FORM 10-K
| FORM 10-K |
| ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2014
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
001-36380
| Delaware | 77-0493581 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| Title of each class | Name of each exchange on which registered | |
| Class A Common Stock, $0.001 par value | Nasdaq Stock Market LLC (Nasdaq Global Select Market) | |
| Class C Capital Stock, $0.001 par value | Nasdaq Stock Market LLC (Nasdaq Global Select Market) | |
| Title of each class |
| Class B Common Stock, $0.001 par value |
At
At January 23, 2013,2015, there were 267,500,149286,938,352 shares of the registrant’s Class A common stock outstanding, and 62,163,06353,018,898 shares of the registrant’s Class B common stock outstanding, and 340,665,532 shares of the registrant’s Class C capital stock outstanding.
2014.
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the growth of our business and revenues and our expectations about the factors that influence our success and trends in our business; our plans to continue to invest in new businesses, products and technologies, systems, facilities, and infrastructure, to continue to hire aggressively and provide competitive compensation programs, as well as to continue to invest in acquisitions; the potential for declines in our revenue growth rate; our expectation that growth in advertising revenues from our websites will continue to exceed that from our Google Network Members’ websites, which will have a positive impact on our operating margins; our expectation that we will continue to take steps to improve the relevance of the ads we deliver and to reduce the number of accidental clicks; fluctuations in aggregate paid clicks and average cost-per-click; our belief that our foreign exchange risk management program will not fully offset 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 administrative expenses will increase in dollars and may increase as a percentage of revenues; our potential exposure in connection with pending investigations, proceedings, and our expectation that our traffic acquisition costs will fluctuate in the future; our continued investments in international markets; estimates of our future compensation expenses; fluctuations in our effective tax rate; the sufficiency of our sources of funding; our payment terms to certain advertisers, which may increase our working capital requirements; fluctuations in our capital expenditures; our expectations following sections: Item 1 We generate General purpose search engines and information services, such as Yahoo, Microsoft’s Bing, Yandex, Baidu, Naver, WebCrawler, and Vertical search engines and e-commerce websites, such as Kayak (travel queries), NOTE ABOUT FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding:seasonal fluctuations in internet usage and advertiser expenditures, traditional retail seasonality and macroeconomic conditions, which are likely to cause fluctuations in our quarterly results;our plans to continue to invest in systems, facilities, and infrastructure, to increase in our hiring and provide competitive compensation programs, as well as to continue our current pace of acquisitions;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, Inc. (Motorola) on our results and business and our ability to realize the expected benefits from the acquisition and successfully implement our plans and expectations for Motorola’s business;theour net exposure to fluctuations in foreign currency exchange rates;proceedings;our expectations about our board of directors’ intention to declare a dividend of shares of the new Class C capital stock, as well as the timing of that dividend, if declared and paid;aboutregarding the timingtrading price of disposition of the Home business;as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may appear throughout this report, including without limitation, the“Business,“Risk“Risk Factors,” and Item 7 “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,“anticipates,” “believes,“believes,” “estimates,“estimates,” “expects,“expects,” “intends,“intends,” “plans,“plans,” “predicts,“predicts,” “projects,“projects,” “will“will be,” “will“will continue,” “will“will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors”“Risk Factors” in Item1A of this report and those discussed in other documents we file with the Securities and Exchange Commission (SEC). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.As used herein, “Google,“Google,” “we,“we,” “our,“our,” and similar terms include Google Inc. and its subsidiaries, unless the context indicates otherwise.“Google”Google” and other trademarks of ours appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’companies’ trade names1or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.2PART IOverviewOur founders started Google because they share a profound sense of optimism about the potential for technology to create a positive impact in the world. As Larry and Sergey explained in their first letter to shareholders, our goal is a global technology leader focused on improving the ways people connect with information. We aspire to build products and provideto: “... develop services that significantly improve the lives of billionsas many people as possible.”In many ways, Google itself began with a series of questions: What if we could download and index the entire web? What if we could organize all the world’s information? And then we went out and searched for the answers.We know we’ve found the right answers when they pass what we call the "toothbrush test," whether this product will be used by hundreds of millions of people globally. Our mission iseveryday, hopefully twice a day.We are proud of everything we have managed to organize the world’s information and make it universally accessible and useful.do. Our innovations in web search and advertising have made our website a top internet propertywidely used and our brand one of the most recognized in the world.Our Motorola business is comprised of two operating segments. The Mobile segment is focused on mobile wireless devices and related products and services. The Home segment is focused on technologies and devices that provide video entertainment services to consumers by enabling subscribers to access a variety of interactive digital television services.revenuerevenues primarily by delivering online advertising that consumers find relevant cost-effective online advertising. Businesses useand that advertisers find cost-effective.We were incorporated in California in September 1998 and reincorporated in Delaware in August 2003. We provide our AdWords program to promote their products and services in more than 100 languages and in more than 50 countries, regions, and territories. Additional information on our financial performance by geographic areas can be found in Note 15 of the Notes to Consolidated Financial Statements.Serving Our UsersIn many ways search -- and the clean white page with targetedthe blinking cursor -- is a metaphor for how we think about innovation at Google. Imagining the ways things could be -- without constraint -- is the process we use to look for better answers to some of life’s everyday problems. It’s about starting with the "What if?" and then working relentlessly to see if we can find the answer.It’s been that way from the beginning; providing ways to access knowledge and information has been core to Google and our products have come a long way in the last decade. We used to show just ten blue links in our results. You had to click through to different websites to get your answers, which took time. Now we are increasingly able to provide direct answers -- even if you’re speaking your question using Voice Search -- which makes it quicker, easier and more natural to find what you’re looking for.Over time, we have added other services that let you access information quickly and easily. What if we could develop a smarter email service with plenty of storage? That’s Gmail. What if we could make a simpler, speedier, safer browser? That’s Chrome. What if we could provide easy access to movies, books, music and apps, no matter which device you’re on? That’s Google Play.As devices proliferate, it’s more and more important to ensure that you can navigate effortlessly across them -- that the technology gets out of the way, so you can move through this multi-screen world as easily as possible. It’s why we’re investing so much in platforms like our Chrome browser and our Android mobile operating system. Ultimately, we want you to have speedy, secure access to whatever you need, wherever you happen to be, and on whatever device you may be using at the time.Ads as AnswersWe asked, what if ads weren't intrusive and annoying? What if we could deliver a relevant ad at just the right time and give people useful commercial information? What if we could provide products that allow for better attribution and measurement across screens so that we show great ads for the right people?Our advertising solutions help millions of companies grow their businesses, and we offer a wide range of products across screens and devices. We generate revenues primarily by delivering both performance advertising and brand advertising.Performance advertising creates and delivers relevant ads that users will click, leading to direct engagement with advertisers. Most of our performance advertisers pay us on a cost-per-engagement basis, like when a user engages in their ads. Performance advertising lets our advertisers connect with users while driving measurable results.For performance advertisers, AdWords, our primary auction-based advertising program, helps create simple text-based ads that appear on Google websites and the websites of Google Network Members, who3use our advertising programs to deliver relevant ads alongside their search results and content. In addition, the third partiespartners that comprise the Google Network use our AdSense program to deliver relevant ads that generate revenues and enhance the user experience. We also generate revenues from Motorola by selling hardware products.In December 2012,These programs let both small and large businesses connect with users looking for a specific item, say a pair of shoes or a plane ticket back home. To that end, we entered into an agreement with Arris Group, Inc. (Arris)continue to invest in our advertising programs and certain other persons providing for the disposition of our Motorola Home segment. The transaction is expected to close in 2013.Our business is primarily focused around the following key areas: search, advertising, operating systems and platforms, enterprise and hardware products.We were incorporated in California in September 1998 and reincorporated in Delaware in August 2003. Our headquarters 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.”2012 Corporate Highlights•Android—The growth of our Android operating system continues to impress with approximately half a billion Android devices activated globally through September 2012.•Google Play—We launched Google Play, an entirely cloud-based, digital entertainment destination with more than 700,000 apps and games plus music, movies and books that our users can find, enjoy and share on the web and on their Android phone or tablet.•Social—“Growing the + and shipping the Google.” In 2011, we launched Google+, a new way to share online just like users do in the real world, sharing different things with different people. In late 2011 and continuing in 2012, we have tightened integration between Google+ and our other Google properties, such as Gmail and YouTube and now have 235 million active users across our Google properties.•Nexus 7 Tablet—We launched a powerful new tablet in June 2012 with a vibrant, 7” high-definition display. The Tegra-3 chipset, with a quad-core CPU and 12-core GPU, makes everything, including games, extremely fast. And at only 340 grams, lighter than most tablets, Nexus 7 was built to bring users the best of Google that can be held in the palm of the user’s hand.•Google Now—We introduced Google Now, a predictive search feature that gets you just the right information at just the right time. It tells you the day’s weather before you start your day, how much traffic to expect before you leave for work or school, when the next train will arrive as you’re standing on the platform, or your favorite team’s score while they’re playing – all automatically with cards appearing throughout the day at the moment you need them.•Knowledge Graph—Google’s Knowledge Graph, introduced in 2012, enables the user to search for things, people or places that Google knows about – landmarks, celebrities, cities, sports teams, buildings, geographical features, movies, works of arts and more – and enhances Google Search by understanding the ambiguities in language and by better understanding a user’s query.On December 19, 2012, Google and Arris announced that Motorola Mobility had entered into an agreement (Motorola Agreement) with Arris and certain other persons providing for the disposition of the Home business for total consideration of approximately $2.35 billion in cash and common stock, subject to certain adjustments. Arris announced in January 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 Comcast transaction will reduce the amount of stock consideration and increase the amount of cash consideration to be received by Google, but will not affect the total consideration. Specifically, the shares issued to Comcast will reduce, on a share-for-share basis, the number of shares of Arris common stock to be issued to Google and simultaneously increase the cash consideration to be received by Google by $150.0 million. Assuming the completion of the Comcast transaction, Comcast and Google will each own approximately 7.85% of the outstanding Arris common stock post-closing based on Arris’ capitalization as of the date of Arris’ announcement of the Comcast transaction. The disposition of the Home business to Arris is not contingent upon Arris’ sale of common stock to Comcast. In the event that Arris’ sale of common stock to Comcast does not close for any reason, there will be no reduction in the amount of shares of Arris common stock to be issued to Google and no corresponding increase in the amount of cash consideration. In that case, Google will own approximately 15.7% of the outstanding Arris common stock post-closing based on Arris’ capitalization as of the date of the Arris’ announced transaction with Google. The disposition of the Home business is expected to close in 2013.In January 2013, the FTC closed its investigations into our business practices, including search and advertising. In connection with the closing of the investigation, we have voluntarily agreed to make certain product changes. In addition, wesignificant upgrades, including Enhanced Campaigns, which helps advertisers more easily create advertising and Motorola have entered intomarketing campaigns that run across multiple devices, and Estimated Total Conversions, which help advertisers measure the effectiveness of their campaigns in a consent ordermulti-screen world.Brand advertising helps enhance users’ awareness of and affinity with the FTC setting forth certain guidelines on our use of standards-essential patents in litigation.SearchOur search technologies sort through an ever-growing amount of information to deliver relevant and useful search results in response to user queries. We integrate innovative features into our search service and offer specialized search services to help users tailor their search. In addition, we are constantly improving and adding to ouradvertisers’ products and services, to provide users with more relevant results so that users find what they are looking for faster. For instance, when users want to plan a trip, Flight Search is a feature that makes it easy for users to find flights that meet their needs. Whether they have a specific destination with dates in mind or not, Flight Search can help users quickly find the best options for their trips. We also offer Product Listing Ads, which include richer product information, such as product image, price, and merchant information, without requiring additional keywords or ad text.In January 2012, we launched Search plus Your World. Now, when a user performs a signed-in search on Google, the user’s results page may include Google+ content from people that the user is close to (or might be interested in following). Relevant Google+ profiles and Google+ pages related to a specific topic or area of interest may also appear on a user’s results page.In 2012, we also introduced Google Now and Google’s Knowledge Graph. Google Now is a predictive search feature that gets you just the right information at just the right time. It tells you the day’s weather before you start your day, how much traffic to expect before you leave for work or school, when the next train will arrive as you’re standing on the platform, or your favorite team’s score while they’re playing—all automatically with cards appearing throughout the day at the moment you need them. Google’s Knowledge Graph, introduced in 2012,enables the user to search for things, people or places that Google knows about – landmarks, celebrities, cities, sports teams, buildings, geographical features, movies, works of arts and more – and enhances Google Search in three main ways:Find the Right Thing—By understanding the ambiguities and nuances in language the way users do, the Knowledge Graph makes Google Search more intelligent and relevant.Get the Best Summary—With the Knowledge Graph, we can better understand a user’s query, so that we can summarize relevant content around that topic, including key facts users likely need for that particular query.Go Deeper and Broader—The Knowledge Graph can help you make some unexpected discoveries. We’ve always believed that the perfect search engine should understand exactly what you mean and give you back exactly what you want. And we can sometimes help answer your next question before you’ve asked it, because the facts we show are informed by what other people have searched for.AdvertisingGoogle Search. The goal of AdWords, our primary auction-based advertising program, is to deliver ads that are so useful and relevant to search queries or web content that they are a form of information in their own right. With AdWords, advertisers create simple text-based ads that then appear beside related search results or web content on our websites and on thousands of partner websites in our Google Network, which is the network of third parties that use our advertising programs to deliver relevant ads with their search results and content. Most of our AdWords customers pay us on a cost-per-click basis, which means that an advertiser pays us only when 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 are part of the Google Network to deliver ads from our AdWords advertisers that are relevant to the search results or content on their websites. We share the majority of the revenues generated from these ads with the Google Network Members that display the ads. The AdSense program enables advertisers to extend the reach of their ad campaigns, improves our partners’ ability to generate revenue from their content, and delivers relevant ads for their users.To make mobile ad buying seamless and accessible for more than a million AdWords advertisers, we integrated our AdMob technology directly into our AdWords system in June 2012. This enables advertisers to run effective campaigns across the more than 300,000 mobile applications running ads by AdMob – all from within the AdWords interface. AdWords advertisers can now manage, measure and adjust search, display and video ads, reaching people on more than 2 million websites and hundreds of thousands of apps, across all screens.Google Display. Display advertising comprises thethrough 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 by distributing their ads such as the webTrueView ads displayed on computersour YouTube videos.We have built a world-class ad technology platform for brand advertisers, agencies, and publishers to power their digital marketing businesses across display, mobile, and video. We aim to ensure great user experiences by serving the right ads at the right time and by building deep partnerships with brands and agencies. We also seek to improve the measurability of the effectiveness of brand advertising.In addition, we have allocated substantial resources to stopping bad advertising practices and protecting users on the web. Our efforts to focus on our users to ensure the best advertising experiences range from removing hundreds of millions of bad ads from our systems every year to closely monitoring the sites and apps that show our ads and blacklisting them when necessary to ensure that our ads do not fund bad content.Bringing the Next 5 Billion OnlineFast search and high-quality ads matter only if you have access to the Internet. Right now, only a fraction of the seven billion people in the world are fortunate enough to be able to get online. That leaves out billions of people. With so much useful and life-changing information available today, it is unfortunate that such a significant portion of the world’s population lacks even the most basic Internet connection.That’s why we’re investing in new projects, like Project Loon. We asked, what if we could use a network of balloons that could fly at the edge of space and provide connectivity in rural and remote areas? Loon has helped students in Brazil and farmers in New Zealand experience the power of an internet connection for the first time. And as the program expands, we hope to bring this to more and more people -- creating opportunities that simply did not exist before for millions of people, all around the world.Those people will be able to learn and start businesses, to grow and prosper in ways they simply could not without an Internet connection. Creating platforms for other people’s success is a huge part of who we are. We want the world to join us online and to be greeted with the best possible experience once they get there. Connection is powerful; and we are working hard to make that promise a reality. The opportunities to improve lives on a grand scale are endless. And there are people around the world whose lives we can improve every day by bringing information into their homes, into their schools, and into their pockets -- showing them just how powerful the simple idea of “getting online” can be.MoonshotsThe idea of trying new things is reflected in some of our new, ambitious projects. Everything might not fit into a neat little box. We believe that is exactly how to stay relevant. Many companies get comfortable doing what they have always done, making a few incremental changes. This incrementalism leads to irrelevance over time, especially in technology, where change tends to be revolutionary, not evolutionary. People thought we were crazy when we acquired YouTube and Android, and when we launched Chrome. But as those efforts have matured into major platforms for digital video and mobile devices, including smart phones and handheld computers sucha safer, popular browser, respectively, we continue to look towards the future and continue to invest for the long-term.We won’t become complacent, relying solely on small tweaks as netbooks and tablets. The Google Display Network provides advertisers services related to the delivery of display advertising across publishers participating in our AdSense program, publishers participatingyears wear on. As we said in the DoubleClick Ad Exchange,2004 Founders’ IPO Letter, we will not shy away from high-risk, high-reward projects because we believe they are the key to our long-term success. We won’t stop asking “What if?” and Google-owned sites such as YouTube and Google Finance.Through our DoubleClick advertising technology, we providethen working hard to publishers, agencies, and advertisersfind the ad serving technology, which is the infrastructure that enables billions of ads to be served each day across the web. Our DoubleClick Ad Exchange creates a real-time auction marketplace for the trading of display ad space. We aim to simplify display advertising so it is easier for advertisers and publishers to manage campaigns across different formats, on different websites, and for different devices.In addition, YouTube provides a range of video, interactive, and other ad formats for advertisers to reach their intended audience. YouTube’s video advertising solutions give advertisers a way to promote their content to theYouTube community, as well as to associate with content being watched by their target audience. YouTube also offers analytic tools to help advertisers understand their audience and derive general business intelligence. In the past year, YouTube has experienced strong growth in mobile viewers and has established key partnerships with content companies to help monetize mobile video.Google Mobile.Mobile advertising is still in early innings, though the mobile device is quickly becoming the world’s newest gateway to information. Google is focused on developing easy-to-use ad products to help advertisers extend their reach, help create revenue opportunities for our publisher partners, and deliver relevant and useful ads to users on the go.answer.Google Mobile extends our products and services by providing mobile-specific features to mobile device users. Our mobile-specific search technologies include search by voice, search by sight, and search by location. Google Mobile also optimizes a large number of Google’s applications for mobile devices in both browser and downloadable form. In addition, we offer advertisers the ability to run search ad campaigns on mobile devices with popular mobile-specific ad formats, such as click-to-call ads in which advertisers can include a phone number within ad text. AdMob also offers effective ad units and solutions for application developers and advertisers. ResearchWe continue to invest in improving users’ access to Google services through their mobile devices.Google Local. Google is committed to providing users with relevant local information. We’ve organized information around more than 80 million places globally from various sources across the web. Users can find addresses, phone numbers, hours of operation, directions and more for millions of local queries like shops, restaurants, parks and landmarks right on Google.com, on Google Maps and on Google Maps for mobile. They can also discover more places that are right for them by rating the places they’ve been, and getting customized recommendations based on their tastes and those of their friends directly within Google Maps. Ourour existing products and services, also help local business owners manage their online presenceincluding search and connect with potential customers. Millions of business owners have verified their free business listings via Google Places to ensure that users have up-to-date information about their establishments, and to contribute additional details such as photos and products/services offered. Google Offers brings people daily deals from local and national businesses, redeemable for discounted goods or services. From restaurants to spa treatments to outdoor adventures, Google has deals from the best businesses a city has to offeradvertising, as well as popular national brands.Operating Systems and PlatformsAndroid. Working closely with the Open Handset Alliance, a business alliance of more than 75 technology and mobile companies, we developed Android, a free, fully open source mobile software platform that any developer can use to create applications for mobile devices and any handset manufacturer can install on a device. We believe Android will drive greater innovation and choice in the mobile device ecosystem, and provide consumers with a more powerful mobile experience.Google Chrome OS and Google Chrome.Google Chrome OS is an open source operating system with the Google Chrome web browser as its foundation. Both the Google Chrome OS and the Google Chrome browser are built around the core tenets of speed, simplicity, and security. Designed for people who spend most of their time on the web, the Google Chrome OS is a new approach to operating systems. We are working with several original equipment manufacturers to bring computers running Google Chrome OS to users and businesses. The Chrome browser runs on Windows, Mac, and Linux computers.Google+. Google+ is a new way to share online just like users do in the real world, sharing different things with different people. In late 2011 and continuing in 2012, we have tightened integration between Google+ and our other Google properties, such as Gmail and YouTube and now have 235 million active users across our Google properties.Google Play. Google Play is an entirely cloud-based, digital entertainment destination with more than 700,000 apps and games plus music, movies and books that our users can find, enjoy and share on the web and on their Android phone or tablet.Google Drive. Google Drive is a place where users can create, share, collaborate, and keep all of their stuff. Google Docs is built right into Google Drive so users can work with others in real time on documents, spreadsheets and presentations and users’ files go everywhere they do. When users change a file on the web, on their computer, or on their mobile device, the file updates on every device where users have installed Google Drive.Google Wallet. Google Wallet is a virtual wallet that securely stores your credit and debit cards, offers, and rewards cards. Users can tap their phone to pay in-store using Google Wallet anywhere contactless payments are accepted – at over 200,000 merchants across the United States. Users can also pay online by signing into their Google Wallet account.Google TV. Google TV is a platform that gives consumers the power to experience television and the internet on a single screen, with the ability to search and find the content they want to watch. The Google TV platform is based on the Android operating system and runs the Google Chrome browser.EnterpriseGoogle’s enterprise products provide familiar, easy-to-use Google technology for business settings. Through Google Apps, which includes Gmail, Google Docs, Google Calendar, and Google Sites, among other features, we provide hosted, web-based applications that people can use on any device with a browser and an internet connection. In addition, we provide our search technology for use within enterprises through the Google Search Appliance (real-time search of business applications, intranet applications, and public websites), on their public-facing sites with Google Site Search (custom search engine), and Google Commerce 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-the-company-firewall software solution for imagery and data visualization). Our enterprise solutions have been adopted by a variety of businesses, governments, schools, and non-profit organizations. Google Apps is the first cloud computing suite of message and collaboration tools to receive U.S. government security certification.MotorolaOur Motorola Mobility business is comprised of two operating segments. The Mobile segment is focused on mobile wireless devices and related products and services. The Home segment is focused on technologies and devices that provide video entertainment services to consumers by enabling subscribers to access a variety of interactive digital television services. In December 2012, we entered into an agreement with Arris Group, Inc. and certain other persons providing for the disposition of our Home segment. The transaction is expected to close in 2013.ResearchWe continue to developdeveloping new products and services and to enhance our existing ones through research and product development and the licensing and acquisition of third-party businesses and technology. Our product development philosophy is to launch innovative products early and often, and then iterate rapidly to make those products even better.development. We often post early stage products at test locations online or directly on Google.com.release early-stage products. We then use data and user feedback to decide if and how to invest further in those products.4Our research and development expenses were $3.8$6.1 billion, $5.2$7.1 billion, and $6.8$9.8 billion in 2010, 2011,2012, 2013, and 2012,2014, respectively, which included stock-based compensation expense of $861 million, $1.1$1.3 billion, $1.6 billion, and $1.3$2.2 billion, respectively. We expect to continue investing in hiring talented employees and building systems to invest in building the employee and systems infrastructures needed to support the development ofdevelop new products and services and to improve existing ones.Intellectual PropertyWe rely on a combination of intellectual property laws, as well as confidentiality procedures and contractual provisions, to protect our proprietary technology and our brand. We have registered, and applied for the registration of, U.S. and international trademarks, service marks, domain names, and copyrights. Additionally, we have filed U.S. and international patent applications covering certain of our proprietary technology. Over time, we have assembled a portfolio of patents, trademarks, service marks, copyrights, domain names, and trade secrets covering our products and services. Our proprietary technology is not dependent on any single patent or copyright or groups of related patents or copyrights. We believe the duration of our patents is adequate relative to the expected lives of our products. Although we rigorously protect our proprietary technology, any significant impairment of, or third-party claim against, our intellectual property rights could harm our business or our ability to compete.Sales and SupportWe continue to develop and grow our sales and support infrastructure. We have over 85 offices in over 40 countries, the large majority of which include sales people. Our global sales and support infrastructure has specialized teams across vertical markets. We bring businesses into our advertising network through direct, remote, and online sales channels, using technology and automation wherever possible to improve our customers’ experience and to grow our business cost-effectively. Our direct advertising and sales teams focus on building relationships with the largest advertisers 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 global support organization concentrates on helping our advertisers and Google Network Members get the most out of their relationship with us.No individual customer or groups of affiliated customers represented more than 10% of our revenues in 2010, 2011, or 2012.Government ContractsNo material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government.MarketingGoogle’s global brand is well known. We believe that building a trusted, highly recognized brand begins with providing high-quality products and services that make a notable difference in people’s lives. Marketing is responsible for generating advertiser revenue through marketing campaigns to small businesses, as well as providing thought leadership to chief marketing officers through industry insight, research, and analysis. Our marketing, promotional, and public relations activities are designed to promote Google’s brand image and differentiate it from competitors.CompetitionOur business is characterized by rapid change and converging, as well as new and disruptive technologies. We face formidable competition in every aspect of our business, particularly from companies that seek to connect people with online information on the web and provide them with relevant advertising. We face competition from:Microsoft’s Bing.Monster.comLinkedIn (job queries), WebMD (for health(health queries), and Amazon.comAmazon and eBay (e-commerce). Some users will navigate directly to such content, websites, and apps rather than go through Google.
Social networks, such as Facebook and Twitter. Some users are increasingly relying more on social networks for product or service referrals, rather than seeking information through general purposetraditional search engines.
Other forms of advertising, such as television, radio, newspapers, magazines, billboards, and yellow pages, for ad dollars. Our advertisers typically advertise in multiple media, both online and offline.
Mobile applications on iPhoneOther online advertising platforms and Android devices, which allow users to access information directly from a publisher without using search engines.
Other operating systems and mobile device companies.
We competeand technologies to the marketplace so that we can attract and retain users,retain:
We also compete
Government Regulation
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Atsociety.
Global Operations and Geographic Data
We provide our products and services in more than 100 languages and in more than 50 countries, regions, and territories. On www.google.com or one of our other Google domains, users can find information in many
different languages and in many different 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.
can or may foresee the consumer need for products and services before us.
Acquisitions
Acquisitions are an important elementtablets, video game consoles, and television set-top devices, is increasing dramatically. The functionality and user experience associated with some alternative devices make the use of our overall corporate strategyproducts and useservices through such devices more difficult (or just different) and the versions of capital,our products and services developed for these devices may not be compelling to users, manufacturers, or distributors of alternative devices. Each manufacturer or distributor may establish unique technical standards for its devices, and our products and services may not work or be viewable on these devices as a result. Some manufacturers may also elect not to include our products on their devices. In addition, search queries are increasingly being undertaken via “apps” tailored to particular devices or social media platforms, which could affect our search and advertising business over time. As new devices and platforms are continually being released, it is difficult to predict the problems we expectmay encounter in adapting our current pace of acquisitions to continue. These transactions could be material to our financial conditionproducts and results of operations.services and developing competitive new products and services. We also expect to continue to evaluatedevote significant resources to the creation, support, and enter into discussions regardingmaintenance of products and services across multiple platforms and devices. If we are unable to attract and retain a wide arraysubstantial number of potential strategic transactions. The process of integrating an acquired company, business,alternative device manufacturers, distributors, developers, and users to our products and services, or technology has created,if we are slow to develop products and will continue to create, unforeseen operating difficultiestechnologies that are more compatible with alternative devices and expenditures. The areas whereplatforms, we face risks include:
Diversion of management time and focus from operating our business to acquisition integration challenges.
Failure to successfully 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 and marketing functions.
Transition of operations, users, and customers onto our existing platforms.
Failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed upon approval, under competition and antitrust laws which could, among other things, delay or prevent us from completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition.
In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries.
Cultural challenges associated with integrating employees from the acquired company into our organization, and retention of employees from the businesses we acquire.
Liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities.
Litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us towill fail to realizecapture the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities,opportunities available as consumers and harm our business generally.
Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, or amortization expenses, or impairment of goodwill, and restructuring charges, any of which could harm our financial condition or results. Also, the anticipated benefit of many of our acquisitions may not materialize.
advertisers transition to a dynamic, multi-screen environment.
and act on them, geographical mix,
The revenue growth rate of our Motorola business will also depend on a number of factors, including the success of the new products we plan to introduce, our reliance on several large customers, the absence of long-term exclusivity arrangements with such customers, our ability to gain significant market share in the mobile devices space, our reliance on third-party distributors, representatives and retailers to sell certain of its products and the successful implementation of our product and operating system strategies. Furthermore, industry consolidation in the telecommunications and cable industries could negatively impact Motorola’s business because there would be fewer network operators and it could be more difficult to replace any lost customers. Any of these factors could have a negative impact on Motorola’s business and have an adverse effect on our consolidated financial results.
technologies.
impact on us because of legal costs, diversion of management resources, and other factors. Determining reserves for our pending litigation is a complex, fact-intensive process that requires significant judgment. It is possible that a resolution of one
More people
The numbermaterial to our financial condition and results of people who access the internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as netbooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years. The lower resolution, functionality, and memory associated with some alternative devices make the use of our products and services through such devices more difficult and the versions of our products and services developed for these devices may not be compelling to users, manufacturers, or distributors of alternative devices. Each manufacturer or distributor may establish unique technical standards for its devices, and our products and services may not work or be viewable on these devices as a result. Some manufacturers may also elect not to include our products on their devices. In addition, search queries are increasingly being undertaken via “apps” tailored to particular devices or social media platforms, which could affect our share of the search market over time. As new devices and platforms are continually being released, it is difficult to predict the problems we may encounter in adapting our products and services and developing competitive new products and services.operations. We expect to continue to devote significant resourcesevaluate and enter into discussions regarding a wide array of potential strategic transactions. The process of integrating an acquired company, business, or technology has created, and will continue to create, unforeseen operating difficulties and expenditures. The areas where we face risks include:
harm our business generally.
The
that are truly useful and play a meaningful role in people’s everyday lives.
Furthermore, many of these laws were adopted prior to the advent of the internet and related technologies and, as a result, do not contemplate or address the unique issues of the internet and related technologies. The laws that do reference the internet are being interpreted by the courts, but their applicability and scope remain uncertain. For example, the laws relating to the liability of providers of online services are currently unsettled both within the U.S. and abroad.
