to shareholders on Google Inc.'s common stock relative to the cumulative total returns of the...

  • Page 25
    ...December 31, 2012 $ 48,088 93,798 7,746 71,715 2013 $ 58,717 110,920 7,703 87,309 2014 $ 64,395 131,133 9,828 104,500 Consolidated Balance Sheet Data: Cash, cash equivalents, and marketable securities Total assets Total long-term liabilities Total stockholders' equity GOOGLE INC. | Form 10-K 19

  • Page 26
    ... in these markets, particularly as low-cost mobile devices become more available. Our international revenues have gone from 55% of total revenues in 2013 to 57% in 2014. As a result, we are increasingly subject to fluctuations in foreign currency exchange rates relative to the U.S. dollar. While we...

  • Page 27
    ...2012 2013 Consolidated Statements of Income Data: Revenues Costs and expenses: Cost of revenues Research and development Sales and marketing General and administrative Total costs and expenses Income from operations Interest and other income, net Income from continuing operations before income taxes...

  • Page 28
    ...click paid by our advertisers of 5% from 2013 to 2014. The decrease was due to various factors, such as the geographic mix, device mix, property mix, ongoing product and policy changes, and the general strengthening of the U.S. dollar compared to certain foreign currencies. Our advertising revenues...

  • Page 29
    ...The decrease in the average cost-per-click paid by our advertisers was driven by various factors, such as the geographic mix, device mix, property mix, ongoing product and policy changes, and the general strengthening of the U.S. dollar compared to certain foreign currencies. Our revenue growth rate...

  • Page 30
    ... United Kingdom Rest of the world The growth in revenues from rest of the world as a percentage of revenues from 2012 to 2013 and from 2013 to 2014 resulted largely from increased acceptance of our advertising programs and our continued progress in developing localized versions of our products...

  • Page 31
    ... 31, 2013 $ 9,293 2,965 $12,258 24.2% 2014 $ 9,864 3,633 $13,497 22.9% 25.1% The cost of revenues that we incur related to revenues generated from ads placed through our AdSense program on the websites of our Google Network Members, which is the network of third parties that use our advertising...

  • Page 32
    ...of Financial Condition and Results of Operations We expect cost of revenues will increase in dollar amount and may increase as a percentage of total revenues in 2015 and future periods, based on a number of factors, including the following The relative growth rates of revenues from Google websites...

  • Page 33
    ... Labor and facilities-related costs for our personnel engaged in sales and marketing, sales support, and certain customer service functions; Advertising and promotional expenditures related to our products and services; and Stock-based compensation expense for our employees engaged in sales, sales...

  • Page 34
    ... rates. As we expand our international business, we believe costs related to hedging activities under our foreign exchange risk management program may increase in 2015 and future periods. Provision for Income Taxes The following table presents our provision for income taxes, and effective tax rate...

  • Page 35
    ... Report on Form 10-K. See Critical Accounting Policies and Estimates below for additional information about our provision for income taxes. Net Income (Loss) from Discontinued Operations Motorola Mobile On October 29, 2014, we closed the sale of the Motorola Mobile business to Lenovo for a total...

  • Page 36
    ... 2013 2014 2014 (In millions, except per share amounts) (unaudited) Sep 30, 2014 Dec 31, 2014 Consolidated Statements of Income Data: Revenues Costs and expenses: Cost of revenues Research and development Sales and marketing General and administrative Total costs and expenses Income from operations...

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    ...: Mar 31, 2013 Jun 30, 2013 Sep 30, 2013 Quarter Ended Dec 31, Mar 31, 2013 2014 Jun 30, 2014 Sep 30, 2014 Dec 31, 2014 Revenues Costs and expenses: Cost of revenues Research and development Sales and marketing General and administrative Total costs and expenses Income from operations Interest and...

  • Page 38
    ... payment for manufacturing and inventory-related costs in the Motorola Mobile business. In addition, uses of cash from operating activities include compensation and related costs, other general corporate expenditures, and income taxes. Net cash provided by operating activities increased from 2013...

