Google 2008 Annual Report Download - page 46

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outstanding non-cancelable guaranteed minimum revenue share commitments totaled $1.03 billion through 2012
compared to $1.75 billion at December 31, 2007. It is difficult to forecast with certainty the fees that we will earn
under agreements with guarantees, and sometimes the fees we earn fall short of the guaranteed minimum
payment amounts.
We rely on outside providers for our worldwide billing, collection, payment processing and payroll. If
these outside service providers are not able to fulfill their service obligations, our business and
operations could be disrupted, and our operating results could be harmed.
Outside providers perform various functions for us, such as worldwide billing, collection, payment processing
and payroll. These functions are critical to our operations and involve sensitive interactions between us and our
advertisers, partners (e.g., Google Network members) and employees. Although we have implemented service level
agreements and have established monitoring controls, if we do not successfully manage our service providers or if
the service providers do not perform satisfactorily to agreed-upon service levels, our operations could be disrupted
resulting in advertiser, partner or employee dissatisfaction. In addition, our business, reputation and operating
results could be adversely affected.
To the extent our revenues are paid in foreign currencies, and currency exchange rates become
unfavorable, we may lose some of the economic value of the revenues in U.S. dollar terms.
As we expand our international operations, more of our customers may pay us in foreign currencies.
Conducting business in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates. If
the currency exchange rates were to change unfavorably, the value of net receivables we receive in foreign
currencies and later convert to U.S. dollars after the unfavorable change would be diminished. This could have a
negative impact on our reported operating results. Hedging strategies, such as forward contracts, options and
foreign exchange swaps related to transaction exposures, that we have implemented or may implement to
mitigate this risk may not reduce or completely offset our exposure to foreign exchange fluctuations. Additionally,
hedging programs expose us to risks that could adversely affect our financial results, including the following:
• We have limited experience in implementing or operating hedging programs. Hedging programs are
inherently risky and we could lose money as a result of poor trades.
• We may be unable to hedge currency risk for some transactions or match the accounting for the hedge
with the exposure because of a high level of uncertainty or the inability to reasonably estimate our foreign
exchange exposures.
• We may be unable to acquire foreign exchange hedging instruments in some of the geographic areas
where we do business, or, where these derivatives are available, we may not be able to acquire enough of
them to fully offset our exposure.
• We may determine that the cost of acquiring a foreign exchange hedging instrument outweighs the
benefit we expect to derive from the derivative, in which case we would not purchase the derivative and
would be exposed to unfavorable changes in currency exchange rates.
• To the extent we recognize a gain on a hedge transaction in one of our subsidiaries that is subject to a
high statutory tax rate, our effective tax rate may be higher.
• Significant fluctuations in foreign exchange rates could greatly increase our hedging costs.
We may have exposure to greater than anticipated tax liabilities.
Our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions
where we have lower statutory tax rates and higher than anticipated in jurisdictions where we have higher
statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, as a result of gains on our
foreign exchange hedging program, or changes in tax laws, regulations, accounting principles or interpretations
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