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EXPLANATORY NOTE:
WE HAVE MODIFIED THIS VERSION OF THE PRESS RELEASE.
On October 28, 2008, we announced a settlement agreement with the Authors Guild
and the Association of American Publishers ("AAP"). If this agreement is approved we
will make payments totaling approximately $125 million. For accounting purposes, $95.1
million of this amount was expensed in the quarter ended September 30, 2008 (the
related tax benefit recognized was $38.9 million) and $29.9 million will be amortized
over its estimated useful life.
As a result, we have updated the affected financial data in this release, as
noted, as well as the accompanying financial tables.
MOUNTAIN VIEW, Calif. - October 16, 2008 - Google Inc. (NASDAQ: GOOG) today announced
financial results for the quarter ended September 30, 2008.
"We had a good third quarter with strong traffic and revenue growth across all of our
major geographies thanks to the underlying strength of our core search and ads
business. The measurability and ROI of search-based advertising remain key assets for
Google," said Eric Schmidt, CEO of Google. "While we are realistic about the poor state
of the global economy, we will continue to manage Google for the long term, driving
improvements to search and ads, while also investing in future growth areas such as
enterprise, mobile, and display."
Q3 Financial Summary
Google reported revenues of $5.54 billion for the quarter ended September 30, 2008, an
increase of 31% compared to the third quarter of 2007 and an increase of 3% compared to
the second quarter of 2008. Google reports its revenues, consistent with GAAP, on a
gross basis without deducting traffic acquisition costs (TAC). In the third quarter of
2008, TAC totaled $1.50 billion, or 28% of advertising revenues.
Google reports operating income, net income, and earnings per share (EPS) on a GAAP and
non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative
non-GAAP measure of liquidity, are described below and are reconciled to the
corresponding GAAP measures in the accompanying financial tables.
- GAAP operating income for the third quarter of 2008 was $1.65 billion, or 30% of
revenues [updated from $1.74 billion, or 31% of revenues]. This
compares to GAAP operating income of $1.58 billion, or 29% of revenues, in the second
quarter of 2008. Non-GAAP operating income in the third quarter of 2008 was $2.02
billion, or 37% of revenues. This compares to non-GAAP operating income of $1.85
billion, or 34% of revenues, in the second quarter of 2008.
- GAAP net income for the third quarter of 2008 was $1.29 billion [updated
from $1.35 billion] as compared to $1.25 billion in the second quarter of
2008. Non-GAAP net income in the third quarter of 2008 was $1.56 billion, compared to
$1.47 billion in the second quarter of 2008.
- GAAP EPS for the third quarter of 2008 was $4.06 [updated from
$4.24] on 318 million diluted shares outstanding, compared to $3.92 for the
second quarter of 2008 on 318 million diluted shares outstanding. Non-GAAP EPS in the
third quarter of 2008 was $4.92, compared to $4.63 in the second quarter of 2008.
- Non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, and
non-GAAP EPS are computed net of stock-based compensation (SBC). In the third quarter
of 2008, the charge related to SBC was $280 million as compared to $273 million in the
second quarter of 2008. Tax benefits related to SBC have also been excluded from
non-GAAP net income and non-GAAP EPS. The tax benefit related to SBC was $63 million in
the third quarter of 2008 and $48 million in the second quarter of 2008.
Reconciliations of non-GAAP measures to GAAP operating income, operating margin, net
income, and EPS are included at the end of this release.
Q3 Financial Highlights
Revenues - Google reported revenues of $5.54 billion for the quarter
ended September 30, 2008, representing a 31% increase over third quarter 2007 revenues
of $4.23 billion and a 3% increase over second quarter 2008 revenues of $5.37 billion.
Google reports its revenues, consistent with GAAP, on a gross basis without deducting
TAC.
Google Sites Revenues - Google-owned sites generated
revenues of $3.67 billion, or 67% of total revenues, in the third quarter of 2008. This
represents a 34% increase over third quarter 2007 revenues of $2.73 billion and a 4%
increase over second quarter 2008 revenues of $3.53 billion.
Google Network Revenues - Google's partner sites
generated revenues, through AdSense programs, of $1.68 billion, or 30% of total
revenues, in the third quarter of 2008. This represents a 15% increase over network
revenues of $1.45 billion generated in the third quarter of 2007 and a 1% increase over
second quarter 2008 revenues of $1.66 billion.