In addition, theor otherwise harm our business include:
Any failure on our part to comply with these laws and regulations can result in negative publicity and diversion of management time and effort and may subject us to significant liabilities and other penalties.
indemnify Arris against certain intellectual property infringement litigation, including, among others, a patent infringement claim brought by TiVo relating to certain digital video recording equipment sold by Motorola Mobility.
non-U.S. law.
products, services, or content by virtue of our involvement in marketing, branding, broadcasting, or providing access to them, even if we do not ourselves host, operate, provide, or provide access to these products, services, or content. Defense of any such actions could be costly and involve significant time and attention of our management and other resources, may result in monetary liabilities or penalties, and may require us to change our business in an adverse manner.
With our acquisition of Motorola, we face a number of manufacturing and supply chain risks that, if not properly managed, could adversely impact our financial results and prospects.
With our acquisition of Motorola, we face a number of risks related to manufacturing and supply chain management. For instance, the products we sell may have quality issues resulting from the design or manufacture of the product, or from the software used in the product. Sometimes, these issues may be caused by components we purchase from other manufacturers or suppliers. If the quality of our Motorola products does not meet our customers’ expectations or our products are found to be defective, then our sales and operating earnings, and ultimately our reputation, could be negatively impacted.
We rely on third parties to manufacture many of Motorola’s assemblies and finished products, and we have third-party arrangements for the design of some components and parts. Our Motorola business could be negatively affected if we are not able to engage third parties with the necessary capabilities or capacity on reasonable terms, or if those we engage fail to meet their obligations (whether due to financial difficulties or other reasons), or make adverse changes in the pricing or other materials terms of our arrangements with them.
Motorola, like many electronics manufacturers, has also experienced supply shortages and price increases in the past driven by raw material availability, manufacturing capacity, labor shortages, industry allocations, natural
disasters and significant changes in the financial or business condition of its suppliers. Workaround plans to address shortages have entailed in the past, and could entail in the future, increased freight costs for expedited shipments. We cannot assure you that we will not experience shortages or other supply chain disruptions in the future or that they will not negatively impact our operations. In addition, some of the components we use in our Motorola products are available only from a single source or limited sources, and we cannot assure you that we would be able to find replacement vendors on favorable terms or at all in the event of a supply chain disruption.
Additionally, because many of our 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 per unit to manufacture and therefore less competitive and negatively impact our financial results. Further, certain of our competitors may negotiate more favorable contractual terms based on volume and other commitments that may provide them with competitive advantages and may impact our supply.
We also require our suppliers and business partners to comply with law and company policies regarding workplace and employment practices, environmental compliance and intellectual property licensing, but we do not control them or their practices. If any of them violates laws or implements practices regarded as unethical, we could experience supply chain disruptions, canceled orders, terminations of or damage to key relationships, and damage to our reputation. If any of them fails to procure necessary license rights to third-party intellectual property, legal action could ensue that could impact the salability of our products and expose us to financial obligations to third parties.
The Dodd-Frank Wall Street Reform and Consumer Protection Act included disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries (DRC) and procedures regarding a manufacturer’s efforts to prevent the sourcing of such “conflict” minerals. SEC rules implementing these requirements may have the effect of reducing the pool of suppliers who can supply DRC “conflict free” components and parts, and we may not be able to obtain DRC conflict free products or supplies in sufficient quantities for our operations. Also, since our supply chain is complex, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to sufficiently verify the origins for the conflict minerals used in our products.
systems.
Our Motorola business also has facilities outside the U.S., and nearly all of our Motorola products (other than some prototypes) are manufactured outside the U.S., primarily in China, Taiwan and Brazil. If our manufacturing in these countries is disrupted, our overall capacity could be reduced and sales or profitability could be negatively impacted. We require these suppliers and business partners to comply with law and company policies regarding workplace and employment practices, environmental compliance and intellectual property licensing, but we do not control them or their practices. If any of them violates laws or implements practices regarded as unethical, we could experience supply chain disruptions, canceled orders, terminations of or damage to key relationships, and damage to our reputation. If any of them fails to procure necessary license rights to third-party intellectual property, legal action could ensue that could impact the salability of our products and expose us to financial obligations to third parties.
Moreover, in connection with our operations in Brazil, we have had and continue to have legal disputes and controversies, including tax, labor and trade compliance controversies and other legal matters that take many
years to resolve. We incur legal and other costs in managing and defending these matters and expect to continue to incur such costs. Based on our assessment of these matters, we have recorded reserves on only a small portion of the total potential exposure. It is, however, very difficult to predict the outcome of legal disputes and controversies, including litigation, in Brazil and our ultimate exposure may be greater than our current assessments and related reserves.
Potential injunctions from importation into the U.S. of our Motorola products manufactured outside the U.S. in an ITC matter.
Longer payment cycles in some countries, increased credit risk, and higher levels of payment fraud.
Natural disasters, military or political conflicts, including war and other hostilities, and public health issues and outbreaks.
on our past results as an indication of our future performance. Our quarterly, year-to-date, and annual expenses as a percentage of our revenues may differ significantly from our historical or projected rates. Our operating results in future quarters may fall below expectations. Any of these events could cause our stock price to fall. Each of the risk factors listed in this section in addition to the following factors may affect our operating results:
Our ability to attract advertisers to our AdWords program,Members' websites both on desktop and 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
programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. Our
investments.
volatile.
In addition, we have announced the intention of our board of directors to consider a distribution of shares of our non-votingand Class C capital stock as a dividend to our holdersstock.
Although we plan to list the Class C capital stock on The Nasdaq Stock Market, we cannot predict whether, or to what extent, a liquid trading market will develop for the Class C capital stock. If it does not or if the Class C capital stock is not attractive to targets as an acquisition currency or to our employees as an incentive, we may not achieve our objectives in creating this new class. As in the case of the Class A common stock, the trading price for the Class C capital stock may also be volatile and affected by the factors noted above, as well as by the difference in voting rights as between the Class A common stock and the Class C capital stock the volume of Class C capital stock available for public sale and sales by us and our stockholders of Class C capital stock, including by institutional investors that may be unwilling, unable or choose notrelative to hold non-voting shares they receive as part of the stock dividend, if it is declared and paid. Whether or not the Class C capital stock is included in stock indices in the future may also affect the trading prices of the Class A common stock and the Class C capital stock.
one another.
common stock, representingwhich represented approximately 65%60.1% of the voting power of our outstanding capital stock. Larry, Sergey, and Eric therefore have significant influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant
In addition, we lease approximately 3.8 million square feet of office space and approximately 61 acres of undeveloped land in and near our headquarters in Mountain View, California. We also lease additional research and development, and sales and support offices throughout the United States and maintain leased facilities internationally in countries around the world. Larger leased sites include properties located in Dublin, Ireland; Zurich, Switzerland; London, UK; Hyderabad, India; San Francisco, CA; San Bruno, CA; Paris, France; Hamburg, Germany; Tel Aviv, Israel; Sao Paulo, Brazil; Ann Arbor, MI; Bothell, WA; Cambridge, MA; Chicago, IL; Kirkland, WA; Venice, CA; Pittsburgh, PA; Seattle, WA; Sydney, Australia; Beijing, China; Shanghai, China; Bangalore, India; Gurgaon, India; Tokyo, Japan; and Singapore.
Motorola also operates manufacturing facilities, research and development, administrative and sales offices in various U.S. locations and in many foreign countries. Motorola owns eight facilities (manufacturing, sales, service and offices), five of which are located in the Americas Region (U.S., Canada, Mexico, Central America and South America) and three of which are located in other countries. As of December 31, 2012, Motorola leased 97 facilities, 31 of which are located in the Americas Region and 66 of which are located in other countries. Motorola Mobility owns three major facilities for the manufacturing and distribution of its products. These facilities are located in Tianjin, China; Hsin Tien, Taiwan; and Jaguariuna, Brazil. As previously 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 and suitable for the conduct of our business. Motorola generally considers the productive capacity of the plants operated by each of its business segments to be adequate and sufficient for the requirements of each business group. The extent of utilization of such manufacturing facilities varies from plant to plant and from time to time during the year.
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Fiscal Year 2012 Quarters Ended: | High | Low | ||||||
March 31, 2012 | $ | 670.25 | $ | 564.55 | ||||
June 30, 2012 | 653.14 | 556.52 | ||||||
September 30, 2012 | 764.89 | 562.09 | ||||||
December 31, 2012 | 774.38 | 636.00 | ||||||
Fiscal Year 2011 Quarters Ended: | High | Low | ||||||
March 31, 2011 | $ | 642.96 | $ | 551.28 | ||||
June 30, 2011 | 595.19 | 473.02 | ||||||
September 30, 2011 | 627.50 | 490.86 | ||||||
December 31, 2011 | 646.76 | 480.60 | ||||||
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: | High | Low | |||||
| March 31, 2014 | $ | 610.70 | $ | 551.17 | |||
| June 30, 2014 | 585.93 | 518.00 | |||||
| September 30, 2014 | 605.40 | 571.81 | |||||
| December 31, 2014 | 587.78 | 498.16 | |||||
| Fiscal Year 2013 Quarters Ended: | High | Low | |||||
| March 31, 2013 | $ | 419.72 | $ | 351.79 | |||
| June 30, 2013 | 458.40 | 383.34 | |||||
| September 30, 2013 | 462.81 | 423.87 | |||||
| December 31, 2013 | 560.92 | 427.26 | |||||
| Fiscal Year 2014 Quarters Ended: | High | Low | |||||
| March 31, 2014 | $ | — | $ | — | |||
| June 30, 2014 | 578.65 | 509.96 | |||||
| September 30, 2014 | 596.08 | 562.73 | |||||
| December 31, 2014 | 577.35 | 495.39 | |||||
The following graph compares the 5-year cumulative total return to shareholders on Google Inc.’s common stock relative to the cumulative total returns
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Google Inc., the S&P 500 Index, the
NASDAQ Composite Index, and the RDG Internet Composite Index
*$100 invested on December 31, 2007 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Results of Google’s Transferable Stock Option (TSO) Program
Under our TSO program, eligible employees are able to sell vested stock options to participating financial institutions in an online auction as an alternative to exercising options in the traditional method and then selling the underlying shares. The following table provides information with respect to sales by our employees of TSOs during the three months ended December 31, 2012:
| Aggregate Amounts | Weighted-Average Per Share Amounts | |||||||||||||||||||||||
Period(1) | Number of Shares Underlying TSOs Sold | Sale Price of TSOs Sold | TSO Premium(2) | Exercise Price of TSOs Sold | Sale Price of TSOs Sold | TSO Premium(2) | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
October 1 – 31 | 49,772 | $ | 15,307 | $ | 514 | $ | 381.19 | $ | 307.55 | $ | 10.34 | |||||||||||||
November 1 – 30 | 190,351 | 66,001 | 1,153 | 338.77 | 346.73 | 6.06 | ||||||||||||||||||
December 1 – 31 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
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Total (except weighted-average per share amounts) | 240,123 | $ | 81,308 | $ | 1,667 | $ | 347.56 | $ | 338.61 | $ | 6.95 | |||||||||||||
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Our TSO program allows participation by executive officers (other than Larry Page, Sergey Brin, and Eric E. Schmidt). The following table provides information with respect to sales by our executive officers of TSOs during the three months ended December 31, 2012:
| Aggregate Amounts | ||||||||||||
Executive Officer | Number of Shares Underlying TSOs Sold | Sale Price of TSOs Sold | TSO Premium | |||||||||
| (in thousands) | ||||||||||||
Nikesh Arora | 2,843 | $ | 999 | $ | 3 | |||||||
Patrick Pichette | 9,291 | $ | 2,441 | $ | 177 | |||||||
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Total | 12,134 | $ | 3,440 | $ | 180 | |||||||
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Contents
| Year Ended December 31, | ||||||||||||||||||||
| 2008 | 2009 | 2010 | 2011 | 2012 | ||||||||||||||||
| (in millions, except per share amounts) | ||||||||||||||||||||
Consolidated Statements of Income Data: | ||||||||||||||||||||
Revenues | $ | 21,796 | $ | 23,651 | $ | 29,321 | $ | 37,905 | $ | 50,175 | ||||||||||
Income from operations | 6,632 | 8,312 | 10,381 | 11,742 | 12,760 | |||||||||||||||
Net income from continuing operations | 4,227 | 6,520 | 8,505 | 9,737 | 10,788 | |||||||||||||||
Net loss from discontinued operations | 0 | 0 | 0 | 0 | (51 | ) | ||||||||||||||
Net income | 4,227 | 6,520 | 8,505 | 9,737 | 10,737 | |||||||||||||||
Net income (loss) per share of Class A and Class B common stock—basic | ||||||||||||||||||||
Continuing operations | $ | 13.46 | $ | 20.62 | $ | 26.69 | $ | 30.17 | $ | 32.97 | ||||||||||
Discontinued operations | 0 | 0 | 0 | 0 | $ | (0.16 | ) | |||||||||||||
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Net income per share of Class A and Class B common stock—basic | $ | 13.46 | $ | 20.62 | $ | 26.69 | $ | 30.17 | $ | 32.81 | ||||||||||
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Net income (loss) per share of Class A and Class B common stock—diluted | ||||||||||||||||||||
Continuing operations | $ | 13.31 | $ | 20.41 | $ | 26.31 | $ | 29.76 | $ | 32.46 | ||||||||||
Discontinued operations | 0 | 0 | 0 | 0 | $ | (0.15 | ) | |||||||||||||
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Net income per share of Class A and Class B common stock—diluted | $ | 13.31 | $ | 20.41 | $ | 26.31 | $ | 29.76 | $ | 32.31 | ||||||||||
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| As of December 31, | ||||||||||||||||||||
| 2008 | 2009 | 2010 | 2011 | 2012 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Cash, cash equivalents, and marketable securities | $ | 15,846 | $ | 24,485 | $ | 34,975 | $ | 44,626 | $ | 48,088 | ||||||||||
Total assets | 31,768 | 40,497 | 57,851 | 72,574 | 93,798 | |||||||||||||||
Total long-term liabilities | 1,227 | 1,746 | 1,614 | 5,516 | 7,746 | |||||||||||||||
Total stockholders’ equity | 28,239 | 36,004 | 46,241 | 58,145 | 71,715 | |||||||||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||
| (in millions, except per share amounts) | |||||||||||||||||||
| Consolidated Statements of Income Data: | |||||||||||||||||||
| Revenues | $ | 29,321 | $ | 37,905 | $ | 46,039 | $ | 55,519 | $ | 66,001 | |||||||||
| Income from operations | 10,381 | 11,742 | 13,834 | 15,403 | 16,496 | ||||||||||||||
| Net income from continuing operations | 8,505 | 9,737 | 11,553 | 13,347 | 13,928 | ||||||||||||||
| Net income (loss) from discontinued operations | 0 | 0 | (816 | ) | (427 | ) | 516 | ||||||||||||
| Net income | 8,505 | 9,737 | 10,737 | 12,920 | 14,444 | ||||||||||||||
| Net income (loss) per share - basic: | |||||||||||||||||||
| Continuing operations | $ | 13.35 | $ | 15.09 | $ | 17.66 | $ | 20.05 | $ | 20.61 | |||||||||
| Discontinued operations | 0.00 | 0.00 | (1.25 | ) | (0.64 | ) | 0.76 | ||||||||||||
| Net income (loss) per share - basic | $ | 13.35 | $ | 15.09 | $ | 16.41 | $ | 19.41 | $ | 21.37 | |||||||||
| Net income (loss) per share - diluted: | |||||||||||||||||||
| Continuing operations | $ | 13.16 | $ | 14.88 | $ | 17.39 | $ | 19.70 | $ | 20.27 | |||||||||
| Discontinued operations | 0.00 | 0.00 | (1.23 | ) | (0.63 | ) | 0.75 | ||||||||||||
| Net income (loss) per share - diluted | $ | 13.16 | $ | 14.88 | $ | 16.16 | $ | 19.07 | $ | 21.02 | |||||||||
| As of December 31, | |||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | |||||||||||||||
| (in millions) | |||||||||||||||||||
| Consolidated Balance Sheet Data: | |||||||||||||||||||
| Cash, cash equivalents, and marketable securities | $ | 34,975 | $ | 44,626 | $ | 48,088 | $ | 58,717 | $ | 64,395 | |||||||||
| Total assets | 57,851 | 72,574 | 93,798 | 110,920 | 131,133 | ||||||||||||||
| Total long-term liabilities | 1,614 | 5,516 | 7,746 | 7,703 | 9,828 | ||||||||||||||
| Total stockholders’ equity | 46,241 | 58,145 | 71,715 | 87,309 | 104,500 | ||||||||||||||
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 billions of people globally. Our mission is to organize the world’s information and make it universally accessible and useful. Our innovations in web search and advertising have made our website a top internet property and our brand one of the most recognized in the world.
Our Motorola business is comprised of two operating segments. The Mobile segment is focused on mobile wireless devices and related products and services. The Home segment is focused on technologies and devices that provide video entertainment services to consumers by enabling subscribers to access a variety of interactive digital television services.
We generate revenue primarily by delivering relevant, cost-effective online advertising. Businesses use our AdWords program to promote their products and services with targeted advertising. In addition, the third parties that comprise the Google Network use our AdSense program to deliver relevant ads that generate revenues and enhance the user experience. We also generate revenues from Motorola by selling hardware products.
In December 2012, we entered into an agreement with Arris and certain other persons providing for the disposition of our Motorola Home segment. The transaction is expected to close in 2013.
Advertising transactionsBusiness
| Year Ended December 31, | ||||||||
| 2012 | 2013 | 2014 | ||||||
Consolidated Statements of Income Data: | ||||||||
| Revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||
| Costs and expenses: | ||||||||
| Cost of revenues | 37.3 | 39.6 | 38.9 | |||||
| Research and development | 13.2 | 12.9 | 14.9 | |||||
| Sales and marketing | 11.9 | 11.8 | 12.3 | |||||
| General and administrative | 7.6 | 8.0 | 8.9 | |||||
| Total costs and expenses | 70.0 | % | 72.3 | % | 75.0 | % | ||
| Income from operations | 30.0 | 27.7 | 25.0 | |||||
| Interest and other income, net | 1.4 | 0.9 | 1.2 | |||||
| Income from continuing operations before income taxes | 31.4 | 28.6 | 26.2 | |||||
| Provision for income taxes | 6.3 | 4.6 | 5.1 | |||||
| Net income from continuing operations | 25.1 | 24.0 | 21.1 | |||||
| Net income (loss) from discontinued operations | (1.8 | ) | (0.7 | ) | 0.8 | |||
| Net income | 23.3 | % | 23.3 | % | 21.9 | % | ||
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 | |||||||||
| Advertising revenues: | |||||||||||
| Google websites | $ | 31,221 | $ | 37,422 | $ | 45,085 | |||||
Google Network Members' websites (1) | 12,465 | 13,125 | 13,971 | ||||||||
| Total advertising revenues | 43,686 | 50,547 | 59,056 | ||||||||
| Other revenues | 2,353 | 4,972 | 6,945 | ||||||||
| Revenues | $ | 46,039 | $ | 55,519 | $ | 66,001 | |||||
(1) Our revenues from Google Network Members’ websites include revenues generated primarily through advertising programs including AdSense for search, AdSense for content, AdExchange, AdMob, and DoubleClick Bid Manager. | |||||||||||
| Year Ended December 31, | ||||||||
| 2012 | 2013 | 2014 | ||||||
| Advertising revenues: | ||||||||
| Google websites | 67.8 | % | 67.4 | % | 68.3 | % | ||
| Google Network Members' websites | 27.1 | 23.6 | 21.2 | |||||
| Total advertising revenues | 94.9 | % | 91.0 | % | 89.5 | % | ||
| Other revenues | 5.1 | 9.0 | 10.5 | |||||
| Revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||
| Google websites as % of advertising revenues | 71.5 | % | 74.0 | % | 76.3 | % | ||
| Google Network Members’ websites as % of advertising revenues | 28.5 | % | 26.0 | % | 23.7 | % | ||
Mobile search queries and mobile commerce are growing dramatically around the world, and consumers are using multiple devices to access information. Over time these trends have resulted innew business strategies, changes in our product mix, including a significant increase in mobile search queries and a decelerationshifts in the growthgeographic mix of desktop queries.our revenues. We also expect that our revenue growth rate will continue to be affected by evolving consumeruser preferences, as well as by advertising trends, the acceptance by mobile users of our products and services as they are delivered on diverse devices, and our ability to create a seamless experience for both users and advertisersadvertisers.
| Change from 2012 to 2013 | Change from 2013 to 2014 | ||||
| Aggregate paid clicks | 25 | % | 20 | % | |
Paid clicks on Google websites (1) | 33 | % | 29 | % | |
Paid clicks on Google Network Members' websites (2) | 11 | % | 2 | % | |
| Aggregate cost-per-click | (8 | )% | (5 | )% | |
| Cost-per-click on Google websites | (10 | )% | (7 | )% | |
| Cost-per-click on Google Network Members' websites | (8 | )% | (6 | )% | |
(1) Paid clicks on Google websites include clicks related to ads served on Google owned and operated properties across different geographies and devices, including search, YouTube engagement ads like TrueView, and other owned and operated properties including Maps and Finance. | |||||
(2) Paid clicks on Google Network Members' websites include clicks related to ads served on non-Google properties participating in our AdSense for Search, AdSense for Content, and AdMob businesses. | |||||
Chromecast, directly-sold Nexus products, and Chrome OS devices.
| Year Ended December 31, | ||||||||
| 2012 | 2013 | 2014 | ||||||
| United States | 46 | % | 45 | % | 43 | % | ||
| United Kingdom | 11 | % | 10 | % | 10 | % | ||
| Rest of the world | 43 | % | 45 | % | 47 | % | ||
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 | |||||||||
| United Kingdom revenues | $ | 4,846 | $ | 5,600 | $ | 6,483 | |||||
| Foreign exchange impact on current year revenues using corresponding prior year exchange rates -- (revenues would be higher)/revenues would be lower | (68 | ) | (67 | ) | 303 | ||||||
| Hedging gains recognized in current year | 18 | 63 | 3 | ||||||||
| Rest of the world revenues | $ | 19,906 | $ | 25,167 | $ | 31,379 | |||||
| Foreign exchange impact on current year revenues using corresponding prior year exchange rates -- (revenues would be higher)/revenues would be lower | (1,099 | ) | (536 | ) | (858 | ) | |||||
| Hedging gains recognized in current year | 199 | 32 | 168 | ||||||||
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 | |||||||||
| Traffic acquisition costs | $ | 10,956 | $ | 12,258 | $ | 13,497 | |||||
| Other cost of revenues | $ | 6,220 | $ | 9,735 | $ | 12,194 | |||||
| Total cost of revenues | $ | 17,176 | $ | 21,993 | $ | 25,691 | |||||
| Cost of revenues as a percentage of revenues | 37.3 | % | 39.6 | % | 38.9 | % | |||||
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 | |||||||||
| Traffic acquisition costs to Google Network Members | $ | 8,791 | $ | 9,293 | $ | 9,864 | |||||
| Traffic acquisition costs to distribution partners | 2,165 | 2,965 | 3,633 | ||||||||
| Traffic acquisition costs | $ | 10,956 | $ | 12,258 | $ | 13,497 | |||||
| Traffic acquisition costs as a percentage of advertising revenues | 25.1 | % | 24.2 | % | 22.9 | % | |||||
Both seasonal fluctuations in internet usage and traditional retail seasonality have affected, and are likely to continue to affect, our business. Internet usage generally slows during the summer months, and commercial queries typically increase significantly in the fourth quarter of each year. These seasonal trends have caused, and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenues, as well as aggregate paid click and average cost-per-click growth rates.
The operating margin we realize on revenues generated from ads placed on our Google Network Members’ websites through our AdSense program is significantly lower than the operating margin we realize from revenues generated from ads placed on our websites because most of the advertiser fees from ads served on Google Network Members’ websites are shared with our Google Network Members. For the past five years, growth in advertising revenues from ourGoogle websites has generally exceeded that from our Google Network Members’ websites. This trend has had a positive impact on our operating margins, and we expect thatincome from operations during this will continue for the foreseeable future, although the relative rate of growth in revenues from our websites compared to the rate of growth in revenues from our Google Network Members’ websites may vary over time. Also, the margins on advertising revenues from mobile devices and other newer advertising formats are generally lower than those from desktop computers and tablets. We expect this trend to continue to pressure our margins, particularly if we fail to realize the opportunities we anticipate with the transition to a dynamic multi-screen environment.
We conduct our Motorola business in highly competitive markets, facing both new and established competitors. The markets for many of our products are characterized by rapidly changing technologies, frequent new product introductions, changing consumer trends, short product life cycles, consumer loyalty and evolving industry standards. Market disruptions caused by new technologies, the entry of new competitors, consolidations among our customers and competitors, changes in regulatory requirements, changes in economic conditions, supply chain interruptions or other factors, can introduce volatility into our businesses. Meeting all of these challenges requires consistent operational planning and execution and investment in technology, resulting in innovative products that meet the needs of our customers around the world.
From an overall business perspective, we continue to invest aggressively in our systems, data centers, corporate facilities, information technology infrastructure, and employees. We increased our hiring in 2012, and we may continue to do so and to provide competitive compensation programs for our employees. Our full-time employee headcount was 32,467 at December 31, 2011 and 53,861 at December 31, 2012, which includes 16,317 headcount from Motorola. Acquisitions will also remain an important component of our strategy and use of capital, and we expect our current pace of acquisitions to continue. We expect our costperiod.
As we expand our advertising programs and other products to international markets, we continue to increase our exposure to fluctuations in foreign currency to U.S. dollar exchange rates. We have a foreign exchange risk management program that is designed to reduce our exposure to fluctuations in foreign currency exchange rates. However, this program will not fully offset the effect of fluctuations on our revenues and earnings.
Results of Operations
We completed our acquisition of Motorola on May 22, 2012 (the acquisition date). The operating results of Motorola were included in our Consolidated Statements of Income from the acquisition date through December 31, 2012. In December 2012, we entered into an agreement for the disposition of the Motorola 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 Statements included in Item 8 of this Annual Report on Form 10-K for further discussion of this restructuring plan and the associated restructuring charges. We continue to evaluate our plans and further restructuring actions may occur, which may cause us to incur additional restructuring charges, some of which may be significant.
The following table presents our historical operating results as a percentage of revenues for the periods indicated:
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Consolidated Statements of Income Data: | ||||||||||||
Revenues: | ||||||||||||
Google (advertising and other) | 100.0 | % | 100.0 | % | 91.8 | % | ||||||
Motorola Mobile (hardware and other) | 0 | 0 | 8.2 | |||||||||
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Total revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
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Cost of revenues—Google (advertising and other) | 35.5 | 34.8 | 34.2 | |||||||||
Cost of revenues—Motorola Mobile (hardware and other) | 0 | 0 | 6.9 | |||||||||
Research and development | 12.8 | 13.6 | 13.5 | |||||||||
Sales and marketing | 9.5 | 12.1 | 12.2 | |||||||||
General and administrative | 6.8 | 7.2 | 7.8 | |||||||||
Charge related to the resolution of Department of Justice investigation | 0 | 1.3 | 0 | |||||||||
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Total costs and expenses | 64.6 | 69.0 | 74.6 | |||||||||
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Income from operations | 35.4 | 31.0 | 25.4 | |||||||||
Interest and other income, net | 1.4 | 1.5 | 1.3 | |||||||||
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Income from continuing operations before income taxes | 36.8 | 32.5 | 26.7 | |||||||||
Provision for income taxes | 7.8 | 6.8 | 5.2 | |||||||||
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Net income from continuing operations | 29.0 | 25.7 | 21.5 | |||||||||
Net loss from discontinued operations | 0 | 0 | (0.1 | ) | ||||||||
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Net income | 29.0 | % | 25.7 | % | 21.4 | % | ||||||
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Revenues
The following table presents our revenues, by revenue source, for the periods presented (in millions):
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Google: | ||||||||||||
Advertising revenues: | ||||||||||||
Google websites | $ | 19,444 | $ | 26,145 | $ | 31,221 | ||||||
Google Network Members’ websites | 8,792 | 10,386 | 12,465 | |||||||||
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Total advertising revenues | 28,236 | 36,531 | 43,686 | |||||||||
Other revenues | 1,085 | 1,374 | 2,353 | |||||||||
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Total Google revenues (advertising and other) | $ | 29,321 | $ | 37,905 | $ | 46,039 | ||||||
Motorola Mobile: | ||||||||||||
Total Motorola Mobile revenues (hardware and other) | 0 | 0 | 4,136 | |||||||||
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Total revenues | $ | 29,321 | $ | 37,905 | $ | 50,175 | ||||||
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The following table presents our revenues, by business, as a percentage of total revenues for the periods presented:
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Google (advertising and other) | 100 | % | 100 | % | 92 | % | ||||||
Motorola Mobile (hardware and other) | 0 | % | 0 | % | 8 | % | ||||||
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Total revenues | 100 | % | 100 | % | 100 | % | ||||||
The following table presents our Google revenues, by revenue source, as a percentage of total Google revenues for the periods presented:
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Advertising revenues: | ||||||||||||
Google websites | 66 | % | 69 | % | 68 | % | ||||||
Google Network Members’ websites | 30 | % | 27 | % | 27 | % | ||||||
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Total advertising revenues | 96 | % | 96 | % | 95 | % | ||||||
Google websites as % of advertising revenues | 69 | % | 72 | % | 71 | % | ||||||
Google Network Members’ websites as % of advertising revenues | 31 | % | 28 | % | 29 | % | ||||||
Other revenues | 4 | % | 4 | % | 5 | % | ||||||
Our revenues increased $12,270 million from 2011 to 2012. This increase resulted primarily from an increase in advertising revenues generated by Google websites and Google Network Members’ websites and, to a lesser extent, an increase in other revenues driven by hardware product sales. The increase in advertising revenues for Google websites and Google Network Members’ websites resulted primarily from an increase in the number of paid clicks through our advertising programs, partially offset by a decrease in the average cost-per-click paid by our advertisers. The increase in the number of paid clicks generated through our advertising programs was due to an increase in aggregate traffic including mobile queries, certain monetization improvements including new ad formats, the continued global expansion of our products, advertisers, and user base, as well as an increase in the number of Google Network Members. The decrease in the average cost-per-click paid by our advertisers was driven by various factors, such as the general strengthening of the U.S dollar compared to certain foreign currencies (primarily the Euro), the revenue shift mix between Google websites and Google Network Members’ websites, the changes in platform mix due to traffic growth in mobile devices, where the average cost-per-click is typically lower compared to desktop computers and tablets, and the changes in geographical mix due to traffic growth in emerging markets, where the average cost-per-click is typically lower compared to more mature markets.
