10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

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, 2005

 

OR

 

¨ 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) 253-4000

(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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No   x

 

At October 31, 2005, the number of shares outstanding of Google’s Class A common stock was 199,502,630 shares and the number of shares outstanding of Google’s Class B common stock was 96,045,503 shares.

 

Table of Contents

GOOGLE INC.

INDEX

 

          Page No.
     PART I. FINANCIAL INFORMATION     
Item 1    Financial Statements     
    

Condensed Consolidated Balance Sheets—December 31, 2004 and September 30, 2005 (unaudited)

    3
    

Condensed Consolidated Statements of Income—Three and Nine Months Ended September 30, 2004 and 2005 (unaudited)

    4
    

Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2004 and 2005 (unaudited)

    5
    

Notes to Unaudited Condensed Consolidated Financial Statements

    6
Item 2    Management’s Discussion and Analysis of Financial Condition and Results of Operations    14
Item 3    Quantitative and Qualitative Disclosures About Market Risk    45
Item 4    Controls and Procedures    45
     PART II. OTHER INFORMATION     
Item 1    Legal Proceedings    47
Item 2    Unregistered Sales of Equity Securities and Use of Proceeds    47
Item 6    Exhibits    48
     Signatures    49
     Exhibit Index    50
     Certifications     

 

2

Table of Contents

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

GOOGLE INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

    

As of

December 31,

2004

    

As of

September 30,

2005

  
           (unaudited)  

Assets

                 

Current assets:

                 

Cash and cash equivalents

    $ 426,873     $ 5,518,569  

Marketable securities

      1,705,424       2,111,578  

Accounts receivable, net of allowance of $3,962 and $7,926

      311,836       541,815  

Income taxes receivable

      70,509       —    

Deferred income taxes

      19,463       18,275  

Prepaid revenue share, expenses and other assets

      159,360       192,448  
    
 

Total current assets

      2,693,465       8,382,685  

Property and equipment, net

      378,916       803,078  

Goodwill

      122,818       171,397  

Intangible assets, net

      71,069       57,206  

Deferred income taxes, non-current

      11,590       —    

Prepaid revenue share, expenses and other assets, non-current

      35,493       36,635  
    
 

Total assets

    $ 3,313,351     $ 9,451,001  
    
 

Liabilities and Stockholders’ Equity

                 

Current liabilities:

                 

Accounts payable

    $ 32,672     $ 87,346  

Accrued compensation and benefits

      82,631       117,416  

Accrued expenses and other current liabilities

      64,111       98,620  

Accrued revenue share

      122,544       174,712  

Deferred revenue

      36,508       55,654  

Income taxes payable

      —         26,090  

Current portion of equipment leases

      1,902       10  
    
 

Total current liabilities

      340,368       559,848  

Deferred revenue, long-term

      7,443       9,968  

Liability for stock options exercised early, long-term

      5,982       2,908  

Deferred income taxes, net

      —         37,051  

Other long-term liabilities

      30,502       48,158  

Stockholders’ equity:

                 

Class A and Class B common stock, $0.001 par value: 9,000,000 shares authorized at December 31, 2004 and September 30, 2005, 266,917, and 290,215 shares issued and outstanding, excluding 7,605 and 4,326 shares subject to repurchase at December 31, 2004 and September 30, 2005

      267       290  

Additional paid-in capital

      2,582,352       7,234,487  

Deferred stock-based compensation

      (249,470 )     (142,767 )

Accumulated other comprehensive income

      5,436       17,398  

Retained earnings

      590,471       1,683,660  
    
 

Total stockholders’ equity

      2,929,056       8,793,068  
    
 

Total liabilities and stockholders’ equity

    $ 3,313,351     $ 9,451,001  
    
 

 

See accompanying notes.

