EX-99.1 2 d426664dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

Google Inc. Announces Third Quarter 2012 Results

MOUNTAIN VIEW, Calif. – October 18, 2012 – Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended September 30, 2012.

PENDING LARRY QUOTE

Q3 Financial Summary

Google Inc. reported consolidated revenues of $14.10 billion for the quarter ended September 30, 2012, an increase of 45% compared to the third quarter of 2011. Google Inc. reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the third quarter of 2012, TAC totaled $2.77 billion, or 26% of advertising revenues.

Operating income, operating margin, net income, and earnings per share (EPS) are reported 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 at the end of this release.

 

   

GAAP operating income in the third quarter of 2012 was $2.74 billion, or 19% of revenues. This compares to GAAP operating income of $3.06 billion, or 31% of revenues, in the third quarter of 2011. Non-GAAP operating income in the third quarter of 2012 was $3.80 billion, or 27% of revenues. This compares to non-GAAP operating income of $3.63 billion, or 37% of revenues, in the third quarter of 2011.

 

   

GAAP net income in the third quarter of 2012 was $2.18 billion, compared to $2.73 billion in the third quarter of 2011. Non-GAAP net income in the third quarter of 2012 was $3.01 billion, compared to $3.18 billion in the third quarter of 2011.

 

   

GAAP EPS in the third quarter of 2012 was $6.53 on 333 million diluted shares outstanding, compared to $8.33 in the third quarter of 2011 on 327 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2012 was $9.03, compared to $9.72 in the third quarter of 2011.

 

   

Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense, as well as restructuring and related charges recorded in our Motorola business. Non-GAAP net income and non-GAAP EPS exclude the expenses noted above, net of the related tax benefits. In the third quarter of 2012, the expense related to SBC and the related tax benefits were $715 million and $155 million compared to $571 million and $116 million in the third quarter of 2011. In the third quarter of 2012, restructuring and related charges recorded in our Motorola business were $349 million, and the related tax benefits were $76 million.


Q3 Financial Highlights

Revenues and other information – On a consolidated basis, Google Inc. revenues for the quarter ended September 30, 2012 was $14.10 billion, an increase of 45% compared to the third quarter of 2011.

 

   

Google Revenues (advertising and other) – Google revenues were $11.53 billion, or 82% of consolidated revenues, in the third quarter of 2012, representing a 19% increase over third quarter 2011 revenues of $9.72 billion.

 

   

Google Sites Revenues – Google-owned sites generated revenues of $7.73 billion, or 67% of total Google revenues, in the third quarter of 2012. This represents a 15% increase over third quarter 2011 Google sites revenues of $6.74 billion.

 

   

Google Network Revenues – Google’s partner sites generated revenues of $3.13 billion, or 27% of total Google revenues, in the third quarter of 2012. This represents a 21% increase from third quarter 2011 Google network revenues of $2.60 billion.

Google International Revenues – Google revenues from outside of the United States totaled $6.11 billion, representing 53% of total Google revenues in the third quarter of 2012, compared to 54% in the second quarter of 2012 and 55% in the third quarter of 2011.

Foreign Exchange Impact on Google Revenues – Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2012 through the third quarter of 2012, our Google revenues in the third quarter of 2012 would have been $136 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2011 through the third quarter of 2012, our Google revenues in the third quarter of 2012 would have been $557 million higher.

 

   

Google revenues from the United Kingdom totaled $1.22 billion, representing 11% of Google revenues in the third quarter of 2012, compared to 11% in the third quarter of 2011.

 

   

In the third quarter of 2012, we recognized a benefit of $62 million to Google revenues through our foreign exchange risk management program, compared to $1 million in the third quarter of 2011.

Reconciliations of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues are included at the end of this release.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 33% over the third quarter of 2011 and increased approximately 6% over the second quarter of 2012.

Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 15% over the third quarter of 2011 and decreased approximately 3% over the second quarter of 2012.

TAC – Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $2.77 billion in the third quarter of 2012, compared to $2.21 billion in the third quarter of 2011. TAC as a percentage of advertising revenues was 26% in the third quarter of 2012, compared to 24% in the third quarter of 2011.

The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.21 billion in the third quarter of 2012. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $556 million in the third quarter of 2012.


   

Motorola Revenues (hardware and other) – Motorola revenues were $2.58 billion ($1.78 billion from the mobile segment and $797 million from the home segment), or 18% of consolidated revenues in the third quarter of 2012.

Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs, credit card processing charges, and manufacturing and inventory-related costs, increased to $3.78 billion, or 27% of revenues, in the third quarter of 2012, compared to $1.17 billion, or 12% of revenues, in the third quarter of 2011.

Operating Expenses – Operating expenses, other than cost of revenues, were $4.81 billion in the third quarter of 2012, or 34% of revenues, compared to $3.28 billion in the third quarter of 2011, or 34% of revenues.

Amortization Expenses – Amortization expenses of acquisition related intangible assets were $317 million for the third quarter of 2012, compared to $126 million in the third quarter of 2011. Of the $317 million, $182 million was as a result of the acquisition of Motorola, of which $109 million was allocated to Google and $73 million was allocated to Motorola.

Stock-Based Compensation (SBC) – In the third quarter of 2012, the total charge related to SBC was $762 million, of which $47 million was restructuring-related, compared to $571 million in the third quarter of 2011.

We currently estimate SBC charges for grants to employees prior to September 30, 2012 to be approximately $2.7 billion for 2012. This estimate does not include expenses to be recognized related to employee stock awards that are granted after September 30, 2012 or non-employee stock awards that have been or may be granted.

Operating Income – On a consolidated basis, GAAP operating income in the third quarter of 2012 was $2.74 billion, or 19% of revenues. This compares to GAAP operating income of $3.06 billion, or 31% of revenues, in the third quarter of 2011. Non-GAAP operating income in the third quarter of 2012 was $3.80 billion, or 27% of revenues. This compares to non-GAAP operating income of $3.63 billion, or 37% of revenues, in the third quarter of 2011.

 

   

Google Operating Income – GAAP operating income for Google was $3.26 billion, or 28% of Google revenues, in the third quarter of 2012. This compares to GAAP operating income of $3.06 billion, or 31% of Google revenues, in the third quarter of 2011. Non-GAAP operating income in the third quarter of 2012 was $3.95 billion, or 34% of Google revenues. This compares to non-GAAP operating income of $3.63 billion in the third quarter of 2011, or 37% of Google revenues.

 

   

Motorola Operating Loss – GAAP operating loss for Motorola was $527 million ($505 million for the mobile segment and $22 million for the home segment), or -20% of Motorola revenues in the third quarter of 2012. Non-GAAP operating loss for Motorola in the third quarter of 2012 was $151 million, or -6% of Motorola revenues.

Interest and Other Income, Net – Interest and other income, net, was $63 million in the third quarter of 2012, compared to $302 million in the third quarter of 2011.

Income Taxes – Our effective tax rate was 22% for the third quarter of 2012.

Net Income – GAAP net income in the third quarter of 2012 was $2.18 billion, compared to $2.73 billion in the third quarter of 2011. Non-GAAP net income was $3.01 billion in the third quarter of 2012, compared to $3.18 billion in the third quarter of 2011. GAAP EPS in the third quarter of 2012 was $6.53 on 333 million diluted shares outstanding, compared to $8.33 in the third quarter of 2011 on 327 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2012 was $9.03, compared to $9.72 in the third quarter of 2011.


Cash Flow and Capital Expenditures – Net cash provided by operating activities in the third quarter of 2012 totaled $4.0 billion, compared to $3.95 billion in the third quarter of 2011. In the third quarter of 2012, capital expenditures were $872 million, the majority of which was for production equipment and facilities-related purchases. 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 2012, free cash flow was $3.13 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, 2012, cash, cash equivalents, and short-term marketable securities were $45.7 billion.

Headcount – On a worldwide basis, we employed 53,546 full-time employees (36,118 in our Google business and 17,428 in our Motorola business) as of September 30, 2012, compared to 54,604 full-time employees as of June 30, 2012.

WEBCAST AND CONFERENCE CALL INFORMATION

A live audio webcast of Google’s third quarter 2012 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 on that site.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties. These statements include statements regarding our continued investments in our core areas of strategic focus, our expected SBC 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 Annual Report on Form 10-K for the year ended December 31, 2011 and our most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, which are on file with the SEC and are 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2012. All information provided in this release and in the attachments is as of October 18, 2012, and we undertake no duty to update this information unless required by law.