In addition, the increase in our revenues from 2011 to 2012 resulted from the inclusion of revenues from our Motorola Mobile business of $4,136 million.
Our revenues increased $8,584 million from 2010 to 2011. This increase resulted primarily from an increase in advertising revenues generated by Google websites and Google Network Members’ websites. The increase in advertising revenues for Google websites and Google Network Members’ websites resulted primarily from an increase in the number of paid clicks through our advertising programs and, to a lesser extent, an increase in the average cost-per-click paid by our advertisers. The increase in the number of paid clicks generated through our advertising programs was due to an increase in aggregate traffic, certain monetization improvements including new ad formats, and the continued global expansion of our products, and our advertiser and user base, as well as an increase in the number of Google Network Members. The increase in the average cost-per-click paid by our advertisers was primarily driven by the increased spending from advertisers and a general weakening of the U.S dollar compared to foreign currencies (primarily the Euro, Japanese yen, and British pound), partially offset by the
changes in geographical mix due to traffic 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 and, to a lesser extent, by a search quality improvement made during the first quarter of 2011.
Improvements in our ability to ultimately monetize increased traffic primarily relate to enhancing the end user experience, including providing end users with ads that are more relevant to their search queries or to the content on the Google Network Members’ websites they visit. For instance, these improvements include increasing site links to be full size links with the URL (uniform resource locator), moving a portion of the first line of the ad to the heading to better promote the content of the ad, providing an option to preview the ad, and moving the ad’s URL to a separate line below the heading for greater page format consistency.
Aggregate paid clicks on Google websites and Google Network Members’ websites increased approximately 34% from 2011 to 2012 and approximately 25% from 2010 to 2011. Average cost-per-click on Google websites and Google Network Members’ websites decreased approximately 12% from 2011 to 2012 and increased approximately 3% from 2010 to 2011. The rate of change in aggregate paid clicks and average cost-per-click, and their correlation with the rate of change in revenues, has fluctuated and may fluctuate in the future because of various factors, including the revenue growth rates on our websites compared to those of our Google Network Members, advertiser competition for keywords, changes in foreign currency exchange rates, seasonality, the fees advertisers are willing to pay based on how they manage their advertising costs, changes in advertising quality or formats, and general economic conditions. In addition, traffic growth in emerging markets compared to more mature markets and across various advertising verticals and channels, including mobile devices, also contributes to these fluctuations. Changes in aggregate paid clicks and average cost-per-click may not be indicative of our performance or advertiser experiences in any specific geographic market, vertical, or industry.
We believe that the increase in the number of paid clicks on Google websites and Google Network Members’ websites is substantially the result of our commitment to improving the relevance and quality of both our search results and the advertisements displayed, which we believe results in a better user experience, which in turn results in more searches, advertisers, and Google Network Members and other partners.
Revenues by Geography
The following table presents our Google domestic and international revenues as a percentage of Google revenues, determined based on the billing addresses of our customers for our Google business:
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
United States | 48 | % | 46 | % | 46 | % | ||||||
United Kingdom | 11 | % | 11 | % | 11 | % | ||||||
Rest of the world | 41 | % | 43 | % | 43 | % | ||||||
The following table presents our consolidated domestic and international revenues as a percentage of consolidated revenues, determined based on the billing addresses of our customers for our Google business, and shipping addresses of our customers for our Motorola Mobile business:
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
United States | 48 | % | 46 | % | 47 | % | ||||||
United Kingdom | 11 | % | 11 | % | 10 | % | ||||||
Rest of the world | 41 | % | 43 | % | 43 | % | ||||||
The growth in revenues from the United States as a percentage of consolidated revenues from 2011 to 2012 was primarily as a result of the inclusion of Motorola Mobile revenues which were primarily generated in the United States.
The general strengthening of the U.S. dollar relative to certain foreign currencies (primarily the Euro) from 2011 to 2012 had an unfavorable impact on our international revenues. Had foreign exchange rates remained constant in these periods, our revenues from the United Kingdom would have been $68 million or 1.4% higher and our revenues from the rest of the world would have been approximately $1,211 million or 5.6% higher in 2012. This is before consideration of hedging gains of $18 million and $199 million recognized to revenues from the United Kingdom and the rest of the world in 2012.
The general weakening of the U.S. dollar relative to certain foreign currencies (primarily the Euro, Japanese yen, and British pound) from 2010 to 2011 had a favorable impact on our international revenues. Had foreign exchange rates remained constant in these periods, our revenues from the United Kingdom would have been $129 million, or 3.2%, lower and our revenues from the rest of the world would have been approximately $834 million, or 5.1%, lower in 2011. This is before consideration of hedging gains of $9 million and $34 million recognized to revenues from the United Kingdom and the rest of the world in 2011.
Although we expect to continue to make investments in international markets, these investments may not result in an increase in our international revenues as a percentage of total revenues in 2013 or thereafter. See Note 15 of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information about geographic areas.
Costs and Expenses
Cost of Revenues
Cost of revenues consists primarily of traffic acquisition costs. Traffic acquisition costs consist of amounts ultimately paid to our Google Network Members under AdSense arrangements and to certain other partners (our distribution partners) who distribute our toolbar and other products (collectively referred to as access points) or otherwise direct search queries to our website (collectively referred to as distribution arrangements). These amounts are primarily based on the revenue share and fixed fee arrangements with our Google Network Members and distribution partners.
Certain distribution arrangements require us to pay our partners based on a fee per access point delivered and not exclusively—or at all—based on revenue share. These fees are non-refundable. Further, these arrangements are terminable at will, although under the terms of certain contracts we or our distribution partners may be subject to penalties in the event of early termination. We recognize fees under these arrangements over the estimated useful lives of the access points (approximately two years) to the extent we can reasonably estimate those lives and they are longer than one year, or based on any contractual revenue share, if greater. Otherwise, the fees are charged to expense as incurred. The estimated useful life of the access points is based on the historical average period of time they generate traffic 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 to processing customer transactions, amortization of acquired intangible assets, as well as content acquisition costs. We have entered into arrangements with certain content providers under which we distribute or license their video and other content. In a number of these arrangements, we display ads on the pages of our websites from which the content is viewed and share most of the fees these ads generate with the content providers. We also license content on the pages of our web sites from which the content is sold and share most of the fees these sales generate with content providers. To the extent we are obligated to make guaranteed minimum revenue share payments to our content providers, we recognize as content acquisition costs the contractual revenue share amount or on a straight-line basis, whichever is greater, over the terms of the agreements.
In addition, cost of revenues includes manufacturing and inventory-related costs from our Motorola Mobile business.
The following tables present our cost of revenues and cost of revenues as a percentage of revenues by business, and our traffic acquisition costs, and traffic acquisition costs as a percentage of advertising revenues in the Google business, for the periods presented (dollars in millions):
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Cost of revenues—Google (advertising and other) | $ | 10,417 | $ | 13,188 | $ | 17,176 | ||||||
Cost of revenues—Motorola Mobile (hardware and other) | 0 | 0 | 3,458 | |||||||||
Cost of revenues—Google (advertising and other) as a percentage of Google revenues | 35.5 | % | 34.8 | % | 37.3 | % | ||||||
Cost of revenues—Motorola Mobile (hardware and other) as a percentage of Motorola Mobile revenues | 0 | 0 | 83.6 | % | ||||||||
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Traffic acquisition costs related to AdSense arrangements | $ | 6,162 | $ | 7,294 | $ | 8,791 | ||||||
Traffic acquisition costs related to distribution arrangements | 1,155 | 1,517 | 2,165 | |||||||||
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Total traffic acquisition costs | $ | 7,317 | $ | 8,811 | $ | 10,956 | ||||||
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Traffic acquisition costs as a percentage of advertising revenues | 25.9 | % | 24.1 | % | 25.1 | % | ||||||
Cost of revenues increased $7,446 million from 2011 to 2012. The increase was primarily related to the inclusion of manufacturing and inventory-related costs from our Motorola Mobile business of $3,458 million. Additionally, there was an increase in traffic acquisition costs of $2,145$1,239 million resulting from more advertiserdistribution fees generated through our AdSense program, morepaid for additional traffic directed to ourGoogle websites, as well as more distributionadvertiser fees paid.paid to Google Network Members, driven primarily by an increase in advertising revenues. The remaining increase was primarily driven by an increase in data center costs, hardware product costs and content acquisition costs. The increase in traffic acquisition costs as a percentage of advertising revenues was primarily the result of a greater increase in traffic acquisition costsincreased usage activities related to distribution arrangements comparedYouTube and digital content by our users, and revenue share payments to mobile carriers and original equipment manufacturers (OEMs). In addition, the increase in advertising revenues generated by Google websites. The increase in Google cost of revenues as a percentage of Google revenues was also driven by an increase in hardware product costs.
Cost of revenues increased $2,771 million from 2010 to 2011. The increase was primarilyimpairment charge related to an increasea patent licensing royalty asset acquired in traffic acquisition costs of $1,132 million resulting from more advertiser fees generated through our AdSense program. The increase was also related to an increase in traffic acquisition costs of $362 million from our distribution arrangements as a result of more traffic directed to our websites, as well as more distribution fees paid.connection with the Motorola acquisition. The decrease in traffic acquisition costs as a percentage of advertising revenues was primarily a result of a shift of mix between Google website revenue and Google Network Members' websites revenue.
traffic acquisition costs as a percentage of advertising revenues was primarily as a result of a shift of mix between Google website revenue and Google Network Members' websites revenue.
The relative growth rates of revenues from ourGoogle websites and from our Google Network Members’ websites.
The growth rates of expenses associated with our data center operations, as well as our hardware inventory costs;
Whether we are able to continue to improve the monetization of traffic on ourGoogle websites and our Google Network Members’ websites.
The relative growth rates of expenses associated with distribution arrangements and the related revenues generated, including whether we share with certain existing and new distribution partners, including mobile distribution partners, proportionately more of the aggregate advertising fees that we earn from paid clicks derived from search queries these partners direct to our websites.
Research and development expenses Research and development expenses as a percentage of total revenues $367 million, both largely as a result of an 18% increase in R&D headcount. Sales and marketing expenses Sales and marketing expenses as a percentage of total revenues certain customer service functions. headcount. periods. General and administrative expenses General and administrative expenses as a percentage of total revenues assets; and Stock-based compensation Stock-based compensation as a percentage of total revenues support our growing business. $66 million. Provision for income taxes Effective tax rate 2013. Revenues Loss from discontinued operations before income taxes Provision for income taxes Net loss from discontinued operations The following table presents financial results of the Motorola Mobile business included in net income (loss) from discontinued operations for the years ended December 31, 2012, 2013, and 2014 (in millions): businesses. In addition, per share amounts for the previously reported quarters below have been retroactively adjusted to reflect the Stock Split. Please see Note 1 and Note 12 of Part II, Item 8 of this Annual Report on Form 10-K for additional information on the Stock Split. 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 (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 from operations Interest and other income (expense), net Income from continuing operations before income taxes Provision for income taxes Net income from continuing operations Net income (loss) from discontinued operations Net income Net income (loss) per share—basic: Continuing operations Discontinued operations Net income per share—basic Net income (loss) per share—diluted: Continuing operations Discontinued operations Net income per share—diluted 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 (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 from operations Interest and other income (expense), net Income from continuing operations before income taxes Provision for income taxes Net income from continuing operations Net income (loss) from discontinued operations Net income Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities From time to time, we may hold marketable equity securities obtained through acquisitions or strategic investments in private companies that subsequently go public, which we generally dispose of when restrictions are lifted. accrue and pay U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations. activities. Operating lease obligations, net of sublease income amounts Purchase obligations Long-term debt obligations Other long-term liabilities reflected on our balance sheet Total contractual obligations 2014 In October 2014, we entered into certain non-cancelable office lease agreements with original lease periods expiring between 2027 and 2028 where we will be the deemed owner for accounting purposes of new construction projects. Future minimum lease payments under the leases total approximately $1.0 billion, of which $250 million is included on the Consolidated Balance Sheet as of December 31, 2014 as a 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. asset retirement obligations. they occur. liabilities are recorded in "Interest and other income, net," which are offset by the gains and losses on the forward contracts. 2014. Assets Current assets: Cash and cash equivalents Marketable securities Total cash, cash equivalents, and marketable securities (including securities loaned of $2,778 and $3,160) Accounts receivable, net of allowance of $133 and $581 Inventories Receivable under reverse repurchase agreements Deferred income taxes, net Prepaid revenue share, expenses and other assets Total current assets Prepaid revenue share, expenses and other assets, non-current Non-marketable equity securities Property and equipment, net Intangible assets, net Goodwill Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Short-term debt Accrued compensation and benefits Accrued expenses and other current liabilities Accrued revenue share Securities lending payable Deferred revenue Income taxes payable, net Total current liabilities Long-term debt Deferred revenue, non-current Income taxes payable, non-current Deferred income taxes, net, non-current Other long-term liabilities Commitments and contingencies Stockholders’ equity: Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding Class A and Class B common stock and additional paid-in capital, $0.001 par value per share: 9,000,000 shares authorized (Class A 6,000,000, Class B 3,000,000) and 12,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000); 324,895 (Class A 257,553, Class B 67,342) and par value of $325 (Class A $258, Class B $67) and 329,979 (Class A 267,448, Class B 62,531) and par value of $330 (Class A $267, Class B $63) shares issued and outstanding Class C capital stock, $0.001 par value per share, 3,000,000 shares authorized; no shares issued and outstanding Accumulated other comprehensive income Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity Revenues: Google (advertising and other) Motorola Mobile (hardware and other) Total revenues Costs and expenses: Cost of revenues—Google (advertising and other)(1) Cost of revenues—Motorola Mobile (hardware and other)(1) Research and development(1) Sales and marketing(1) General and administrative(1) Charge related to the resolution of Department of Justice investigation Total costs and expenses Income from operations Interest and other income, net Income from continuing operations before income taxes Provision for income taxes Net income from continuing operations Net loss from discontinued operations Net income Net income (loss) per share of Class A and Class B common stock—basic: Continuing operations Discontinued operations Net income per share of Class A and Class B common stock—basic Net income (loss) per share of Class A and Class B common stock—diluted: Continuing operations 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 General and administrative Net income Other comprehensive income: Change in foreign currency translation adjustment Available-for-sale investments: Change in net unrealized gains Less: reclassification adjustment for net gains included in net income Net change (net of tax effect of $52, $54, $68) Cash flow hedges: Change in unrealized gains Less: reclassification adjustment for gains included in net income Net change (net of tax effect of $52, $2, $53) Other comprehensive income Comprehensive income Balance at January 1, 2010 Common stock issued Common stock repurchased 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, 2010 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, 2011 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, 2012 Operating activities Net income Adjustments: Depreciation and amortization of property and equipment Amortization of intangible and other assets Stock-based compensation expense Excess tax benefits from stock-based award activities Deferred income taxes Impairment of equity investments Gain on divestiture of business Other Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable Income taxes, net Inventories Prepaid revenue share, expenses and other assets Accounts payable Accrued expenses and other liabilities Accrued revenue share Deferred revenue Net cash provided 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 Acquisitions, net of cash acquired and proceeds received from divestiture, and purchases of intangible and other assets Net cash used in investing activities Financing activities Net proceeds (payments) from stock-based award activities Excess tax benefits from stock-based award activities Repurchase of common stock in connection with acquisitions Proceeds from issuance of debt, net of costs Repayment of debt Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosures of cash flow information Cash paid for interest Cash paid for taxes Non-cash financing activity: Fair value of stock-based awards assumed in connection with acquisitions Statements of Income for the years ended December 31, 2012, 2013, and 2014. See Note 8 for further discussion of the sale. Google: Advertising revenues: Google websites Google Network Members’ websites Total advertising revenues Other revenues Total Google revenues (advertising and other) Motorola Mobile: Total Motorola Mobile revenues (hardware and other) Total revenues advance of our performance in the underlying agreement on the accompanying Consolidated Balance Sheets. otherwise direct search queries to our assets. method over the vesting period. $57 million, $216 million and $59 million, and $104 million and $30 million, respectively. 2012, 2013, or 2014. Basic net income (loss) per share: Numerator Allocation of undistributed earnings—continuing operations Allocation of undistributed earnings—discontinued operations Total Denominator Weighted-average common shares outstanding Number of shares used in per share computation Basic net income (loss) per share Continuing operations Discontinued operations Basic net income per share Diluted net income per share: Numerator Allocation of undistributed earnings for basic computation—continuing operations Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares Reallocation of undistributed earnings to Class B shares Allocation of undistributed earnings—continuing operations Allocation of undistributed earnings for basic computation—discontinued operations Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares Reallocation of undistributed earnings to Class B shares Allocation of undistributed earnings—discontinued operations Denominator Number of shares used in basic computation Weighted-average effect of dilutive securities Add: Conversion of Class B to Class A common shares 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 Cash Level 1: Money market and other funds U.S. government notes Marketable equity securities Level 2: Time deposits Money market and other funds(1) U.S. government agencies Foreign government bonds Municipal securities Corporate debt securities Agency residential mortgage-backed securities Total Cash Level 1: Money market and other funds U.S. government notes Marketable equity securities Level 2: Time deposits Money market and other funds(1) U.S. government agencies Foreign government bonds Municipal securities Corporate debt securities Agency residential mortgage-backed securities Asset-backed securities Total The majority of our time deposits are foreign deposits. Due in 1 year Due in 1 year through 5 years Due in 5 years through 10 years Due after 10 years Total Foreign government bonds Corporate debt securities Agency residential mortgage-backed securities Total U.S. government notes Foreign government bonds Municipal securities Corporate debt securities Agency residential mortgage-backed securities Total event of counterparty default. $268 million. hedged item. 2014. 2014. Balance Sheet Location Derivative Assets: Level 2: Foreign exchange contracts Derivative Liabilities: Level 2: Foreign exchange contracts Balance Sheet Location Derivative Assets: Level 2: Foreign exchange contracts Interest rate contracts Total Derivative Liabilities: Level 2: Foreign exchange contracts Derivatives in Cash Flow Hedging Relationship Foreign exchange contracts Interest rate contracts Total Derivatives in Cash Flow Hedging Relationship Foreign exchange contracts Derivatives in Cash Flow Hedging Relationship Foreign exchange contracts Gains (losses) related to the ineffective portion of the hedges were not material in all periods presented.Research and DevelopmentThe following table presents our research and developmentR&D expenses, and research and developmentthose expenses as a percentage of our revenues, for the periods presented (dollars in millions): Year Ended December 31, 2010 2011 2012 $ 3,762 $ 5,162 $ 6,793 12.8 % 13.6 % 13.5 % Research and development Year Ended December 31, 2012 2013 2014 Research and development expenses $ 6,083 $ 7,137 $ 9,832 Research and development expenses as a percentage of revenues 13.2 % 12.9 % 14.9 % R&D expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products and services. We expense research and development costs as incurred.Research and development expenses increased $1,631 million from 2011 to 2012, which includes $710 million related to Motorola Mobile. The remaining increase of $921 million was primarily due to an increase in laborof:Labor and facilities-related costs of $359for employees responsible for R&D in our existing businesses as well as new products and services;Depreciation and equipment-related expenses; andStock-based compensation expense for employees responsible for R&D.R&D expenses increased $2,695 million largelyand increased as a resultpercentage of a 15% increase in research and development headcount, an increase in stock-based compensation expense of $213 million, an increase in depreciation and equipment-related expenses of $147 million, and an increase in professional services expense of $66 million.Research and development expenses increased $1,400 millionrevenues from 20102013 to 2011. This2014. The increase was primarily due to an increase in labor and facilities-related costs of $875$1,289 million and an increase in stock-based compensation expense of $559 million, both largely as a result of a 23%27% increase in research and development headcount, including headcount from acquisitions, as well as an increase in employee base salaries of approximately 10%.R&D headcount. In addition, there was an increase in depreciation and equipment-related expenses of $425 million and an increase in professional services of $371 million due to additional expenses incurred for consulting and outsourced services. R&D expenses increased as a percentage of revenues primarily due to a higher increase in labor and facilities-related costs relative to the increase in revenues.R&D expenses increased $1,054 million from 2012 to 2013 and as a percentage of revenues remained relatively flat from 2012 to 2013. The increase in expenses was primarily due to an increase in labor and facilities-related costs of $596 million and an increase in stock-based compensation expense of $200 million.We expect that research and developmentR&D expenses will increase in dollar amount and may increase as a percentage of total revenues in 20132015 and future periods because we expect to continue to invest in building the necessary employee and system infrastructure required to support the developmentperiods.27Sales and MarketingThe following table presents our sales and marketing expenses, and sales and marketingthose expenses as a percentage of total revenues, for the periods presented (dollars in millions): Year Ended December 31, 2010 2011 2012 $ 2,799 $ 4,589 $ 6,143 9.5 % 12.1 % 12.2 % Year Ended December 31, 2012 2013 2014 Sales and marketing expenses $ 5,465 $ 6,554 $ 8,131 Sales and marketing expenses as a percentage of revenues 11.9 % 11.8 % 12.3 % Sales and marketing expenses consist primarily of compensationof:Labor and relatedfacilities-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; andStock-based compensation expense for our employees engaged in sales, and sales support, functions, as well as advertising and promotional expenditures.Sales and marketing expenses increased $1,554$1,577 million and increased slightly as a percentage of revenues from 20112013 to 2012, which includes $678 million related to Motorola Mobile.2014. The remaining increase of $876 million was primarily due to an increase in advertising and promotional expenses of $614 million. In addition, there was an increase in labor and facilities-related costs of $390$571 million and an increase in stock-based compensation expense of $163 million, both largely asresulting from a result of a 14%15% increase in sales and marketing headcount,headcount. Sales and marketing expenses increased slightly as wella percentage of revenues primarily due to an increase in advertising and promotional expenses relative to the increase in revenues.Sales and marketing expenses increased $1,089 million from 2012 to 2013 and as a percentage of revenues remained flat from 2012 to 2013. The increase in expenses was primarily due to an increase in advertising and promotional expenses of $288 million. In addition, there was an increase in stock-based compensation expense of $87 million.Sales and marketing expenses increased $1,790$674 million, from 2010 to 2011. This increase was primarily due toas well as an increase in labor and facilities-related costs of $787$233 million and an increase in stock-based compensation expense of $103 million, both largely asresulting from a result of a 36%13% increase in sales and marketing headcount, including headcount from acquisitions, as well as an increase in employee base salaries of approximately 10%. In addition, there was an increase in advertising and promotional expenses of $700 million.We expect that sales and marketing expenses will increase in dollar amount and may increase as a percentage of total revenues in 20132015 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 AdministrativeThe following table presents our general and administrative expenses, and general and administrativethose expenses as a percentage of total revenues, for the periods presented (dollars in millions): Year Ended December 31, 2010 2011 2012 $ 1,962 $ 2,724 $ 3,845 6.8 % 7.2 % 7.8 % Year Ended December 31, 2012 2013 2014 General and administrative expenses $ 3,481 $ 4,432 $ 5,851 General and administrative expenses as a percentage of revenues 7.6 % 8.0 % 8.9 % General and administrative expenses consist primarily of compensationof:Labor and relatedfacilities-related costs for personnel and facilities, and include costs related toin our facilities, finance, human resources, information technology, and legal organizations, and fees for professional services. organizations;Professional services are principally comprised offees primarily related to outside legal, audit, information technology consulting, and outsourcing services. General and administrative expenses also include amortizationservices;Amortization of certain acquired intangible assets.Stock-based compensation expense.General and administrative expenses increased $1,121$1,419 million from 2011 to 2012, which includes $364 million related to Motorola Mobile. The remaining increase of $757 million was primarily due to an increase in amortization of acquired intangible assets of $274 million, an increase in professional services expense of $147 million, the majority of which was related to legal costs, an increase in labor and facilities-related costs of $122 million, primarilyalso increased as a resultpercentage of a 11% increase in general and administrative headcount, as well as an increase in stock-based compensation expense of $89 million.General and administrative expenses increased $762 millionrevenues from 20102013 to 2011. This2014. The increase was primarily due to an increase in labor and facilities-related costs of $350$576 million primarily asand an increase in stock-based compensation expense of $260 million, both largely resulting from a result of a 37%24% increase in general and administrative headcount and an increase in employee base salaries of approximately 10%, as well as an increase in expense related to professional services of $260 million, the majority of which were related to consulting services and legal costs.headcount. In addition, there was an increase in professional services related expense of $314 million due to higher legal-related costs, as well as additional consulting and outsourced services. General and administrative expenses increased as a percentage of revenues primarily due to an increase in labor and facilities-related costs and stock-based compensation expense relative to the increase in revenues.General and administrative expenses increased $951 million from 2012 to 2013 and as a percentage of $116revenues remained relatively flat from 2012 to 2013. The increase in expenses was primarily due to an increase in labor and28facilities-related costs of $396 million, largely resulting from a 15% increase in general and administrative headcount, an increase in depreciation and equipment-related expense of $222 million, as well as an increase in amortization of acquired intangible assets of $157 million.As we expand our business and incur additional expenses, weWe expect general and administrative expenses will increase in dollar amount and may increasefluctuate as a percentage of total revenues in 20132015 and in future periods.Charge Related to the Resolution of Department of Justice InvestigationIn connection with a resolution of an investigation by the United States Department of Justice into the use of Google advertising by certain advertisers, we accrued $500 million during the first quarter of 2011, which was paid in August 2011 upon final resolution of that matter.Stock-Based CompensationThe following table presents our aggregate stock-based compensation expense, and stock-based compensation as a percentage of revenues, as reflected in our consolidated results from continuing operations for the periods presented (dollars in millions): Year Ended December 31, 2010 2011 2012 $ 1,376 $ 1,974 $ 2,649 4.7 % 5.2 % 5.3 % Year Ended December 31, 2012 2013 2014 Stock-based compensation $ 2,473 $ 3,127 $ 4,175 Stock-based compensation as a percentage of revenues5.4 % 5.6 % 6.3% Stock-based compensation increased $675$1,048 million from 20112013 to 2012.2014 and increased slightly as a percentage of revenues. These increases were primarily due to an increased headcount to support our growing business. In addition, we granted additional stock awards to our employees throughout 2014.Stock-based compensation increased $654 million from 2012 to 2013 and as a percentage of consolidated revenues remained flat from 2012 to 2013. This increase in expenses was primarily due to additional stock awards issuedan increase in headcount to existing and new employees, awards issued in connection with the acquisition of Motorola, and acceleration of certain awards resulting from Motorola restructuring. Additionally, stock-based compensation expense for the Motorola Home segment was included in net loss from discontinued operations.Stock-based compensation increased $598 million from 2010 to 2011. This increase was largely due to additional stock awards issued to existing and new employees.We estimate stock-based compensation expense to be approximately $2.5$4.3 billion in 20132015 and $2.7$5.5 billion thereafter.thereafter related to stock awards outstanding as of December 31, 2014. This estimate does not include expenses to be recognized related to employee stockstock-based awards that are granted after December 31, 2012 or non-employee stock awards that have been or may be granted. In addition, to the extent2014. If forfeiture rates are different from what we have anticipated, stock-based compensation related to these awards will be different from our expectations.Interest and Other Income, NetThe following table presents the components included in Interest and Other Income, Net, as reflected in our consolidated results from continuing operations for the periods presented (dollars in millions): Year Ended December 31, 2012 2013 2014 Interest and other income, net $ 635 $ 496 $ 763 Interest and other income, net as a percentage of revenues 1.4 % 0.9 % 1.2% Interest and other income, net, increased $42$267 million from 20112013 to 2012.2014. This increase was primarily driven by realized gains on non-marketable equity investments of $159 million and previously-held equity interests of $126 million, as well as a gainloss recognized on divestiture of business of $188 millionbusinesses (other than Motorola Home) in 2012, an impairment charge related to equity investments of $110 million in 2011,2013. These increases were partially offset by an increase in foreign currency exchange loss of $152$23 million and a decrease in interest income of $99$20 million.Interest and other income, net, increased $169decreased $139 million from 20102012 to 2011.2013. This increasedecrease was primarily driven by a decrease in the gain on divestiture of businesses (other than Motorola Home) of $245 million and a decrease in the realized gain on investments of $124 million, partially offset by a decrease in foreign currency exchange loss of $135 million and an increase in interest income of $233 million due to an increase in our cash and investment balances and higher yields, as well as an increase in net realized gains on sales of available-for-sale investments of $69 million, partially offset by an increase in interest expense of $53 million primarily related to our long-term debt program. In addition, we recorded an impairment charge of $110 million related to certain equity investments during the year ended December 31, 2011.The costs of our foreign exchange hedging activities that we recognized to interest and other income, net, are primarily a function of the notional amount of the option and forward contracts and their related duration, the movement of the foreign exchange rates relative to the strike prices of the contracts, as well asand 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 20132015 and future periods.29Provision for Income TaxesThe following table presents our provision for income taxes, and effective tax rate for the periods presented (dollars in millions): Year Ended December 31, 2010 2011 2012 $ 2,291 $ 2,589 $ 2,598 21.2 % 21.0 % 19.4 % Year Ended December 31, 2012 2013 2014 Provision for income taxes $ 2,916 $ 2,552 $ 3,331 Effective tax rate 20.2 % 16.1 % 19.3 % Our provision for income taxes and our effective tax rate increased from 20112013 to 2012, primarily as a result of increases in federal income taxes, driven by higher taxable income year over year and expiration of the federal research and development credit, partially offset by2014, largely due to proportionately more earnings realized in countries that have lowerhigher statutory tax rates. rates and more benefit recognized in 2013 relative to 2014 due to the retroactive extension of the 2012 federal research and development credit, offset by a benefit taken on a valuation allowance release related to a capital loss carryforward in 2014.Our provision for income taxes and our effective tax rate decreased from 20112012 to 2012,2013, primarily as a result of proportionately more earnings realized in countries that have lower statutory tax rates, as well as a discrete item related to an investigation by the Department of Justice recognized in 2011, which was not deductible for income tax purposes.Our provision for income taxes increased from 2010 to 2011, primarily as a result of increases in federal income taxes, driven by higher taxable income year over year, partially offset by proportionately more earnings realized in countries that have lower statutory tax rates. Our effective tax rate decreased from 2010 to 2011, primarily as a result of proportionately more earnings realized in countries that have lower statutory tax rates, a decrease in state income taxes, and an increase in federal research and development credits recognized in 2011, partially offset by recognition of a charge related to the resolution of an investigation by the Department of Justice which is not deductible for tax purposes.The federal research and development credit expired on December 31, 2011. On January 2, 2013,related to the American Taxpayer Relief Act of 2012 which was signed into law. Under this act, the federal research and development credit was retroactively extended for amounts paid or incurred after December 31, 2011 and before January 1, 2014. The effects of these changes in the tax law will result in a tax benefit which will be recognizedapplied in the first quarter of 2013, which is the quarter in which the law was enacted.Our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates. Our effective tax rate could also fluctuate due to the net gains and losses recognized by legal entities on certain hedges and related hedged intercompany and other transactions under our foreign exchange risk management program, by changes in the valuation of our deferred tax assets or liabilities, or by changes in tax laws, regulations, or accounting principles, as well as certain discrete items. