Google Inc. is an American multinational corporation that specializes in Internet-related services and products. It was founded on September 4, 1998 by Larry Page and Sergey Brin while they both were attending Stanford University. Google’s mission statement is “to organize the world’s information and make it universally accessible and useful” (Google). I chose to do my financial report analysis on Google because we live in a world that is rapidly changed by the advances in technology and Google is one of the world’s best innovators in the field. The word “Google” itself is used as common nomenclature in the field of technology.
Although there are other search engines available on the Internet, the word “Google” has become synonymous with regards to looking up something online. You don’t hear people going around saying “Yahoo! It” or “Bing it”. Google is important because they are such a huge competitor in the field of technology. Google has their Android operating system that is a huge competitor with Apple’s IOS. Google also makes their own phones that also compete with Apple’s iPhone. Google is also developing a product called Google Glasses, which are glasses that you can interact with using only your eyes.
This company has a lot of potential to lose and to make a lot of money, so that is why I chose it to do my financial report analysis. This report is going to include the amount of property and equipment that Google has on their balance sheet for the last two years, the amount of depreciation expense, the individual components of property and equipment and also how the company accounts for nonmonetary exchange and dispositions of property and equipment. The report is also going to discuss Google’s intangible assets and goodwill, the company’s depreciation method on their financial statements and tax returns and also the company’s impairment.
The report is also going to include Google’s current and long term liabilities, bonds payable and capital leases. Property and Equipment “Google’s Global Headquarters is located in Mountain View, California, where they own approximately 3. 5 million square feet of office and building space and approximately seven acres of developable land to accommodate anticipated future growth. They also own a 2. 3 million square feet office building in New York, New York and 665,000 square feet of office and building space in Paris, France and Dublin, Ireland.
We also operate and own data centers in the U. S. , Europe, and Asia pursuant to various lease agreements and co-location arrangements. In addition, they lease approximately 3. 8 million square feet of office space and approximately 61 acres of undeveloped land in and near our headquarters in Mountain View, California. They also lease additional research and development, and sales and support offices throughout the United States and maintain leased facilities internationally in countries around the world.
Larger leased sites include properties located in Dublin, Ireland; Zurich, Switzerland; London, UK; Hyderabad, India; San Francisco, CA; San Bruno, CA; Paris, France; Hamburg, Germany; Tel Aviv, Israel; Sao Paulo, Brazil; Ann Arbor, MI; Bothell, WA; Cambridge, MA; Chicago, IL; Kirkland, WA; Venice, CA; Pittsburgh, PA; Seattle, WA; Sydney, Australia; Beijing, China; Shanghai, China; Bangalore, India; Gurgaon, India; Tokyo, Japan; and Singapore“ (Google Inc. ). In 2011, Google had a gross of $14. 4 billion dollars in property, plant and equipment.
By the end of 2012, Google reported a gross amount of property, plant and equipment at $17. 7 billion dollars. At the end of 2011, Google had an accumulated depreciation expense of $4. 8 billion dollars, which was $800 million dollars higher than the 2010 year. At the end of 2012, Google had an accumulated depreciation expense of $5. 85 billion dollars, which is $1. 05 billion dollars more than the 2011 annual report. Google’s recent depreciation expense can be viewed in the chart below: (Wikinvest) In Google’s most recent year, they had a total of $1. 988 billion dollars in depreciation and depletion.
In 2012, Google invested $3. 27 billion dollars in the purchasing of property and equipment. Google also made $45 million in reverse repurchase agreements. Google does not state how much they specifically have in land, property or equipment. In the chart below, you can see the cash flow of Google over the years: Intangible Assets Google reviews property and equipment, long-term prepayments and intangible assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
They measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. They have made no material adjustments to their long-lived assets in any of the years presented. The biggest intangible asset that makes Google the most money is probably their Android software or YouTube.
Google’s Android software is the biggest competitor for Apple’s IOS and although Google may not make all the phones that utilize the Android software, but it does influence people to purchase those phones because of the software. The Android software is more customizable and user friendly when compared to Apple’s IOS. YouTube is also a big cash cow for Google because the amount of advertisement space bought on YouTube is ridiculous. Some people make a living just by uploading videos on their YouTube channel, just imagine how much the actual company is making off these deals.
