Google 2011 Annual Report Download - page 96

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recorded or as interest and other income, net, if the hedged transaction becomes probable of not occurring.
Further, we exclude the change in the time value of the options from our assessment of hedge effectiveness. We
record the premium paid or time value of an option on the date of purchase as an asset. Thereafter, we recognize
any change to this time value in interest and other income, net.
At December 31, 2011, the effective portion of our cash flow hedges before tax effect was $154 million, of
which $127 million is expected to be reclassified from AOCI to revenues within the next 12 months.
The notional principal of foreign exchange contracts to purchase U.S. dollars with Euros was €3.0 billion (or
approximately $4.1 billion) and €2.8 billion (or approximately $3.8 billion) at December 31, 2010 and December 31,
2011; the notional principal of foreign exchange contracts to purchase U.S. dollars with British pounds was
£1.5 billion (or approximately $2.3 billion) and £1.4 billion (or approximately $2.2 billion) at December 31, 2010 and
December 31, 2011; and the notional principal of foreign exchange contracts to purchase U.S. dollars with
Canadian dollars was C$407 million (or approximately $382 million) and C$504 million (or approximately $490
million) at December 31, 2010 and December 31, 2011. These foreign exchange contracts have maturities of 36
months or less.
Fair Value Hedges
We use forward contracts designated as fair value hedges to hedge foreign currency risks for our investments
denominated in currencies other than the U.S. dollar. Gains and losses on these contracts are recognized in
interest and other income, net, along with the offsetting losses and gains of the related hedged items. We exclude
changes in the time value for forward contracts from the assessment of hedge effectiveness and recognize them
in interest and other income, net. The notional principal of foreign exchange contracts to purchase U.S. dollars with
foreign currencies was $787 million and $1.0 billion at December 31, 2010 and December 31, 2011.
Other Derivatives
Other derivatives not designated as hedging instruments consist of forward and option contracts that we use
to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than
the local currency of a subsidiary. We recognize gains and losses on these contracts as well as the related costs in
interest and other income, net, along with the gains and losses of the related hedged items. The notional principal
of foreign exchange contracts to purchase U.S. dollars with foreign currencies was $1.0 billion and $2.3 billion at
December 31, 2010 and December 31, 2011. The notional principal of foreign exchange contracts to sell U.S. dollars
for foreign currencies was $84 million and $472 million at December 31, 2010 and December 31, 2011. The
notional principal of foreign exchange contracts to purchase Euros with other foreign currencies was €991 million
(or approximately $1.3 billion) and €711 million (or approximately $929 million) at December 31, 2010 and
December 31, 2011. The notional principal of foreign exchange contracts to sell Euros for other foreign currencies
was €6 million (or approximately $8 million) at December 31, 2010 and no such contracts were outstanding at
December 31, 2011.
We also use exchange-traded interest rate futures contracts and “To Be Announced” (TBA) forward purchase
commitments of mortgage-backed assets to hedge interest rate risks on certain fixed income securities. The TBA
contracts meet the definition of derivative instruments in cases where physical delivery of the assets is not taken
at the earliest available delivery date. Our interest rate futures and TBA contracts (together interest rate contracts)
are not designated as hedging instruments. We recognize gains and losses on these contracts as well as the
related costs in interest and other income, net. The gains and losses are generally economically offset by
unrealized gains and losses in the underlying available-for-sale securities, which are recorded as a component of
AOCI until the securities are sold or other-than-temporarily impaired, at which time the amounts are moved from
AOCI into interest and other income, net. As of December 31, 2011, the total notional amounts of interest rate
contracts outstanding were $100 million.
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