Stockholders' Equity

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Stock Split Effected In Form of Stock Dividend

In April 2012, our board of directors approved amendments to our certificate of incorporation that created a new class of non-voting capital stock (Class C capital stock). The amendments authorized 3 billion shares of Class C capital stock and also increased the authorized shares of Class A common stock from 6 billion to 9 billion. The amendments are reflected in our Fourth Amended and Restated Certificate of Incorporation (New Charter), the adoption of which was approved by stockholders at our 2012 Annual Meeting of Stockholders held on June 21, 2012. In January 2014, our board of directors approved a distribution of shares of the Class C capital stock as a dividend to our holders of Class A and Class B common stock (the Stock Split). The Stock Split had a record date of March 27, 2014 and a payment date of April 2, 2014. 

Share and per share amounts disclosed as of September 30, 2014 and for all other comparative periods have been retroactively adjusted to reflect the effects of the Stock Split. The Class C capital stock has no voting rights, except as required by applicable law. Except as expressly provided in the New Charter, shares of Class C capital stock have the same rights and privileges and rank equally, share ratably and are identical in all other respects to the shares of Class A common stock and Class B common stock as to all matters including dividend and distribution rights.

In 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 first 365 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. The amount of the Possible Adjustment Payment is dependent on the percentage difference that develops, if any, between the volume-weighted average price (VWAP) of Class A and Class C shares during the Lookback Period, as supplied by NASDAQ Data-on-Demand. We cannot reliably predict what, if any, patterns will emerge over time with respect to the relative trading prices of Class A and Class C shares. Had we been obligated to make a payment based on the VWAP of the Class A and Class C shares from April 3, 2014 through September 30, 2014, the monetary value of the Possible Adjustment Payment would have been approximately $607 million as of September 30, 2014.

At the end of the Lookback Period, the Possible Adjustment Payment, if any, will be allocated to the numerator for calculating net income per share of Class C capital stock from net income available to shareholders and any remaining undistributed earnings will be allocated on a pro rata basis to Class A and Class B common stock and Class C capital stock based on the number of shares used in the per share computation for each class of stock. In addition, the dilutive impact of the Possible Adjustment Payment, if any, is included in the weighted-average effect of dilutive securities for Class C capital stock in the three and nine months ended September 30, 2014.

The par value per share of our shares of Class A common stock and Class B common stock remained unchanged at $0.001 per share after the Stock Split. On the effective date of the Stock Split, a transfer between retained earnings and common stock occurred and the amount transferred was equal to the $0.001 par value of the Class C capital stock that was issued. 

Stock-Based Award Activities

The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted in the periods presented. The weighted average estimated fair value of options granted has been retroactively adjusted to reflect the effects the Stock Split:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2014	2013	2014
	(unaudited)		(unaudited)
Risk-free interest rate	N/A	N/A	0.9%	N/A
Expected volatility	N/A	N/A	29%	N/A
Expected life (in years)	N/A	N/A	5.8	N/A
Dividend yield	N/A	N/A	0%	N/A
Weighted-average estimated fair value of options granted during the period	N/A	N/A	$107.20	N/A

There were 0 and 3,142 stock options (adjusted for the effects of the Stock Split) granted during the three and nine months ended September 30, 2013. No options were granted during the three and nine months ended September 30, 2014.

The following table summarizes the activities for our stock options for the nine months ended September 30, 2014 and has been retroactively adjusted to reflect the effects of the Stock Split:

	Options Outstanding
	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)(1)
	(unaudited)
Balance as of December 31, 2013	10,065,726		$	215.50
Granted	0		$	0.00
Exercised	(2,009,381	)	$	202.51
Forfeited/canceled	(484,449	)	$	296.55
Balance as of September 30, 2014	7,571,896		$	214.25	4.6	$	2,792
Exercisable as of September 30, 2014	6,403,498		$	196.89	4.1	$	2,472
Exercisable as of September 30, 2014 and expected to vest thereafter (2)	7,445,592		$	212.64	4.6	$	2,757

⁽¹⁾  The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $588.41 and $577.36 for our Class A common stock and Class C capital stock, respectively, on September 30, 2014.

⁽²⁾  Options expected to vest reflect an estimated forfeiture rate.

As of September 30, 2014, there was $74 million of unrecognized compensation cost related to outstanding Google employee stock options. This amount is expected to be recognized over a weighted-average period of 1.3 years. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation expense related to these awards will be different from our expectations.

The following table summarizes the activities for our unvested restricted stock units (RSUs) for the nine months ended September 30, 2014 and has been retroactively adjusted to reflect the effects of the Stock Split:

	Unvested Restricted Stock Units
	Number of Shares		Weighted- Average Grant-Date Fair Value
	(unaudited)
Unvested as of December 31, 2013	21,953,960		$	359.20
Granted	13,948,683		$	576.56
Vested	(8,022,977	)	$	345.11
Forfeited/canceled	(1,129,258	)	$	369.27
Unvested as of September 30, 2014	26,750,408		$	476.08
Expected to vest after September 30, 2014 (1)	23,858,689		$	476.08

⁽¹⁾  RSUs expected to vest reflect an estimated forfeiture rate.

As of September 30, 2014, there was $10.3 billion of unrecognized compensation cost related to unvested Google employee RSUs. This amount is expected to be recognized over a weighted-average period of 3.0 years. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation expense related to these awards will be different from our expectations.