  • Page 39
    ... date the Class C shares traded on NASDAQ (the Lookback Period), payable in cash, Class A common stock, Class C capital stock, or a combination thereof, at the discretion of the board of directors. Had we been obligated to make a payment based on the Volume Weighted Average Price (VWAP) of the Class...

  • Page 40
    ... operations, or cash flows. See Note 10 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 41
    ... regarding the assets acquired and liabilities assumed, as more fully discussed in Note 5 of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Goodwill Goodwill is allocated to reporting units expected to benefit from the business combination. We...

  • Page 42
    ...the local 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 Our investment strategy is to achieve a return that will allow us to preserve capital and maintain liquidity requirements...

  • Page 43
    ...Financial Statements and Supplementary Data Google Inc. Index to Consolidated Financial Statements reports of Independent registered Public accounting Firm 38 Financial Statements: Consolidated Balance Sheets 40 Consolidated Statements of Income 41 Consolidated Statements of Comprehensive Income...

  • Page 44
    ... 8. Financial Statements and Supplementary Data 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, 2013 and 2014, and the related consolidated...

  • Page 45
    ...all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Google Inc. as...

  • Page 46
    ... Balance Sheets Google Inc. Consolidated Balance Sheets (In millions, except share and par value amounts which are reflected in thousands, and par value per share amounts) As of December 31, 2013 As of December 31, 2014 ASSETS Current assets: Cash and cash equivalents marketable securities Total...

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    ... income (loss) per share-diluted Shares used in per share calculation-basic Shares used in per share calculation-diluted (1) Includes stock-based compensation expense as follows: Cost of revenues Research and development Sales and marketing General and administrative Discontinued operations Total...

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    Part II ITEm 8. Consolidated Statements of Comprehensive Income Google Inc. Consolidated Statements of Comprehensive Income (In millions) Net income Other comprehensive income (loss): Change in foreign currency translation adjustment Available-for-sale investments: Change in net unrealized gains...

  • Page 49
    ... income Balance at December 31, 2012 Common stock issued Stock-based compensation expense Stock-based compensation tax benefits Tax withholding related to vesting of restricted stock units Net income Other comprehensive income Balance at December 31, 2013 Common and capital stock issued Stock-based...

  • Page 50
    ...the divestiture of motorola mobile Receipt of Arris shares in connection with the divestiture of motorola Home Fair value of stock-based awards assumed in connection with the acquisition of motorola Leases recorded on the balance sheet during the period 44 GOOGLE INC. | Form 10-K See accompanying...

  • Page 51
    ... information about the Stock Split. On October 29, 2014, we sold the motorola mobile business (motorola mobile) to Lenovo Group Limited (Lenovo). The financial results of motorola mobile are presented as net income (loss) from discontinued operations on the Consolidated Statements of Income...

  • Page 52
    ... user clicks on one of its ads. We also offer advertising on a cost-per-impression basis that enables our brand advertisers to pay us based on the number of times their ads display on Google websites and our Google Network members' websites as specified by the advertisers. We recognize as revenues...

  • Page 53
    ... the indirect effects of stock-based awards-primarily the research and development tax credit-through the Consolidated Statements of Income. For the years ended December 31, 2012, 2013, and 2014, we recognized stock-based compensation expense from continuing operations and related tax benefits of...

  • Page 54
    ... of technological feasibility and before the release of those products are not material. Software development costs also include costs to develop software programs to be used solely to meet our internal needs and cloud based applications used to deliver our services. We capitalize development costs...

  • Page 55
    ...dollars using month-end rates of exchange for assets and liabilities, and average rates for the annual period derived from month-end spot rates for revenues, costs, and expenses. We record translation gains and losses in accumulated other comprehensive income as a component of stockholders' equity...

  • Page 56
    ... to determine their fair value. We classify our foreign currency and interest rate derivative contracts primarily within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. Cash, Cash Equivalents, and Marketable Securities The following...

  • Page 57
    ITEm 8. Notes to Consolidated Financial Statements Part II Cash Level 1: money market and other funds U.S. government notes marketable equity securities Level 2: Time deposits(1) money market and other funds(2) Fixed-income bond funds(3) U.S. government agencies Foreign government bonds municipal...

