Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity

Note 13.    Stockholders’ Equity

Convertible Preferred Stock

Our board of directors has authorized 100,000,000 shares of convertible preferred stock, $0.001 par value, issuable in series. At December 31, 2010 and December 31, 2011, there were no shares issued or outstanding.

Class A and Class B Common Stock

Our board of directors has authorized two classes of common stock, Class A and Class B. At December 31, 2011, there were 6,000,000,000 and 3,000,000,000 shares authorized and there were 257,552,401 and 67,342,362 shares outstanding of Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted at any time at the option of the stockholder and automatically convert upon sale or transfer to Class A common stock. We refer to Class A and Class B common stock as common stock throughout the notes to these financial statements, unless otherwise noted.

Stock Plans

We maintain the 1998 Stock Plan, the 2000 Stock Plan, the 2003 Stock Plan, the 2003 Stock Plan (No. 2), the 2003 Stock Plan (No. 3), the 2004 Stock Plan, and plans assumed through acquisitions, all of which are collectively referred to as the “Stock Plans.” Under our Stock Plans, incentive and nonqualified stock options or rights to purchase common stock may be granted to eligible participants. Options are generally granted for a term of 10 years. Options granted under the Stock Plans other than the 2004 Stock Plan may be exercised prior to vesting. Under the Stock Plans, we have also issued RSUs and restricted shares. An RSU award is an agreement to issue shares of our stock at the time of vest. Except for options granted pursuant to our stock option exchange program completed in March 2009 (the Exchange), options granted and RSUs issued to employees under the Stock Plans generally vest over four years contingent upon employment with us on the vesting date.

At December 31, 2010 and December 31, 2011, there were 27,329,837 and 21,794,492 shares of common stock reserved for future issuance under our Stock Plans.

We estimated the fair value of each option award on the date of grant using the BSM option pricing model. Our assumptions about stock-price volatility have been based exclusively on the implied volatilities of publicly traded options to buy our stock with contractual terms closest to the expected life of options granted to our employees. We estimate the expected term based upon the historical exercise behavior of our employees. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted (excluding options granted in connection with the Exchange discussed below) in the periods presented:

	Year Ended December 31,
	2009			2010			2011
Risk-free interest rate		2.6	%		1.9	%		2.3	%
Expected volatility		37	%		35	%		33	%
Expected life (in years)		5.8			5.4			5.9
Dividend yield		0			0			0
Weighted-average estimated fair value of options granted during the year	$	160.63		$	216.43		$	210.07

The following table summarizes the activities for our options for the year ended December 31, 2011:

	Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in  millions)(1)
Balance at December 31, 2010		11,525,422		$	330.24
Granted		718,091		$	584.80
Exercised		(2,181,355	)	$	284.00
Forfeited/canceled		(254,906	)	$	377.73
Balance at December 31, 2011		9,807,252		$	357.92		5.7	$	2,825
Vested and exercisable as of December 31, 2011		6,244,783		$	314.38		5.4	$	2,070
Vested and exercisable as of December 31, 2011 and expected to vest thereafter(2)		9,437,288		$	354.92		5.7	$	2,746

⁽¹⁾  The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $645.90 of our Class A common stock on December 31, 2011.

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

The following table summarizes additional information regarding outstanding, exercisable, and exercisable and vested stock options at December 31, 2011:

	Options Outstanding						Options Exercisable				Options Exercisable and Vested
Range of Exercise Prices	Number of Shares		Weighted- Average Remaining Life (in years)		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
$0.30–$94.80		297,360		2.6	$	28.06		296,392	$	27.85		278,071	$	24.73
$117.84–$198.41		412,843		2.9	$	179.12		412,843	$	179.12		412,843	$	179.12
$205.96–$298.86		505,760		3.2	$	275.21		502,038	$	275.12		502,038	$	275.12
$300.97–$399.00		5,478,754		5.0	$	309.68		4,012,895	$	309.71		4,012,895	$	309.71
$401.78–$499.07		935,944		6.6	$	439.16		514,417	$	437.28		514,417	$	437.28
$501.27–$595.35		1,892,340		8.4	$	532.44		509,780	$	524.69		509,780	$	524.69
$601.17–$699.35		284,171		9.1	$	610.18		14,659	$	612.09		14,659	$	612.09
$710.84		80		6.0	$	710.84		80	$	710.84		80	$	710.84
$0.30–$710.84		9,807,252		5.7	$	357.92		6,263,104	$	313.68		6,244,783	$	314.38

The above tables include approximately 1.2 million warrants held by selected financial institutions that were options purchased from employees under our TSO program, with a weighted-average exercise price of $336.64 and a weighted-average remaining life of 1.1 years.

During 2011, the number of shares underlying TSOs sold to selected financial institutions under the TSO program was 635,047 at a total value of $167 million, or an average of $262.74 per share, including an average premium of $11.09 per share. The premium is calculated as the difference between (a) the sale price of the TSO and (b) the intrinsic value of the TSO, which we define as the excess, if any, of the price of our Class A common stock at the time of the sale over the exercise price of the TSO.

The total grant date fair value of stock options vested during 2009, 2010, and 2011 was $690 million, $690 million, and $561 million. The aggregate intrinsic value of all options and warrants exercised during 2009, 2010, and 2011 was $566 million, $794 million, and $674 million. These amounts do not include the aggregate sales price of options sold under our TSO program.

As of December 31, 2011, there was $583 million of unrecognized compensation cost related to outstanding employee stock options. This amount is expected to be recognized over a weighted-average period of 2.1 years. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation related to these awards will be different from our expectations.

The following table summarizes the activities for our unvested RSUs for the year ended December 31, 2011:

	Unvested Restricted Stock Units
	Number of     Shares			Weighted- Average Grant-Date Fair Value
Unvested at December 31, 2010		6,671,971		$	509.04
Granted		5,260,421		$	531.20
Vested		(2,691,549	)	$	516.22
Forfeited/canceled		(418,195	)	$	538.01
Unvested at December 31, 2011		8,822,648		$	520.27
Expected to vest after December 31, 2011(1)		7,903,328		$	520.27

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

As of December 31, 2011, there was $3,727 million of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of 2.9 years. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation related to these awards will be different from our expectations.