Google 2008 Annual Report Download - page 97

Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
conditions for instruments with similar credit quality at the date of the valuation and additionally adjusted for a
liquidity discount of up to 400 basis points to reflect the risk in the marketplace for these investments that has
arisen due to the lack of an active market.
At December 31, 2008, the estimated fair values of these ARS were $35.5 million ($21.0 million, net of tax
effect) less than their costs. Based primarily on our ability and intent to hold these securities until recovery and the
extent of impairment, we concluded the decline in fair values was temporary and recorded the unrealized loss to
accumulated other comprehensive income on the accompanying Consolidated Balance Sheet at December 31,
2008.
To the extent we determine that any impairment is other-than-temporary, we would record a charge to
earnings. In addition, we have concluded that the auctions for these securities may continue to fail for at least the
next 12 months and as a result, they have been classified as non-current assets on our Consolidated Balance Sheet
at December 31, 2008.
Investment in Non-Marketable Equity Security
We review our investment in AOL for impairment in accordance with FSP 115-1. Based on our review, our
investment in AOL is impaired. After consideration of the duration and severity of the impairment, as well as the
reasons for the decline in value and the potential recovery period, we believe that such impairment is “other-than-
temporary” at December 31, 2008. As a result, in the fourth quarter of 2008, we recorded a $726 million
impairment charge. This amount is included under impairment of equity investments in the accompanying
Consolidated Statement of Income. The fair value of AOL is determined primarily based on a market multiple
approach valuation technique, which required us to make judgmental estimates including forecasted revenue and
earnings. In addition, we used a selection of comparable companies to perform comparative risk analysis in
determining the fair value.
We will continue to review this investment for impairment on a quarterly basis. There can be no assurance
that additional impairment charges will not be required in the future, and any such amounts could be material to
our Consolidated Statements of Income.
As we have initiated the formal process to liquidate this investment, and expect to complete this process and
liquidate the investment by December 31, 2009, we have classified it as a current asset on the accompanying
Consolidated Balance Sheet at December 31, 2008.
Note 4. Derivative Financial Instruments
We enter into foreign currency contracts with financial institutions to reduce the risk that our cash flows and
earnings will be adversely affected by foreign currency exchange rate fluctuations. Our program is not designated
for trading or speculative purposes.
In accordance with SFAS 133, we recognize derivative instruments as either assets or liabilities on the
balance sheet at fair value. Changes in the fair value (i.e., gains or losses) of the derivatives are recorded in the
accompanying Consolidated Statements of Income as interest income and other, net, or as part of revenues, or on
the accompanying Consolidated Balance Sheets as accumulated other comprehensive income.
Cash Flow Hedges
We use options designated as cash flow hedges to hedge certain forecasted revenue transactions
denominated in currencies other than the U.S. dollar. Any gain on the effective portion of a cash flow hedge is
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