  • Page 58
    ... non-marketable equity investments for impairment. No material impairments were recognized for the years ended December 31, 2012, 2013, and 2014. Securities Lending Program From time to time, we enter into securities lending agreements with financial institutions to enhance investment income. We...

  • Page 59
    ... 8. Notes to Consolidated Financial Statements Part II We classify loaned securities as cash equivalents or marketable securities and record the cash collateral as an asset with a corresponding liability in the accompanying Consolidated Balance Sheets. We classify reverse repurchase agreements...

  • Page 60
    ... Instruments Balance Sheet Location Derivative Assets: Level 2: Foreign exchange contracts Interest rate contracts Total Derivative Liabilities: Level 2: Foreign exchange contracts Total Fair Value Prepaid revenue share, expenses and other assets, current and non-current Prepaid revenue share...

  • Page 61
    ... 31, 2012 2013 2014 $ (31) $ 16 $ 115 23 (25) (123) $ (8) $ (9) $ (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 from effectiveness...

  • Page 62
    ... Financial Statements Offsetting of Assets Balance as of December 31, 2013 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Gross Amounts Offset in the Consolidated Balance Sheets $0 0 $0 Description Derivatives Reverse repurchase agreements Total...

  • Page 63
    ... property in 2016. The effective rate of the capital lease obligation approximates the market rate. The estimated fair value of the capital lease obligation approximated its carrying value as of December 31, 2013 and December 31, 2014. As of December 31, 2014, aggregate future principal payments...

  • Page 64
    ...Property under capital lease with a cost basis of $258 million was included in land and construction in progress as of December 31, 2013 and December 31, 2014. Prepaid Revenue Share, Expenses and Other Assets, Non-Current Note Receivable In connection with the sale of our motorola mobile business...

  • Page 65
    ... Google's suite of products and services and allow Nest to continue to innovate upon devices in the home, making them more useful, intuitive, and thoughtful, and to reach more users in more countries. f the total $2.6 billion purchase price and the fair value of our previously held equity...

  • Page 66
    ... a life science company with a mission to harness advanced technologies to increase our understanding of the biology that controls lifespan. Calico's results of operations and statement of financial position are included in our consolidated financial statements. As of December 31, 2014, Google has...

  • Page 67
    ... in other cost of revenues of $378 million related to a patent licensing royalty asset acquired in connection with the motorola acquisition, which Google retained subsequent to the sale of motorola mobile. The asset was determined to be impaired due to prolonged decreased royalty payments and...

  • Page 68
    ...ended December 31, 2014. The financial results of motorola mobile through the date of divestiture are presented as net income (loss) from discontinued operations on the Consolidated Statements of Income. The following table presents financial results of the motorola mobile business included in net...

  • Page 69
    ...date of divestiture are presented as net income (loss) from discontinued operations on the Consolidated Statement of Income. The following table presents financial results of the motorola Home business included in net income (loss) from discontinued operations for the years ended December 31, 2012...

  • Page 70
    ... Consolidated Balance Sheet as of December 31, 2014 as an asset and corresponding non-current liability, which represents our estimate of construction costs incurred, and the balance of which is included in the schedule above. Rent expense under operating leases, including co-location arrangements...

  • Page 71
    ... the first date the Class C shares traded on NASDAQ (the Lookback Period), payable in cash, Class A common stock, Class C capital stock, or a combination thereof, at the discretion of the board of directors. Had we been obligated to make a payment based on the Volume Weighted Average Price (VWAP...

  • Page 72
    ... an adverse ruling in any such claims. Our customers and partners may discontinue the use of our products, services, and technologies, as a result of injunctions or otherwise, which could result in loss of revenues and adversely impact our business. Other We are also regularly subject to claims...

  • Page 73
    ...shares outstanding Employee stock options, including warrants issued under Transferable Stock Option program Restricted stock units and other contingently issuable shares Number of shares used in per share computation Diluted net income (loss) per share: Continuing operations Discontinued operations...