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (IRS) and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.See Critical 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 Part II, Item 8 of this Annual Report on Form 10-K.Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates, the net gains and losses recognized by legal entities on certain hedges and related hedged intercompany and other transactions under our foreign exchange risk management program, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.We are subject to the continuous examination of our income tax returns by the Internal Revenue Service (IRS) and other domestic and foreign tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We continue to monitor the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. Further information on these issues, the treatment of undistributed foreign earnings and a reconciliation of the federal statutory income tax rate to our effective tax rate can be found in Notes 10 and 14 of Part II, Item 8 of this Annual Report on Form 10-K.See Critical Accounting Policies and Estimates below for additional information about our provision for income taxes.Net LossIncome (Loss) from Discontinued OperationsIn December 2012,Motorola MobileOn October 29, 2014, we entered into an agreement with Arris and certain other persons providing forclosed the dispositionsale of the Motorola HomeMobile business to Lenovo for a total considerationpurchase price of approximately $2.35$2.9 billion (subject to certain adjustments), including $1.4 billion paid at close, comprised of $660 million in cash and common stock, subject$750 million in Lenovo ordinary shares. The remaining $1.5 billion was paid in the form of an interest-free, three-year prepayable promissory note.We maintain ownership of the vast majority of the Motorola Mobile patent portfolio, including pre-closing patent applications and invention disclosures, which we licensed to Motorola Mobile for its continued operations. Additionally, in connection with the sale, we agreed to indemnify Lenovo for certain adjustments. potential liabilities of the Motorola Mobile business, for which we recorded a liability of $130 million as of December 31, 2014.The transaction is expected to closesale resulted in 2013. As a result, thefollowing financial informationgain of Motorola Home$740 million, net of tax, which was presented as part of net lossincome from discontinued operations in the Consolidated Statements of Income for the year ended December 31, 2014. Incremental to this net gain, we recognized an additional income of $254 million, net of tax, in connection with certain IP licensing arrangements between the parties, included as part of net income from discontinued operations on the Consolidated Statements of Income for the year 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. Year Ended
December 31,
2012 (In millions) $ 2,028 (22 ) (29 ) $ (51 ) 30 Year Ended December 31, 2012 2013 2014 (1)Revenues $ 4,136 $ 4,306 $ 5,486 Loss from discontinued operations before income taxes (1,083 ) (1,403 ) (177 ) Benefits from/(Provision for) income taxes 318 270 (47 ) Gain on disposal 0 0 740 Net (loss) income from discontinued operations $ (765 ) $ (1,133 ) $ 516 (1) The operating results of Motorola Mobile were included in our Consolidated Statements of Income from January 1, 2014 through October 29, 2014, the date of divestiture. Motorola HomeOn April 17, 2013, we sold the Motorola Home business to Arris.The financial results of Motorola Home through the 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 and 2013 (in millions): Year Ended December 31, 2012 2013 (1)Revenues $ 2,028 $ 804 Loss from discontinued operations before income taxes (22 ) (67 ) (Provision for)/Benefits from income taxes (29 ) 16 Gain on disposal 0 757 Net (loss) income from discontinued operations $ (51 ) $ 706 (1) The operating results of Motorola Home were included in our Consolidated Statements of Income from January 1, 2013 through April 17, 2013, the date of divestiture.Quarterly Results of OperationsYou should read theThe following tables presenting our quarterly results of operations should be read in conjunction with the consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. You should also keep in mind that ourOur operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year. Please note that previously reported quarters have been adjusted to show discontinued operations for the dispositionsale of the Motorola Mobile and Motorola Home business.The following table presents our unaudited quarterly results of operations for the eight quarters ended December 31, 2012.2014. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for fair presentation of our consolidated financial position and operating results for the quarters presented. Both seasonal fluctuations in internet usage and traditional retail seasonality have affected, and are likely to continue to affect, our business. Internet usage generally slows during the summer months, and commercial queries typically increase significantly in the fourth quarter of each year. These seasonal trends have caused and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates. Quarter Ended Mar 31,
2011 Jun 30,
2011 Sep 30,
2011 Dec 31,
2011 Mar 31,
2012 Jun 30,
2012 Sep 30,
2012 Dec 31,
2012 (In millions, except per share amounts) (unaudited) $ 8,575 $ 9,026 $ 9,720 $ 10,584 $ 10,645 $ 10,964 $ 11,526 $ 12,905 0 0 0 0 0 843 1,778 1,514 8,575 9,026 9,720 10,584 10,645 11,807 13,304 14,419 2,936 3,172 3,378 3,702 3,789 3,984 4,440 4,963 0 0 0 0 0 693 1,515 1,250 1,226 1,234 1,404 1,298 1,441 1,538 1,879 1,935 1,026 1,091 1,204 1,268 1,269 1,413 1,710 1,751 591 648 676 809 757 942 1,020 1,126 500 0 0 0 0 0 0 0 6,279 6,145 6,662 7,077 7,256 8,570 10,564 11,025 2,296 2,881 3,058 3,507 3,389 3,237 2,740 3,394 96 204 302 (18 ) 156 253 65 152 2,392 3,085 3,360 3,489 3,545 3,490 2,805 3,546 594 580 631 784 655 657 647 639 $ 1,798 $ 2,505 $ 2,729 $ 2,705 $ 2,890 $ 2,833 $ 2,158 $ 2,907 0 0 0 0 0 (48 ) 18 (21 ) $ 1,798 $ 2,505 $ 2,729 $ 2,705 $ 2,890 $ 2,785 $ 2,176 $ 2,886 $ 5.59 $ 7.77 $ 8.44 $ 8.34 $ 8.88 $ 8.68 $ 6.59 $ 8.83 0 0 0 0 0 (0.14 ) 0.05 $ (0.06 ) $ 5.59 $ 7.77 $ 8.44 $ 8.34 $ 8.88 $ 8.54 $ 6.64 $ 8.77 $ 5.51 $ 7.68 $ 8.33 $ 8.22 $ 8.75 $ 8.56 $ 6.48 $ 8.68 0 0 0 0 0 (0.14 ) 0.05 (0.06 ) $ 5.51 $ 7.68 $ 8.33 $ 8.22 $ 8.75 $ 8.42 $ 6.53 $ 8.62 31 Quarter Ended Mar 31,2013 Jun 30,2013 Sep 30,2013 Dec 31,2013 Mar 31,2014 Jun 30,2014 Sep 30,2014 Dec 31,2014 (In millions, except per share amounts)(unaudited)Consolidated Statements of Income Data: Revenues $ 12,951 $ 13,107 $ 13,754 $ 15,707 $ 15,420 $ 15,955 $ 16,523 $ 18,103 Costs and expenses: Cost of revenues 5,136 5,195 5,409 6,253 5,961 6,114 6,695 6,921 Research and development 1,617 1,766 1,821 1,933 2,126 2,238 2,655 2,813 Sales and marketing 1,435 1,583 1,628 1,908 1,729 1,941 2,084 2,377 General and administrative 1,015 1,098 1,135 1,184 1,489 1,404 1,365 1,593 Total costs and expenses 9,203 9,642 9,993 11,278 11,305 11,697 12,799 13,704 Income from operations 3,748 3,465 3,761 4,429 4,115 4,258 3,724 4,399 Interest and other income, net 134 236 14 112 357 145 133 128 Income from continuing operations before income taxes 3,882 3,701 3,775 4,541 4,472 4,403 3,857 4,527 Provision for income taxes 354 927 612 659 822 913 859 737 Net income from continuing operations $ 3,528 $ 2,774 $ 3,163 $ 3,882 $ 3,650 $ 3,490 $ 2,998 $ 3,790 Net income (loss) from discontinued operations (182 ) 454 (193 ) (506 ) (198 ) (68 ) (185 ) 967 Net income $ 3,346 $ 3,228 $ 2,970 $ 3,376 $ 3,452 $ 3,422 $ 2,813 $ 4,757 Net income (loss) per share - basic: Continuing operations $ 5.34 $ 4.17 $ 4.74 $ 5.80 $ 5.42 $ 5.17 $ 4.42 $ 5.58 Discontinued operations (0.28 ) 0.68 (0.29 ) (0.76 ) (0.29 ) (0.10 ) (0.27 ) 1.43 Net income per share - basic $ 5.06 $ 4.85 $ 4.45 $ 5.04 $ 5.13 $ 5.07 $ 4.15 $ 7.01 Net income (loss) per share - diluted: Continuing operations $ 5.24 $ 4.10 $ 4.66 $ 5.69 $ 5.33 $ 5.09 $ 4.36 $ 5.50 Discontinued operations (0.27 ) 0.67 (0.28 ) (0.74 ) (0.29 ) (0.10 ) (0.27 ) 1.41 Net income per share - diluted $ 4.97 $ 4.77 $ 4.38 $ 4.95 $ 5.04 $ 4.99 $ 4.09 $ 6.91 32The following table presents our unaudited quarterly results of operations as a percentage of revenues for the eight quarters ended December 31, 2012: Quarter Ended Mar 31,
2011 Jun 30,
2011 Sep 30,
2011 Dec 31,
2011 Mar 31,
2012 Jun 30,
2012 Sep 30,
2012 Dec 31,
2012 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 92.9 % 86.6 % 89.5 % 0 0 0 0 0 7.1 13.4 10.5 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 34.2 35.1 34.8 35.0 35.6 33.7 33.4 34.4 0 0 0 0 0 5.9 11.3 8.7 14.3 13.7 14.4 12.3 13.5 13.0 14.1 13.4 12.0 12.1 12.4 12.0 11.9 12.0 12.9 12.2 6.9 7.2 6.9 7.6 7.2 8.0 7.7 7.8 5.8 0 0 0 0 0 0 0 73.2 68.1 68.5 66.9 68.2 72.6 79.4 76.5 26.8 31.9 31.5 33.1 31.8 27.4 20.6 23.5 1.1 2.3 3.1 (0.1 ) 1.5 2.1 0.5 1.1 27.9 34.2 34.6 33.0 33.3 29.5 21.1 24.6 6.9 6.4 6.5 7.4 6.2 5.5 4.9 4.4 21.0 % 27.8 % 28.1 % 25.6 % 27.1 % 24.0 % 16.2 % 20.2 % 0 % 0 % 0 % 0 % 0 % (0.4 %) 0.1 % (0.2 %) 21.0 % 27.8 % 28.1 % 25.6 % 27.1 % 23.6 % 16.3 % 20.0 % Liquidity2014: Quarter Ended Mar 31,
2013 Jun 30,
2013 Sep 30,
2013 Dec 31,
2013 Mar 31,
2014 Jun 30,
2014 Sep 30,
2014 Dec 31,
2014Revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses: Cost of revenues 39.7 39.6 39.3 39.8 38.7 38.3 40.5 38.2 Research and development 12.5 13.5 13.2 12.3 13.8 14.0 16.1 15.5 Sales and marketing 11.1 12.1 11.8 12.1 11.2 12.2 12.6 13.1 General and administrative 7.8 8.4 8.3 7.5 9.7 8.8 8.3 8.8 Total costs and expenses 71.1 73.6 72.6 71.7 73.4 73.3 77.5 75.6 Income from operations 28.9 26.4 27.4 28.3 26.6 26.7 22.5 24.3 Interest and other income, net 1.0 1.8 0.1 0.7 2.3 0.9 0.8 0.7 Income from continuing operations before income taxes 29.9 28.2 27.5 29.0 28.9 27.6 23.3 25.0 Provision for income taxes 2.7 7.1 4.4 4.2 5.3 5.7 5.2 4.1 Net income from continuing operations 27.2 % 21.1 % 23.1 % 24.8 % 23.6 % 21.9 % 18.1 % 20.9 % Net income (loss) from discontinued operations (1.4 ) 3.5 (1.4 ) (3.2 ) (1.3 ) (0.4 ) (1.1 ) 5.3 Net income 25.8 % 24.6 % 21.7 % 21.6 % 22.3 % 21.5 % 17.0 % 26.2 % Capital Resources and LiquidityCapital ResourcesIn summary, our cash flows are as follows (in millions): Year Ended December 31, 2010 2011 2012 $ 11,081 $ 14,565 $ 16,619 (10,680 ) (19,041 ) (13,056 ) 3,050 807 1,229 At As of December 31, 2012,2014, we had $48.1$64.4 billion of cash, cash equivalents, and marketable securities. Cash equivalents and marketable securities areare comprised of time deposits, money market and other funds, including cash collateral received related to our securities lending program, fixed-income bond funds, highly liquid debt instruments of the U.S. government and its agencies, debt instruments issued by foreign governments, anddebt instruments issued by municipalities in the U.S., corporate debt securities, mortgage-backed securities, and asset-backed securities.As of December 31, 2012, $31.42014, $38.7 billion of the $48.1$64.4 billion of cash, cash equivalents, and marketable securities was held by our foreign subsidiaries. If these funds arewere needed for our operations in the U.S., we would be required toOur principal sources of liquidity are our cash, cash equivalents, and marketable securities, as well as the cash flow that we generate from our operations. AtAs of December 31, 2012,2014, we had unused letters of credit forof approximately $89$842 million. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements through at least the next 12 months. Our liquidity could be negatively affected by a decrease in demand for our products and services. In addition, we may make acquisitions, increase our capital expenditures, or license products and technologies complementary to our business and may need to raise additional capital through future debt or equity financing to provide for greater flexibility to fund any such acquisitions and licensingthese activities. Additional financing may not be available at all or on terms favorable to us.We have a debt financing program of up to $3.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. As of December 31, 2012,2014, we had $2.5$2.0 billion of commercial paper outstanding recorded as short-term debt, with a weighted-average interest rate of 0.2%0.1% that maturematures at various dates through 2013.April 2015. Average commercial paper borrowings during the year were $2.2$2.1 billion and the maximum amount outstanding during the year was $2.7$2.4 billion. In conjunction with this program, we have a $3.0 billion revolving33credit facility expiring in July 2016. The interest rate for the credit facility is determined based on a formula using certain market rates. As of December 31, 2012,2014, we were in compliance with the financial covenant in the credit facility and no amounts were outstanding.In May 2011, we issued $3.0 billion of unsecured senior notes (2011 Notes) in three equal tranches, due in 2014, 2016, and 2021, with stated interest rates of 1.25%, 2.125%, and 3.625%.2021. The net proceeds from the sale of the notes2011 Notes were used to repay a portion of our outstanding commercial paper and for general corporate purposes. In February 2014, we issued $1.0 billion of unsecured senior notes (2014 Notes) due in 2024, which was used to repay $1.0 billion of the first tranche of our 2011 Notes that matured in May 2014 and for general corporate purposes.As of December 31, 2012,2014, the 2011 and 2014 notes had a total carrying value of $3.0 billion and a total estimated fair value of these notes were $3.0 billion and $3.2$3.1 billion. The estimated fair value was based on quoted prices for our publicly-traded debt as of December 31, 2012. We are not subject to any financial covenants under the notes.In August 2013, we entered into a $258 million capital lease obligation on certain property expiring in 2028 with an option to purchase 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, 2014.LiquidityFor 2012, 2013 and 2014, our cash flows were as follows (in millions): Year Ended December 31, 2012 2013 2014 Net cash provided by operating activities $ 16,619 $ 18,659 $ 22,376 Net cash used in investing activities (13,056 ) (13,679 ) (21,055 ) Net cash provided by (used in) financing activities 1,229 (857 ) (1,439 ) Cash Provided by Operating ActivitiesCashOur largest source of cash provided by our operations is advertising revenues generated by Google websites and Google Network Members' websites. Additionally, we generate cash through sales of digital content and licensing payments. Prior to its divestiture, we also generated cash from sales of hardware products related to the Motorola Mobile business.Our primary uses of cash from our operating activities include payments to our Google Network Members and distribution partners, and payments for content acquisition costs. Prior to the sale of the Motorola Mobile business, our use of cash also included 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 consist ofincreased from 2013 to 2014 primarily due to increased net income adjusted for certain non-cash items, including amortization, depreciation deferred income taxes, excess tax benefits from stock-based award activities,and loss on disposal of property and equipment and stock-based compensation expense, as well as the effect of changes in working capital and other activities.Cash provided by operating activities in 2012 was $16,619 million and consisted ofa net income of $10,737 million, adjustments for non-cash items of $5,172 million, a gain on divestiture of business of $188 million and increase in cash from changes in working capital primarily driven by changes in prepaid revenue share, expenses, and other assets.Net cash provided by operating activities increased from 2012 to 2013 primarily due to increased net income adjusted for gain on divestiture of $898 million. Adjustments for non-cash items primarily consisted of $2,692 million of stock-based compensation expense, $1,988 million ofbusinesses, depreciation and amortization expense on property and equipment, $974 million ofstock-based compensation expense, and amortization of intangible and other assets, and $188 million of excess tax benefits from stock-based award activities, partially offset by $266 million of deferred income taxes. In addition, the increase in cash from changes in working capital activities primarily consisted of an increase in income taxes, net, of $1,492 million including additional tax obligations accrued, partially offset by an increase in the amount of estimated income taxes we paid during the year, an increase in accrued expenses and other liabilities of $762 million, a decrease in inventories of $301 million, an increase accrued revenue share of $299 million, and an increase in deferred revenue of $163 million. These changes were partially offset by an increase in prepaid revenue share, expenses, and other assets of $833 million including prepayments for certain content arrangements, an increase of accounts receivable of $787 million due to growth in fees billed to our customers, and a decrease in accounts payable of $499 million due to the timing of invoice processing and payments.Cash provided by operating activities in 2011 was $14,565 million and consisted of net income of $9,737 million, adjustments for non-cash items of $4,198 million, and increase in cash from changes in working capital and other activities of $630 million. Adjustments for non-cash items primarily consisted of $1,974 million of stock-based compensation expense, $1,396 million of depreciation and amortization expense of property and equipment, $455 million of amortization of intangible and other assets, $343 million of deferred income taxes, and $110million related to impairment of equity investments. In addition, the increase in cash from changes in working capital activities primarily consisted of an increase in accrued expenses and other liabilities of $795 million, a net increase in income taxes payable and deferred income taxes of $731 million, an increase in accrued revenue share of $259 million, an increase of $162 million in deferred revenue, and an increase of $101 million in accounts payable.assets. These increases were partially offset by an increase in accounts receivable of $1,156 million due to the growth in fees billed to our advertisers, and an increase in prepaid revenue share, expenses and other assets of $262 million. The increase in income taxes payable and deferred income taxes reflected primarily additional tax obligations accrued, partially offset by estimated income taxes paid during 2011. In addition, we paid $500 million related to the resolution of a Department of Justice investigation during the year.Cash provided by operating activities in 2010 was $11,081 million, and consisted of net income of $8,505 million, adjustments for non-cash items of $2,675 million, and decrease in cash from changes in working capital primarily as a result of a decrease in income taxes, an increase in accounts receivable and otherinventories, offset by an increase in accounts payable.Cash Used in Investing ActivitiesCash provided by or used in investing activities primarily consists of $99 million. Adjustments for non-cash items primarily consistedpurchases of $1,376 million of stock-based compensation expense, $1,067 million of depreciation and amortization expense on property and equipment, as well as acquisitions and $329 milliondivestitures of amortizationbusinesses and intangible assets. Our cash provided or used in investing activities includes purchases, maturities, and sales of intangiblemarketable securities in our investment portfolio and other assets,our investments in reverse repurchase agreements and the cash collateral received or returned from our securities lending program.Cash used in investing activities increased from 2013 to 2014 primarily due to increases in capital expenditures related to our production equipment, data centers, and real estate purchases, higher spend related to acquisitions, and lower proceeds received in 2014 from divestiture of businesses compared to 2013. This increase was partially offset by $94 milliona net decrease in purchases of marketable securities.34Cash used in investing activities increased from 2012 to 2013 primarily due to a net increase in purchases of marketable securities and an increase in capital expenditures primarily related to our production equipment, data centers, and real estate purchases. This increase was partially offset by lower spend related to acquisitions and an increase in proceeds received from divestiture of businesses.Cash Provided by (Used in) Financing ActivitiesCash used in financing activities consists primarily of net proceeds or payments from issuance or repayments of debt and net proceeds or payments and excess tax benefits from stock-based award activities. In addition, the decreaseCash used in cashfinancing activities increased from changes in working capital activities2013 to 2014 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 partially offsetdriven by an increase in accrued expenses and other liabilities of $745 million,net payments related to stock-based award activities, offset partially by a decrease in net cash payments related to debt.Cash used in financing activities increased from 2012 to 2013 primarily driven by an increase in accounts payable of $272 million,net cash payments related to debt and, to a lesser extent, an increase in accrued revenue share of $214 million, an increase in deferred revenue of $111 million, and a net increase in income tax payable and deferred income taxes of $102 million, which includes the same $94 million of excess tax benefits from stock-based award activities included under adjustments for non-cash items. The increase in accrued expense and other liabilities, accounts payable, accrued revenue share, and deferred revenues are primarily a result of the growth in our business and headcount. The increase in net income taxes payable and deferred income taxes was primarily a result of additional tax obligations accrued, partially offset by the release of certain tax reserves as a result of the settlement of our tax audits for our 2005 and 2006 tax years.As we expand our business internationally, we have offered payment terms to certain advertisers that are standard in their locales but longer than terms we would generally offer to our domestic advertisers. In addition, we continue to evaluate our Motorola restructuring plan, and may incur additional charges, some of which may be significant. This may increase our working capital requirements and may have a negative effect on cash provided by our operating activities.Cash Used In Investing ActivitiesCash used in investing activities in 2012 of $13,056 million was primarily attributable to cash used in acquisitions and other investments of $11,264 million, including $9,518 million net cash paid in connection with the acquisition of Motorola, and capital expenditures of $3,273 million related primarily to our facilities, data centers, and related equipment. These decreases were partially offset by net maturities and sales of marketable securities of $1,770 million. Also, in connection with our securities lending program, we returned cash collateral of $334 million. See Note 3 of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information about our securities lending program.Cash used in investing activities in 2011 of $19,041 million was primarily attributable to net purchases of marketable securities of $12,926 million, capital expenditures of $3,438 million related principally to our facilities, data centers, and related equipment, and cash used in acquisitions and other investments of $2,328 million, including $676 million paid in connection with the acquisition of ITA Software, Inc. Also, in connection with our securities lending program, we returned $354 million of cash collateral.Cash used in investing activities in 2010 of $10,680 million was primarily attributable to net purchases of marketable securities of $6,886 million, capital expenditures of $4,018 million of which $1.8 billion was for thepurchase of an office building in New York City in December 2010, and remaining amounts related principally to our data centers and related equipment, and cash consideration used in acquisitions and other investments of $1,067 million. Also, in connection with our securities lending program, we received $2,361 million of cash collateral which was invested in reverse repurchase agreements.In order to manage expected increases in internet traffic, 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 infrastructure, and employees in 2013 and thereafter. However, the amount of our capital expenditures has fluctuated and may continue to fluctuate on a quarterly basis.In addition, we expect to spend a significant amount of cash on acquisitions and other investments from time to time. These acquisitions generally enhance the breadth and depth of our expertise in engineering and other functional areas, our technologies, and our product offerings.In December 2012, we signed an agreement for the disposition of Motorola Home business for total consideration of approximately $2.35 billion in cash and stock subject to certain adjustments. We expect the transaction to close in 2013.Cash Provided by Financing ActivitiesCash provided by financing activities in 2012 of $1,229 million was primarily driven by net proceeds of $1,328 million from short-term debt issued under our commercial paper program and excess tax benefits from stock-based award activities of $188 million. This was partially offset by net payments for stock-based award activities of $287 million.Cash provided by financing activities in 2011 of $807 million was primarily driven by net proceeds of $726 million of debt issued and excess tax benefits from stock-based award activities of $86 million.Cash provided by financing activities in 2010 of $3,050 million was primarily driven by $3,463 million of net cash proceeds from the issuance of commercial paper and a promissory note. This was partially offset by $801 million in stock repurchases in connection with our acquisitions of AdMob, Inc. and On2 Technologies, Inc., as well as net proceeds from stock-based award activities of $294 million, and excess tax benefits from stock-based award activities of $94 million.Contractual Obligations as of December 31, 2012 Payments due by period Total Less than
1 year 1-3
years 3-5
years More than
5 years (in millions) $ 3,619 $ 466 $ 870 $ 688 $ 1,595 2,123 942 943 119 119 3,401 70 1,121 1,083 1,127 236 41 119 40 36 $ 9,379 $ 1,519 $ 3,053 $ 1,930 $ 2,877 The above table does not include future rental income of $649 million related to the leases that we assumed in connection with our building purchases. Payments Due By Period Total Less than1 year 1-3years 3-5years More than5 years (in millions) Operating lease obligations, net of sublease income amounts $ 6,183 $ 598 $ 1,256 $ 1,172 $ 3,157 Purchase obligations 2,700 1,735 465 154 346 Long-term debt obligations, including capital lease obligations 3,843 107 1,390 140 2,206 Possible Adjustment Payment to Class C capital stockholders 593 593 0 0 0 Other long-term liabilities reflected on our balance sheet 954 212 441 89 212 Total contractual obligations $ 14,273 $ 3,245 $ 3,552 $ 1,555 $ 5,921 Operating LeasesWe have entered into various non-cancelable operating lease agreements for certain of our offices, land, and data centers throughout the world with original lease periods expiring primarily between 20132015 and 2063. We are committed to pay a portion of the related operating expenses under certain of these lease agreements. These operating expenses are not included in the above table. Certain of these leases have free or escalating rent payment provisions. We recognize rent expense under such leases on a straight-line basis over the term of the lease. Certain leases have adjustments for market provisions.Purchase ObligationsPurchase obligations represent non-cancelable contractual obligations atas of December 31, 2012.2014. These contracts are primarily related to distribution arrangements, video and other content licensing revenue sharing arrangements, data center operations and facility build-outs, as well as purchase of inventory.Long-term Debt ObligationsLong-term debt obligations represent principal and interest payments to be made over the life of our unsecured senior notes issued in May 2011.2011 and May 2014, and our capital lease obligation incurred in August 2013. Please see Note 43 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further details.Possible Adjustment Payment to Class C Capital StockholdersIn accordance with a settlement of litigation involving the authorization to distribute the Class C capital stock, we may be obligated to make a payment (the Possible Adjustment Payment) to holders of the Class C capital stock if, on a volume-weighted average basis, the Class C capital stock trades below the Class A common stock during the first35365 days following 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) of the Class A and Class C shares from April 3, 2014 through December 31, 2014, the monetary value of the Possible Adjustment Payment would have been approximately $593 million as of December 31, 2014. Please see Note 12 of Part II, Item 8 of this Annual Report on Form 10-K for additional information related to the Possible Adjustment Payment.Other Long-Term LiabilitiesOther long-term liabilities consist ofrepresent cash obligations recorded on our consolidated balance sheets, including the short-term portion of these long-term liabilities and consist primarily the legal settlement with the Authors Guild and the Association of American Publishers (AAP), asset retirement obligations, and milestone and royalty payments owed in connection with certain acquisitionsinvestments and licensing agreements.In addition to the amounts above, we had long-term taxes payable of $2.1$3.4 billion as of December 31, 20122014 related to tax positions for which the timing of the ultimate resolution is uncertain. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the above table.Off-Balance Sheet EntitiesAtArrangementsAs of December 31, 2012,2014, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.Critical Accounting Policies and EstimatesWe prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP)Generally Accepted Accounting Principles (GAAP). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.Please see Note 1 of Part II, Item 8 of this Annual Report on Form 10-K for the summary of significant accounting policies.Income TaxesWe are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes and the effective tax rate in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.Our effective tax rates have differed from the statutory rate primarily due to the tax impact of foreign operations, state taxes, certain benefits realized related to stock-based award activities,interest and research and experimentation tax credits. The effective tax rates were 21.2%, 21.0%, and 19.4% for 2010, 2011, and 2012. Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates, the net gains and losses recognized by legal entities on certain hedges and related hedged intercompany and other transactions under our foreign exchange risk management program, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.penalties. In addition, we are subject to the continuous examination of our income tax returns by the IRS and other tax authorities.authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.Loss ContingenciesWe are regularly subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, tax,indirect taxes, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is both probable that a loss has been incurred, and the amount can be reasonably36estimated. If we determine that a loss is possible and a range of the loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated Financial Statements.We evaluate, on a monthly basis, developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related ranges of possible losses disclosed, and make adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material impact on our business, consolidated financial position, results of operations, or cash flows. See Note 1110 of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding contingencies.Business CombinationsWe allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer relationships and acquired patents and developed technology; and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed, as more fully discussed in Note 65 of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.GoodwillGoodwill is allocated to reporting units expected to benefit from the business combination. We test goodwill for impairment at the reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. As of December 31, 2014, no impairment of goodwill has been identified.Long-lived AssetsLong-lived assets, including property and equipment, long-term prepayments, and intangible assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. An impairment loss would be recognized when estimated undiscounted future cash flows generated from the assets are less than their carrying amount. