Google 2013 Annual Report Download - page 45

39
PART II
ITEM7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations

AsofDecember31,2013,wedidnothaveanyo-balancesheetarrangements,asdenedinItem303(a)(4)(ii)ofRegulationS-K
promulgatedbytheSEC,thathaveorarereasonablylikelytohaveacurrentorfutureeectonournancialcondition,changes
inournancialcondition,revenues,orexpenses,resultsofoperations,liquidity,capitalexpenditures,orcapitalresourcesthat
ismaterialtoinvestors.
Critical Accounting Policies and Estimates
WeprepareourconsolidatednancialstatementsinaccordancewithU.S.GenerallyAcceptedAccountingPrinciples(GAAP.)Indoing
so,wehavetomakeestimatesandassumptionsthataectourreportedamountsofassets,liabilities,revenues,andexpenses,as
wellasrelateddisclosureofcontingentassetsandliabilities.Insomecases,wecouldreasonablyhaveuseddierentaccounting
policiesandestimates.Insomecases,changesintheaccountingestimatesarereasonablylikelytooccurfromperiodtoperiod.
Accordingly,actualresultscoulddiermateriallyfromourestimates.Totheextentthattherearematerialdierencesbetween
theseestimatesandactualresults,ournancialconditionorresultsofoperationswillbeaected.Webaseourestimatesonpast
experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates
onanongoingbasis.Werefertoaccountingestimatesofthistypeascriticalaccountingpoliciesandestimates,whichwediscuss
furtherbelow.Wehavereviewedourcriticalaccountingpoliciesandestimateswiththeauditcommitteeofourboardofdirectors.
Income Taxes
WearesubjecttoincometaxesintheU.S.andnumerousforeignjurisdictions.Signicantjudgmentisrequiredinevaluatingour
uncertaintaxpositionsanddeterminingourprovisionforincometaxes.
Althoughwebelievewehaveadequatelyreservedforouruncertaintaxpositions,noassurancecanbegiventhatthenaltax
outcomeofthesematterswillnotbedierent.Weadjustthesereservesinlightofchangingfactsandcircumstances,suchasthe
closingofataxauditortherenementofanestimate.Totheextentthatthenaltaxoutcomeofthesemattersisdierentthan
theamountsrecorded,suchdierenceswillimpacttheprovisionforincometaxesintheperiodinwhichsuchdetermination
ismade.Theprovisionforincometaxesincludestheimpactofreserveprovisionsandchangestoreservesthatareconsidered
appropriate,aswellastherelatednetinterestandpenalties.
Oureectivetaxrateshavedieredfromthestatutoryrateprimarilyduetothetaximpactofforeignoperations,statetaxes,
certainbenetsrealizedrelatedtostock-basedawardactivities,andresearchanddevelopmenttaxcredits.Theeectivetax
rateswere21.0%,19.4%,and15.7%for2011,2012,and2013.Ourfutureeectivetaxratescouldbeadverselyaectedby
earnings being lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries
thathavehigherstatutoryrates,thenetgainsandlossesrecognizedbylegalentitiesoncertainhedgesandrelatedhedged
intercompany and other transactions under our foreign exchange risk management program, changes in the valuation of our
deferredtaxassetsorliabilities,orchangesintaxlaws,regulations,oraccountingprinciples,aswellascertaindiscreteitems.
Inaddition,wearesubjecttothecontinuousexaminationofourincometaxreturnsbytheIRSandothertaxauthoritieswhich
mayassertassessmentsagainstus.Weregularlyassessthelikelihoodofadverseoutcomesresultingfromtheseexaminations
andassessmentstodeterminetheadequacyofourprovisionforincometaxes.
Loss Contingencies
Weareregularlysubjecttoclaims,suits,governmentinvestigations,andotherproceedingsinvolvingcompetitionandantitrust,
intellectual property, privacy, indirect taxes, labor and employment, commercial disputes, content generated by our users,
goodsandservicesoeredbyadvertisersorpublishersusingourplatforms,andothermatters.Certainofthesemattersinclude
speculativeclaimsforsubstantialorindeterminateamountsofdamages.Werecordaliabilitywhenwebelievethatitisboth
probablethatalosshasbeenincurred,andtheamountcanbereasonablyestimated.Ifwedeterminethatalossispossible
and a range of the loss can be reasonably estimated, we disclose the range of the possible loss in the Notes to the Consolidated
FinancialStatements.Weevaluate,onamonthlybasis,developmentsinourlegalmattersthatcouldaecttheamountofliability
thathasbeenpreviouslyaccrued,andthemattersandrelatedrangesofpossiblelossesdisclosed,andmakeadjustmentsand
changestoourdisclosuresasappropriate.Signicantjudgmentisrequiredtodeterminebothlikelihoodoftherebeingandthe
estimatedamountofalossrelatedtosuchmatters.Untilthenalresolutionofsuchmatters,theremaybeanexposuretoloss
inexcessoftheamountrecorded,andsuchamountscouldbematerial.Shouldanyofourestimatesandassumptionschangeor
provetohavebeenincorrect,itcouldhaveamaterialimpactonourbusiness,consolidatednancialposition,resultsofoperations,
orcashows.SeeNote11ofNotestoConsolidatedFinancialStatementsincludedinItem8ofthisAnnualReportonForm10-K
foradditionalinformationregardingcontingencies.
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