  • Page 74
    ...shares outstanding Employee stock options, including warrants issued under Transferable Stock Option program Restricted stock units and other contingently issuable shares Number of shares used in per share computation Diluted net income (loss) per share: Continuing operations Discontinued operations...

  • Page 75
    ...-average effect of dilutive securities Add: Conversion of Class B to Class A common shares outstanding Employee stock options Restricted stock units and other contingently issuable shares Number of shares used in per share computation Diluted net income per share: Continuing operations Discontinued...

  • Page 76
    ... discretion of the board of directors. The amount of the Possible Adjustment Payment is dependent on the percentage difference that develops, if any, between the volume-weighted average price (VWAP) of Class A and Class C shares during the Lookback Period, as supplied by NASDAQ Data-on-Demand. Had...

  • Page 77
    ... term based upon the historical exercise behavior of our employees. The risk-free interest rate for periods within the contractual life of the award were based on the U.S. Treasury yield curve in effect at the time of grant. The weighted-average estimated fair value of options granted during...

  • Page 78
    ...these 401(k) Plans, matching contributions are based upon the amount of the employees' contributions subject to certain limitations. We contributed approximately $164 million, $202 million, and $259 million for the years ended December 31, 2012, 2013, and 2014. NOTE 14. Income Taxes Income from...

  • Page 79
    ... and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in millions): As of December 31, 2013 Deferred tax assets: Stock-based compensation expense State taxes Investment loss...

  • Page 80
    ... to Consolidated Financial Statements Uncertain Tax Positions The following table summarizes the activity related to our gross unrecognized tax benefits from January 1, 2012 to December 31, 2014 (in millions): Balance as of January 1, 2012 Increases related to prior year tax positions Decreases...

  • Page 81
    ... financial performance. Revenues by geography are based on the billing addresses of our customers. The following tables set forth revenues and longlived assets by geographic area (in millions): Year Ended December 31, 2012 2013 Revenues: United States United Kingdom Rest of the world Total revenues...

  • Page 82
    ... period covered by this Annual Report on Form 10-K. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2014, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable...

  • Page 83
    ... "Common Stock Ownership of Certain Beneficial Owners and management" and "Equity Compensation Plan Information" in the 2015 Proxy Statement and is incorporated herein by reference. ITEM 13. Certain Relationships and Related Transactions, and Director Independence The information required by...

  • Page 84
    ... Statement Schedules (a) We have filed the following documents as part of this Annual Report on Form 10-K: 1. Consolidated Financial Statements reports of Independent registered Public accounting Firm 38 Financial Statements: Consolidated Balance Sheets 40 Consolidated Statements of Income...

  • Page 85
    ... 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: February 6, 2015 GOOGLE INC. By: /s/ LARRY PAGE Larry Page Chief Executive Officer Power of Attorney KNOW ALL PERSONS BY THESE PRESENTS...

  • Page 86
    ... Stock certificate Specimen Class C Capital Stock certificate Indenture, dated as of may 19, 2011 between Google Inc. and The Bank of New York mellon Trust Company, N.A., as trustee Form of 2.125% Note due 2016 Form of 3.625% Note due 2021 Form of 3.375% Note due 2024 Deferred Compensation Plan...

  • Page 87
    ... Number Description Form Date â-† Google Inc. 2012 Incentive Compensation Plan for Employees and Current Report on Form 8-K 10.07 June 26, 2012 (File No. 333-00050726) Consultants of motorola mobility â-† motorola mobility Holdings, Inc. 2011 Incentive Compensation Plan Registration Statement...

  • Page 88
    ... 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: February 6, 2015 /s/ LARRY PAGE Larry Page Chief Executive Officer (Principal Executive Officer) 82 GOOGLE INC. | Form 10-K

  • Page 89
    ... reporting. (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Date: February 6, 2015 /s/ PATRICK PICHETTE Patrick Pichette Senior Vice President and Chief Financial Officer (Principal Financial Officer) GOOGLE INC. | Form...

  • 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: February 6, 2015 By: Name: Title: /s/ LARRY PAGE Larry Page Chief Executive...

  • Page 91
    ... 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 on the NASDAQ Global Select Market. Transfer Agent and Registrar Computershare Trust Company...

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