Google 2012 Annual Report Download - page 66

60 GOOGLE INC. |Form10-K
PART II
ITEM8.Notes to Consolidated Financial Statements
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 off setting losses and gains of the related hedged items. We exclude changes in the time value for forward contracts from
the assessment of hedge eff ectiveness and recognize them in interest and other income, net. The notional principal of these
contracts was $1.0billion and $1.1billion as of December31, 2011 and December31, 2012.
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 outstanding was $3.7billion and
$6.6billion at December31,2011 and December31, 2012.
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 fi xed income securities. The TBA contracts meet the defi nition
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 off set 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. The total notional amounts of interest rate contracts outstanding were $100million
and $25million at December31, 2011 and December, 31, 2012.
The fair values of our outstanding derivative instruments were as follows (in millions):
As of December31, 2011
Balance Sheet Location
Fair Value
ofDerivatives
Designated as
HedgingInstruments
Fair Value
ofDerivatives
NotDesignated as
Hedging Instruments
Total
FairValue
Derivative Assets:
Level 2:
Foreign exchange contracts Prepaid revenue share, expenses and
other assets, current and non-current $333 $ 4 $337
Derivative Liabilities:
Level 2:
Foreign exchange contracts Accrued expenses and other
currentliabilities $ 5 $ 1 $ 6
As of December31, 2012
Balance Sheet Location
Fair Value
ofDerivatives
Designated as
HedgingInstruments
Fair Value
ofDerivatives
NotDesignated as
Hedging Instruments
Total
FairValue
Derivative Assets:
Level 2:
Foreign exchange contracts Prepaid revenue share, expenses and
other assets, current and non-current $164 $ 13 $177
Interest rate contracts Prepaid revenue share, expenses and
other assets, current and non-current 1 0 1
Total $165 $ 13 $178
Derivative Liabilities:
Level 2:
Foreign exchange contracts Accrued expenses and other
currentliabilities $ 3 $ 4 $ 7
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