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value.Impairment of Marketable and Non-Marketable SecuritiesWe periodically review our marketable and non-marketable securities for impairment. If we conclude that any of these investments are impaired, we determine whether such impairment is other-than-temporary. Factors we consider to make such determination include the duration and severity of the impairment, the reason for the decline in value and the potential recovery period and our intent to sell. For marketable debt securities, we also consider whether (1) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, and (2) the amortized cost basis cannot be recovered as a result of credit losses. If any impairment is considered other-than-temporary, we will write down the asset to its fair value and record the corresponding charge as interest and other income, net.Prior period reclassificationPrior period balance related to inventories has been reclassified to conform to the current year presentation.37We are exposed to financial market risks, including changes in currency exchange rates and interest rates.Foreign Currency Exchange RiskEconomic ExposureWe transact business globally in various foreign currencies and have significantmultiple currencies. Our international revenues, as well as costs and expenses denominated in foreign currencies. This exposescurrencies, expose us to the risk of fluctuations in foreign currency exchange rates.rates against the US dollar. We purchaseare a net receiver of foreign currencies and therefore benefit from a weakening of the U.S. dollar and are adversely affected by a strengthening of the U.S. dollar relative to the foreign currency. As of December 31, 2014, our most significant currency exposures are the British pound, Euro, and Japanese Yen.We use foreign exchange option contracts to reduce the volatility of cash flows related toprotect our forecasted revenues denominated in certain foreign currencies. The objective of the foreign exchange contracts is to better ensure that the U.S. dollar-equivalent cash flows are not adversely affected byearnings from adverse changes in the U.S. dollar/foreign currency exchange rates. These hedging contracts are designatedreduce, but do not entirely eliminate the impact of adverse currency exchange rate movements. We designate these option contracts as cash flow hedges.hedges for accounting purposes. The gain onfair value of the effective portion of a cash flow hedgeoption contract is initially reportedseparated into its intrinsic and time values. Changes in the time value are recorded in interest and other income, net. Changes in the intrinsic value are recorded as a component of accumulated other comprehensive income (AOCI) and subsequently reclassified into revenues whento offset the hedged revenues are recorded orexposures as interest and other income, net, if the hedged transaction becomes probable of not occurring. The notional principal of these contracts was approximately $6.5 billion and $9.5 billion as of December 31, 2011 and December 31, 2012. These foreign exchange contracts have maturities of 36 months or less.We considered the historical trends in currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 20% for our foreign currencies instruments could be experienced in the near term. If the U.S. dollar weakened by 20%, at December 31, 2013 and 2014, the amount recorded in AOCI related to our foreign exchange options before tax effect would have been approximately $132$4 million and $9$686 million lower at December 31, 20112013 and December 31, 2012,2014, and the total amount of expense recorded as interest and other income, net, would have been approximately $138$123 million and $140$90 million higher in the years ended December 31, 20112013 and December 31, 2012.2014. If the U.S. dollar strengthened by 20%, at December 31, 20013 and December 31, 2014, the amount recorded in accumulated AOCI related to our foreign exchange options before tax effect would have been approximately $1.2$1.7 billion and $1.7$2.5 billion higher at December 31, 20112013 and December 31, 2012,2014, and the total amount of expense recorded as interest and other income, net, would have been approximately $202$120 million and $159$164 million higher in the years ended December 31, 20112013 and December 31, 2012.Transaction ExposureOur exposure to2014.In addition, we use foreign currency transaction gains and losses is the result of certain net receivables due from our foreign subsidiaries and customers being denominated in currencies other than the functional currency of the subsidiary, primarily the Euro and the British pound. Our foreign subsidiaries conduct their businesses in local currency. We have entered into foreign exchange forward contracts to offset the foreign exchange risk on certain monetaryour assets and liabilities denominated in currencies other than the local currency of the subsidiary. These forward contracts reduce, but do not entirely eliminate the impact of currency exchange rate movements on our assets and liabilities. The notional principal of foreign exchange contracts outstanding was $3.7 billioncurrency gains and $6.6 billion at December 31, 2011losses on the assets and December 31, 2012.We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 20% for all currencies could be experienced in the near term. These changes would have resulted in an adverse impact on income before income taxes of approximately $27$52 million and $9$93 million at December 31, 20112013 and December 31, 2012.2014. The adverse impact at December 31, 20112013 and December 31, 20122014 is after consideration of the offsetting effect of approximately $503$853 million and $731$948 million from foreign exchange contracts in place for the months of December 201131, 2013 and December 2012.31, 2014. These reasonably possible adverse changes in exchange rates of 20% were applied to total monetary assets and liabilities denominated in currencies other than 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 RiskOur investment strategy is to achieve a return that will allow us to preserve capital and maintain liquidity requirements. We invest our excess cash primarily in fixed rate securities including those of the U.S. government and its agencyagencies, corporate debt securities, mortgage-backed securities, money market and other funds, corporate debtasset backed securities, mortgage-backedmunicipal securities, time deposits and debt instruments issued by foreign governments, municipal securities, time deposits, and asset backed securities.governments. By policy, we limit the amount of credit exposure to any one issuer.Investments Our investments in both fixed rate and floating rate interest earning securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. DueAs of December 31, 2013 and December 31, 2014, unrealized losses on our marketable debt securities were primarily due to temporary interest rate fluctuations as a result of higher market interest rates compared to the fixed interest rates on our debt securities. We account for both fixed and variable rate securities at fair value with changes on gains and losses recorded in part to these factors, our income from investments may decrease inAOCI until the future. However, wesecurities are sold. We use certain interest rate derivative contracts to hedge interest rate risk ofrealized gains and losses on our fixed income securities.During the second quarter of 2012, we began to hedge the variability of forecasted interest payments using forward-starting interest swaps. The total notional amount of these swaps was $1.0 billion These derivative contracts are accounted for as of December 31, 2012,hedges at fair value with terms calling for us to receive interest at a variable rate and to pay interest at a fixed rate. These forward-starting interest swaps effectively fix the benchmark interest rate on an anticipated debt issuance of $1.0 billion in 2014, and they will be terminated upon issuance of the debt.When entering into forward-starting interest rate swaps, we are subject to market risk with respect to changes in the underlying benchmark interest rate that impacts the fair value recorded in Interest and other income, net.38We considered the historical volatility of short-term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near term. A hypothetical 1.00% (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$1.0 billion and $1.1$1.2 billion at December 31, 20112013 and 2012,December 31, 2014, after taking into consideration the offsetting effect from interest rate derivative contracts outstanding as of December 31, 20112013 and 2012. A hypothetical 1.00% (100 basis points) decrease in interest rates would have resulted in a decrease in the fair values of our forward-starting interest swaps of approximately $107 million at December 31, 2012.39Google Inc.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page 52Financial Statements: Financial Statements:545556575859The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of Operations.”40REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders of Google Inc.We have audited the accompanying consolidated balance sheets of Google Inc. as of December 31, 20112013 and 2012,2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2012.2014. Our audits also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Google Inc. atas of December 31, 20112013 and 2012,2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012,2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Google Inc.’s internal control over financial reporting as of December 31, 2012,2014, based on criteria established inInternal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated January 29, 2013February 6, 2015 expressed an unqualified opinion thereon./s/ Ernst & Young LLP /s/ ERNST & YOUNG LLP San Jose, California January 29, 2013February 6, 2015 41REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and Stockholders of Google Inc.We have audited Google Inc.’s internal control over financial reporting as of December 31, 2012,2014, based on criteria established inInternal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Google Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’scompany’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, Google Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012,2014, 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 of December 31, 20112013 and 2012,2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 20122014 of Google Inc. and our report dated January 29, 2013February 6, 2015 expressed an unqualified opinion thereon./s/ Ernst & Young LLP /s/ ERNST & YOUNG LLP San Jose, California January 29, 2013February 6, 2015 42Google 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,
2011 As of
December 31,
2012 $ 9,983 $ 14,778 34,643 33,310 44,626 48,088 5,427 7,885 35 505 745 700 215 1,144 1,710 2,132 52,758 60,454 499 2,011 790 1,469 9,603 11,854 1,578 7,473 7,346 10,537 $ 72,574 $ 93,798 $ 588 $ 2,012 1,218 2,549 1,818 2,239 1,370 3,258 1,168 1,471 2,007 1,673 547 895 197 240 8,913 14,337 2,986 2,988 44 100 1,693 2,046 287 1,872 506 740 0 0 20,264 22,835 0 0 276 538 37,605 48,342 58,145 71,715 $ 72,574 $ 93,798 As of
December 31,
2013 As of
December 31,
2014Assets Current assets: Cash and cash equivalents $ 18,898 $ 18,347 Marketable securities 39,819 46,048 Total cash, cash equivalents, and marketable securities (including securities loaned of $5,059 and $4,058) 58,717 64,395 Accounts receivable, net of allowance of $631 and $225 8,882 9,383 Receivable under reverse repurchase agreements 100 875 Deferred income taxes, net 1,526 1,322 Income taxes receivable, net 408 1,298 Prepaid revenue share, expenses and other assets 3,253 3,412 Total current assets 72,886 80,685 Prepaid revenue share, expenses and other assets, non-current 1,976 3,280 Non-marketable equity investments 1,976 3,079 Property and equipment, net 16,524 23,883 Intangible assets, net 6,066 4,607 Goodwill 11,492 15,599 Total assets $ 110,920 $ 131,133 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 2,453 $ 1,715 Short-term debt 3,009 2,009 Accrued compensation and benefits 2,502 3,069 Accrued expenses and other current liabilities 3,755 4,434 Accrued revenue share 1,729 1,952 Securities lending payable 1,374 2,778 Deferred revenue 1,062 752 Income taxes payable, net 24 �� 96 Total current liabilities 15,908 16,805 Long-term debt 2,236 3,228 Deferred revenue, non-current 139 104 Income taxes payable, non-current 2,638 3,407 Deferred income taxes, net, non-current 1,947 1,971 Other long-term liabilities 743 1,118 Commitments and contingencies Stockholders’ equity: Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding 0 0 Class A and Class B common stock, and Class C capital stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 671,664 (Class A 279,325, Class B 56,507, Class C 335,832) and par value of $672 (Class A $279, Class B $57, Class C $336) and 680,172 (Class A 286,560, Class B 53,213, Class C 340,399) and par value of $680 (Class A $287, Class B $53, Class C $340) shares issued and outstanding 25,922 28,767 Accumulated other comprehensive income 125 27 Retained earnings 61,262 75,706 Total stockholders’ equity 87,309 104,500 Total liabilities and stockholders’ equity $ 110,920 $ 131,133 See accompanying notes.43Google Inc.CONSOLIDATED STATEMENTS OF INCOME(In millions, except share amounts which are reflected in thousands and per share amounts) Year Ended December 31, 2010 2011 2012 $ 29,321 $ 37,905 $ 46,039 0 0 4,136 $ 29,321 $ 37,905 $ 50,175 10,417 13,188 17,176 0 0 3,458 3,762 5,162 6,793 2,799 4,589 6,143 1,962 2,724 3,845 0 500 0 18,940 26,163 37,415 10,381 11,742 12,760 415 584 626 10,796 12,326 13,386 2,291 2,589 2,598 $ 8,505 $ 9,737 $ 10,788 0 0 (51 ) $ 8,505 $ 9,737 $ 10,737 $ 26.69 $ 30.17 $ 32.97 0.00 0.00 (0.16 ) $ 26.69 $ 30.17 $ 32.81 $ 26.31 $ 29.76 $ 32.46 0.00 0.00 (0.15 ) $ 26.31 $ 29.76 $ 32.31 $ 67 $ 249 $ 359 0 0 14 861 1,061 1,325 261 361 498 187 303 453 $ 1,376 $ 1,974 $ 2,649 Year Ended December 31, 2012 2013 2014 Revenues $ 46,039 $ 55,519 $ 66,001 Costs and expenses: Cost of revenues (1)17,176 21,993 25,691 Research and development (1)6,083 7,137 9,832 Sales and marketing (1)5,465 6,554 8,131 General and administrative (1)3,481 4,432 5,851 Total costs and expenses 32,205 40,116 49,505 Income from operations 13,834 15,403 16,496 Interest and other income, net 635 496 763 Income from continuing operations before income taxes 14,469 15,899 17,259 Provision for income taxes 2,916 2,552 3,331 Net income from continuing operations $ 11,553 $ 13,347 $ 13,928 Net income (loss) from discontinued operations (816 ) (427 ) 516 Net income $ 10,737 $ 12,920 $ 14,444 Net income (loss) per share - basic: Continuing operations $ 17.66 $ 20.05 $ 20.61 Discontinued operations (1.25 ) (0.64 ) 0.76 Net income (loss) per share - basic $ 16.41 $ 19.41 $ 21.37 Net income (loss) per share - diluted: Continuing operations $ 17.39 $ 19.70 $ 20.27 Discontinued operations (1.23 ) (0.63 ) 0.75 Net income (loss) per share - diluted $ 16.16 $ 19.07 $ 21.02 Shares used in per share calculation - basic 654,426 665,692 675,935 Shares used in per share calculation - diluted 664,610 677,618 687,070 (1) Includes stock-based compensation expense as follows: Cost of revenues $ 359 $ 469 $ 535 Research and development 1,274 1,641 2,200 Sales and marketing 449 552 715 General and administrative 391 465 725 Discontinued operations 219 216 104 Total stock-based compensation expense $ 2,692 $ 3,343 $ 4,279 See accompanying notes.44Google Inc.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions) Year Ended December 31, 2010 2011 2012 $ 8,505 $ 9,737 $ 10,737 (124 ) (107 ) 75 232 348 493 (151 ) (115 ) (216 ) 81 233 277 196 39 47 (120 ) (27 ) (137 ) 76 12 (90 ) 33 138 262 $ 8,538 $ 9,875 $ 10,999 Year Ended December 31, 2012 2013 2014 Net income $ 10,737 $ 12,920 $ 14,444 Other comprehensive income (loss): Change in foreign currency translation adjustment 75 89 (996 ) Available-for-sale investments: Change in net unrealized gains (losses) 493 (392 ) 505 Less: reclassification adjustment for net gains included in net income (216 ) (162 ) (134 ) Net change (net of tax effect of $68, $212, $60) 277 (554 ) 371 Cash flow hedges: Change in unrealized gains 47 112 651 Less: reclassification adjustment for gains included in net income (137 ) (60 ) (124 ) Net change (net of tax effect of $53, $30, $196) (90 ) 52 527 Other comprehensive income (loss) 262 (413 ) (98 ) Comprehensive income $ 10,999 $ 12,507 $ 14,346 See accompanying notes.45Google Inc.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In millions, except for share amounts which are reflected in thousands) Class A and Class B
Common Stock and
Additional Paid-In Capital Accumulated
Other
Comprehensive
Income Retained
Earnings Total
Stockholders’
Equity Shares Amount 317,772 $ 15,817 $ 105 $ 20,082 $ 36,004 5,126 1,412 0 0 1,412 (1,597 ) (82 ) 0 (719 ) (801 ) 1,376 0 0 1,376 72 0 0 72 (360 ) 0 0 (360 ) 0 0 8,505 8,505 0 33 0 33 321,301 18,235 138 27,868 46,241 3,594 621 0 0 621 1,974 0 0 1,974 60 0 0 60 (626 ) 0 0 (626 ) 0 0 9,737 9,737 0 138 0 138 324,895 20,264 276 37,605 58,145 5,084 736 0 0 736 2,692 0 0 2,692 166 0 0 166 (1,023 ) 0 0 (1,023 ) 0 0 10,737 10,737 0 262 0 262 329,979 $ 22,835 $ 538 $ 48,342 $ 71,715 Class A and Class BCommon Stock, Class C Capital Stock andAdditional Paid-In Capital AccumulatedOtherComprehensiveIncome RetainedEarnings TotalStockholders’Equity Shares Amount Balance at December 31, 2011 649,790 $ 20,264 $ 276 $ 37,605 $ 58,145 Common stock issued 10,168 736 0 0 736 Stock-based compensation expense 2,692 0 0 2,692 Stock-based compensation tax benefits 166 0 0 166 Tax withholding related to vesting of restricted stock units (1,023 ) 0 0 (1,023 ) Net income 0 0 10,737 10,737 Other comprehensive income 0 262 0 262 Balance at December 31, 2012 659,958 22,835 538 48,342 71,715 Common stock issued 11,706 1,174 0 0 1,174 Stock-based compensation expense 3,343 0 0 3,343 Stock-based compensation tax benefits 449 0 0 449 Tax withholding related to vesting of restricted stock units (1,879 ) 0 0 (1,879 ) Net income 0 0 12,920 12,920 Other comprehensive income 0 (413 ) 0 (413 ) Balance at December 31, 2013 671,664 25,922 125 61,262 87,309 Common and capital stock issued 8,508 465 0 0 465 Stock-based compensation expense 4,279 0 0 4,279 Stock-based compensation tax benefits 625 0 0 625 Tax withholding related to vesting of restricted stock units (2,524 ) 0 0 (2,524 ) Net income 0 0 14,444 14,444 Other comprehensive income 0 (98 ) 0 (98 ) Balance at December 31, 2014 680,172 $ 28,767 $ 27 $ 75,706 $ 104,500 See accompanying notes.46Google Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions) Year Ended December 31, 2010 2011 2012 $ 8,505 $ 9,737 $ 10,737 1,067 1,396 1,988 329 455 974 1,376 1,974 2,692 (94 ) (86 ) (188 ) 9 343 (266 ) 0 110 0 0 0 (188 ) (12 ) 6 (28 ) (1,129 ) (1,156 ) (787 ) 102 731 1,492 0 (30 ) 301 (414 ) (232 ) (833 ) 272 101 (499 ) 745 795 762 214 259 299 111 162 163 11,081 14,565 16,619 (4,018 ) (3,438 ) (3,273 ) (43,985 ) (61,672 ) (33,410 ) 37,099 48,746 35,180 (320 ) (428 ) (696 ) 2,361 (354 ) (334 ) (750 ) 5 45 (1,067 ) (1,900 ) (10,568 ) (10,680 ) (19,041 ) (13,056 ) 294 (5 ) (287 ) 94 86 188 (801 ) 0 0 5,246 10,905 16,109 (1,783 ) (10,179 ) (14,781 ) 3,050 807 1,229 (19 ) 22 3 3,432 (3,647 ) 4,795 10,198 13,630 9,983 $ 13,630 $ 9,983 $ 14,778 $ 0 $ 40 $ 74 $ 2,175 $ 1,471 $ 2,034 $ 750 $ 0 $ 41 Year Ended December 31, 2012 2013 2014 Operating activities Net income $ 10,737 $ 12,920 $ 14,444 Adjustments: Depreciation expense and loss on disposal of property and equipment 1,988 2,781 3,523 Amortization and impairment of intangible and other assets 974 1,158 1,456 Stock-based compensation expense 2,692 3,343 4,279 Excess tax benefits from stock-based award activities (188 ) (481 ) (648 ) Deferred income taxes (266 ) (437 ) (104 ) Gain on divestiture of businesses (188 ) (700 ) (740 ) Gain on equity interest 0 0 (126 ) Gain on sale of non-marketable equity investments 0 0 (159 ) Other (28 ) 106 87 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (787 ) (1,307 ) (1,641 ) Income taxes, net 1,492 401 283 Prepaid revenue share, expenses and other assets (532 ) (930 ) 459 Accounts payable (499 ) 605 436 Accrued expenses and other liabilities 762 713 757 Accrued revenue share 299 254 245 Deferred revenue 163 233 (175 ) Net cash provided by operating activities 16,619 18,659 22,376 Investing activities Purchases of property and equipment (3,273 ) (7,358 ) (10,959 ) Purchases of marketable securities (33,410 ) (45,444 ) (56,310 ) Maturities and sales of marketable securities 35,180 38,314 51,315 Investments in non-marketable equity investments (696 ) (569 ) (1,227 ) Cash collateral related to securities lending (334 ) (299 ) 1,403 Investments in reverse repurchase agreements 45 600 (775 ) Proceeds from divestiture of businesses 0 2,525 386 Acquisitions, net of cash acquired, and purchases of intangibles and other assets (10,568 ) (1,448 ) (4,888 ) Net cash used in investing activities (13,056 ) (13,679 ) (21,055 ) Financing activities Net payments related to stock-based award activities (287 ) (781 ) (2,069 ) Excess tax benefits from stock-based award activities 188 481 648 Proceeds from issuance of debt, net of costs 16,109 10,768 11,625 Repayments of debt (14,781 ) (11,325 ) (11,643 ) Net cash provided by (used in) financing activities 1,229 (857 ) (1,439 ) Effect of exchange rate changes on cash and cash equivalents 3 (3 ) (433 ) Net increase (decrease) in cash and cash equivalents 4,795 4,120 (551 ) Cash and cash equivalents at beginning of period 9,983 14,778 18,898 Cash and cash equivalents at end of period $ 14,778 $ 18,898 $ 18,347 Supplemental disclosures of cash flow information Cash paid for taxes $ 2,034 $ 1,932 $ 2,819 Cash paid for interest $ 74 $ 72 $ 86 Non-cash investing and financing activities: Receipt of notes receivable in connection with the divestiture of Motorola Mobile $ 0 $ 0 $ 1,314 Receipt of Lenovo shares in connection with the divestiture of Motorola Mobile $ 0 $ 0 $ 750 Receipt of Arris shares in connection with the divestiture of Motorola Home $ 0 $ 175 $ 0 Fair value of stock-based awards assumed in connection with the acquisition of Motorola $ 41 $ 0 $ 0 Leases recorded on the balance sheet during the period $ 0 $ 258 $ 250 See accompanying notes.47Google Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1. Google Inc. and Summary of Significant Accounting PoliciesNature of OperationsWe were incorporated in California in September 1998. We were1998 and re-incorporated in the State of Delaware in August 2003. We generate revenues primarily by delivering relevant, cost-effective online advertising in our Google segment. In addition, as a result of our acquisitionadvertising.On April 17, 2013, we sold the Motorola Home business (Motorola Home) to Arris Group, Inc. (Arris). The financial results of Motorola Mobility Holdings, Inc. (Motorola) on May 22, 2012, we generate revenues from sales of mobile devices in our Motorola Mobile (Mobile) segment and digital set-top boxes in our Motorola Home (Home) segment. In December 2012, we entered into an agreement to dispose Home, and the related financial results are presented as net lossincome (loss) from discontinued operations on the Consolidated Statements of Income. AssetsIncome for the years ended December 31, 2012 and liabilities2013. See Note 8 for further discussion of the sale.On April 2, 2014, we completed a two-for-one stock split effected in the form of a stock dividend (the Stock Split). All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the Stock Split. See Notes 11 and 12 for additional 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 HomeMobile are not presented as held for salenet income (loss) from discontinued operations on the Consolidated Balance Sheets because they are not material.Basis of ConsolidationThe consolidated financial statements include the accounts of Google Inc. and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, inventory valuations, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.Revenue RecognitionThe following table presents our revenues by revenue source (in millions): Year Ended December 31, 2010 2011 2012 $ 19,444 $ 26,145 $ 31,221 8,792 10,386 12,465 28,236 36,531 43,686 1,085 1,374 2,353 29,321 37,905 46,039 0 0 4,136 $ 29,321 $ 37,905 $ 50,175 Year Ended December 31, 2012 2013 2014 Advertising revenues: Google websites $ 31,221 $ 37,422 $ 45,085 Google Network Members' websites 12,465 13,125 13,971 Total advertising revenues 43,686 50,547 59,056 Other revenues 2,353 4,972 6,945 Revenues $ 46,039 $ 55,519 $ 66,001 We generate revenues primarily by delivering both performance advertising and brand advertising, and we recognize revenues when the services or products have been provided or delivered, the fees we charge are fixed or determinable, we and our advertisers or other customers understand the specific nature and terms of the agreed upon transactions, and collectability is reasonably assured.GooglePerformance advertising creates and delivers relevant ads that users will click, leading to direct engagement with advertisers. Most of our performance advertisers pay us on a cost-per-engagement basis, for example, when a user engages in their ads. Brand advertising enhances users’ awareness of and affinity with advertisers’ products and services, through videos, text, images, and other ads that run across various devices.48Google AdWords is our auction-based advertising program that enables performance advertisers to place text-based and display ads on ourGoogle websites and our Google Network Members’ websites. Display advertising comprisesGoogle AdSense refers to the videos, text, images, and other interactiveonline programs through which we distribute our advertisers’ AdWords ads that run across the webfor display on computers and mobile devices, including smart phones and handheld computers such as netbooks and tablets.our Google Network Members’ websites. Most of our customers pay us on a cost-per-click basis, which means that an advertiser pays us only when a 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 ourGoogle websites and our Google Network Members’ websites as specified by the advertisers.Google AdSense refers to the online programs through which we distribute our advertisers’ AdWords ads for display on our Google Network Members’ websites.We recognize as revenues the fees charged to advertisers each time a user clicks on one of the ads that appears next to the search results or content on ourGoogle websites or our Google Network Members’ websites. For those advertisers using our cost-per-impression pricing, we recognize as revenues the fees charged to advertisers each time their ads are displayed on ourGoogle websites or our Google Network Members’ websites. We report our Google AdSense revenues on a gross basis principally because we are the primary obligor to our advertisers.We record deferred revenues upon invoicing or when cash payments are received in advance of our performance in the underlying agreement on the accompanying Consolidated Balance Sheets.MotorolaFor hardware product sales, where we sell directly to end customers or through distribution channels, revenue recognition generally occurs when products have been shipped, risk of loss has transferred to the customer, objective evidence exists that customer acceptance provisions have been met, no significant obligations remain and allowances for discounts, price protection, returns and customer incentives can be reasonably and reliably estimated. Recorded revenues are reduced by these allowances. Where these allowances cannot be reasonably and reliably estimated, we recognize revenue at the time the product sells through the distribution channel to the end customer.For the sale of certain third-party products and services, we evaluate whether it is appropriate to recognize revenue based on the gross amount billed to the customers or the net amount earned as revenue share. Generally, when we are primarily obligated in a transaction, are subject to inventory risk or have latitude in establishing prices, or have several but not all of these indicators, revenue is recorded on a gross basis. We generally record the net amounts as revenue earned if we are not primarily obligated and do not have inventory risk or latitude in establishing prices. Such amounts earned are typically determined using a fixed percentage, a fixed fee, or a combination of the two.For arrangements that include multiple deliverables, primarily for products that contain software essential to the hardware products’ functionality and services, we allocate revenue to each unit of accounting based on their relative selling prices. In such circumstances, we use a hierarchy to determine the selling prices to be used for allocating revenue: (i) vendor-specific objective evidence of fair value (VSOE), (ii) third-party evidence of selling price, and (iii) best estimate of the selling price (ESP). VSOE generally exists only when we sell the deliverable separately and is the price actually charged by us for that deliverable. ESPs reflect our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis.Revenues from HomeWe record deferred revenues upon invoicing or when cash payments are includedreceived in net loss from discontinued operations.Cost of RevenuesGoogleCost of revenues consists primarily of traffic acquisition costs. Traffic acquisition costs consist ofwhich are the advertising revenues shared with our Google Network Members and the amounts ultimately paid to our Google Network members under AdSense arrangements and to certain otherdistribution partners (our distribution partners) who distribute our toolbar and other products (collectively referred to as access points)browser orwebsite (collectively referredwebsite.Additionally, other costs of revenues includes the following:Content acquisition costs primarily related to aspayments to certain content providers from whom we license their video and other content for distribution arrangements). These amounts are primarily based on YouTube and Google Play (We share most of the revenue share andfees these sales generate with content providers or pay a fixed fee arrangements with our Google Network Members and distribution partners.Certain distribution arrangements require us to pay our partners based on a fee per access point delivered and not exclusively—or at all—based on revenue share. These fees are non-refundable. Further, these arrangements are terminable at will, although under the terms of certain contracts we or our distribution partners may be subject to penalties in the event of early termination. We recognize fees under these arrangements over the estimated useful lives of the access points (approximately two years) to the extent we can reasonably estimate those lives and they are longer than one year, or based on any contractual revenue share, if greater. Otherwise, the fees are charged to expense as incurred. content providers);The estimated useful life of the access points is based on the historical average period of time they generate traffic and revenues. Further, 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(including depreciation, labor, energy, and bandwidth costs);Inventory costs creditfor hardware we sell;Stock-based compensation paid to our employees;Credit card and other transaction fees related to processing customer transactions, amortizationtransactions; andAmortization of acquiredcertain intangible assets, as well as content acquisition costs. We have entered into arrangements with certain content providers under which we distribute or license their video and other content. In a number of these arrangements, we display ads on the pages of our web sites from which the content is viewed and share most of the fees these ads generate with the content providers. To the extent we are obligated to make guaranteed minimum revenue share payments to our content providers, we recognize as content acquisition costs the contractual revenue share amount or the minimum guarantee on a straight-line basis, whichever is greater, over the terms of the agreements.Prepaid revenue share and distribution fees are included in prepaid revenue share, expenses, and other assets on the accompanying Consolidated Balance Sheets.MotorolaCost of revenues from our Motorola business related to delivered hardware, including estimated warranty costs, are recognized at the time of sale. Cost of revenues from Home are included in net loss from discontinued operations.Stock-based CompensationWe have elected to use the Black-Scholes-Merton (BSM) option 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 minimum statutory tax 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 number49of RSUs outstanding. Furthermore, weWe record the liability for withholding amounts to be paid by us primarily as a reduction to additional paid-in capital when paid. Also,For stock option awards outstanding in the periods presented, we determined fair value using the Black-Scholes-Merton (BSM) option pricing model on the dates of grant.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, 2010, December 31, 2011, 2012, 2013, and December 31, 2012,2014, the amount of cash received from the exercise of stock options was $656$736 million, $621$1,174 million, and $736$465 million, respectively, and the total direct tax benefit realized, including the excess tax benefit, from stock-based award activities was $355$747 million, $451$1,195 million, and $747 million.$1,356 million, respectively. We have elected to account for the indirect effects of stock-based awards—awards -- primarily the research and development tax credit—credit -- through the Consolidated Statements of Income.For the years ended December 31, 2010, December 31, 2011, 2012, 2013, and December 31, 2012,2014, we recognized stock-based compensation expense from continuing operations and related tax benefits of $1,376$2,473 million and $314$545 million, $1,974$3,127 million and $413$685 million, and $2,649$4,175 million and $591 million.$867 million, respectively. Additionally, net lossincome (loss) from discontinued operations for the yearyears ended December 31, 2012, 2013, and2014, includes stock-based compensation expense and related tax benefits of $43$219 million and $11 million.Certain Risks and ConcentrationsOur revenues are primarily 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 world. Significant changes in this industry or changes in customer buying or advertiser spending behavior could adversely affect our operating results. In addition, for our Motorola business, nearly all of our Motorola products (other than some prototypes) are manufactured outside the U.S., primarily in China, Taiwan and Brazil.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 time deposits, money market and other funds, including cash collateral received related to our securities lending program, highly liquid debt instruments of the U.S. government and its agencies, debt instruments issued by foreign governments and municipalities in the U.S., corporate securities, mortgage-backed securities, 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, 2011,2012, 2013, and 2012,2014, we generated approximately 48%46%, 46%45%, and 47%43% 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 individual customer or groups of affiliated customers represented more than 10% of our revenues in 2010, 2011, and 2012.Fair Value of Financial InstrumentsOur financial assets and financial liabilities that include cash equivalents, marketable securities, and foreign currency and interest rate derivative contracts are measured and recorded at fair value on a recurring basis. We measure certain other assets including our non-marketable equity securities at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. Our other current financial assets and our other current financial liabilities have fair values that approximate their carrying value and are therefore not recorded at fair value.Cash, Cash Equivalents, and Marketable SecuritiesWe invest our excess cash primarily in time deposits, money market and other funds, including cash collateral received related to our securities lending program, highly liquid debt instruments of the U.S. government and its agencies, debt instruments issued by foreign governments and municipalities in the U.S., corporate securities, mortgage-backed securities, and asset-backed securities.We classify all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months as marketable securities.We determine the appropriate classification of our investments in marketable securities at the time of purchase and reevaluate such designation at each balance sheet date. We have classified and accounted for our marketable50securities as available-for-sale. We may or may not hold securities with stated maturities greater than 12 months until maturity. After consideration of our risk versus reward objectives, as well as our liquidity requirements, 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 carry these securities at fair value, and report the unrealized gains and losses, net of taxes, as a component of stockholders’ equity, except for unrealized losses determined to be other-than-temporary, which we record aswithin interest and other income, net. We determine any realized gains or losses on the sale of marketable securities on a specific identification method, and we record such gains and losses as a component of interest and other income, net.Non-Marketable Equity SecuritiesWe have accounted for non-marketable equity securities either under the equity or cost method. Investments through which we exercise significant influence but do not have control over the investee are accounted for under the equity method. Investments through which we are not able to exercise significant influence over the investee are accounted for under the cost method.Impairment of Marketable and Non-Marketable SecuritiesWe periodically review our marketable and non-marketable securities for impairment. If we conclude that any of these investments are impaired, we determine whether such impairment is other-than-temporary. Factors we consider to make such determination include the duration and severity of the impairment, the reason for the decline in value and the potential recovery period and our intent to sell. For marketable debt securities, we also consider whether (1) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, and (2) the amortized cost basis cannot be recovered as a result of credit losses. If any impairment is considered other-than-temporary, we will write down the asset to its fair value and record the corresponding charge as interest and other income, net.Accounts ReceivableWe record accounts receivable at the invoiced amount and we normally do not charge interest. We maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables. We review the accounts receivable by amounts due by customers which are past due to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, we make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. We also maintain a sales allowance to reserve for potential credits issued to customers. We determine the amount of the reserve based on historical credits issued.InventoriesInventories are stated at the lower of cost or market, computed using the first-in, first-out method.Property and EquipmentWe account for property and equipment at cost less accumulated depreciation and amortization. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally two to five years. We depreciate buildings over periods up to 25 years. We amortize leasehold improvements over the shorter of the remaining lease term or the estimated useful lives of the assets. Construction in progress is related to the construction or development of property (including land) and equipment that have not yet been placed in service for our intended use. Depreciation for equipment commences once it is placed in service and depreciation for buildings and leasehold improvements commences once they are ready for our intended use. Land is not depreciated.Software Development CostsWe expense software development costs, including costs to develop software products or the software component of products to be marketed to external users, before technological feasibility of such products is reached. We have determined that technological feasibility wasis reached shortly before the release of those products and as a result, the development costs incurred after the establishment of technological feasibility and before the release of those products wereare not material, and accordingly, were expensed as incurred. material.Software development costs also include costs to develop software programs to be used solely to meet our internal needs. Theneeds and cloud based applications used to deliver our services. We capitalize development costs we incurred during the application development stage forrelated to these software programsapplications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Costs capitalized for developing such software applications were not material infor the yearsperiods presented.Business CombinationsWe include the results of operations of the businesses that we acquire as of the respective dates of acquisition. We allocate the fair value of the purchase price of our acquisitions to the tangible assets acquired and liabilities assumed and intangible assets acquired, based51on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.Long-Lived Assets Including Goodwill and Other Acquired Intangible AssetsWe review property and equipment, long-term prepayments and intangible assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets or the asset group are expected to generate. If property and equipment and intangiblethe assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. We have made no material adjustmentsIn 2014, we recorded impairments of intangible assets, including an impairment of $378 million in the third quarter of 2014 related to our long-lived assets in any of the years presented. In addition, wea patent licensing royalty asset.We test our goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that thisthe asset may be impaired. We found noNo goodwill impairment has been identified in any of the years presented.Intangible assets with definite lives are amortized over their estimated useful lives. We amortize our acquired intangible assets on a straight-line basis with definite lives over periods ranging from one to 12twelve years.Income TaxesWe recognize income taxes under the liability method. We recognize deferred income taxes for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which differences are expected to reverse. We recognize the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date.Foreign CurrencyGenerally, the functional currency of our international subsidiaries is the 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 exchangefor 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. We recorded $124 million ofreflect net translation losses in 2010, $107 million of net translation losses in 2011, and $75 million of net translation gains in 2012. We record netforeign exchange transaction gains and losses resulting from foreign exchange transactionsthe conversion of the transaction currency to functional currency as a component of foreign currency exchange losses in interest and other income, net. These gains and losses are net of those recognized on foreign exchange contracts. We recorded $29 million of net losses in 2010, $38 million of net losses in 2011, and $78 million of net losses in 2012.Advertising and Promotional ExpensesWe expense advertising and promotional costs in the period in which they are incurred. For the years ended December 31, 2010, 20112012, 2013 and 2012,2014, advertising and promotional expenses totaled approximately $772$1,992 million, $1,544$2,389 million, and $2,332$3,004 million.Recent Accounting PronouncementsIn April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-08 (ASU 2014-08) “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. It is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. We do not expect the impact of the adoption of ASU 2014-08 to be material to our consolidated financial statements.In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.In June 2014, the FASB issued Accounting Standards Update No. 2014-10 (ASU 2014-10) "Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation". ASU 2014-10 removes the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities. The amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities should be applied retrospectively for annual reporting periods beginning52after December 15, 2015, and interim periods therein. Early application of these amendments is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2014-10 on our consolidated financial statements.Prior Period ReclassificationPriorReclassificationsReclassifications of prior period balanceamounts related to inventories hasdiscontinued operations as a result of the sale of Motorola Home and Motorola Mobile businesses, and share and per share amounts due to the Stock Split have been reclassifiedmade to conform to the current yearperiod presentation.Note 2. Net Income Per Share of Class A and Class B Common StockWe compute net income per share of Class A and Class B common stock using the two-class method. Basic net income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common shares and the effect of potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of stock options, warrants issued under the TSO program, and restricted stock units. The dilutive effect of outstanding stock options, warrants, and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income per share of Class A common stock assumes the conversion of Class B common stock, while the diluted net income per share of Class B common stock does not assume the conversion of those shares.The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are identical, except with respect to voting. Further, there are a number of safeguards built into our certificate of incorporation, as well as Delaware law, which preclude our board of directors from declaring or paying unequal per share dividends on our Class A and Class B common stock. Specifically, Delaware law provides that amendments to our certificate of incorporation which would have the effect of adversely altering the rights, powers, or preferences of a given class of stock (in this case the right of our Class A common stock to receive an equal dividend to any declared on our Class B common stock) must be approved by the class of stock adversely affected by the proposed amendment. In addition, our certificate of incorporation provides that before any such amendment may be put to a stockholder vote, it must be approved by the unanimous consent of our board of directors. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common shares as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as we assume the conversion of Class B common stock in the computation of the diluted net income per share of Class A common stock, the undistributed earnings are equal to net income for that computation.The following table sets forth the computation of basic and diluted net income per share of Class A and Class B common stock (in millions, except share amounts which are reflected in thousands and per share amounts): Year Ended December 31, 2010 2011 2012 Class A Class B Class A Class B Class A Class B $ 6,569 $ 1,936 $ 7,658 $ 2,079 $ 8,641 $ 2,147 0 0 0 0 (41 ) (10 ) $ 6,569 $ 1,936 $ 7,658 $ 2,079 $ 8,600 $ 2,137 246,168 72,534 253,862 68,916 262,078 65,135 246,168 72,534 253,862 68,916 262,078 65,135 $ 26.69 $ 26.69 $ 30.17 $ 30.17 $ 32.97 $ 32.97 0 0 0 0 (0.16 ) (0.16 ) $ 26.69 $ 26.69 $ 30.17 $ 30.17 $ 32.81 $ 32.81 $ 6,569 $ 1,936 $ 7,658 $ 2,079 $ 8,641 $ 2,147 1,936 0 2,079 0 2,147 0 0 (26 ) 0 (27 ) 0 (31 ) $ 8,505 $ 1,910 $ 9,737 $ 2,052 $ 10,788 $ 2,116 $ 0 $ 0 $ 0 $ 0 $ (41 ) $ (10 ) 0 0 0 0 (10 ) 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ (51 ) $ (10 ) 246,168 72,534 253,862 68,916 262,078 65,135 72,534 0 68,916 0 65,135 0 3,410 71 2,958 46 2,944 34 1,139 0 1,478 0 2,148 0 323,251 72,605 327,214 68,962 332,305 65,169 26.31 26.31 29.76 29.76 32.46 32.46 0.00 0.00 0.00 0.00 (0.15 ) (0.15 ) $ 26.31 $ 26.31 $ 29.76 $ 29.76 $ 32.31 $ 32.31 The net income per share amounts are the same for Class A and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.Note 3.2. Financial InstrumentsFair Value MeasurementsWe measure our cash equivalents, marketable securities, and foreign currency and interest rate derivative contracts at fair value.value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fairFair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. AAssets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy is established as a basis for considering such assumptions and forbased on the observability of the inputs usedavailable in the valuation methodologies in measuringmarket used to measure fair value:Level 1—1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.Level 2—2 - Include other inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.Level 3—3 - Unobservable inputs that are supported by little or no market activities.The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.Based on the fair value hierarchy, weWe classify our cash equivalents and marketable securities within Level 1 or Level 2. This is2 because we value our cash equivalents and marketable securities usinguse quoted market prices or alternative pricing sources and models utilizing market observable inputs.inputs 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 SecuritiesThe following tables summarize our cash, cash equivalents and marketable securities measured at adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment categories as of December 31, 20112013 and December 31, 20122014 (in millions): As of December 31, 2011 Adjusted
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value Cash and
Cash
Equivalents Marketable
Securities $ 4,712 $ 0 $ 0 $ 4,712 $ 4,712 $ 0 3,202 0 0 3,202 3,202 0 11,475 104 0 11,579 0 11,579 228 79 0 307 0 307 14,905 183 0 15,088 3,202 11,886 1,029 0 0 1,029 534 495 1,260 0 0 1,260 �� 1,260 0 6,486 15 0 6,501 275 6,226 1,608 32 (11 ) 1,629 0 1,629 1,775 19 0 1,794 0 1,794 6,023 187 (98 ) 6,112 0 6,112 6,359 147 (5 ) 6,501 0 6,501 24,540 400 (114 ) 24,826 2,069 22,757 $ 44,157 $ 583 $ (114 ) $ 44,626 $ 9,983 $ 34,643 As of December 31, 2012 Adjusted
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value Cash and
Cash
Equivalents Marketable
Securities $ 8,066 $ 0 $ 0 $ 8,066 $ 8,066 $ 0 5,221 0 0 5,221 5,221 0 10,853 77 (1 ) 10,929 0 10,929 12 88 0 100 0 100 16,086 165 (1 ) 16,250 5,221 11,029 984 0 0 984 562 422 929 0 0 929 929 0 1,882 20 0 1,902 0 1,902 1,996 81 (3 ) 2,074 0 2,074 2,249 23 (6 ) 2,266 0 2,266 7,200 414 (14 ) 7,600 0 7,600 7,039 136 (6 ) 7,169 0 7,169 847 1 0 848 0 848 23,126 675 (29 ) 23,772 1,491 22,281 $ 47,278 $ 840 $ (30 ) $ 48,088 $ 14,778 $ 33,310 53 As of December 31, 2013 AdjustedCost GrossUnrealizedGains Gross
Unrealized
Losses Fair
Value Cash and
Cash
Equivalents Marketable
SecuritiesCash $ 9,909 $ 0 $ 0 $ 9,909 $ 9,909 $ 0 Level 1: Money market and other funds 4,428 0 0 4,428 4,428 0 U.S. government notes 18,276 23 (37 ) 18,262 2,501 15,761 Marketable equity securities 197 167 0 364 0 364 22,901 190 (37 ) 23,054 6,929 16,125 Level 2: Time deposits(1) 1,207 0 0 1,207 790 417 Money market and other funds(2) 1,270 0 0 1,270 1,270 0 U.S. government agencies 4,575 3 (3 ) 4,575 0 4,575 Foreign government bonds 1,502 5 (26 ) 1,481 0 1,481 Municipal securities 2,904 9 (36 ) 2,877 0 2,877 Corporate debt securities 7,300 162 (67 ) 7,395 0 7,395 Agency residential mortgage-backed securities 5,969 27 (187 ) 5,809 0 5,809 Asset-backed securities 1,142 0 (2 ) 1,140 0 1,140 25,869 206 (321 ) 25,754 2,060 23,694 Total $ 58,679 $ 396 $ (358 ) $ 58,717 $ 18,898 $ 39,819 As of December 31, 2014 AdjustedCost GrossUnrealizedGains Gross
Unrealized
Losses Fair
Value Cash andCashEquivalents Marketable
SecuritiesCash $ 9,863 $ 0 $ 0 $ 9,863 $ 9,863 $ 0 Level 1: Money market and other funds 2,532 0 0 2,532 2,532 0 U.S. government notes 15,320 37 (4 ) 15,353 1,128 14,225 Marketable equity securities 988 428 (64 ) 1,352 0 1,352 18,840 465 (68 ) 19,237 3,660 15,577 Level 2: Time deposits(1) 2,409 0 0 2,409 2,309 100 Money market and other funds(2) 1,762 0 0 1,762 1,762 0 Fixed-income bond funds(3) 385 0 (38 ) 347 0 347 U.S. government agencies 2,327 8 (1 ) 2,334 750 1,584 Foreign government bonds 1,828 22 (10 ) 1,840 0 1,840 Municipal securities 3,370 33 (6 ) 3,397 3 3,394 Corporate debt securities 11,499 114 (122 ) 11,491 0 11,491 Agency residential mortgage-backed securities 8,196 109 (42 ) 8,263 0 8,263 Asset-backed securities 3,456 1 (5 ) 3,452 0 3,452 35,232 287 (224 ) 35,295 4,824 30,471 Total $ 63,935 $ 752 $ (292 ) $ 64,395 $ 18,347 $ 46,048 (1) (2)The balances atas of December 31, 20112013 and December 31, 20122014 were related to cash collateral received in connection with our securities lending program, which was invested in reverse repurchase agreements maturing within three months. See below for further discussion onof this program.(3)Fixed-income bond funds consist of mutual funds that primarily invest in corporate and government bonds. 54During the second quarter of 2013, we received approximately $175 million in Arris' common stock (10.6 million shares) in connection with the disposition of Motorola Home and during the fourth quarter of 2014, we received $750 million in Lenovo ordinary shares (519.1 million shares) in connection with the disposition of Motorola Mobile (see details in Note 8). These shares are accounted for as available-for-sale marketable equity securities.We determine realized gains or losses on the sale of marketable securities on a specific identification method. We recognized gross realized gains of $381$383 million, $416 million, and $383$238 million for the years ended December 31, 20112012, 2013, and December 31, 2012.2014. We recognized gross realized losses of $127$101 million, $258 million, and $101$85 million for the years ended December 31, 20112012, 2013, and December 31, 2012. In 2011, we also recorded an other-than-temporary impairment charge of $88 million related to our investment in Clearwire Corporation.2014. We reflect these gains and losses as a component of interest and other income, net, in ourthe accompanying Consolidated Statements of Income.The following table summarizes the estimated fair value of our investments in marketable debt securities, excluding marketable equity securities, designatedaccounted for as available-for-sale securities and classified by the contractual maturity date of the securities (in millions): As of
December 31,
2012 $ 4,708 12,310 7,296 8,896 $ 33,210 As of December 31, 2014 Due in 1 year $ 4,547 Due in 1 year through 5 years 24,123 Due in 5 years through 10 years 7,083 Due after 10 years 8,596 Total $ 44,349 The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 20112013 and December 31, 2012,2014, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions): As of December 31, 2011 Less than 12 Months 12 Months or Greater Total Fair Value Unrealized
Loss Fair Value Unrealized
Loss Fair Value Unrealized
Loss $ 302 $ (11 ) $ 6 $ 0 $ 308 $ (11 ) 2,160 (97 ) 17 (1 ) 2,177 (98 ) 716 (3 ) 19 (2 ) 735 (5 ) $ 3,178 $ (111 ) $ 42 $ (3 ) $ 3,220 $ (114 ) As of December 31, 2012 Less than 12 Months 12 Months or Greater Total Fair Value Unrealized
Loss Fair Value Unrealized
Loss Fair Value Unrealized
Loss $ 842 $ (1 ) $ 0 $ 0 $ 842 $ (1 ) 509 (2 ) 12 (1 ) 521 (3 ) 686 (6 ) 9 0 695 (6 ) 820 (10 ) 81 (4 ) 901 (14 ) 1,300 (6 ) 0 0 1,300 (6 ) $ 4,157 $ (25 ) $ 102 $ (5 ) $ 4,259 $ (30 ) As of December 31, 2013 Less than 12 Months 12 Months or Greater Total Fair Value Unrealized
Loss Fair Value Unrealized
Loss Fair Value Unrealized
LossU.S. government notes $ 4,404 $ (37 ) $ 0 $ 0 $ 4,404 $ (37 ) U.S. government agencies 496 (3 ) 0 0 496 (3 ) Foreign government bonds 899 (23 ) 83 (3 ) 982 (26 ) Municipal securities 1,210 (32 ) 99 (4 ) 1,309 (36 ) Corporate debt securities 2,583 (62 ) 69 (5 ) 2,652 (67 ) Agency residential mortgage-backed securities 4,065 (167 ) 468 (20 ) 4,533 (187 ) Asset-backed securities 643 (2 ) 0 0 643 (2 ) Total $ 14,300 $ (326 ) $ 719 $ (32 ) $ 15,019 $ (358 ) As of December 31, 2014 Less than 12 Months 12 Months or Greater Total Fair Value UnrealizedLoss Fair Value UnrealizedLoss Fair Value Unrealized
LossU.S. government notes $ 4,490 $ (4 ) $ 0 $ 0 $ 4,490 $ (4 ) U.S. government agencies 830 (1 ) 0 0 830 (1 ) Foreign government bonds 255 (7 ) 43 (3 ) 298 (10 ) Municipal securities 877 (3 ) 174 (3 ) 1,051 (6 ) Corporate debt securities 5,851 (112 ) 225 (10 ) 6,076 (122 ) Agency residential mortgage-backed securities 609 (1 ) 2,168 (41 ) 2,777 (42 ) Asset-backed securities 2,388 (4 ) 174 (1 ) 2,562 (5 ) Fixed-income bond funds 347 (38 ) 0 0 347 (38 ) Marketable equity securities 690 (64 ) 0 0 690 (64 ) Total $ 16,337 $ (234 ) $ 2,784 $ (58 ) $ 19,121 $ (292 ) 55We periodically review our marketable debt and equity securities for other-than-temporary impairment. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell. For marketable debt securities, we also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses. During the years ended December 31, 2012, 2013, and 2014, we did not recognize any other-than-temporary impairment loss.Non-Marketable Equity InvestmentsOur non-marketable equity investments are investments we have made in privately-held companies accounted for under the equity or cost method. As of December 31, 2013 and December 31, 2014, these investments accounted for under the equity method had a carrying value of approximately $1.0 billion and $1.3 billion, respectively, and those investments accounted for under the cost method had a carrying value of $1.0 billion and $1.8 billion, respectively. For investments accounted for under the cost method, we concluded that their fair values exceeded their carrying values as of December 31, 2013 and December 31, 2014. We periodically review our non-marketable equity investments for impairment. No material impairments were recognized for the years ended December 31, 2012, 2013, and 2014.Securities Lending ProgramFrom time to time, we enter into securities lending agreements with financial institutions to enhance investment income. We loan selected securities which are secured by collateralcollateralized in the form of cash or securities. Cash collateral is invested in reverse repurchase agreements. agreements which are collateralized in the form of securities.We classify loaned securities as cash equivalents or marketable securities on the accompanying Consolidated Balance Sheets. Weand record the cash collateral as an asset with a corresponding liability.liability in the accompanying Consolidated Balance Sheets. We classify reverse repurchase agreements maturing within three months as cash equivalents and those longer than three months as receivable under reverse repurchase agreements onin the accompanying Consolidated Balance Sheets. For lending agreements collateralized by securities,security collateral received, we do not record an asset or liability as we are not permitted to sell or repledgeexcept in the associated collateral.Derivative Financial InstrumentsWe recognize derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives in the accompanying Consolidated Statements of Income as interest and other income, net, as part of revenues, or as a component of accumulated other comprehensive income (AOCI) in the accompanying Consolidated Balance Sheets, as discussed below.We enter into foreign currency contracts with financial institutions to reduce the risk that our cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. We use certain interest rate derivative contracts to hedge interest rate exposures on our fixed income securities and our anticipated debt issuance. Our program is not designatedused for trading or speculative purposes.We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same company.counterparty. To further reduce credit risk, we enter into collateral security arrangements thatunder which the counterparty is required to provide for collateral to be received when the net fair value of certain financial instruments fluctuates from contractually established thresholds. We present our derivative assets and derivative liabilities at their gross fair values. At can take possession of the collateral in the event of counterparty default. As of December 31, 20112013 and December 31, 2012,2014, we received cash collateral related to the derivative instruments under our collateral security arrangements of $113$35 million and $43 million, which are recorded as accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets.We recognize derivative instruments as either assets or liabilities on the accompanying Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives in the accompanying Consolidated Statements of Income as interest and other income, net, as part of revenues, or to accumulated other comprehensive income (AOCI) in the accompanying Consolidated Balance Sheets.Cash Flow HedgesWe use options designated as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar. The notional principal of these contracts was approximately $6.5$10.0 billion and $9.5$13.6 billion as of December 31, 20112013 and December 31, 2012.2014. These foreign exchange contracts have maturities of 36 months or less.During the second quarter ofIn 2012, we began to hedge the variability of forecasted interest payments on an anticipated debt issuance usingentered into forward-starting interest swaps. Therate swaps with a total notional amount of these forward-starting interest swaps was $1.0 billion as of December 31, 2012 withand terms calling for us to receive interest at a variable rate and to pay interest at a fixed rate. These forward-starting interest swapsrate, that effectively fix the benchmarklocked in an interest rate on anour anticipated debt issuance of $1.0 billion in 2014. We issued $1.0 billion of unsecured senior notes in February 2014 and they will be(See details in Note 3). As a result, we terminated the forward-starting interest rate swaps upon issuancethe debt issuance. The gain associated with the termination is reported within Operating Activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2014, consistent with the impact of the debt.We initially report anyreflect gain or loss on the effective portion of a cash flow hedge as a component of AOCI and subsequently reclassify cumulative gains and losses to revenues or interest expense when the hedged transactions are recorded.56If the hedged transactions become probable of not occurring, the corresponding amounts in AOCI would be immediately reclassified to interest and other income, net. Further, we exclude the change in the time value of the options from our assessment of hedge effectiveness. We record the premium paid or time value of an option on the date of purchase as an asset. Thereafter, we recognize any changechanges to this time value in interest and other income, net.As of December 31, 2012,2014, the effective portion of our cash flow hedges before tax effect was $11 million, $10$817 million, of which $645 million is expected to be reclassified from AOCI to revenuesinto earnings within the next 12 months.Fair Value HedgesWe use forward contracts designated as fair value hedges to hedge foreign currency risks for our investments denominated in currencies other than the U.S. dollar. We exclude changes in the time value for forward contracts from the assessment of hedge effectiveness. The notional principal of these contracts was $1.2 billion and $1.5 billion as of December 31, 2013 and December 31, 2014.Starting in the quarter ended September 30, 2014, we used interest rate swaps designated as fair value hedges to hedge interest rate risk for certain fixed rate securities. The notional principal of these contracts was$175 million as of December 31, 2014.Gains and losses on these forward contracts and interest rate swaps are recognized in interest and other income net along with the offsetting losses and gains of the related hedged items. We exclude changes in the time value for forward contracts from the assessment of hedge effectiveness and recognize them in interest and other income, net. The notional principal of these contracts was $1.0 billion and $1.1 billion as of December 31, 2011 and December 31, 2012.Other DerivativesOther derivatives not designated as hedging instruments consist of forward and option contracts that we use to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the local currency of a subsidiary. We recognize gains and losses on these contracts, as well as the related costs in interest and other income, net, along with the foreign currency gains and losses of the related hedged items.on monetary assets and liabilities. The notional principal of foreign exchange contracts outstanding was $3.7$9.4 billion and $6.6$6.2 billion at as of December 31, 20112013 and December 31, 2012.We also use exchange-traded interest rate futures contracts and “To Be Announced” (TBA) forward purchase commitments of mortgage-backed assets to hedge interest rate risks on certain fixed income securities. The TBA contracts meet the definition of derivative instruments in cases where physical delivery of the assets is not taken at the earliest available delivery date. Our interest rate futures and TBA contracts (together interest rate contracts) are not designated as hedging instruments. We recognize gains and losses on these contracts, as well as the related costs, in interest and other income, net. The gains and losses are generally economically offset by unrealized gains and losses in the underlying available-for-sale securities, which are recorded as a component of AOCI until the securities are sold or other-than-temporarily impaired, at which time the amounts are moved from AOCI into interest and other income, net. The total notional amounts of interest rate contracts outstanding were $100$13 million and $25$150 million at as of December 31, 2011 2013and December 31, 2012.The fair values of our outstanding derivative instruments were as follows (in millions): As of December 31, 2011 Fair Value of
Derivatives
Designated as
Hedging Instruments Fair Value of
Derivatives Not
Designated as
Hedging Instruments 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 As of December 31, 2012 Fair Value of
Derivatives
Designated as
Hedging Instruments Fair Value of
Derivatives Not
Designated as
Hedging Instruments Total Fair
Value Prepaid revenue share, expenses and other assets, current and non-current $ 164 $ 13 $ 177 Prepaid revenue share, expenses and other assets, current and non-current 1 0 1 $ 165 $ 13 $ 178 Accrued expenses and other current liabilities $ 3 $ 4 $ 7 57 As of December 31, 2013 Balance Sheet Location Fair Value ofDerivativesDesignated asHedging Instruments Fair Value ofDerivatives NotDesignated asHedging Instruments Total FairValueDerivative Assets: Level 2: Foreign exchange contracts Prepaid revenue share, expenses and other assets, current and non-current $ 133 $ 12 $ 145 Interest rate contracts Prepaid revenue share, expenses and other assets, current and non-current 87 0 87 Total $ 220 $ 12 $ 232 Derivative Liabilities: Level 2: Foreign exchange contracts Accrued expenses and other current liabilities $ 0 $ 4 $ 4 As of December 31, 2014 Balance Sheet Location Fair Value ofDerivativesDesignated asHedging Instruments Fair Value ofDerivatives NotDesignated asHedging Instruments Total FairValueDerivative Assets: Level 2: Foreign exchange contracts Prepaid revenue share, expenses and other assets, current and non-current $ 851 $ 0 $ 851 Interest rate contracts Prepaid revenue share, expenses and other assets, current and non-current 1 0 1 Total $ 852 $ 0 $ 852 Derivative Liabilities: Level 2: Foreign exchange contracts Accrued expenses and other current liabilities $ 0 $ 3 $ 3 Interest rate contracts Accrued expenses and other liabilities, current and non-current 1 0 1 Total $ 1 $ 3 $ 4 58The effect of derivative instruments in cash flow hedging relationships on income and other comprehensive income (OCI) is summarized below (in millions): Gains Recognized in OCI
on Derivatives Before Tax Effect (Effective Portion) Year Ended December 31, 2010 2011 2012 $ 331 $ 54 $ 73 0 0 1 $ 331 $ 54 $ 74 Gains Reclassified from AOCI into Income (Effective Portion) Year Ended December 31, Location 2010 2011 2012 Revenues $ 203 $ 43 $ 217 Losses Recognized in Income on Derivatives (Amount
Excluded from Effectiveness Testing and Ineffective Portion)(1) Year Ended December 31, Location 2010 2011 2012 Interest and
other income, net $ (320 ) $ (323 ) $ (447 ) Gains (Losses) Recognized in OCIon Derivatives Before Tax Effect (Effective Portion) Year Ended December 31, Derivatives in Cash Flow Hedging Relationship 2012 2013 2014 Foreign exchange contracts $ 73 $ 92 $ 929 Interest rate contracts 1 86 (31 ) Total $ 74 $ 178 $ 898 Gains Reclassified from AOCI into Income (Effective Portion) Year Ended December 31, Derivatives in Cash Flow Hedging Relationship Location 2012 2013 2014 Foreign exchange contracts Revenues $ 217 $ 95 $ 171 Interest rate contracts Interest and other income, net 0 0 $ 4 Total $ 217 $ 95 $ 175 Gains (Losses) Recognized in Income on Derivatives (AmountExcluded from Effectiveness Testing and Ineffective Portion) (1) Year Ended December 31, Derivatives in Cash Flow Hedging Relationship Location 2012 2013 2014 Foreign exchange contracts Interest andother income, net $ (447 ) $ (280 ) $ (279 ) Interest rate contracts Interest and other income, net 0 0 $ 4 Total $ (447 ) $ (280 ) $ (275 ) (1)
| Gains (Losses) Recognized in Income on Derivatives(2) | ||||||||||||||
| Year Ended December 31, | ||||||||||||||
Derivatives in Fair Value Hedging Relationship | Location | 2010 | 2011 | 2012 | ||||||||||
Foreign exchange contracts | Interest and other income, net | $ | (35 | ) | $ | (2 | ) | $ | (31 | ) | ||||
Hedged item | Interest and other income, net | 29 | (12 | ) | 23 | |||||||||
|
|
|
|
|
| |||||||||
Total | $ | (6 | ) | $ | (14 | ) | $ | (8 | ) | |||||
|
|
|
|
|
| |||||||||
Gains (Losses) Recognized in Income on Derivatives(2) | ||||||||||||||
| Year Ended December 31, | ||||||||||||||
| Derivatives in Fair Value Hedging Relationship | Location | 2012 | 2013 | 2014 | ||||||||||
| Foreign exchange contracts | Interest and other income, net | $ | (31 | ) | $ | 16 | $ | 115 | ||||||
| Hedged item | Interest and other income, net | 23 | (25 | ) | (123 | ) | ||||||||
| Total | $ | (8 | ) | $ | (9 | ) | $ | (8 | ) | |||||
(2) | Losses related to the amount excluded from effectiveness testing of the hedges were |
| Gains (Losses) Recognized in Income on Derivatives | ||||||||||||||
| Year Ended December 31, | ||||||||||||||
Derivatives Not Designated As Hedging Instruments | Location | 2010 | 2011 | 2012 | ||||||||||
Foreign exchange contracts | Interest and other income, net | $ | (40 | ) | $ | 29 | $ | (67 | ) | |||||
Interest rate contracts | Interest and other income, net | 0 | (19 | ) | (6 | ) | ||||||||
|
|
|
|
|
| |||||||||
Total | $ | (40 | ) | $ | 10 | $ | (73 | ) | ||||||
|
|
|
|
|
| |||||||||
| Gains (Losses) Recognized in Income on Derivatives | ||||||||||||||
| Year Ended December 31, | ||||||||||||||
| Derivatives Not Designated As Hedging Instruments | Location | 2012 | 2013 | 2014 | ||||||||||
| Foreign exchange contracts | Interest and other income, net | $ | (67 | ) | $ | 118 | $ | 237 | ||||||
| Interest rate contracts | Interest and other income, net | (6 | ) | 4 | 2 | |||||||||
| Total | $ | (73 | ) | $ | 122 | $ | 239 | |||||||
| Offsetting of Assets | ||||||||||||||||||||||||||||
| Balance as of December 31, 2013 | ||||||||||||||||||||||||||||
| Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | ||||||||||||||||||||||||||||
| Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheets | Net Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral Received | Non-Cash Collateral Received | Net Assets Exposed | |||||||||||||||||||||
| Derivatives | $ | 232 | $ | 0 | $ | 232 | $ | (2 | ) | (1) | $ | (35 | ) | $ | (52 | ) | $ | 143 | ||||||||||
| Reverse repurchase agreements | 1,370 | 0 | 1,370 | (2) | 0 | 0 | (1,370 | ) | 0 | |||||||||||||||||||
| Total | $ | 1,602 | $ | 0 | $ | 1,602 | $ | (2 | ) | $ | (35 | ) | $ | (1,422 | ) | $ | 143 | |||||||||||
| Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
| Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | ||||||||||||||||||||||||||||
| Description | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheets | Net Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral Received | Non-Cash Collateral Received | Net Assets Exposed | |||||||||||||||||||||
| Derivatives | $ | 852 | $ | 0 | $ | 852 | $ | (1 | ) | (1) | $ | (251 | ) | $ | (412 | ) | $ | 188 | ||||||||||
| Reverse repurchase agreements | 2,637 | 0 | 2,637 | (2) | 0 | 0 | (2,637 | ) | 0 | |||||||||||||||||||
| Total | $ | 3,489 | $ | 0 | $ | 3,489 | $ | (1 | ) | $ | (251 | ) | $ | (3,049 | ) | $ | 188 | |||||||||||
| Offsetting of Liabilities | ||||||||||||||||||||||||||||
| Balance as of December 31, 2013 | ||||||||||||||||||||||||||||
| Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | ||||||||||||||||||||||||||||
| Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheets | Net Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral Pledged | Non-Cash Collateral Pledged | Net Liabilities | |||||||||||||||||||||
| Derivatives | $ | 4 | $ | 0 | $ | 4 | $ | (2 | ) | (3) | $ | 0 | $ | 0 | $ | 2 | ||||||||||||
| Securities lending agreements | 1,374 | 0 | 1,374 | 0 | 0 | (1,357 | ) | 17 | ||||||||||||||||||||
| Total | $ | 1,378 | $ | 0 | $ | 1,378 | $ | (2 | ) | $ | 0 | $ | (1,357 | ) | $ | 19 | ||||||||||||
| Balance as of December 31, 2014 | ||||||||||||||||||||||||||||
| Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | ||||||||||||||||||||||||||||
| Description | Gross Amounts of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheets | Net Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral Pledged | Non-Cash Collateral Pledged | Net Liabilities | |||||||||||||||||||||
| Derivatives | $ | 4 | $ | 0 | $ | 4 | $ | (1 | ) | (3) | $ | 0 | $ | 0 | $ | 3 | ||||||||||||
| Securities lending agreements | 2,778 | 0 | 2,778 | 0 | 0 | (2,740 | ) | 38 | ||||||||||||||||||||
| Total | $ | 2,782 | $ | 0 | $ | 2,782 | $ | (1 | ) | $ | 0 | $ | (2,740 | ) | $ | 41 | ||||||||||||
Additionally, as of December 31, 2011, we had a $468 million secured promissory note outstanding recorded as short-term debt, with an interest rate of 1.0% that matured and was paid in December 2012.