International Revenues - Revenues from outside of the United States
totaled $2.85 billion, representing 51% of total revenues in the third quarter of 2008,
compared to 48% in the third quarter of 2007 and 52% in the second quarter of 2008. Had
foreign exchange rates remained constant from the second quarter of 2008 through the
third quarter of 2008, our revenues in the third quarter of 2008 would have been $59
million higher. Had foreign exchange rates remained constant from the third quarter of
2007 through the third quarter of 2008, our revenues in the third quarter of 2008 would
have been $168 million lower.
In the third quarter, we recognized a benefit of $34 million to revenue through our
foreign exchange risk management program.
Revenues from the United Kingdom totaled $776 million, representing 14% of revenue in
the third quarter of 2008, compared to 16% in the third quarter of 2007 and 14% in the
second quarter of 2008.
Paid Clicks - Aggregate paid clicks, which include clicks related to
ads served on Google sites and the sites of our AdSense partners, increased
approximately 18% over the third quarter of 2007 and increased approximately 4% over
the second quarter of 2008.
TAC - Traffic Acquisition Costs, the portion of revenues shared with
Google's partners, increased to $1.50 billion in the third quarter of 2008. This
compares to TAC of $1.47 billion in the second quarter of 2008. TAC as a percentage of
advertising revenues was 28% in the third quarter, compared to 28% in the second
quarter of 2008.
The majority of TAC expense is related to amounts ultimately paid to our AdSense
partners, which totaled $1.33 billion in the third quarter of 2008. TAC is also related
to amounts ultimately paid to certain distribution partners and others who direct
traffic to our website, which totaled $167 million in the third quarter of 2008.
Other Cost of Revenues - Other cost of revenues, which is comprised
primarily of data center operational expenses, amortization of intangible assets,
content acquisition costs as well as credit card processing charges, increased to $678
million, or 12% of revenues, in the third quarter of 2008, compared to $674 million, or
13% of revenues, in the second quarter of 2008.
Operating Expenses - Operating expenses, other than cost of revenues,
were $1.72 billion [updated from $1.63 billion] in the third quarter
of 2008, or 31% [updated from 29%] of revenues, compared to $1.64
billion in the second quarter of 2008, or 31% of revenues. The operating expenses in
the third quarter of 2008 included $859 million in payroll-related and facilities
expenses, compared to $810 million in the second quarter of 2008.
Stock-Based Compensation (SBC) - In the third quarter of 2008, the
total charge related to SBC was $280 million as compared to $273 million in the second
quarter of 2008.
We currently estimate stock-based compensation charges for grants to employees prior to
October 1, 2008 to be approximately $1.1 billion for 2008. This does not include
expenses to be recognized related to employee stock awards that are granted after
October 1, 2008 or non-employee stock awards that have been or may be granted.
Operating Income - GAAP operating income in the third quarter of 2008
was $1.65 billion, or 30% of revenues [updated from $1.74 billion, or 31% of
revenues]. This compares to GAAP operating income of $1.58 billion, or 29% of
revenues, in the second quarter of 2008. Non-GAAP operating income in the third quarter
of 2008 was $2.02 billion, or 37% of revenues. This compares to non-GAAP operating
income of $1.85 billion, or 34% of revenues, in the second quarter of 2008.
Interest Income and Other, Net - Interest income and other was $21
million in the third quarter of 2008, compared with $58 million in the second quarter
of 2008. The decrease was primarily related to an increase in expenses substantially
due to more activity under our foreign exchange risk management program. The cost of
the options used to manage our foreign exchange risk is amortized on a mark-to-market
basis. As a result, the amount of amortization expense we recognize in any particular
quarter is impacted by how much the option moves into or out of the money, as well as
the underlying currency's volatility.
Net Income - GAAP net income for the third quarter of 2008 was $1.29
billion [updated from $1.35 billion] as compared to $1.25 billion in
the second quarter of 2008. Non-GAAP net income was $1.56 billion in the third quarter
of 2008, compared to $1.47 billion in the second quarter of 2008. GAAP EPS for the
third quarter of 2008 was $4.06 [updated from $4.24] on 318 million
diluted shares outstanding, compared to $3.92 for the second quarter of 2008, on 318
million diluted shares outstanding. Non-GAAP EPS for the third quarter of 2008 was
$4.92, compared to $4.63 in the second quarter of 2008.