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, free cash flow, and non-GAAP international revenues. 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 selected non-GAAP financial measures to the nearest comparable GAAP financial measures,” “Reconciliations of non-GAAP results of operations measures to


the nearest comparable GAAP measures,” “Reconciliation from net cash provided by operating activities to free cash flow,” and “Reconciliation from GAAP international revenues to non-GAAP international revenues” 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 SBC, 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 expenses related to SBC, and, as applicable, other special items. 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 SBC, and as applicable, other special items 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 FASB ASC Topic 718, Google’s management believes that providing a non-GAAP financial measure that excludes SBC 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, SBC, that are recurring. SBC has been and will continue to be for the foreseeable future a significant recurring expense in Google’s business. Second, SBC 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 expenses related to SBC and, as applicable, other special items less the related tax effects. The tax effects of SBC and, as applicable, other special items are calculated using the tax-deductible portion of SBC, and, as applicable, other special items, and applying the entity-specific, U.S. federal and blended state tax rates. We define non-GAAP EPS as non-GAAP net income divided by the weighted average outstanding shares, on a fully-diluted basis. 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 SBC and, as applicable, other special items. 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 less 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 because 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 statement of cash flows and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on 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.

Non-GAAP international revenues. We define non-GAAP international revenues as international revenues excluding the impact of foreign exchange and hedging. Non-GAAP international revenues are calculated by translating current quarter revenues using prior quarter and prior year exchange rates, as well as excluding any hedging gains realized in the current quarter. We consider non-GAAP international revenues as a useful metric as it facilitates management’s internal comparison to our historical performance.

The accompanying tables have more details on the non-GAAP financial measures that are most directly comparable to GAAP financial measures and the related reconciliations between these financial measures.

Contact:

Willa Chalmers

Investor Relations

+1-650-214-3381

willa@google.com


Google Inc.

CONSOLIDATED BALANCE SHEETS

(In millions)

 

     As of
December 31,
2011*
     As of
September 30,
2012
 
            (unaudited)  

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 9,983       $ 16,260   

Marketable securities

     34,643         29,464   

Accounts receivable, net of allowance

     5,427         7,259   

Inventories

     35         618   

Receivable under reverse repurchase agreements

     745         550   

Deferred income taxes, net

     215         230   

Prepaid revenue share, expenses and other assets

     1,710         2,440   
  

 

 

    

 

 

 

Total current assets

     52,758         56,821   

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

     499         2,206   

Non-marketable equity securities

     790         1,063   

Property and equipment, net

     9,603         11,401   

Intangible assets, net

     1,578         7,754   

Goodwill

     7,346         10,485   
  

 

 

    

 

 

 

Total assets

   $ 72,574       $ 89,730   
  

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

     

Current liabilities:

     

Accounts payable

   $ 588       $ 2,233   

Short-term debt

     1,218         3,218   

Accrued compensation and benefits

     1,818         1,926   

Accrued expenses and other current liabilities

     1,370         3,313   

Accrued revenue share

     1,168         1,108   

Securities lending payable

     2,007         1,686   

Deferred revenue

     547         905   

Income taxes payable, net

     197         45   
  

 

 

    

 

 

 

Total current liabilities

     8,913         14,434   

Long-term debt

     2,986         2,988   

Deferred revenue, non-current

     44         100   

Income taxes payable, non-current

     1,693         2,034   

Deferred income taxes, net, non-current

     287         1,461   

Other long-term liabilities

     506         685   

Stockholders’ equity:

     

Common stock and additional paid-in capital

     20,264         22,204   

Accumulated other comprehensive income

     276         368   

Retained earnings

     37,605         45,456   
  

 

 

    

 

 

 

Total stockholders’ equity

     58,145         68,028   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 72,574       $ 89,730   
  

 

 

    

 

 

 

 

* Derived from audited financial statements.


Google Inc.

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except share amounts which are reflected in thousands and per share amounts)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2012      2011      2012  
     (unaudited)  

Revenues:

           

Google (advertising and other)

   $ 9,720       $ 11,526       $ 27,322       $ 33,135   

Motorola (hardware and other)

     —           2,575         —           3,825   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     9,720         14,101         27,322         36,960   
  

 

 

    

 

 

    

 

 

    

 

 

 

Costs and expenses:

           

Cost of revenues - Google (advertising and other) (1)

     3,378         4,440         9,485         12,213   

Cost of revenues - Motorola (hardware and other) (1)

     —           2,114         —           3,143   

Research and development (1)

     1,404         2,009         3,861         5,035   

Sales and marketing (1)

     1,204         1,760         3,322         4,462   

General and administrative (1)

     676         1,042         1,919         2,779   

Charge related to the resolution of Department of Justice investigation

     —           —           500         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total costs and expenses

