Stockholders' Equity

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Convertible Preferred Stock

Our board of directors has authorized 100 million shares of convertible preferred stock, $0.001 par value, issuable in series. As of December 31,2015 and 2016, there were no shares issued or outstanding.

Class A and Class B Common Stock and Class C Capital Stock

Our board of directors has authorized three classes of stock, Class A and Class B common stock, and Class C capital stock. The rights of the holders of each class of our common and capital 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. Class C capital stock has no voting rights, except as required by applicable law. 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.

Stock Plans

Under our 2012 Stock Plan, RSUs or stock options may be granted. An RSU award is an agreement to issue shares of our publicly traded stock at the time the award vests. Incentive and non-qualified stock options, or rights to purchase common stock, are generally granted for a term of 10 years. Options and RSUs granted to participants under the 2012 Stock Plan generally vest over four years contingent upon employment or service with us on the vesting date.

As of December 31, 2016, there were 26,206,647 shares of stock reserved for future issuance under our Stock Plan.

Stock-Based Compensation

The following table presents our aggregate stock-based compensation expense by type of costs and expenses per the Consolidated Statements of Income (in millions):

	Year Ended December 31,
	2014		2015		2016
Cost of revenues	$	535	$	806	$	1,157
Research and development	2,200		2,687		3,354
Sales and marketing	715		899		1,078
General and administrative	725		861		1,282
Discontinued operations	104		0		0
Total stock-based compensation expense	$	4,279	$	5,253	$	6,871

For the years ended December 31,2014, 2015, and 2016, we recognized tax benefits on total stock-based compensation expense from continuing operations of $867 million, $1,133 million, and $1,465 million, respectively, and from discontinued operations of $30 million, $0 million and $0 million, respectively. In addition, as a result of the Tax Court ruling in Altera Corp. v. Commissioner, we have recorded a tax benefit of $522 million and $690 million related to 2015 and 2016 stock-based compensation expense, respectively, that will be subject to reimbursement of cost share payments if the tax court's opinion is sustained. Refer to Note 14 for more detail regarding the Altera case.

Total direct tax benefit realized, including excess tax benefits, from stock-based awards vested or exercised during the years ended December 31,2014, 2015, and 2016, was $1,356 million, $1,544 million, and $2,137 million, respectively. These amounts do not include the indirect effects of stock-based awards, which primarily relate to the research and development tax credit.

Of the total stock-based compensation expense from continuing operations recognized in the years ended December 31,2014, 2015, and 2016, $0 million, $50 million, and $168 million, respectively, was associated with awards expected to be ultimately settled in cash. Awards which we expect to be ultimately settled in cash are classified as liabilities in our Consolidated Balance Sheets.

Beginning January 1, 2016, we account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect of this change was recognized as a $133 million reduction to retained earnings as of January 1, 2016.

Stock-Based Award Activities

The following table summarizes the activities for our unvested restricted stock units (RSUs) for the year ended December 31, 2016:

	Unvested Restricted Stock Units
	Number of     Shares		Weighted- Average Grant-Date Fair Value
Unvested as of December 31, 2015	25,741,186		$	531.74
Granted	13,502,900		$	713.89
Vested	(12,002,071	)	$	532.87
Forfeited/canceled	(1,893,060	)	$	562.03
Unvested as of December 31, 2016	25,348,955		$	624.92

The weighted-average grant-date fair value of RSUs granted during the years ended December 31,2014 and 2015, was $573.71 and $546.46, respectively. Total fair value as of the respective vesting dates of RSUs vested during the years ended December 31,2014, 2015 and 2016 was $6.0 billion, $6.9 billion, and $9.0 billion, respectively.

As of December 31, 2016, there was $14.6 billion of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of 2.7 years.

As of December 31, 2016, we had 3.3 million stock options outstanding and exercisable, and $2 million of unrecognized compensation cost related to unvested stock options. During the years ended December 31,2014, 2015, and 2016, the amount of cash received from the exercise of stock options was $465 million, $393 million, and $298 million, respectively.

Share Repurchases

In October 2015, the board of directors of Alphabet authorized the company to repurchase up to $5,099,019,513.59 of its Class C capital stock, commencing in the fourth quarter of 2015. In January 2016, the board of directors of Alphabet authorized the company to repurchase an additional amount of approximately 514 thousand shares. The repurchases were executed, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through the use of 10b5-1 plans. During 2016, we repurchased and subsequently retired approximately 5.2 million shares of Alphabet Class C capital stock for an aggregate amount of approximately $3.7 billion. We completed all authorized share repurchases under this repurchase program as of June 30, 2016.

In October 2016, the board of directors of Alphabet authorized the company to repurchase up to $7,019,340,976.83 of its Class C capital stock. The repurchases are expected to be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. No shares were repurchased in 2016 under this program.