In 2012, Google had a total of $792 million in amortization expense of intangible assets. Goodwill Google tests their goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that this asset may be impaired. Google found no goodwill impairment in any of the years presented. At the end of 2012, Google reported an estimated $12. 8 billion in goodwill. Depreciation Methods Google accounts for property and equipment at cost less accumulated depreciation and amortization.
They compute depreciation using the straight-line method over the estimated useful lives of the assets; usually two to five years and they depreciate buildings over periods up to 25 years. They amortize leasehold improvements over the shorter of the remaining lease term or the estimated useful lives of the assets. Construction in progress is related to the construction or development of property, including land and equipment that have not yet been placed in service for their intended use.
Depreciation for equipment commences once it is placed in service and depreciation for buildings and leasehold improvements commences once they are ready for their intended use and land is not depreciated. Impairment Google periodically reviews their marketable and non-marketable securities for impairment. If they conclude that any of these investments are impaired, they determine whether such impairment is other-than-temporary. Factors they consider to make such determination include the duration and severity of the impairment, the reason for the decline in value and the potential recovery period and their intent to sell.
For marketable debt securities, they also consider whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the amortized cost basis cannot be recovered as a result of credit losses. If any impairment is considered other-than-temporary, they will write down the asset to its fair value and record the corresponding charge as interest and other income, net. Current Liabilities At the end of 2012, Google had a total of $14. 3 billion in current liabilities.
They had $2 billion in accounts payable, $2. 6 billion in short-term debt, $2. billion in accrued compensation and benefits, $3. 3 billion in accrued expenses and other liabilities, $1. 5 billion in accrued revenue share, $1. 7 billion in securities lending payable, $895 million in deferred revenue and $240 million in income taxes payable. Contingent Liabilities Google is regularly subject to claims, suits, government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, tax, labor and employment, commercial disputes, content generated by their users, goods and services offered by advertisers or publishers using their platforms, and other matters.
Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. Google records a liability when they believe that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. Google evaluates on a monthly basis, developments in their legal matters that could affect the amount of liability that has been previously accrued, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.
Until the final 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 their estimates and assumptions change or prove to have been incorrect, it could have a material impact on their business, consolidated financial position, results of operations, or cash flows. In December 31, 2012, Google had $2. 1 billion of other non-cancelable contractual obligations, primarily related to certain of our distribution arrangements, video and other content licensing revenue sharing arrangements, as well as data center operations and facility build-outs.
In December 31, 2012, Google had unused letters of credit for $89 million, of which $45 million related to their Mobile segment. Long-term Liabilities Google does not have a lot of long-term liabilities. Google had $2. 9 billion in long-term debt in both 2011 and 2012, $40 million in 2011 and $100 million in 2012 for non-current deferred revenue, $1. 7 billion in 2011 and $2. 05 in 2012 billion for non-current income taxes payable, $287 million in 2011 and $1. billion in 2012 for non-current deferred income taxes and $506 million in 2011 and $740 million in 2012 for other long-term liabilities. In 2011, Google paid $40 million in interest and in 2012 paid another $74 million in interest.
Bonds Payable Google does have bonds payable with a total value of $1. 629 billion, which were sold at a discount for a total of $1. 608 billion. This gave Google an unrealized loss of $21 million. This would be amortized by crediting bonds payable with $1. 629 billion, debiting cash for $1. 08 billion and debiting discounts on bonds payable for $21 million. The same thing would happen if bonds were sold at a premium, except you would debit premiums on bonds payable with the difference.
Capital Leases Google does not have any capital leases, but the qualifications for a capital lease include: The life of the lease is 75% or greater of the assets useful life, the lease contains a purchase agreement for less than market value, the lessee gains ownership at the end of the lease period and the present value of lease payments is greater than 90% of the asset’s market value.
Conclusion To sum it all up, Google is global force in the technological world. Even if it seems that they have a lot of current and long-term liabilities, one must remember that they are functioning at a huge scale. With the way the company is running, one would be lucky to either work for or own a piece of this company. Google has enough resources to acquire and spread its influence throughout the entire world. With the acquisition of YouTube and Motorolla, it just shows what Google is capable of owning and operating.