Income Taxes - Our effective tax rate was 23% [updated from
24%] for the third quarter of 2008.
Cash Flow and Capital Expenditures - Net cash provided by operating
activities for the third quarter of 2008 totaled $2.18 billion as compared to $1.77
billion for the second quarter of 2008. In the third quarter of 2008, capital
expenditures were $452 million, the majority of which was related to IT infrastructure
investments, including data centers, servers, and networking equipment. Free cash flow,
an alternative non-GAAP measure of liquidity, is defined as net cash provided by
operating activities less capital expenditures. In the third quarter of 2008, free cash
flow was $1.73 billion.
We expect to continue to make significant capital expenditures.
A reconciliation of free cash flow to net cash provided by operating activities, the
GAAP measure of liquidity, is included at the end of this release.
Cash - As of September 30, 2008, cash, cash equivalents, and
marketable securities were $14.4 billion.
On a worldwide basis, Google employed 20,123 full-time employees as of September 30,
2008, up from 19,604 full-time employees as of June 30, 2008.
WEBCAST AND CONFERENCE CALL INFORMATION
A live audio webcast of Google's third quarter 2008 earnings release call will be
available at http://investor.google.com/webcast.html. The
call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial
tables, as well as other supplemental information including the reconciliations of
certain non-GAAP measures to their nearest comparable GAAP measures, are also available
at that site. A replay of the call will be available beginning at 7:30 PM (ET) today
through midnight Thursday, October 23, 2008 by calling 888-203-1112 in the United
States or 719-457-0820 for calls from outside the United States. The required
confirmation code for the replay is 6417802.
FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements that involve risks and
uncertainties. These statements include statements relating to our expected stock-based
compensation charges and our plans to make significant capital expenditures. Actual
results may differ materially from the results predicted and reported results should
not be considered as an indication of future performance. The potential risks and
uncertainties that could cause actual results to differ from the results predicted
include, among others, unforeseen changes in our hiring patterns and our need to expend
capital to accommodate the growth of the business, as well as those risks and
uncertainties included under the captions "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," in our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2008, which is on file with the SEC and is
available on our investor relations website at investor.google.com and on the SEC
website at www.sec.gov. Additional information will also be set forth in our report on
Form 10-Q for the quarter ended September 30, 2008, which will be filed with the SEC in
November 2008. All information provided in this release and in the attachments is as of
October 16, 2008, and Google undertakes no duty to update this information.
ABOUT NON-GAAP FINANCIAL MEASURES
To supplement our consolidated financial statements, which statements are prepared and
presented in accordance with GAAP, we use the following non-GAAP financial measures:
non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP EPS
and free cash flow. The presentation of this financial information is not intended to
be considered in isolation or as a substitute for, or superior to, the financial
information prepared and presented in accordance with GAAP. For more information on
these non-GAAP financial measures, please see the tables captioned "Reconciliations of
non-GAAP results of operations measures to the nearest comparable GAAP measures" and
"Reconciliation from net cash provided by operating activities to free cash flow"
included at the end of this release.
We use these non-GAAP financial measures for financial and operational decision making
and as a means to evaluate period-to-period comparisons. Our management believes that
these non-GAAP financial measures provide meaningful supplemental information regarding
our performance and liquidity by excluding certain expenses and expenditures that may
not be indicative of our "recurring core business operating results," meaning our
operating performance excluding not only non-cash charges, such as stock-based
compensation, but also discrete cash charges that are infrequent in nature. We believe
that both management and investors benefit from referring to these non-GAAP financial
measures in assessing our performance and when planning, forecasting and analyzing
future periods. These non-GAAP financial measures also facilitate management's internal
comparisons to our historical performance and liquidity as well as comparisons to our
competitors' operating results. We believe these non-GAAP financial measures are useful
to investors both because (1) they allow for greater transparency with respect to key
metrics used by management in its financial and operational decision making and (2)
they are used by our institutional investors and the analyst community to help them
analyze the health of our business.