facility. The estimated fair value of the short-term debt approximated its carrying value atas of December 31, 20112013 and December 31, 2012.
2014.
In May 2011, we
| Outstanding Balance as of December 31, 2011 | Outstanding Balance as of December 31, 2012 | |||||||
1.25% Notes due on May 19, 2014 | $ | 1,000 | $ | 1,000 | ||||
2.125% Notes due on May 19, 2016 | 1,000 | 1,000 | ||||||
3.625% Notes due on May 19, 2021 | 1,000 | 1,000 | ||||||
Unamortized discount for the Notes above | (14 | ) | (12 | ) | ||||
|
|
|
| |||||
Total | $ | 2,986 | $ | 2,988 | ||||
|
|
|
| |||||
| Outstanding Balance As of December 31, 2013 | Outstanding Balance As of December 31, 2014 | ||||||
| Short-term portion of long-term debt: | |||||||
| 1.25% Notes due on May 19, 2014 | $ | 1,000 | $ | 0 | |||
| Capital lease obligation | 9 | 10 | |||||
| Total | $ | 1,009 | $ | 10 | |||
| Long-term debt: | |||||||
| 2.125% Notes due on May 19, 2016 | 1,000 | 1,000 | |||||
| 3.625% Notes due on May 19, 2021 | 1,000 | 1,000 | |||||
| 3.375% Notes due on February 25, 2024 | 0 | 1,000 | |||||
| Unamortized discount for the Notes above | (10 | ) | (8 | ) | |||
| Subtotal | 1,990 | 2,992 | |||||
| Capital lease obligation | 246 | 236 | |||||
| Total | $ | 2,236 | $ | 3,228 | |||
At
Years ending | ||||
2013 | 0 | |||
2014 | 1,000 | |||
2015 | 0 | |||
2016 | 1,000 | |||
Thereafter | 1,000 | |||
|
| |||
Total | $ | 3,000 | ||
|
| |||
| Years ending | ||||
| 2015 | $ | 10 | ||
| 2016 | 1,236 | |||
| 2017 | 0 | |||
| 2018 | 0 | |||
| Thereafter | 2,000 | |||
| Total | $ | 3,246 | ||
Inventories
Inventories
| As of December 31, 2011 | As of December 31, 2012 | |||||||
Raw materials and work in process | $ | 0 | $ | 77 | ||||
Finished goods | 35 | 428 | ||||||
|
|
|
| |||||
Inventories | $ | 35 | $ | 505 | ||||
|
|
|
| |||||
| As of December 31, 2013 | As of December 31, 2014 | ||||||
| Information technology assets | $ | 9,094 | $ | 10,918 | |||
| Land and buildings | 7,488 | 13,326 | |||||
| Construction in progress | 5,602 | 6,555 | |||||
| Leasehold improvements | 1,576 | 1,868 | |||||
| Furniture and fixtures | 77 | 79 | |||||
| Total | 23,837 | 32,746 | |||||
| Less: accumulated depreciation and amortization | 7,313 | 8,863 | |||||
| Property and equipment, net | $ | 16,524 | $ | 23,883 | |||
Propertyconstruction in progress as of December 31, 2013
| As of December 31, 2011 | As of December 31, 2012 | |||||||
Information technology assets | $ | 6,060 | $ | 7,717 | ||||
Land and buildings | 5,228 | 6,257 | ||||||
Construction in progress | 2,128 | 2,240 | ||||||
Leasehold improvements | 919 | 1,409 | ||||||
Furniture and fixtures | 65 | 74 | ||||||
|
|
|
| |||||
Total | 14,400 | 17,697 | ||||||
Less: accumulated depreciation and amortization | 4,797 | 5,843 | ||||||
|
|
|
| |||||
Property and equipment, net | $ | 9,603 | $ | 11,854 | ||||
|
|
|
| |||||
| As of December 31, 2014 | |||
Principal of the Note Receivable | $ | 1,500 | |
Less: unamortized discount for the Note Receivable | (175 | ) | |
| Total | $ | 1,325 | |
| As of December 31, 2011 | As of December 31, 2012 | |||||||
Foreign currency translation adjustment | $ | (148 | ) | $ | (73 | ) | ||
Net unrealized gains on available-for-sale investments, net of taxes | 327 | 604 | ||||||
Unrealized gains on cash flow hedges, net of taxes | 97 | 7 | ||||||
|
|
|
| |||||
Accumulated other comprehensive income | $ | 276 | $ | 538 | ||||
|
|
|
| |||||
| Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Available-for-Sale Investments | Unrealized Gains on Cash Flow Hedges | Total | ||||||||||||
| Balance as of December 31, 2012 | $ | (73 | ) | $ | 604 | $ | 7 | $ | 538 | ||||||
| Other comprehensive income (loss) before reclassifications | 89 | (392 | ) | 112 | (191 | ) | |||||||||
| Amounts reclassified from AOCI | 0 | (162 | ) | (60 | ) | (222 | ) | ||||||||
| Other comprehensive income (loss) | 89 | (554 | ) | 52 | (413 | ) | |||||||||
| Balance as of December 31, 2013 | $ | 16 | $ | 50 | $ | 59 | $ | 125 | |||||||
| Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Available-for-Sale Investments | Unrealized Gains on Cash Flow Hedges | Total | ||||||||||||
| Balance as of December 31, 2013 | $ | 16 | $ | 50 | $ | 59 | $ | 125 | |||||||
| Other comprehensive income (loss) before reclassifications | (996 | ) | 505 | 651 | 160 | ||||||||||
| Amounts reclassified from AOCI | 0 | (134 | ) | (124 | ) | (258 | ) | ||||||||
| Other comprehensive income (loss) | (996 | ) | 371 | 527 | (98 | ) | |||||||||
| Balance as of December 31, 2014 | $ | (980 | ) | $ | 421 | $ | 586 | $ | 27 | ||||||
Gains (Losses) Reclassified from AOCI to the Consolidated Statement of Income | ||||||||||
| Year ended December 31 | ||||||||||
| AOCI Components | Location | 2013 | 2014 | |||||||
| Unrealized gains on available-for-sale investments | ||||||||||
| Interest and other income, net | $ | 158 | $ | 153 | ||||||
| Net income (loss) from discontinued operations | 43 | 0 | ||||||||
| Provision for income taxes | (39 | ) | (19 | ) | ||||||
| Net of tax | $ | 162 | $ | 134 | ||||||
| Unrealized gains on cash flow hedges | ||||||||||
| Foreign exchange contracts | Revenues | $ | 95 | $ | 171 | |||||
| Interest rate contracts | Interest and other income, net | 0 | 4 | |||||||
| Provision for income taxes | (35 | ) | (51 | ) | ||||||
| Net of tax | $ | 60 | $ | 124 | ||||||
| Total amount reclassified, net of tax | $ | 222 | $ | 258 | ||||||
On May 22, 2012,
The fair value of assets acquired and liabilities assumed was based upon a preliminary valuation and our estimates and assumptions are subject to change within the measurement period. The primary areas of the purchase price that are not yet finalized are related to certain legal matters, income taxes, and residual goodwill.disaster relief. Of the $12.4 billion total purchase price $2.9 billionof $478 million, $6 million was cash acquired, $5.5 billion$69 million was attributed to patents and developed technology, $2.5 billionintangible assets, $388 million was attributed to goodwill, $0.7 billionand $15 million was attributed to customer relationships, and $0.8 billion to other net assets acquired.
The goodwill of $2.5 billion$388 million is primarily attributedattributable to the synergies expected to arise after the acquisition. Goodwill is not expected to be deductible for tax purposes.
Supplemental information on an unaudited pro forma basis, as if the Motorola acquisition had been consummated on January 1, 2011, is presented as follows (in millions, except per share amounts):
| Year Ended December 31, | ||||||||
| 2011 | 2012 | |||||||
Revenues(1) | $ | 47,294 | $ | 53,656 | ||||
Net income | 8,792 | 10,583 | ||||||
Net income per share of Class A and Class B common stock—diluted | 26.83 | 31.82 | ||||||
|
These pro forma results are based on estimates and assumptions, which we believe are reasonable. They are not necessarily indicative of our consolidated results of operations in future periods or the results that actually would have been realized had we been a combined company during the periods presented. The pro forma results include adjustments primarily related to amortization of acquired intangible assets, severance and benefit arrangements in connection with the acquisition, and stock-based compensation expenses for assumed unvested stock options and restricted stock units.
Balance as of December 31, 2011 | $ | 7,346 | ||
Goodwill acquired | 3,230 | |||
Goodwill adjustment | (39 | ) | ||
|
| |||
Balance as of December 31, 2012 | $ | 10,537 | ||
|
|
Amounts of goodwill allocated to the Mobile and Home segments were not material. See Note 15 for further discussion of segment information.
| Balance as of December 31, 2013 | $ | 11,492 | |
| Goodwill acquired | 4,208 | ||
| Goodwill disposed | (43 | ) | |
| Goodwill adjustment | (58 | ) | |
| Balance as of December 31, 2014 | $ | 15,599 | |
| As of December 31, 2011 | ||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
Patents and developed technology | $ | 1,451 | $ | 698 | $ | 753 | ||||||
Customer relationships | 1,288 | 573 | 715 | |||||||||
Trade names and other | 359 | 249 | 110 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 3,098 | $ | 1,520 | $ | 1,578 | ||||||
|
|
|
|
|
| |||||||
Patents and developed technology Customer relationships Trade names and other Total As of December 31, 2012 Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Value $ 7,310 $ 1,323 $ 5,987 2,061 847 1,214 576 304 272 $ 9,947 $ 2,474 $ 7,473
| As of December 31, 2013 | |||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||
| Patents and developed technology | $ | 7,282 | $ | 2,102 | $ | 5,180 | |||||
| Customer relationships | 1,770 | 1,067 | 703 | ||||||||
| Trade names and other | 534 | 351 | 183 | ||||||||
| Total | $ | 9,586 | $ | 3,520 | $ | 6,066 | |||||
| As of December 31, 2014 | |||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||
| Patents and developed technology | $ | 6,547 | $ | 2,513 | $ | 4,034 | |||||
| Customer relationships | 1,410 | 1,168 | 242 | ||||||||
| Trade names and other | 696 | 365 | 331 | ||||||||
| Total | $ | 8,653 | $ | 4,046 | $ | 4,607 | |||||
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
2013 | $ | 1,188 | ||
2014 | 1,115 | |||
2015 | 956 | |||
2016 | 879 | |||
2017 | 821 | |||
Thereafter | 2,514 | |||
|
| |||
| $ | 7,473 | |||
|
|
| 2015 | $ | 865 | |
| 2016 | 784 | ||
| 2017 | 704 | ||
| 2018 | 633 | ||
| 2019 | 524 | ||
| Thereafter | 1,097 | ||
| $ | 4,607 | ||
In December 2012,
The following table presents financial results of the Motorola Mobile business included in net income (loss) from discontinued operations for the years ended December 31, 2012, 2013 and 2014 (in millions):
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 (1) | |||||||||
| Revenues | $ | 4,136 | $ | 4,306 | $ | 5,486 | |||||
| Loss from discontinued operations before income taxes | (1,083 | ) | (1,403 | ) | (177 | ) | |||||
| Benefits from/(Provision for) income taxes | 318 | 270 | (47 | ) | |||||||
| Gain on disposal | 0 | 0 | 740 | ||||||||
| Net (loss) income from discontinued operations | $ | (765 | ) | $ | (1,133 | ) | $ | 516 | |||
| Assets: | |||
| Cash and cash equivalents | $ | 160 | |
| Accounts receivable | 1,103 | ||
| Inventories | 217 | ||
| Prepaid expenses and other current assets | 357 | ||
| Prepaid expenses and other assets, non-current | 290 | ||
| Property and equipment, net | 542 | ||
| Intangible assets, net | 985 | ||
| Goodwill | 43 | ||
| Total assets | $ | 3,697 | |
| Liabilities: | |||
| Accounts payable | $ | 1,238 | |
| Accrued compensation and benefits | 163 | ||
| Accrued expenses and other current liabilities | 10 | ||
| Deferred revenue, current | 165 | ||
| Other long-term liabilities | 250 | ||
| Total liabilities | $ | 1,826 | |
Revenues | $ | 2,028 | ||
Loss from discontinued operations before income taxes | (22 | ) | ||
Provision for income taxes | (29 | ) | ||
Net loss from discontinued operations | $ | (51 | ) |
Note 9. Restructuring charges
Subsequent to our acquisition of Motorola in May 2012, we initiated a restructuring plan primarily in our Mobile segment to reduce 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 yearyears ended December 31, 2012 activities related to restructuring charges were summarized as belowand 2013 (in millions):
| Severance and Related | Other Charges | Total | ||||||||||
Balance as of December 31, 2011 | $ | 0 | $ | 0 | $ | 0 | ||||||
Charges(1) | 572 | 59 | 631 | |||||||||
Cash payments | (189 | ) | (8 | ) | (197 | ) | ||||||
Non-cash items(2) | (145 | ) | (36 | ) | (181 | ) | ||||||
|
|
|
|
|
| |||||||
Balance as of December 31, 2012 | $ | 238 | $ | 15 | $ | 253 | ||||||
|
|
|
|
|
| |||||||
(1) The operating results of Motorola Home | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
For the year ended December 31, 2012, restructuring charges were included in costs and expenses as follows (in millions):
| Year Ended December 31, 2012 | ||||||||||||
| Severance and Related | Other Charges | Total | ||||||||||
Cost of revenues—Motorola Mobile | $ | 88 | $ | 41 | $ | 129 | ||||||
Research and development | 195 | 5 | 200 | |||||||||
Sales and marketing | 123 | 8 | 131 | |||||||||
General and administrative | 114 | 2 | 116 | |||||||||
|
|
|
|
|
| |||||||
Total charges | $ | 520 | $ | 56 | $ | 576 | ||||||
|
|
|
|
|
| |||||||
Restructuring charges related to Home of $55 million were included in net loss from discontinued operations in theour Consolidated Statements of Income.
We continue to evaluate our plansIncome from January 1, 2013 through April 17, 2013, the date of divestiture.
| Assets: | |||
| Accounts receivable | $ | 424 | |
| Inventories | 228 | ||
| Deferred income taxes, net | 144 | ||
| Prepaid and other current assets | 152 | ||
| Property and equipment, net | 282 | ||
| Intangible assets, net | 701 | ||
| Other assets, non-current | 182 | ||
| Total assets | $ | 2,113 | |
| Liabilities: | |||
| Accounts payable | $ | 169 | |
| Accrued expenses and other liabilities | 289 | ||
| Total liabilities | $ | 458 | |
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Interest income | $ | 579 | $ | 812 | $ | 713 | ||||||
Interest expense | (5 | ) | (58 | ) | (84 | ) | ||||||
Realized gains on available-for-sale investments, net | 185 | 254 | 282 | |||||||||
Impairment of equity investments | 0 | (110 | ) | 0 | ||||||||
Foreign currency exchange losses | (355 | ) | (379 | ) | (531 | ) | ||||||
Gain on divestiture of business | 0 | 0 | 188 | |||||||||
Other | 11 | 65 | 58 | |||||||||
|
|
|
|
|
| |||||||
Interest and other income, net | $ | 415 | $ | 584 | $ | 626 | ||||||
|
|
|
|
|
| |||||||
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 | |||||||||
| Interest income | $ | 700 | $ | 766 | $ | 746 | |||||
| Interest expense | (85 | ) | (81 | ) | (101 | ) | |||||
| Realized gains on available-for-sale investments, net | 282 | 158 | 153 | ||||||||
Foreign currency exchange losses (1) | (514 | ) | (379 | ) | (402 | ) | |||||
| Realized gain on equity interest | 0 | 0 | 126 | ||||||||
| Realized gain on non-marketable equity investments | 0 | 0 | 159 | ||||||||
Gain (loss) on divestiture of businesses (2) | 188 | (57 | ) | 0 | |||||||
| Other income, net | 64 | 89 | 82 | ||||||||
| Interest and other income, net | $ | 635 | $ | 496 | $ | 763 | |||||
At
| Operating Leases | Sub-lease Income | Net Operating Leases | ||||||||||
2013 | 492 | 26 | 466 | |||||||||
2014 | 475 | 22 | 453 | |||||||||
2015 | 434 | 17 | 417 | |||||||||
2016 | 374 | 12 | 362 | |||||||||
2017 | 333 | 7 | 326 | |||||||||
Thereafter | 1,596 | 1 | 1,595 | |||||||||
|
|
|
|
|
| |||||||
Total minimum payments | $ | 3,704 | $ | 85 | $ | 3,619 | ||||||
|
|
|
|
|
| |||||||
Operating Leases | Sub-lease Income | Net Operating Leases | |||||||||
| 2015 | 628 | 30 | 598 | ||||||||
| 2016 | 643 | 21 | 622 | ||||||||
| 2017 | 644 | 10 | 634 | ||||||||
| 2018 | 597 | 1 | 596 | ||||||||
| 2019 | 576 | 0 | 576 | ||||||||
| Thereafter | 3,157 | 0 | 3,157 | ||||||||
| Total minimum payments | $ | 6,245 | $ | 62 | $ | 6,183 | |||||
2014.
At
build-outs, as well as certain inventory purchase commitments.
At
$842 million.
agreements have not had a material adverse effect on our results of operations, cash flows, or financial position. However, to the extent that
Legal Matters
Antitrust Investigations
In June 2011, we received a Civil Investigative Demand (CID) from the U.S. Federal Trade Commission’s (FTC) Bureau of Competition and a subpoena from the FTC’s Bureau of Consumer Protection relating to a review by the FTC of our business practices, including search and advertising. In June 2012, we also received a CID and a subpoena duces tecum from the FTC’s Bureau of Competition seeking documents and information broadly related to Motorola’s licensing practices for standards-essential patents and use of standards-essential patents in litigation. In January 2013, the FTC closed its investigations into our business practices, including search and advertising. In connection with the closing As part of the investigation, we have voluntarily agreed to make certain product changes. In addition, wesale of Motorola Home and Motorola have entered into a consent order withMobile businesses, we issued indemnifications for certain potential liabilities. Please see Note 8 for additional information.
State attorneys general from the states of Texas, Ohio, and Mississippi have issued similar CIDs relating to our business practices. We are cooperating with the state attorneys general and are responding to their information requests on an ongoing basis.
The European Commission’sCommission's (EC) Directorate General for Competition has also opened an investigation into various antitrust-related complaints against us. Since February 2010, we have received a number of notifications from the EC about antitrust complaints filed against us. On November 30, 2010, the EC formally opened proceedings against us. We believe we have adequately responded to all of the allegations made against us. Weus and continue to cooperate with the EC and are pursuing a potential resolution that would avoid a finding of infringement and a fine. The EC has also opened an investigation into Motorola’s licensing practices for standards-essential patents and use of standards-essential patents in litigation on the basis of complaints brought by Microsoft and Apple. We are cooperating with the EC and responding to the information requests on an ongoing basis.
EC.
EPA Investigation
In February 2009, we learned of a U.S. Environmental Protection Agency (EPA) investigation into an alleged release of refrigerant at one of our smaller data center facilities,business practices.
our business practices.
practices, and require development of non-infringing products or technologies, which could result in a loss of revenues for us and otherwise harm our business. In addition, the U.S. International Trade Commission (ITC) has increasingly become an important forum to litigate intellectual property disputes because an ultimate loss for a company or its suppliers in an ITC action could result in a prohibition on importing infringing products into the U.S. Since the U.S. is an important market, a prohibition on importation could have an adverse effect on us, including preventing us from importing many important products into the U.S. or necessitating workarounds that may limit certain features of our products.
In December 2012, we announced that Motorola Mobility had entered into an agreement with Arris Group, Inc. and certain other persons providing for the disposition of Motorola’s Home business for total consideration of approximately $2.35 billion, subject to certain adjustments. Under the agreement, we have agreed to indemnify Arris Group for potential liability from certain intellectual property infringement litigation, including, among others, a patent infringement claim brought by TiVo relating to certain digital video recording equipment sold by Motorola Mobility.
Income
| Year Ended December 31, | |||||||||||
| 2012 | |||||||||||
| Class A | Class B | Class C | |||||||||
| Basic net income (loss) per share: | |||||||||||
| Numerator | |||||||||||
| Allocation of undistributed earnings - continuing operations | $ | 4,627 | $ | 1,150 | $ | 5,776 | |||||
| Allocation of undistributed earnings - discontinued operations | (327 | ) | (81 | ) | (408 | ) | |||||
| Total | $ | 4,300 | $ | 1,069 | $ | 5,368 | |||||
| Denominator | |||||||||||
| Number of shares used in per share computation | 262,078 | 65,135 | 327,213 | ||||||||
| Basic net income (loss) per share | |||||||||||
| Continuing operations | $ | 17.66 | $ | 17.66 | 17.66 | ||||||
| Discontinued operations | (1.25 | ) | (1.25 | ) | (1.25 | ) | |||||
| Basic net income per share | $ | 16.41 | $ | 16.41 | $ | 16.41 | |||||
| Diluted net income (loss) per share: | |||||||||||
| Numerator | |||||||||||
| Allocation of undistributed earnings for basic computation - continuing operations | $ | 4,627 | $ | 1,150 | $ | 5,776 | |||||
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | 1,150 | 0 | 0 | ||||||||
| Reallocation of undistributed earnings | (1 | ) | (17 | ) | 1 | ||||||
| Allocation of undistributed earnings - continuing operations | $ | 5,776 | $ | 1,133 | $ | 5,777 | |||||
| Allocation of undistributed earnings for basic computation - discontinued operations | $ | (327 | ) | $ | (81 | ) | $ | (408 | ) | ||
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | (81 | ) | 0 | 0 | |||||||
| Reallocation of undistributed earnings | 0 | 1 | 0 | ||||||||
| Allocation of undistributed earnings - discontinued operations | $ | (408 | ) | $ | (80 | ) | $ | (408 | ) | ||
| Denominator | |||||||||||
| Number of shares used in basic computation | 262,078 | 65,135 | 327,213 | ||||||||
| Weighted-average effect of dilutive securities | |||||||||||
| Add: | |||||||||||
| Conversion of Class B to Class A common shares outstanding | 65,135 | 0 | 0 | ||||||||
Employee stock options, including warrants issued under Transferable Stock Option program | 2,944 | 34 | 2,944 | ||||||||
| Restricted stock units and other contingently issuable shares | 2,148 | 0 | 2,148 | ||||||||
| Number of shares used in per share computation | 332,305 | 65,169 | 332,305 | ||||||||
| Diluted net income (loss) per share: | |||||||||||
| Continuing operations | $ | 17.39 | $ | 17.39 | $ | 17.39 | |||||
| Discontinued operations | (1.23 | ) | (1.23 | ) | (1.23 | ) | |||||
| Diluted net income per share | $ | 16.16 | $ | 16.16 | $ | 16.16 | |||||
| Year Ended December 31, | |||||||||||
| 2013 | |||||||||||
| Class A | Class B | Class C | |||||||||
| Basic net income (loss) per share: | |||||||||||
| Numerator | |||||||||||
| Allocation of undistributed earnings - continuing operations | $ | 5,484 | $ | 1,190 | $ | 6,673 | |||||
| Allocation of undistributed earnings - discontinued operations | (175 | ) | (38 | ) | (214 | ) | |||||
| Total | $ | 5,309 | $ | 1,152 | $ | 6,459 | |||||
| Denominator | |||||||||||
| Number of shares used in per share computation | 273,518 | 59,328 | 332,846 | ||||||||
| Basic net income (loss) per share | |||||||||||
| Continuing operations | $ | 20.05 | $ | 20.05 | $ | 20.05 | |||||
| Discontinued operations | (0.64 | ) | (0.64 | ) | (0.64 | ) | |||||
| Basic net income per share | 19.41 | $ | 19.41 | $ | 19.41 | ||||||
| Diluted net income (loss) per share: | |||||||||||
| Numerator | |||||||||||
| Allocation of undistributed earnings for basic computation - continuing operations | $ | 5,484 | $ | 1,190 | $ | 6,673 | |||||
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | 1,190 | 0 | 0 | ||||||||
| Reallocation of undistributed earnings | (1 | ) | (21 | ) | 1 | ||||||
| Allocation of undistributed earnings - continuing operations | $ | 6,673 | $ | 1,169 | $ | 6,674 | |||||
| Allocation of undistributed earnings for basic computation - discontinued operations | $ | (175 | ) | $ | (38 | ) | $ | (214 | ) | ||
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | (38 | ) | 0 | 0 | |||||||
| Reallocation of undistributed earnings | (1 | ) | 1 | 1 | |||||||
| Allocation of undistributed earnings - discontinued operations | $ | (214 | ) | $ | (37 | ) | $ | (213 | ) | ||
| Denominator | |||||||||||
| Number of shares used in basic computation | 273,518 | 59,328 | 332,846 | ||||||||
| Weighted-average effect of dilutive securities | |||||||||||
| Add: | |||||||||||
| Conversion of Class B to Class A common shares outstanding | 59,328 | 0 | 0 | ||||||||
Employee stock options, including warrants issued under Transferable Stock Option program | 2,748 | 4 | 2,748 | ||||||||
| Restricted stock units and other contingently issuable shares | 3,215 | 0 | 3,215 | ||||||||
| Number of shares used in per share computation | 338,809 | 59,332 | 338,809 | ||||||||
| Diluted net income (loss) per share: | |||||||||||
| Continuing operations | $ | 19.70 | $ | 19.70 | $ | 19.70 | |||||
| Discontinued operations | (0.63 | ) | (0.63 | ) | (0.63 | ) | |||||
| Diluted net income per share | $ | 19.07 | $ | 19.07 | $ | 19.07 | |||||
| Year Ended December 31, | |||||||||||
| 2014 | |||||||||||
| Class A | Class B | Class C | |||||||||
| Basic net income per share: | |||||||||||
| Numerator | |||||||||||
| Allocation of undistributed earnings - continuing operations | $ | 5,829 | $ | 1,132 | $ | 6,967 | |||||
| Allocation of undistributed earnings - discontinued operations | 216 | 42 | 258 | ||||||||
| Total | $ | 6,045 | $ | 1,174 | $ | 7,225 | |||||
| Denominator | |||||||||||
| Number of shares used in per share computation | 282,877 | 54,928 | 338,130 | ||||||||
| Basic net income per share | |||||||||||
| Continuing operations | $ | 20.61 | $ | 20.61 | $ | 20.61 | |||||
| Discontinued operations | 0.76 | 0.76 | 0.76 | ||||||||
| Basic net income per share | $ | 21.37 | $ | 21.37 | $ | 21.37 | |||||
| Diluted net income per share: | |||||||||||
| Numerator | |||||||||||
| Allocation of undistributed earnings for basic computation - continuing operations | $ | 5,829 | $ | 1,132 | $ | 6,967 | |||||
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | 1,132 | 0 | 0 | ||||||||
| Reallocation of undistributed earnings | (20 | ) | (19 | ) | 20 | ||||||
| Allocation of undistributed earnings - continuing operations | $ | 6,941 | $ | 1,113 | $ | 6,987 | |||||
| Allocation of undistributed earnings for basic computation - discontinued operations | $ | 216 | $ | 42 | $ | 258 | |||||
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | 42 | 0 | 0 | ||||||||
| Reallocation of undistributed earnings | (1 | ) | (1 | ) | 1 | ||||||
| Allocation of undistributed earnings - discontinued operations | $ | 257 | $ | 41 | $ | 259 | |||||
| Denominator | |||||||||||
| Number of shares used in basic computation | 282,877 | 54,928 | 338,130 | ||||||||
| Weighted-average effect of dilutive securities | |||||||||||
| Add: | |||||||||||
| Conversion of Class B to Class A common shares outstanding | 54,928 | 0 | 0 | ||||||||
| Employee stock options | 2,057 | 0 | 2,038 | ||||||||
| Restricted stock units and other contingently issuable shares | 2,515 | 0 | 4,525 | ||||||||
| Number of shares used in per share computation | 342,377 | 54,928 | 344,693 | ||||||||
| Diluted net income per share: | |||||||||||
| Continuing operations | $ | 20.27 | $ | 20.27 | $ | 20.27 | |||||
| Discontinued operations | 0.75 | 0.75 | 0.75 | ||||||||
| Diluted net income per share | $ | 21.02 | $ | 21.02 | $ | 21.02 | |||||
and Class C Capital Stock
matters including dividend and distribution rights.