 

3

Table of Contents

GOOGLE INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

(in thousands, except per share amounts)

 

    

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

     2004
     2005
    2004
    2005
     (unaudited)

Revenues

    $ 805,887     $ 1,578,456    $ 2,157,722    $ 4,219,468

Costs and expenses:

                             

Cost of revenues

      362,099       653,826      1,003,874      1,796,128

Research and development

      57,409       151,721      138,190      326,906

Sales and marketing

      65,512       104,996      170,193      284,972

General and administrative

      40,774       92,434      87,857      221,268

Stock-based compensation(1)

      67,981       46,308      219,215      142,555

Non-recurring portion of settlement of disputes with Yahoo

      201,000       —        201,000      —  
    
 
  
  

Total costs and expenses

      794,775       1,049,285      1,820,329      2,771,829
    
 
  
  

Income from operations

      11,112       529,171      337,393      1,447,639

Interest income and other, net

      3,866       20,797      2,668      54,205
    
 
  
  

Income before income taxes

      14,978       549,968      340,061      1,501,844

Provision (benefit) for income taxes

      (37,005 )     168,786      145,042      408,655
    
 
  
  

Net income

    $ 51,983     $ 381,182    $ 195,019    $ 1,093,189
    
 
  
  

Net income per share:

                             

Basic

    $ 0.25     $ 1.39    $ 1.14    $ 4.04
    
 
  
  

Diluted

    $ 0.19     $ 1.32    $ 0.73    $ 3.80
    
 
  
  

Number of shares used in per share calculations:

                             

Basic

      205,007       275,130      170,511      270,655
    
 
  
  

Diluted

      274,735       289,673      268,394      287,841
    
 
  
  
(1) Stock-based compensation is allocated as follows (see Note 1):

 

    

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

     2004
    2005
    2004
    2005
     (unaudited)

Cost of revenues

    $ 1,996    $ 1,328    $ 9,618    $ 3,925

Research and development

      42,120      26,072      134,222      82,733

Sales and marketing

      11,580      6,491      39,156      20,549

General and administrative

      12,285      12,417      36,219      35,348
    
  
  
  
     $ 67,981    $ 46,308    $ 219,215    $ 142,555
    
  
  
  

 

See accompanying notes.

 

4

Table of Contents

GOOGLE INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

    

Nine Months Ended

September 30,

  
     2004
     2005
  
     (unaudited)  

Operating activities

                 

Net income

    $ 195,019     $ 1,093,189  

Adjustments:

                 

Depreciation and amortization of property and equipment

      85,620       171,107  

Amortization of intangibles and warrants

      10,393       27,980  

In-process research and development

      950       20,812  

Stock-based compensation

      219,215       142,555  

Tax benefits from stock-based award activity

      144,971       271,700  

Non-recurring portion of settlement of disputes with Yahoo

      201,000       —    

Changes in assets and liabilities, net of effects of acquisitions:

                 

Accounts receivable

      (78,361 )     (225,083 )

Income taxes, net

      (182,415 )     127,835  

Prepaid revenue share, expenses and other assets

      (54,134 )     (24,645 )

Accounts payable

      3,369       54,694  

Accrued expenses and other liabilities

      42,148       66,555  

Accrued revenue share

      13,301       52,577  

Deferred revenue

      7,871       21,712  
    
 

Net cash provided by operating activities

      608,947       1,800,988  
    
 

Investing activities

                 

Purchases of property and equipment

      (259,915 )     (592,386 )

Purchases of marketable securities

      (2,877,309 )     (4,992,995 )

Maturities and sales of marketable securities

      1,548,334       4,627,212  

Purchases of intangible and other assets

      (7,999 )     (10,000 )

Acquisitions, net of cash acquired

      (7,833 )     (41,748 )
    
 

Net cash used in investing activities

      (1,604,722 )     (1,009,917 )
    
 

Financing activities

                 

Proceeds from exercise of stock options, net

      10,159       33,546  

Proceeds from exercise of warrant

      21,944       —    

Net proceeds from public offerings

      1,161,446       4,287,621  

Payment of note receivable from officer/stockholder

      4,300       —    

Payments of principal on capital leases and equipment loans

      (3,521 )     (1,413 )
    
 

Net cash provided by financing activities

      1,194,328       4,319,754  
    
 

Effect of exchange rate changes on cash and cash equivalents