Non-GAAP operating income and operating margin. We define non-GAAP operating
income as operating income plus stock-based compensation. Non-GAAP operating margin is
defined as non-GAAP operating income divided by revenues. Google considers these
non-GAAP financial measures to be useful metrics for management and investors because
they exclude the effect of stock-based compensation so that Google's management and
investors can compare Google's recurring core business operating results over multiple
periods. Because of varying available valuation methodologies, subjective assumptions
and the variety of award types that companies can use under FAS 123R, Google's
management believes that providing a non-GAAP financial measure that excludes
stock-based compensation allows investors to make meaningful comparisons between
Google's recurring core business operating results and those of other companies, as
well as providing Google's management with an important tool for financial and
operational decision making and for evaluating Google's own recurring core business
operating results over different periods of time. There are a number of limitations
related to the use of non-GAAP operating income versus operating income calculated in
accordance with GAAP. First, non-GAAP operating income excludes some costs, namely,
stock-based compensation, that are recurring. Stock-based compensation has been and
will continue to be for the foreseeable future a significant recurring expense in
Google's business. Second, stock-based compensation is an important part of our
employees' compensation and impacts their performance. Third, the components of the
costs that we exclude in our calculation of non-GAAP operating income may differ from
the components that our peer companies exclude when they report their results of
operations. Management compensates for these limitations by providing specific
information regarding the GAAP amounts excluded from non-GAAP operating income and
evaluating non-GAAP operating income together with operating income calculated in
accordance with GAAP.
Non-GAAP net income and EPS. We define non-GAAP net income as net income plus
stock-based compensation, less the related tax effects. We define non-GAAP EPS as
non-GAAP net income divided by the weighted average shares, on a fully-diluted basis,
outstanding as of September 30, 2008. We consider these non-GAAP financial measures to
be a useful metric for management and investors for the same reasons that Google uses
non-GAAP operating income and non-GAAP operating margin. However, in order to provide a
complete picture of our recurring core business operating results, we exclude from
non-GAAP net income and non-GAAP EPS the tax effects associated with stock-based
compensation. Without excluding these tax effects, investors would only see the gross
effect that excluding these expenses had on our operating results. The same limitations
described above regarding Google's use of non-GAAP operating income and non-GAAP
operating margin apply to our use of non-GAAP net income and non-GAAP EPS. Management
compensates for these limitations by providing specific information regarding the GAAP
amounts excluded from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net
income and non-GAAP EPS together with net income and EPS calculated in accordance with
GAAP.
Free cash flow. We define free cash flow as net cash provided by operating
activities minus capital expenditures. We consider free cash flow to be a liquidity
measure that provides useful information to management and investors about the amount
of cash generated by the business that, after the acquisition of property and
equipment, including information technology infrastructure and land and buildings, can
be used for strategic opportunities, including investing in our business, making
strategic acquisitions and strengthening the balance sheet. Analysis of free cash flow
also facilitates management's comparisons of our operating results to competitors'
operating results. A limitation of using free cash flow versus the GAAP measure of net
cash provided by operating activities as a means for evaluating Google is that free
cash flow does not represent the total increase or decrease in the cash balance from
operations for the period since it excludes cash used for capital expenditures during
the period. Our management compensates for this limitation by providing information
about our capital expenditures on the face of the cash flow statement and under
Management's Discussion and Analysis of Financial Condition and Results of Operations
in our Form 10-Q and Annual Report on Form 10-K. Google has computed free cash flow
using the same consistent method from quarter to quarter and year to year.
The accompanying tables have more details on the GAAP financial measures that are most
directly comparable to non-GAAP financial measures and the related reconciliations
between these financial measures.
Google Inc.