     6,662         11,365         19,087         27,632   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     3,058         2,736         8,235         9,328   

Interest and other income, net

     302         63         602         473   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     3,360         2,799         8,837         9,801   

Provision for income taxes

     631         623         1,804         1,950   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 2,729       $ 2,176       $ 7,033       $ 7,851   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share - basic

   $ 8.44       $ 6.64       $ 21.82       $ 24.05   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share - diluted

   $ 8.33       $ 6.53       $ 21.53       $ 23.69   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used in per share calculation - basic

     323,155         327,785         322,304         326,452   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used in per share calculation - diluted

     327,439         333,314         326,619         331,414   
  

 

 

    

 

 

    

 

 

    

 

 

 

(1)       Includes stock-based compensation expense as follows:

           

Cost of revenues - Google (advertising and other)

   $ 72       $ 103       $ 172       $ 259   

Cost of revenues - Motorola (hardware and other)

     —           8         —           13   

Research and development

     311         378         795         968   

Sales and marketing

     104         155         256         372   

General and administrative

     84         118         214         364   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 571       $ 762       $ 1,437       $ 1,976   
  

 

 

    

 

 

    

 

 

    

 

 

 


Google Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2012     2011     2012  
     (unaudited)  

Operating activities

        

Net income

   $ 2,729      $ 2,176      $ 7,033      $ 7,851   

Adjustments:

        

Depreciation and amortization of property and equipment

     363        507        1,011        1,358   

Amortization of intangible and other assets

     129        321        337        651   

Stock-based compensation expense

     571        762        1,437        1,976   

Excess tax benefits from stock-based award activities

     (28     (58     (61     (113

Deferred income taxes

     62        (168     526        23   

Gain on divestiture of business

     —          —          —          (188

Other

     (52     32        3        (24

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

        

Accounts receivable

     (223     (307     (247     (228

Income taxes, net

     366        167        268        1,336   

Inventories

     (20     18        (18     188   

Prepaid revenue share, expenses and other assets

     22        (27     (128     (1,215

Accounts payable

     (5     (194     72        (274

Accrued expenses and other liabilities

     (42     727        255        484   

Accrued revenue share

     64        (80     70        (57

Deferred revenue

     14        128        83        182   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     3,950        4,004        10,641        11,950   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities

        

Purchases of property and equipment

     (680     (872     (2,487     (2,253

Purchases of marketable securities

     (22,738     (8,704     (43,693     (24,246

Maturities and sales of marketable securities

     19,480        7,143        33,107        29,800   

Investments in non-marketable equity securities

     (15     (44     (358     (246

Cash collateral related to securities lending

     1,119        (230     694        (321

Investments in reverse repurchase agreements

     (125     (75     (395     195   

Acquisitions, net of cash acquired and proceeds received from divestiture, and purchases of intangibles and other assets

     (488     (525     (1,350     (10,471
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (3,447     (3,307     (14,482     (7,542
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities

        

Net payments related to stock-based award activities

     (108     (5     (20     (189

Excess tax benefits from stock-based award activities

     28        58        61        113   

Proceeds from issuance of debt, net of costs

     750        4,374        8,780        12,125   

Repayments of debt

     (750     (4,375     (8,054     (10,128
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (80     52        767        1,921   
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (113     74        74        (52

Net increase (decrease) in cash and cash equivalents

     310        823        (3,000     6,277   

Cash and cash equivalents at beginning of period

     10,320        15,437        13,630        9,983   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 10,630      $ 16,260      $ 10,630      $ 16,260   
  

 

 

   

 

 

   

 

 

   

 

 

 


Reconciliations of selected non-GAAP financial measures to the nearest comparable GAAP financial meaures

The following tables present reconciliations of selected non-GAAP financial measures to the nearest comparable GAAP financial measures (in millions, unaudited):

 

     Three Months Ended September 30, 2011  
     Google  
     GAAP      Adjustments (1)      Non-GAAP  

Revenues

   $   9,720          $   9,720   

Costs and expenses:

        

Cost of revenues

     3,378       $ 72         3,306   

Research and development

     1,404         311         1,093   

Sales and marketing

     1,204         104         1,100   

General and administrative

     676         84         592   
  

 

 

    

 

 

    

 

 

 

Total costs and expenses

     6,662       $ 571       $ 6,091   
  

 

 

    

 

 

    

 

 

 

Income from operations

   $ 3,058          $ 3,629   
  

 

 

       

 

 

 

 