We maintain
At
Plan.
The weighted-average estimated fair value of options granted during the years ended December 31, 2012 and 2013 was $97.14 and $107.20, respectively. No options were granted during the year ended December 31, 2014.
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Risk-free interest rate | 1.9 | % | 2.3 | % | 1.0 | % | ||||||
Expected volatility | 35 | % | 33 | % | 29 | % | ||||||
Expected life (in years) | 5.4 | 5.9 | 5.2 | |||||||||
Dividend yield | 0 | 0 | 0 | |||||||||
Weighted-average estimated fair value of options granted during the year | $ | 216.43 | $ | 210.07 | $ | 194.27 | ||||||
| Year Ended December 31, | |||||||
| 2012 | 2013 | 2014 | |||||
| Risk-free interest rate | 1.0 | % | 0.9 | % | N/A | ||
| Expected volatility | 29 | % | 29 | % | N/A | ||
| Expected life (in years) | 5.2 | 5.8 | N/A | ||||
| Dividend yield | 0 | 0 | N/A | ||||
| Options Outstanding | ||||||||||||||||
| Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in millions)(1) | |||||||||||||
Balance at December 31, 2011 | 9,807,252 | $ | 357.92 | |||||||||||||
Granted(2) | 1,392,191 | $ | 580.45 | |||||||||||||
Exercised | (2,409,331 | ) | $ | 305.81 | ||||||||||||
Forfeited/canceled | (238,717 | ) | $ | 460.45 | ||||||||||||
|
| |||||||||||||||
Balance at December 31, 2012 | 8,551,395 | $ | 405.98 | 5.2 | $ | 2,516 | ||||||||||
|
| |||||||||||||||
Vested and exercisable as of December 31, 2012 | 6,023,559 | $ | 351.44 | 4.1 | $ | 2,099 | ||||||||||
Vested and exercisable as of December 31, 2012 and expected to vest thereafter(3) | 8,218,732 | $ | 400.72 | 5.2 | $ | 2,461 | ||||||||||
2014:
(1) | The aggregate intrinsic value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
The following table summarizes additional information regarding outstanding, exercisable, and exercisable and vested stock options at December 31, 2012:
| Options Outstanding | Options Exercisable | Options Exercisable and Vested | ||||||||||||||||||||||||||
Range of Exercise Prices | Number of Shares | Weighted- Average Remaining Life (in years) | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | |||||||||||||||||||||
$0.30–$94.80 | 116,852 | 1.7 | $ | 37.03 | 116,852 | $ | 37.03 | 113,209 | $ | 35.41 | ||||||||||||||||||
$117.84–$198.41 | 248,831 | 2.0 | $ | 178.65 | 248,831 | $ | 178.65 | 248,831 | $ | 178.65 | ||||||||||||||||||
$205.96–$298.86 | 282,647 | 2.4 | $ | 275.51 | 282,552 | $ | 275.51 | 282,552 | $ | 275.51 | ||||||||||||||||||
$300.97–$399.00 | 3,998,815 | 3.8 | $ | 309.39 | 3,642,248 | $ | 309.57 | 3,642,248 | $ | 309.57 | ||||||||||||||||||
$401.78–$499.07 | 993,591 | 5.9 | $ | 442.95 | 766,098 | $ | 441.55 | 766,098 | $ | 441.55 | ||||||||||||||||||
$501.27–$595.35 | 1,803,839 | 6.9 | $ | 536.31 | 848,574 | $ | 529.82 | 848,574 | $ | 529.82 | ||||||||||||||||||
$601.17–$699.35 | 1,089,126 | 8.9 | $ | 629.41 | 120,757 | $ | 614.76 | 120,757 | $ | 614.76 | ||||||||||||||||||
$710.84–$762.5 | 17,694 | 9.7 | $ | 762.27 | 1,290 | $ | 759.30 | 1,290 | $ | 759.30 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$0.30–$762.5 | 8,551,395 | 5.2 | $ | 405.98 | 6,027,202 | $ | 351.28 | 6,023,559 | $ | 351.44 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
The above tables include approximately 1.6 million warrants held by selected financial institutions that were options purchased from employees under our TSO program, with a weighted-average exercise price of $363.66 and a weighted-average remaining life of 1.3 years.
During 2012, the number of shares underlying TSOs sold to selected financial institutions under the TSO program was 1,226,983 at a total value of $365 million, or an average of $297.28 per share, including an average premium of $9.35 per share. The premium is calculated as the difference between (a) the saleexercise price of the TSOunderlying awards and (b) the intrinsic valueclosing stock prices of the TSO, which we define as the excess, if any, of the price$530.66 and $526.40 of our Class A common stock at the time of the sale over the exercise price of the TSO.
and Class C capital stock, respectively, on December 31, 2014.
Transferable Stock Options (TSO) program, which was discontinued as of November 29, 2013.
| Unvested Restricted Stock Units | ||||||||
| Number of Shares | Weighted- Average Grant-Date Fair Value | |||||||
Unvested at December 31, 2011 | 8,822,648 | $ | 520.27 | |||||
Granted(1) | 6,704,261 | $ | 603.57 | |||||
Vested | (3,884,811 | ) | $ | 530.15 | ||||
Forfeited/canceled | (647,171 | ) | $ | 543.04 | ||||
|
|
|
| |||||
Unvested at December 31, 2012 | 10,994,927 | $ | 566.32 | |||||
|
|
|
| |||||
Expected to vest after December 31, 2012(2) | 9,547,995 | $ | 566.32 | |||||
| Unvested Restricted Stock Units | ||||||
Number of Shares | Weighted- Average Grant-Date Fair Value | |||||
| Unvested at December 31, 2013 | 21,953,960 | $ | 359.20 | |||
| Granted | 15,520,343 | $ | 573.71 | |||
| Vested | (10,742,740 | ) | $ | 361.92 | ||
| Forfeited/canceled | (2,112,014 | ) | $ | 420.28 | ||
| Unvested at December 31, 2014 | 24,619,549 | $ | 487.80 | |||
Expected to vest after December 31, 2014 (1) | 21,958,176 | $ | 487.80 | |||
(1) |
|
RSUs expected to vest reflect an estimated forfeiture rate. |
2014.
2014.
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Current: | ||||||||||||
Federal | $ | 1,657 | $ | 1,724 | $ | 2,342 | ||||||
State | 458 | 274 | 171 | |||||||||
Foreign | 167 | 248 | 358 | |||||||||
|
|
|
|
|
| |||||||
Total | 2,282 | 2,246 | 2,871 | |||||||||
|
|
|
|
|
| |||||||
Deferred: | ||||||||||||
Federal | (25 | ) | 452 | (328 | ) | |||||||
State | 47 | (109 | ) | (19 | ) | |||||||
Foreign | (13 | ) | (0 | ) | 74 | |||||||
|
|
|
|
|
| |||||||
Total | 9 | 343 | (273 | ) | ||||||||
|
|
|
|
|
| |||||||
Provision for income taxes | $ | 2,291 | $ | 2,589 | $ | 2,598 | ||||||
|
|
|
|
|
| |||||||
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 | |||||||||
| Current: | |||||||||||
| Federal | $ | 2,484 | $ | 2,217 | $ | 2,424 | |||||
| State | 169 | 117 | 140 | ||||||||
| Foreign | 312 | 711 | 774 | ||||||||
| Total | 2,965 | 3,045 | 3,338 | ||||||||
| Deferred: | |||||||||||
| Federal | (109 | ) | (421 | ) | 29 | ||||||
| State | 5 | 0 | 7 | ||||||||
| Foreign | 55 | (72 | ) | (43 | ) | ||||||
| Total | (49 | ) | (493 | ) | (7 | ) | |||||
| Provision for income taxes | $ | 2,916 | $ | 2,552 | $ | 3,331 | |||||
| Year ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Expected provision at federal statutory tax rate (35%) | $ | 3,779 | $ | 4,314 | $ | 4,685 | ||||||
State taxes, net of federal benefit | 322 | 122 | 99 | |||||||||
Stock-based compensation expense | 79 | 105 | 52 | |||||||||
Change in valuation allowance | (34 | ) | 27 | 1,921 | ||||||||
Foreign rate differential | (1,769 | ) | (2,001 | ) | (2,200 | ) | ||||||
Federal research credit | (84 | ) | (140 | ) | 0 | |||||||
Tax exempt interest | (12 | ) | (10 | ) | (7 | ) | ||||||
Non-deductible legal settlement | 0 | 175 | 0 | |||||||||
Basis difference in investment in Home business | 0 | 0 | (1,960 | ) | ||||||||
Other permanent differences | 10 | (3 | ) | 8 | ||||||||
|
|
|
|
|
| |||||||
Provision for income taxes | $ | 2,291 | $ | 2,589 | $ | 2,598 | ||||||
|
|
|
|
|
| |||||||
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 | |||||||||
| Expected provision at federal statutory tax rate (35%) | $ | 5,064 | $ | 5,567 | $ | 6,041 | |||||
| State taxes, net of federal benefit | 114 | 123 | 115 | ||||||||
| Change in valuation allowance | 1,921 | (641 | ) | (164 | ) | ||||||
| Foreign rate differential | (2,208 | ) | (2,659 | ) | (2,400 | ) | |||||
| Federal research credit | 0 | (433 | ) | (318 | ) | ||||||
| Basis difference in investment of Arris | (1,960 | ) | 644 | 0 | |||||||
| Other adjustments | (15 | ) | (49 | ) | 57 | ||||||
| Provision for income taxes | $ | 2,916 | $ | 2,552 | $ | 3,331 | |||||
Income Taxes
| As of December 31, | ||||||||
| 2011 | 2012 | |||||||
Deferred tax assets: | ||||||||
Stock-based compensation expense | $ | 288 | $ | 311 | ||||
State taxes | 138 | 184 | ||||||
Capital loss carryforward | 285 | 236 | ||||||
Settlement with the Authors Guild and AAP | 35 | 28 | ||||||
Vacation accruals | 52 | 67 | ||||||
Deferred rent | 43 | 50 | ||||||
Accruals and reserves not currently deductible | 268 | 688 | ||||||
Acquired net operating losses | 156 | 505 | ||||||
Tax credit | 55 | 274 | ||||||
Basis difference in investment in Home business | 0 | 2,043 | ||||||
Other | 11 | 128 | ||||||
|
|
|
| |||||
Total deferred tax assets | 1,331 | 4,514 | ||||||
Valuation allowance | (333 | ) | (2,629 | ) | ||||
|
|
|
| |||||
Total deferred tax assets net of valuation allowance | 998 | 1,885 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation and amortization | (479 | ) | (761 | ) | ||||
Identified intangibles | (398 | ) | (1,496 | ) | ||||
Unrealized gains on investments and other | (90 | ) | (105 | ) | ||||
Other prepaids | (70 | ) | (118 | ) | ||||
Other | (33 | ) | (133 | ) | ||||
|
|
|
| |||||
Total deferred tax liabilities | (1,070 | ) | (2,613 | ) | ||||
|
|
|
| |||||
Net deferred tax liabilities | $ | (72 | ) | $ | (728 | ) | ||
|
|
|
| |||||
| As of December 31, | |||||||
| 2013 | 2014 | ||||||
| Deferred tax assets: | |||||||
| Stock-based compensation expense | $ | 283 | $ | 376 | |||
| State taxes | 204 | 133 | |||||
| Investment loss | 266 | 133 | |||||
| Legal settlement accruals | 45 | 175 | |||||
| Accrued employee benefits | 477 | 671 | |||||
| Accruals and reserves not currently deductible | 390 | 175 | |||||
| Net operating losses | 279 | 207 | |||||
| Tax credits | 394 | 262 | |||||
| Basis difference in investment of Arris | 1,372 | 1,347 | |||||
| Other | 250 | 243 | |||||
| Total deferred tax assets | 3,960 | 3,722 | |||||
| Valuation allowance | (1,899 | ) | (1,659 | ) | |||
| Total deferred tax assets net of valuation allowance | 2,061 | 2,063 | |||||
| Deferred tax liabilities: | |||||||
| Depreciation and amortization | (537 | ) | (852 | ) | |||
| Identified intangibles | (1,479 | ) | (965 | ) | |||
| Mark-to-market investments | 6 | (273 | ) | ||||
| Renewable energy investments | (223 | ) | (430 | ) | |||
| Other | (185 | ) | (123 | ) | |||
| Total deferred tax liabilities | (2,418 | ) | (2,643 | ) | |||
| Net deferred tax liabilities | $ | (357 | ) | $ | (580 | ) | |
federal and state deferred tax assets for these items in the amountitems.
Balance as of January 1, 2010 | $ | 1,188 | ||
Increases related to prior year tax positions | 37 | |||
Decreases related to prior year tax positions | (197 | ) | ||
Decreases related to settlement with tax authorities | (47 | ) | ||
Decreases as a result of a lapse of applicable statute of limitation | (97 | ) | ||
Increases related to current year tax positions | 256 | |||
|
| |||
Balance as of December 31, 2010 | 1,140 | |||
Increases related to prior year tax positions | 77 | |||
Decreases related to prior year tax positions | (9 | ) | ||
Increases related to current year tax positions | 361 | |||
Decreases related to settlement with tax authorities | (5 | ) | ||
|
| |||
Balance as of December 31, 2011 | 1,564 | |||
Increases related to prior year tax positions | 43 | |||
Decreases related to prior year tax positions | (40 | ) | ||
Decreases related to settlement with tax authorities | (62 | ) | ||
Increases related to acquisition | 17 | |||
Increases related to current year tax positions | 411 | |||
|
| |||
Balance as of December 31, 2012 | 1,933 | |||
|
|
| Balance as of January 1, 2012 | $ | 1,564 | |
| Increases related to prior year tax positions | 60 | ||
| Decreases related to prior year tax positions | (40 | ) | |
| Decreases related to settlement with tax authorities | (62 | ) | |
| Increases related to current year tax positions | 411 | ||
| Balance as of December 31, 2012 | 1,933 | ||
| Increases related to prior year tax positions | 158 | ||
| Decreases related to prior year tax positions | (37 | ) | |
| Decreases related to settlement with tax authorities | (78 | ) | |
| Increases related to current year tax positions | 595 | ||
| Balance as of December 31, 2013 | 2,571 | ||
| Increases related to prior year tax positions | 66 | ||
| Decreases related to prior year tax positions | (44 | ) | |
| Decreases related to settlement with tax authorities | (1 | ) | |
| Increases related to current year tax positions | 820 | ||
| Balance as of December 31, 2014 | $ | 3,412 | |
2014.
taxes.
Prior
Google—includes our advertising and other non-advertising businesses
Mobile—includes our mobile devices business acquired from Motorola
Home—includes our digital set-top box business acquired from Motorola
In December 2012, as a result of an agreement for the disposition of the Home segment, the Home segment is presented as discontinued operations and therefore is not included in the segment report.
Our chief operating decision makers do not evaluate operating segments using asset information.
The following table sets forth revenues and operating income (loss) by operating segment (in millions):
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Google: | ||||||||||||
Revenues | $ | 29,321 | $ | 37,905 | $ | 46,039 | ||||||
Income from operations | 11,757 | 14,216 | 16,308 | |||||||||
Mobile: | ||||||||||||
Revenues | 0 | 0 | 4,136 | |||||||||
Loss from operations | 0 | 0 | (393 | ) | ||||||||
A reconciliation of the total segment income from operations to the consolidated income from operations is as follows (in millions):
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Total segment income from operations | $ | 11,757 | $ | 14,216 | $ | 15,915 | ||||||
Unallocated items | (1,376 | ) | (2,474 | ) | (3,155 | ) | ||||||
|
|
|
|
|
| |||||||
Consolidated income from operations | $ | 10,381 | $ | 11,742 | $ | 12,760 | ||||||
|
|
|
|
|
| |||||||
Unallocated items, including stock-based compensation expense, restructuring and other charges related to our Mobile segment, and a charge related to the resolution of a Department of Justice investigation, are not allocated to each segment because we do not include this information in our measurement of the performance of our operating segments.
Revenues by geography are based on the billing addresses of our customers for the Google segment and the ship-to-addresses of our customers for the Mobile segment.customers. The following tables set forth revenues and long-lived assets by geographic area (in millions):
| Year Ended December 31, | ||||||||||||
| 2010 | 2011 | 2012 | ||||||||||
Revenues: | ||||||||||||
United States | $ | 14,056 | $ | 17,560 | $ | 23,502 | ||||||
United Kingdom | 3,329 | 4,057 | 4,872 | |||||||||
Rest of the world | 11,936 | 16,288 | 21,801 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | $ | 29,321 | $ | 37,905 | $ | 50,175 | ||||||
|
|
|
|
|
| |||||||
| As of December 31, | ||||||||
| 2011 | 2012 | |||||||
Long-lived assets(1) : | ||||||||
United States | $ | 15,963 | $ | 20,985 | ||||
International | 3,853 | 12,359 | ||||||
|
|
|
| |||||
Total long-lived assets | $ | 19,816 | $ | 33,344 | ||||
|
|
|
| |||||
|
| Year Ended December 31, | |||||||||||
| 2012 | 2013 | 2014 | |||||||||
| Revenues: | |||||||||||
| United States | $ | 21,287 | $ | 24,752 | $ | 28,139 | |||||
| United Kingdom | 4,846 | 5,600 | 6,483 | ||||||||
| Rest of the world | 19,906 | 25,167 | 31,379 | ||||||||
| Total revenues | $ | 46,039 | $ | 55,519 | $ | 66,001 | |||||
| As of December 31, | |||||||
2013 (1) | 2014 | ||||||
| Long-lived assets: | |||||||
| United States | $ | 24,004 | $ | 37,355 | |||
| International | 14,030 | 13,093 | |||||
| Total long-lived assets | $ | 38,034 | $ | 50,448 | |||
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
| (a) | We have filed the following documents as part of this Annual Report on Form 10-K: |
| ||||
Allowance for Doubtful Accounts and Sales Credits | Balance at Beginning of Year | Additions | Usage | Balance at End of Year | ||||||||||||
| (In millions) | ||||||||||||||||
Year ended December 31, 2010 | $ | 79 | $ | 200 | $ | (178 | ) | $ | 101 | |||||||
Year ended December 31, 2011 | $ | 101 | $ | 214 | $ | (182 | ) | $ | 133 | |||||||
Year ended December 31, 2012 | $ | 133 | $ | 1,263 | $ | (815 | ) | $ | 581 | |||||||
Balance at Beginning of Year | Additions | Usage | Balance at End of Year | ||||||||||||
| (In millions) | |||||||||||||||
| Year ended December 31, 2012 | $ | 133 | $ | 1,263 | $ | (815 | ) | $ | 581 | ||||||
| Year ended December 31, 2013 | $ | 581 | $ | 1,128 | $ | (1,078 | ) | $ | 631 | ||||||
| Year ended December 31, 2014 | $ | 631 | $ | 1,240 | $ | (1,646 | ) | $ | 225 | ||||||
| Note: | Additions to the allowance for doubtful accounts are charged to expense. Additions to the allowance for sales credits are charged against revenues. For the year ended December 31, 2012, 2013, and 2014, additions included the impact from the Motorola acquisition. For the years ended December 31, 2013 and 2014, usages include the impact from the sale of Motorola Home and Mobile businesses, respectively. |
| GOOGLE INC. | ||
| By: | /S/ LARRY PAGE | |
|
| |
| Larry Page | ||
| Chief Executive Officer | ||
|
|
| ||||
Signature | Title | Date | ||||
/S/ LARRY PAGE
| Chief Executive Officer, Co-Founder and Director (Principal Executive Officer) | February 6, 2015 | ||||
| Larry Page | ||||||
/S/ PATRICK PICHETTE
| Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | February 6, 2015 | ||||
| Patrick Pichette | ||||||
/S/ ERIC E. SCHMIDT | Executive Chairman | February 6, 2015 | ||||
Eric E. Schmidt |
| |||||
/S/ SERGEY BRIN | Co-Founder and Director | February 6, 2015 | ||||
| Sergey Brin | ||||||
/S/ L. JOHN DOERR | Director | February 6, 2015 | ||||
|
| |||||
/S/ DIANE B. GREENE | Director | February 6, 2015 | ||||
| Diane B. Greene | ||||||
/S/ JOHN L. HENNESSY | Director | February 6, 2015 | ||||
| ||||||
/S/ ANN MATHER | Director | February 6, 2015 | ||||
| Ann Mather | ||||||
/S/ ALAN R. MULALLY | Director | February 6, 2015 | ||||
| ||||||
/S/ PAUL S. OTELLINI | Director | February 6, 2015 | ||||
| Paul S. Otellini | ||||||
/S/ K. RAM SHRIRAM | Director | February 6, 2015 | ||||
| ||||||
/S/ SHIRLEY M. TILGHMAN | Director | February 6, 2015 | ||||
| Shirley M. Tilghman | ||||||
|
| ||||||||
|
| ||||||||
|
| ||||||||
|
| ||||||||
EXHIBIT INDEX
Exhibit Number | Description |
| Incorporated by reference herein | |||||||||
Form | Date | |||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| 3.01 | Fourth Amended and Restated Certificate of Incorporation of Registrant | Quarterly Report on Form 10-Q (File No. 000-50726) | July 24, 2012 | |||||||||
| 3.02 | Amended and Restated Bylaws of Registrant | Quarterly Report on Form 10-Q (File No. 000-50726) | July 24, 2012 | |||||||||
| 4.01 | Specimen Class A Common Stock certificate | Registration Statement on Form | ||||||||||
|
|
| ||||||||
| ||||||||||
| March 26, 2014 | ||||||||||
| 4.02 | Specimen Class B Common Stock certificate | Registration Statement on Form | ||||||||
| March 26, 2014 | ||||||||||
| 4.03 | Specimen Class C Capital Stock certificate | Registration Statement on Form 8-A (File No. 001-36380) | March 26, 2014 | |||||||
| 4.04 | Indenture, dated as of May 19, 2011 between Google Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee | Current Report on Form 8-K
| May 19, 2011 | |||||||
| ||||||||||
| 4.05 | Form of 2.125% Note due 2016 | Current Report on Form 8-K
| May 19, 2011 | |||||||
| 4.06 | Form of 3.625% Note due 2021 | Current Report on Form 8-K
| May 19, 2011 | |||||||
| 4.07 | Current Report on Form 8-K (File No. 000-50726) | February 25, 2014 | ||||||||
| 4.08 | Deferred Compensation Plan | Registration Statement on Form S-8 (File No. 333-175180) | June 28, 2011 | |||||||
| Amendment No. 1 to the Deferred Compensation Plan | Annual Report on Form 10-K
| January 26, 2012 | ||||||||
| 4.10 | Terms of Revised Stipulation of Compromise and Settlement of In Re: Google Inc. Class C Shareholder Litigation (Consol. C.A. No. 7469-CS) | Registration Statement on Form 8-A (File No. 001-36380) | March 26, 2014 | |||||||
| 4.11 | Transfer Restriction Agreement, dated March 25, 2014, between Google Inc. and Larry Page | Current Report on Form 8-K (File No. 000-50726) | March 26, 2014 | |||||||
| 4.12 | Joinder Agreement, dated October 23, 2014, among Google Inc., Larry Page and his Permitted Entities | Quarterly Report on Form 10-Q (File No. 001-36380) | October 23, 2014 | |||||||
| 4.13 | Transfer Restriction Agreement, dated March 25, 2014, between Google Inc. and Sergey Brin | Current Report on Form 8-K (File No. 000-50726) | March 26, 2014 | |||||||
| 4.14 | Joinder Agreement, dated October 23, 2014, among Google Inc., Sergey Brin and his Permitted Entities | Quarterly Report on Form 10-Q (File No. 001-36380) | October 23, 2014 | |||||||
| 4.15 | Transfer Restriction Agreement, dated March 25, 2014, between Google Inc. and Eric E. Schmidt and certain of its affiliates | Current Report on Form 8-K (File No. 000-50726) | March 26, 2014 | |||||||
| 10.01 | Form of Indemnification Agreement entered into between Registrant, its affiliates and its directors and officers | Registration Statement on Form S-1, as amended (File No. 333-114984) | July 12, 2004 | |||||||
| 10.02 | ||||||||||
| Letter Agreement, dated | Current Report on Form 8-K (File No. | July 15, 2014 | ||||||||
| Quarterly Report on Form 10-Q (File No. | ||||||||||
| October 23, 2014 | ||||||||||
|
|
| ||||||||
| ||||||||||
| Quarterly Report on Form 10-Q (File No. | October 23, 2014 | |||||||||
Exhibit Number | ||||||||||
| Form | Date | |||||||||
| 10.05 | ||||||||||
| u | 2004 Stock Plan, as amended | Current Report on Form 8-K (File No. 000-50726) | June 7, 2011 | |||||||
| 10.05.1 | ||||||||||
| u | 2004 Stock Plan—Form of stock option agreement | Annual Report on Form 10-K (File No. 000-50726) | March 30, 2005 | |||||||
| 10.05.2 | ||||||||||
| u | 2004 Stock Plan—Form of restricted stock unit agreement | Annual Report on Form 10-K (File No. 000-50726) | March 30, 2005 | |||||||
| 10.05.3 | ||||||||||
| u | 2004 Stock Plan—Amendment to stock option agreements | Registration Statement on Form S-3 (File No. 333-142243) | April 20, 2007 | |||||||
| 10.06 | ||||||||||
| u | Google Inc. 2012 Stock Plan | Current Report on Form 8-K
| June 26, 2012 | |||||||
| 10.06.1 | u | |||||||||
| February 12, 2014 | ||||||||||
| 10.06.2 | u | Google 2012 Stock Plan – Form of Google Stock Options Agreement | Annual Report on Form 10-K (File No. 000-50726) | February 12, 2014 | ||||||
| 10.07 | u | Google Inc. 2012 Incentive Compensation Plan for Employees and Consultants of Motorola Mobility | Current Report on Form 8-K
| June 26, 2012 | ||||||
| 10.08 | ||||||||||
| u | Motorola Mobility Holdings, Inc. 2011 Incentive Compensation Plan | Registration Statement on Form S-8 (File No. 333-181661) | May 24, 2012 | |||||||
| 10.09 | ||||||||||
| u | AdMob, Inc. 2006 Stock Plan and UK Sub-Plan of the AdMob, Inc. 2006 Stock Plan | Registration Statement on Form S-8 filed (File No. 333-167411) | June 9, 2010 | |||||||
| 10.10 | ||||||||||
| u | Click Holding Corp. 2005 Stock Incentive Plan | Registration Statement on Form S-8 (File No. 333-149956) | March 28, 2008 | |||||||
|
|
| ||||||||
| ||||||||||
| 12 | * | Computation of Earnings to Fixed Charge Ratios | ||||||||
| 21.01 | * | Subsidiaries of the Registrant | ||||||||
| 23.01 | * | Consent of Independent Registered Public Accounting Firm | ||||||||
| 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 Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| 31.02 | * | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| 32.01 | ‡ | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| 101.INS | XBRL Instance Document | |||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||
Exhibit Number | Description | Incorporated by reference herein | ||||||||
| Form | Date | |||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||
| Indicates management compensatory plan, contract, or arrangement. |
| * | Filed herewith. |
| ‡ | Furnished herewith. |