Google 2013 Annual Report Download - page 65

59
PART II
ITEM8.NotestoConsolidatedFinancialStatements
Cash Flow Hedges
Weuseoptionsdesignatedascashowhedgestohedgecertainforecastedrevenuetransactionsdenominatedincurrenciesother
thantheU.S.dollar.Thenotionalprincipalofthesecontractswasapproximately$9.5billionand$10.0billionasofDecember31,
2012andDecember31,2013.Theseforeignexchangecontractshavematuritiesof36monthsorless.
In2012,weenteredintoforward-startinginterestrateswapsthateectivelylockedinaninterestrateonouranticipateddebt
issuanceof$1.0billionin2014.Thetotalnotionalamountoftheseforward-startinginterestswapswas$1.0billionasofDecember
31,2012andDecember31,2013withtermscallingforustoreceiveinterestatavariablerateandtopayinterestataxedrate.
WeinitiallyreportanygainorlossontheeectiveportionofacashowhedgeasacomponentofAOCIandsubsequentlyreclassify
cumulativegainsandlossestorevenuesorinterestexpensewhenthehedgedtransactionsarerecorded.Ifthehedgedtransactions
becomeprobableofnotoccurring,thecorrespondingamountsinAOCIwouldbeimmediatelyreclassiedtointerestandother
income,net.Further,weexcludethechangeinthetimevalueoftheoptionsfromourassessmentofhedgeeectiveness.We
recordthepremiumpaidortimevalueofanoptiononthedateofpurchaseasanasset.Thereafter,werecognizechangesto
thistimevalueininterestandotherincome,net.
AsofDecember31,2013,theeectiveportionofourcashowhedgesbeforetaxeectwas$93million,ofwhich$11millionis
expectedtobereclassiedfromAOCIintoearningswithinthenext12months.
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osettinglossesandgainsoftherelatedhedgeditems.Weexcludechangesinthetimevalueforforwardcontractsfrom
theassessmentofhedgeeectiveness.Thenotionalprincipalofthesecontractswas$1.1billionand$1.2billionasofDecember
31,2012andDecember31,2013.
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foreign
currencygainsandlossesonmonetaryassetsandliabilities.Thenotionalprincipalofforeignexchangecontractsoutstanding
was$6.6billionand$9.4billionatDecember31,2012andDecember31,2013.
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xedincomesecurities.TheTBAcontractsmeetthede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o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$25million
and$13millionatDecember31,2012andDecember31,2013.
Thefairvaluesofouroutstandingderivativeinstrumentswereasfollows(inmillions):
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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