    Three Months Ended September 30, 2012  
    Google     Motorola     Consolidated  
    GAAP     Adjustments (1)     Non-GAAP     GAAP     Adjustments (2)     Non-GAAP     GAAP     Adjustments (2)     Non-GAAP  

Revenues

  $ 11,526        $ 11,526      $ 2,575        $ 2,575      $ 14,101        $ 14,101   

Costs and expenses:

                 

Cost of revenues

    4,440        103        4,337        2,114        91        2,023        6,554        194        6,360   

Research and development

    1,540        350        1,190        469        132        337        2,009        482        1,527   

Sales and marketing

    1,385        126        1,259        375        113        262        1,760        239        1,521   

General and administrative

    898        109        789        144        40        104        1,042        149        893   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    8,263        688        7,575        3,102        376        2,726        11,365        1,064        10,301   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

  $ 3,263        $ 3,951      $ (527     $ (151   $ 2,736        $ 3,800   
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

 

(1) To eliminate stock-based compensation expense.
(2) To eliminate stock-based compensation expense, as well as restructuring and related charges recorded in our Motorola business.


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 millions, except share amounts which are reflected in thousands and per share amounts, unaudited):

 

    Three Months Ended September 30, 2011     Three Months Ended September 30, 2012  

Consolidated

  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)
 
      $  571 (c)            $  715 (d)     
                  349 (e)     
     

 

 

           

 

 

     

Income from operations

  $ 3,058        31.5   $ 571      $ 3,629        37.3   $ 2,736        19.4   $ 1,064      $ 3,800        26.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                   
      $ 571 (c)            $ 715 (d)     
        (116 )(f)              (155 )(f)     
                  349 (e)     
                  (76 )(g)     
     

 

 

           

 

 

     

Net income

  $ 2,729        $ 455      $ 3,184        $ 2,176        $ 833      $ 3,009     
 

 

 

     

 

 

   

 

 

     

 

 

     

 

 

   

 

 

   
                   

Net income per share - diluted

  $ 8.33          $ 9.72        $ 6.53          $ 9.03     
 

 

 

       

 

 

     

 

 

       

 

 

   

Shares used in per share calculation - diluted

    327,439            327,439          333,314            333,314     
 

 

 

       

 

 

     

 

 

       

 

 

   

 

(a) Operating margin is defined as consolidated income from operations divided by consolidated revenues.
(b) Non-GAAP operating margin is defined as non-GAAP consolidated income from operations divided by consolidated revenues.
(c) To eliminate $571 million of stock-based compensation expense recorded in the third quarter of 2011.
(d) To eliminate $715 million of stock-based compensation expense recorded in the third quarter of 2012.
(e) To eliminate $349 million of restructuring and related charges recorded in our Motorola business, of which $47 million was related to stock-based compensation.
(f) To eliminate income tax effects related to expenses noted in (c) and (d).
(g) To eliminate income tax effects related to expense noted in (e).

The following tables present certain non-GAAP results before certain material items by business (in millions, unaudited):

 

    Three Months Ended September 30, 2011     Three Months Ended September 30, 2012  

Google

  GAAP
Actual
    Operating
Margin (h)
    Adjustments     Non-GAAP
Results
    Non-GAAP
Operating
Margin (i)
    GAAP
Actual
    Operating
Margin (h)
    Adjustments     Non-GAAP
Results
    Non-GAAP
Operating
Margin (i)
 
      $  571 (j)            $  688 (k)     
     

 

 

           

 

 

     

Income from operations

  $ 3,058        31.5   $ 571      $ 3,629        37.3   $ 3,263        28.3   $ 688      $ 3,951        34.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(h) Operating margin is defined as Google income from operations divided by Google revenues.
(i) Non-GAAP operating margin is defined as non-GAAP Google income from operations divided by Google revenues.
(j) To eliminate $571 million of stock-based compensation expense recorded in the third quarter of 2011.
(k) To eliminate $688 million of stock-based compensation expense recorded in the third quarter of 2012.

 

     Three Months Ended September 30, 2012  

Motorola

   GAAP
Actual
    Operating
Margin (l)
    Adjustments     Non-GAAP
Results
    Non-GAAP
Operating
Margin (m)
 
       $  27 (n)     
         349 (o)     
      

 

 

     

Loss from operations

   $ (527     -20.5   $ 376      $ (151     -5.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(l) Operating margin is defined as Motorola income from operations divided by Motorola revenues.
(m) Non-GAAP operating margin is defined as non-GAAP Motorola income from operations divided by Motorola revenues.
(n) To eliminate $27 million of stock-based compensation expense recorded in the third quarter of 2012.
(o) To eliminate $349 million of restructuring and related charges recorded in our Motorola business, of which $47 million was related to stock-based compensation.


