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
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) 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
| Page No. | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1 |
||||
| Consolidated Balance Sheets—September 30, 2004 (unaudited) and December 31, 2003 |
3 | |||
| 4 | ||||
| Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2004 and 2003 (unaudited) |
5 | |||
| 6 | ||||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | ||
| Item 3 |
53 | |||
| Item 4 |
54 | |||
| PART II. OTHER INFORMATION | ||||
| Item 1 |
55 | |||
| Item 2 |
55 | |||
| Item 3 |
56 | |||
| Item 4 |
56 | |||
| Item 5 |
56 | |||
| Item 6 |
56 | |||
| 57 | ||||
| 58 | ||||
2
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
| As of 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.
3
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.
4
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 | ) | ||||