Consolidated Balance Sheets
(In thousands)
|
|
|
|
|
|
|
|
|
December 31,
2007 *
|
|
September 30,
2008
|
|
|
|
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ 6,081,593
|
|
$ 8,370,469
|
|
Marketable securities
|
|
8,137,020
|
|
6,042,140
|
|
Accounts receivable, net of allowance
|
|
2,162,521
|
|
2,541,492
|
|
Deferred income taxes, net
|
|
68,538
|
|
111,401
|
|
Income taxes receivable
|
|
145,253
|
|
-
|
|
Prepaid revenue share, expenses and other assets
|
|
694,213
|
|
897,349
|
|
|
|
|
|
|
|
Total current assets
|
|
17,289,138
|
|
17,962,851
|
|
|
|
Prepaid revenue share, expenses and other assets, non-current
|
|
168,530
|
|
456,378
|
|
Deferred income taxes, net, non-current
|
|
33,219
|
|
204,319
|
|
Non-marketable equity securities
|
|
1,059,694
|
|
1,100,896
|
|
Property and equipment, net
|
|
4,039,261
|
|
5,213,167
|
|
Intangible assets, net
|
|
446,596
|
|
1,047,717
|
|
Goodwill
|
|
2,299,368
|
|
4,821,646
|
|
|
|
|
|
|
|
Total assets
|
|
$ 25,335,806
|
|
$ 30,806,974
|
|
|
|
Liabilities and Stockholders' Equity
|
|
Current liabilities:
|
|
|
Accounts payable
|
|
$ 282,106
|
|
$ 240,706
|
|
Accrued compensation and benefits
|
|
588,390
|
|
622,658
|
|
Accrued expenses and other current liabilities
|
|
465,032
|
|
544,627
|
|
Accrued revenue share
|
|
522,001
|
|
515,949
|
|
Deferred revenue
|
|
178,073
|
|
200,378
|
|
Income taxes payable
|
|
-
|
|
99,959
|
|
|
|
|
|
|
|
Total current liabilities
|
|
2,035,602
|
|
2,224,277
|
|
|
|
|
|
|
|
Deferred revenue, non-current
|
|
30,249
|
|
29,992
|
|
Deferred income taxes, net, non-current
|
|
-
|
|
20,420
|
|
Income taxes payable, non-current
|
|
478,372
|
|
783,348
|
|
Other long-term liabilities
|
|
101,904
|
|
274,075
|
|
|
|
Stockholders' equity:
|
|
|
Common stock
|
|
313
|
|
315
|
|
Additional paid-in capital
|
|
13,241,221
|
|
14,194,197
|
|
Accumulated other comprehensive income
|
|
113,373
|
|
101,162
|
|
Retained earnings
|
|
9,334,772
|
|
13,179,188
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
22,689,679
|
|
27,474,862
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$ 25,335,806
|
|
$ 30,806,974
|
*Derived from audited financial statements.
|
Google Inc.
Consolidated Statements of Income
(In thousands, except per share amounts, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
|
|
(unaudited)
|
|
Revenues
|
|
$ 4,231,351
|
|
$ 5,541,391
|
|
$ 11,767,307
|
|
$ 16,094,646
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of revenues (including stock-based compensation expense of $4,031, $10,729,
$16,080, $29,240)
|
|
1,662,579
|
|
2,173,390
|
|
4,693,261
|
|
6,431,501
|
|
Research and development (including stock-based compensation expense of $130,655,
$169,263, $408,425, $550,343)
|
|
548,712
|
|
704,571
|
|
1,489,202
|
|
2,059,851
|
|
Sales and marketing (including stock-based compensation expense of $29,918,
$64,497, $93,553, $149,666)
|
|
380,820
|
|
508,801
|
|
1,038,976
|
|
1,440,252
|
|
General and administrative (including stock-based compensation expense of $33,352,
$35,550, $105,288, $104,345)
|
|
321,398
|
|
507,064
|
|
902,202
|
|
1,391,278
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
2,913,509
|
|
3,893,826
|
|
8,123,641
|
|
11,322,882
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
1,317,842
|
|
1,647,565
|
|
3,643,666
|
|
4,771,764
|
|
Interest income and other, net
|
|
154,428
|
|
21,217
|
|
422,287
|
|
246,485
|
|
Income before income taxes
|
|
1,472,270
|
|
1,668,782
|
|
4,065,953
|
|
5,018,249
|
|
Provision for income taxes
|
|
402,281
|
|
378,844
|
|
1,068,682
|
|
1,173,833
|
|
Net income
|
|
$ 1,069,989
|
|
$ 1,289,938
|
|
$ 2,997,271
|
|
$ 3,844,416
|
|
Net income per share - basic
|
|
$ 3.44
|
|
$ 4.10
|
|
$ 9.66
|
|
$ 12.25
|
|
Net income per share - diluted
|
|
$ 3.38
|
|
$ 4.06
|
|
$ 9.50
|
|
$ 12.10
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculation - basic
|
|
311,221
|
|
314,241
|
|
310,324
|
|
313,729
|
|
Shares used in per share calculation - diluted
|
|
316,576
|
|
317,776
|
|
315,638
|
|
317,730
|
|
|
|
|
|
|
|
|
|
|
Google Inc.