Reconciliation from net cash provided by operating activities to free cash flow (in millions, unaudited):

 

     Three Months Ended
September 30, 2012
 

Net cash provided by operating activities

   $ 4,004   

Less purchases of property and equipment

     (872
  

 

 

 

Free cash flow

   $ 3,132   
  

 

 

 

Net cash used in investing activities*

   $ (3,307
  

 

 

 

Net cash provided by financing activities

   $ 52   
  

 

 

 

 

* Includes purchases of property and equipment.


Reconciliation from GAAP international revenues to non-GAAP international revenues (in millions, unaudited):

 

Consolidated

   Three Months Ended
September 30, 2012
    Three Months Ended
September 30, 2012
 
     (using Q3’11’s FX rates)     (using Q2’12’s FX rates)  

United Kingdom revenues (GAAP)

   $ 1,226      $ 1,226   

Exclude foreign exchange impact on Q3’12 revenues using Q3’11 rates

     48     

Exclude foreign exchange impact on Q3’12 revenues using Q2’12 rates

       17   

Exclude hedging gains recognized in Q3’12

     (6     (6
  

 

 

   

 

 

 

United Kingdom revenues excluding foreign exchange and hedging impact (Non-GAAP)

   $ 1,268      $ 1,237   
  

 

 

   

 

 

 

Rest of the world revenues (GAAP)

   $ 5,876      $ 5,876   

Exclude foreign exchange impact on Q3’12 revenues using Q3’11 rates

     584     

Exclude foreign exchange impact on Q3’12 revenues using Q2’12 rates

       140   

Exclude hedging gains recognized in Q3’12

     (56     (56
  

 

 

   

 

 

 

Rest of the world revenues excluding foreign exchange and hedging impact (Non-GAAP)

   $ 6,404      $ 5,960   
  

 

 

   

 

 

 

Google

   Three Months Ended
September 30, 2012
    Three Months Ended
September 30, 2012
 
     (using Q3’11’s FX rates)     (using Q2’12’s FX rates)  

United Kingdom revenues (GAAP)

   $ 1,216      $ 1,216   

Exclude foreign exchange impact on Q3’12 revenues using Q3’11 rates

     47     

Exclude foreign exchange impact on Q3’12 revenues using Q2’12 rates

       17   

Exclude hedging gains recognized in Q3’12

     (6     (6
  

 

 

   

 

 

 

United Kingdom revenues excluding foreign exchange and hedging impact (Non-GAAP)

   $ 1,257      $ 1,227   
  

 

 

   

 

 

 

Rest of the world revenues (GAAP)

   $ 4,894      $ 4,894   

Exclude foreign exchange impact on Q3’12 revenues using Q3’11 rates

     510     

Exclude foreign exchange impact on Q3’12 revenues using Q2’12 rates

       119   

Exclude hedging gains recognized in Q3’12

     (56     (56
  

 

 

   

 

 

 

Rest of the world revenues excluding foreign exchange and hedging impact (Non-GAAP)

   $ 5,348      $ 4,957   
  

 

 

   

 

 

 


The following table presents our consolidated revenues by revenue source (in millions, unaudited):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2012      2011      2012  

Advertising revenues:

           

Google websites

   $ 6,740       $ 7,727       $ 18,851       $ 22,581   

Google Network Members’ websites

     2,595         3,133         7,506         9,029   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total advertising revenues

     9,335         10,860         26,357         31,610   

Other revenues

     385         666         965         1,525   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Google revenues (advertising and other)

     9,720         11,526         27,322         33,135   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Motorola revenues (hardware and other)

     —           2,575         —           3,825   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated revenues

   $ 9,720       $ 14,101       $ 27,322       $ 36,960   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents our Google revenues, by revenue source, as a percentage of Google revenues (unaudited):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2012     2011     2012  

Advertising revenues:

        

Google websites

     69     67     69     68

Google Network Members’ websites

     27     27     27     27
  

 

 

   

 

 

   

 

 

   

 

 

 

Total advertising revenues

     96     94     96     95

Other revenues

     4     6     4     5
  

 

 

   

 

 

   

 

 

   

 

 

 

Google revenues

     100     100     100     100