Quarterly Report on Form 10-Q

10-Q 1 d10q.htm QUARTERLY REPORT ON FORM 10-Q Quarterly Report on Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-50726

Google Inc.

(Exact name of registrant as specified in its charter)

Delaware

77-0493581

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1600 Amphitheatre Parkway

Mountain View, CA 94043

(Address of principal executive offices)

(Zip code)

(650) 623-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) YES ¨ NO x

At October 31, 2004, the number of shares outstanding of the registrant’s Class A common stock was 57,857,182 shares and the number of shares outstanding of the registrant’s Class B common stock was 215,558,768 shares.

GOOGLE INC.

Form 10-Q

For the Quarter Ended September 30, 2004

INDEX


		Page No.
	PART I. FINANCIAL INFORMATION

Item 1	Financial Statements

	Consolidated Balance Sheets—September 30, 2004 (unaudited) and December 31, 2003	3

	Consolidated Statements of Income—Three and Nine Months Ended September 30, 2004 and 2003 (unaudited)	4

	Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2004 and 2003 (unaudited)	5

	Notes to Unaudited Consolidated Financial Statements	6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4	Controls and Procedures	54

	PART II. OTHER INFORMATION

Item 1	Legal Proceedings	55

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3	Defaults Upon Senior Securities	56

Item 4	Submission of Matters to a Vote of Security Holders	56

Item 5	Other Information	56

Item 6	Exhibits	56

	Signatures	57

	Exhibit Index	58

	Certifications

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Google Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)


	As of December 31, 2003			As of September 30, 2004
				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	148,995		$	344,469
Short-term investments		185,723			1,513,887
Accounts receivable, net of allowance of $4,670 and $4,559		154,690			233,057
Income taxes receivable		—			115,070
Deferred income taxes		22,105			48,455
Prepaid revenue share, expenses and other assets		48,721			105,273

Total current assets		560,234			2,360,211
Property and equipment, net		188,255			362,609
Goodwill		87,442			101,815
Intangible assets, net		18,114			43,660
Prepaid revenue share, expenses and other assets, non-current		17,413			20,223

Total assets	$	871,458		$	2,888,518

Liabilities, Redeemable Convertible Preferred Stock Warrant and Stockholders’ Equity
Current liabilities:
Accounts payable	$	46,175		$	49,557
Accrued compensation and benefits		33,522			53,841
Accrued expenses and other current liabilities		26,411			44,185
Accrued revenue share		88,672			101,973
Deferred revenue		15,346			21,888
Income taxes payable		20,705			—
Current portion of equipment leases		4,621			3,026

Total current liabilities		235,452			274,470
Long-term portion of equipment leases		1,988			63
Deferred revenue, long-term		5,014			6,344
Liability for stock options exercised early, long-term		6,341			7,206
Deferred income taxes		18,510			—
Other long-term liabilities		1,512			11,412

Commitments and contingencies

Redeemable convertible preferred stock warrant		13,871			—

Stockholders’ equity:
Convertible preferred stock, $0.001 par value, issuable in series: 164,782 and 100,000 shares authorized at December 31, 2003 and September 30, 2004, 71,662 and no shares issued and outstanding at December 31, 2003 and September 30, 2004		44,346			—
Class A and Class B common stock, $0.001 par value: 700,000 and 9,000,000 shares authorized at December 31, 2003 and September 30, 2004, 160,866 and 273,228 shares issued and outstanding, excluding 11,987 and 8,772 shares subject to repurchase at December 31, 2003 and September 30, 2004		161			273
Additional paid-in capital		725,219			2,497,299
Note receivable from officer/stockholder		(4,300	)		—
Deferred stock-based compensation		(369,668	)		(292,690	)
Accumulated other comprehensive income		1,660			(2,230	)
Retained earnings		191,352			386,371

Total stockholders’ equity		588,770			2,589,023

Total liabilities, redeemable convertible preferred stock warrant and stockholders’ equity	$	871,458		$	2,888,518

See accompanying notes.

Google Inc.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2003		2004			2003		2004
	(unaudited)
Revenues	$	393,942	$	805,887		$	953,759	$	2,157,722
Costs and expenses:
Cost of revenues		170,390		362,099			374,986		1,003,874
Research and development		32,774		57,409			62,771		138,190
Sales and marketing		36,575		65,512			79,164		170,193
General and administrative		13,853		40,774			36,415		87,857
Stock-based compensation(1)		73,794		67,981			144,377		219,215
Non-recurring portion of settlement of disputes with Yahoo		—		201,000			—		201,000

Total costs and expenses		327,386		794,775			697,713		1,820,329

Income from operations		66,556		11,112			256,046		337,393
Interest income and other, net		464		3,866			1,183		2,668

Income before income taxes		67,020		14,978			257,229		340,061
Provision (benefit) for income taxes		46,594		(37,005	)		178,835		145,042

Net income	$	20,426	$	51,983		$	78,394	$	195,019

Net income per share:
Basic	$	0.14	$	0.25		$	0.58	$	1.14

Diluted	$	0.08	$	0.19		$	0.31	$	0.73

Number of shares used in per share calculations:
Basic		141,412		205,007			134,820		170,511

Diluted		257,948		274,735			254,664		268,394

(1) Stock-based compensation is allocated as follows (see Note 1):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003		2004			2003		2004
	(unaudited)
Cost of revenues	$	3,008	$	1,996		$	5,821	$	9,618
Research and development		43,878		42,120			82,115		134,222
Sales and marketing		15,819		11,580			30,530		39,156
General and administrative		11,089		12,285			25,911		36,219

	$	73,794	$	67,981		$	144,377	$	219,215

See accompanying notes.

Google Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Nine Months Ended September 30,
	2003			2004
	(unaudited)
Operating activities
Net income	$	78,394		$	195,019
Adjustments:
Depreciation and amortization of property and equipment		28,203			85,620
Amortization of intangibles and warrants		8,975			10,393
In-process research and development		11,618			950
Stock-based compensation		144,377			219,215
Tax benefits from exercise of warrants		—			144,971
Non-recurring portion of settlement of disputes with Yahoo		—			201,000
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(54,574	)		(78,361	)
Income taxes, net		8,120			(182,415	)
Prepaid revenue share, expenses and other assets		(29,156	)		(54,134	)
Accounts payable		35,175			3,369
Accrued expenses and other liabilities		15,545			42,148
Accrued revenue share		57,991			13,301
Deferred revenue		4,234			7,871

Net cash provided by operating activities		308,902			608,947

Investing activities
Purchases of property and equipment		(120,310	)		(259,915	)
Purchases of short-term investments		(105,229	)		(2,877,309	)
Maturities and sales of short-term investments		130,149			1,548,334
Purchases of other investments		—			(4,999	)
Acquisitions, net of cash acquired		(39,958	)		(10,833	)

Net cash used in investing activities		(135,348	)		(1,604,722	)

Financing activities
Proceeds from exercise of stock options, net		10,649			10,159
Proceeds from exercise of warrants	&nb

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