Consolidated Statements of Cash Flows
(In thousands,
unaudited)
|
|
|
|
|
|
|
|
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|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
|
|
(unaudited)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ 1,069,989
|
|
$ 1,289,938
|
|
$ 2,997,271
|
|
$ 3,844,416
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
207,415
|
|
309,482
|
|
565,841
|
|
898,762
|
|
Amortization of intangibles and other
|
|
41,960
|
|
76,764
|
|
111,881
|
|
215,615
|
|
Stock-based compensation
|
|
197,956
|
|
280,039
|
|
623,346
|
|
833,594
|
|
Excess tax benefits from stock-based award activity
|
|
(58,762)
|
|
(19,791)
|
|
(238,577)
|
|
(114,770)
|
|
Deferred income taxes
|
|
(2,079)
|
|
(18,707)
|
|
(184,520)
|
|
(124,597)
|
|
Other, net
|
|
(7,180)
|
|
10,169
|
|
(7,215)
|
|
(14,488)
|
|
Changes in assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(234,391)
|
|
78,049
|
|
(559,425)
|
|
(218,326)
|
|
Income taxes, net
|
|
99,720
|
|
24,314
|
|
615,568
|
|
552,673
|
|
Prepaid revenue share, expenses and
other assets
|
|
(29,738)
|
|
12,844
|
|
(237,262)
|
|
(169,959)
|
|
Accounts payable
|
|
94,817
|
|
(191,402)
|
|
20,155
|
|
(152,165)
|
|
Accrued expenses and other
liabilities
|
|
185,641
|
|
310,133
|
|
206,522
|
|
162,882
|
|
Accrued revenue share
|
|
54,294
|
|
12,017
|
|
136,446
|
|
(4,433)
|
|
Deferred revenue
|
|
13,001
|
|
11,106
|
|
32,131
|
|
21,354
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
1,632,643
|
|
2,184,955
|
|
4,082,162
|
|
5,730,558
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(552,640)
|
|
(451,503)
|
|
(1,724,631)
|
|
(1,990,617)
|
|
Purchases of marketable securities
|
|
(4,412,277)
|
|
(2,892,983)
|
|
(11,756,147)
|
|
(7,814,293)
|
|
Maturities and sales of marketable securities
|
|
4,501,783
|
|
2,218,344
|
|
11,519,001
|
|
9,634,903
|
|
Investments in non-marketable equity securities
|
|
(11,000)
|
|
(35,377)
|
|
(21,288)
|
|
(44,869)
|
|
Acquisitions, net of cash acquired and proceeds received from divestiture, and
purchases of intangible and other assets
|
|
(615,552)
|
|
24,562
|
|
(823,092)
|
|
(3,287,708)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(1,089,686)
|
|
(1,136,957)
|
|
(2,806,157)
|
|
(3,502,584)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
Net proceeds (payments) related to stock-based award activity
|
|
(9,751)
|
|
(15,506)
|
|
19,073
|
|
(38,252)
|
|
Excess tax benefits from stock-based award activity
|
|
58,762
|
|
19,791
|
|
238,577
|
|
114,770
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
49,011
|
|
4,285
|
|
257,650
|
|
76,518
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
20,784
|
|
(45,350)
|
|
28,078
|
|
(15,616)
|
|
Net increase in cash and cash equivalents
|
|
612,752
|
|
1,006,933
|
|
1,561,733
|
|
2,288,876
|
|
Cash and cash equivalents at beginning of period
|
|
4,493,652
|
|
7,363,536
|
|
3,544,671
|
|
6,081,593
|
|
Cash and cash equivalents at end of period
|
|
$ 5,106,404
|
|
$ 8,370,469
|
|
$ 5,106,404
|
|
$ 8,370,469
|
|
Reconciliations of non-GAAP results of operations measures to the nearest
comparable GAAP measures
The following table presents certain non-GAAP results before certain material items (in
thousands, except per share amounts, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008
|
|
Three months ended September 30, 2008
|
|
|
|
GAAP Actual
|
|
Operating Margin (a)
