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. As of December 31, 2012 and 2013, 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, 2013, there were 9,000,000,000 and 3,000,000,000 shares authorized and there were 279,325,564 and 56,506,728 shares outstanding of Class A and Class B common stock, $0.001 par value. 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 Split Effected In Form of Stock Dividend
In April 2012, our board of directors approved amendments to our certificate of incorporation that would, among other things, create 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 considered and 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 (Dividend). The Dividend will have a record date of March 27, 2014 and a payment date of April 2, 2014. The Class C capital stock will have no voting rights, except as required by applicable law. Except as expressly provided in the New Charter, shares of Class C capital stock will have the same rights and privileges and rank equally, share ratably and be identical in all other respects to the shares of Class A common stock and Class B common stock as to all matters.
In accordance with the settlement of litigation involving the authorization to distribute the Class C capital stock, we may be obligated to make a payment to holders of the Class C stock if, on average, Class C trades below Class A in the first year following the Class C issuance, payable in cash, Class A stock, Class C stock, or a combination thereof, at the discretion of the Board of Directors. Because the Class C shares have not yet been issued or commenced trading, 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.
The par value per share of our shares of Class A common stock and Class B common stock will remain unchanged at $0.001 per share after the Dividend. On the effective date of the Dividend, there will be a transfer between retained earnings and common stock and the amount transferred will be equal to the $0.001 par value of the Class C capital stock that is issued. We will give retroactive effect to prior period share and per share amounts in our consolidated financial statements for the effect of the Dividend, such that prior periods are comparable to current period presentation.
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, the 2012 Stock Plan, and plans assumed through acquisitions, all of which are collectively referred to as the “Stock Plans.” Under our Stock Plans, incentive and non-qualified stock options or rights to purchase common stock may be granted to eligible participants. Options are generally granted for a term of 10 years. Under the Stock Plans, we have also issued RSUs. An RSU award is an agreement to issue shares of our stock at the time the award vests. Except for options granted pursuant to our stock option exchange program completed in March 2009 (the Exchange), options granted and RSUs issued to participants under the Stock Plans generally vest over four years contingent upon employment or service with us on the vesting date.
As of December 31, 2012 and December 31, 2013, there were 15,833,050 and 9,455,085 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 in the periods presented:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2011 | | 2012 | | 2013 |
Risk-free interest rate | 2.3 | % | | 1.0 | % | | 0.9 | % |
Expected volatility | 33 | % | | 29 | % | | 29 | % |
Expected life (in years) | 5.9 |
| | 5.2 |
| | 5.8 |
|
Dividend yield | 0 |
| | 0 |
| | 0 |
|
Weighted-average estimated fair value of options granted during the year | $ | 210.07 |
| | $ | 194.27 |
| | $ | 214.39 |
|
The following table summarizes the activities for our options for the year ended December 31, 2013:
|
| | | | | | | | | | | | |
| 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, 2012 | 8,551,395 |
| | $ | 405.98 |
| | | | |
Granted | 1,571 |
| | $ | 723.25 |
| | | | |
Exercised | (3,299,276 | ) | | $ | 355.56 |
| | | | |
Forfeited/canceled | (220,827 | ) | | $ | 595.92 |
| | | | |
Balance at December 31, 2013 | 5,032,863 |
| | $ | 431.00 |
| | 5.0 | | $ | 3,470 |
|
Exercisable as of December 31, 2013 | 3,795,911 |
| | $ | 379.60 |
| | 4.1 | | $ | 2,813 |
|
Exercisable as of December 31, 2013 and expected to vest thereafter(2) | 4,880,718 |
| | $ | 426.33 |
| | 5.0 | | $ | 3,390 |
|
(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing stock price of $1,120.71 of our Class A common stock on December 31, 2013.
(2) Options expected to vest reflect an estimated forfeiture rate.
The following table summarizes additional information regarding outstanding, and vested and exercisable stock options as of December 31, 2013:
|
| | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of Exercise Prices | | Number of Shares | | Weighted- Average Remaining Life (in years) | | Weighted- Average Exercise Price | | Number of Shares | | Weighted- Average Exercise Price |
$3.75–$92.23 | | 22,905 |
| | 2.2 | | $ | 68.89 |
| | 22,905 |
| | $ | 68.89 |
|
$117.84–$198.41 | | 117,075 |
| | 1.1 | | $ | 181.44 |
| | 117,075 |
| | $ | 181.44 |
|
$205.96–$298.86 | | 141,731 |
| | 1.6 | | $ | 276.29 |
| | 141,731 |
| | $ | 276.29 |
|
$300.97–$399.00 | | 2,098,774 |
| | 3.5 | | $ | 309.82 |
| | 2,066,572 |
| | $ | 309.83 |
|
$401.78–$499.07 | | 547,762 |
| | 5.1 | | $ | 442.23 |
| | 516,010 |
| | $ | 440.83 |
|
$501.27–$595.35 | | 1,235,007 |
| | 6.2 | | $ | 538.95 |
| | 755,917 |
| | $ | 532.34 |
|
$601.17–$675.82 | | 852,625 |
| | 7.9 | | $ | 628.88 |
| | 172,006 |
| | $ | 616.14 |
|
$723.25–$762.5 | | 16,984 |
| | 8.8 | | $ | 758.87 |
| | 3,695 |
| | $ | 758.34 |
|
$3.75–$762.5 | | 5,032,863 |
| | 5.0 | | $ | 431.00 |
| | 3,795,911 |
| | $ | 379.60 |
|
The above tables include 388,324 warrants held by selected financial institutions that were options purchased from employees under our TSO program, with a weighted-average exercise price of $431.76 and a weighted-average remaining life of 0.6 years.
During 2013, the number of shares underlying TSOs sold to selected financial institutions under the TSO program was 671,190 at a total value of $322 million, or an average of $479.06 per share, including an average premium of $2.35 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 TSO program was discontinued as of November 29, 2013. This did not have a material impact on our consolidated financial statements.
The total grant date fair value of stock options vested during 2011, 2012, and 2013 was $561 million, $489 million, and $223 million. The aggregate intrinsic value of all options and warrants exercised during 2011, 2012, and 2013 was $674 million, $827 million, and $1,793 million. These amounts do not include the aggregate sales price of options sold under our TSO program.
As of December 31, 2013, there was $188 million of unrecognized compensation cost related to outstanding employee stock options. This amount is expected to be recognized over a weighted-average period of 1.9 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.
The following table summarizes the activities for our unvested RSUs for the year ended December 31, 2013:
|
| | | | | | |
| Unvested Restricted Stock Units |
| Number of Shares | | Weighted- Average Grant-Date Fair Value |
Unvested at December 31, 2012 | 10,994,927 |
| | $ | 566.32 |
|
Granted | 5,713,847 |
| | $ | 888.05 |
|
Vested | (5,104,216 | ) | | $ | 593.19 |
|
Forfeited/canceled | (627,578 | ) | | $ | 623.62 |
|
Unvested at December 31, 2013 | 10,976,980 |
| | $ | 718.39 |
|
Expected to vest after December 31, 2013 (1) | 9,626,811 |
| | $ | 718.39 |
|
| |
(1) | RSUs expected to vest reflect an estimated forfeiture rate. |
As of December 31, 2013, there was $6.2 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. 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.