|
|
Adjustments
|
|
Non-GAAP Results
|
|
Non-GAAP Operating Margin (b)
|
|
GAAP Actual
|
|
Operating Margin (a)
|
|
Adjustments
|
|
Non-GAAP Results
|
|
Non-GAAP Operating Margin (b)
|
|
|
|
|
|
|
|
272,776
|
(c)
|
|
|
|
|
|
|
|
|
280,039
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,100
|
(f)
|
|
|
|
|
Income from operations
|
|
$ 1,577,965
|
|
29.4%
|
|
$ 272,776
|
|
$ 1,850,741
|
|
34.5%
|
|
$ 1,647,565
|
|
29.7%
|
|
$ 375,139
|
|
$ 2,022,704
|
|
36.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
272,776
|
(c)
|
|
|
|
|
|
|
|
|
280,039
|
(d)
|
|
|
|
|
|
|
|
|
|
|
(47,764)
|
(e)
|
|
|
|
|
|
|
|
|
(63,100)
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,100
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,871)
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ 1,247,391
|
|
|
|
$ 225,012
|
|
$ 1,472,403
|
|
|
|
$ 1,289,938
|
|
|
|
$ 273,168
|
|
$ 1,563,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - diluted
|
|
$ 3.92
|
|
|
|
|
|
$ 4.63
|
|
|
|
$ 4.06
|
|
|
|
|
|
$ 4.92
|
|
|
|
Shares used in per share calculation - diluted
|
|
318,023
|
|
|
|
|
|
318,023
|
|
|
|
317,776
|
|
|
|
|
|
317,776
|
|
|
(a) Operating margin is defined as income from operations divided by revenues.
(b) Non-GAAP operating margin is defined as non-GAAP income from operations divided by
revenues.
(c) To eliminate $272.8 million of stock-based compensation charges recorded in the
second quarter of 2008.
(d) To eliminate $280.0 million of stock-based compensation charges recorded in the third
quarter of 2008.
(e) To eliminate income tax effects related to charges noted in (c) and (d).
(f) To eliminate $95.1 million of expense related to the settlement agreement with the
Authors Guild and the Association of American Publishers.
(g) To eliminate income tax effects related to the charge noted in (f).
Reconciliation from net cash provided by operating activities to free cash flow
(in thousands, unaudited):
|
|
|
|
|
|
|
Three months ended
September 30, 2008
|
|
Net cash provided by operating activities
|
|
$ 2,184,955
|
|
Less purchases of property and equipment
|
|
(451,503)
|
|
Free cash flow
|
|
$ 1,733,452
|
|
Net cash used by investing activities*
|
|
$ (1,136,957)
|
|
Net cash provided by financing activities
|
|
$ 4,285
|
*includes purchases of property and equipment
The following table presents our revenues, by revenue source, for the periods
presented (in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Advertising revenues:
|
|
|
|
|
|
|
|
|
|
Google web sites
|
|
$ 2,734,756
|
|
$ 3,672,111
|
|
$ 7,503,167
|
|
$ 10,602,660
|
|
Google Network web sites
|
|
1,454,721
|
|
1,679,861
|
|
4,152,102
|
|
5,021,283
|
|
Total advertising revenues
|
|
4,189,477
|
|
5,351,972
|
|
11,655,269
|
|
15,623,943
|
|
Licensing and other revenues
|
|
41,874
|
|
189,419
|
|
112,038
|
|
470,703
|
|
Revenues
|
|
|
|
|
|
|
|
|
The following table presents our revenues, by revenue source, as a percentage of
total revenues for the periods presented (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Advertising revenues:
|
|
|
|
|
|
|
|
|
|
Google web sites
|
|
65%
|
|
67%
|
|
64%
|
|
66%
|
|
Google Network web sites
|
|
34%
|
|
30%
|
|
35%
|
|
31%
|
|
Total advertising revenues
|
|
99%
|
|
97%
|
|
99%
|
|
97%
|
|
Licensing and other revenues
|
|
1%
|
|
3%
|
|
1%
|
|
3%
|
|
Revenues
|
|
100%
|
|
100%
|
|
100%
|
|
100%
|
