Google

Going Beyond core Treasury

Brent Callinicos, CPA VP, Treasurer & Chief Accountant Google Inc.

1

Agenda

• Company financial information • Company culture and impact on build-out velocity/strategy • Treasury: a five-year journey • Goal: world-class everywhere • Building on the base

2

Historical financial performance

3

Gross Revenue GAAP Operating Profit

GAAP EPS (Diluted) Operating Cash Flow

$86 $440 $1,466 $3,189

$6,139

$10,605

$16,594

$21,795 $23,651

$29,321

$37,905

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ in

mill

ions

$11 $186 $342 $640

$2,017

$3,550

$5,084

$6,632

$8,313

$10,382

$11,742

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ in

mill

ions

$0.45 $0.41 $1.46

$5.02

$9.94

$13.29 $13.31

$20.41

$26.30

$29.76

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ in

mill

ions

$31 $155 $395 $977

$2,459 $3,581

$5,775

$10,002 $9,650

$11,081

$14,565

$0

$2,500

$5,000

$7,500

$10,000

$12,500

$15,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ in

mill

ions

U.S. vs. International revenues

4 Google Proprietary and Confidential

2004 2005 2006 2007 2008 2009 2010 2011 2012

65% 65% 61% 61% 61%62% 58% 58% 56%

56% 53% 52%52%

52% 49% 48% 49% 50%48% 47%

47%47% 47% 48%

48%

48% 47% 46%45%

47% 46%

47%

35%35% 39% 39% 39%

38% 42% 42% 44%44% 47% 48%

48%48% 51% 52% 51% 50%

52% 53%53%

53% 53% 52%52%

52% 53% 54%55%

53% 54%

53%

806 1,032

1,257 1,384

1,578 1,919

2,254 2,456 2,690

3,205 3,664 3,872

4,231

4,827 5,186

5,367 5,541 5,701 5,509 5,523

5,945

6,674 6,775 6,820

7,286

8,440 8,575

9,026

9,720

10,584 10,645

12,214

$0

$2,500

$5,000

$7,500

$10,000

$12,500

Q3 04

Q4 04

Q1 05

Q2 05

Q3 05

Q4 05

Q1 06

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

($ in

mill

ions

)

US International

Cash and marketable securities

5

$2.9

$7.6 $8.0 $8.4$9.8 $10.4

$11.2 $11.9 $12.5 $13.1$14.2

$12.1$13.0

$14.4$15.8

$17.8$19.3

$22.0

$24.5

$26.5

$30.1

$33.4$35.0

$36.68

$39.1

$42.6

$44.6

$49.3

$43.1

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

$50.0

Q2 05

Q3 05

Q4 05

Q1 06

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Cash

($ in

Bill

ions

)

October 2006 Youtube Acquisition

$1.6 Billion

March 2006 Secondary offering:

$2.1 Billion

March 2008 DoubleClick Acquisition

$3.2 Billion

September 2005 Secondary Offering:

$4.3 Billion

May 2012 Motorola Acquisition

$12.5 Billion

From big bets to hockey sticks


Mobile Chrome Display

YouTube Android Enterprise

• Mobile ad revenue run-rate • Chrome usage has nearly doubled each of past 2 yrs

• Display ad revenue run-rate has doubled in ~1 yr

Google I/O 2010

Google I/O 2011

Google I/O 2012

Chr

ome

Use

rs (m

m)

70

160

310

Q3 10 Q3 11

$1.0B

$2.5B

Q3 10 Q4 11

$2.5B

$5.0B

• 4B hours of video watched per month

• 72 hours of video uploaded every minute

• 800M unique users visit YouTube each month

• 1 million+ Android devices activated each day

• 400 million+ Android devices activated worldwide

• >600,000 apps

• 5 million businesses now using Google Apps

• Tens of millions of active users

• 66 of the top 100 universities in the US have chosen Google Apps

Google Cultural Impact

7

Share everything

8

Ideas come from anywhere

9

Experiment…then decide with data

10

Establish a culture of yes

11

12

Google culture


Strategic Goals

14

• Aim high • Take a deeply analytical approach to everything

– A sophisticated approach doesn’t have to be scary – Risk management as a foundation for forecasting, strategies etc. – Strive for as-close-to-as-possible visibility into exposures, market values

of positions, risk metrics, etc. • Diversify your portfolio • All insurance should be strategic • Use systems wherever possible

– Straight-through processing is critical • Look at entire transactions and processes from start to finish and use real-

time numbers • Don’t confuse activity with results – benchmark everything • Build a world class, technological intense Treasury base and then leverage

skillsets to add value outside of normal Treasury activities

Treasury circa January 2007

15

• People

• Focus Areas

• Systems

Google Treasury Organization Status in 2007

16

Brent Callinicos VP, Treasurer

Portfolio Manager (1 HC)

Assistant Treasurer (1 HC)

Operations & Cash Management

(1 HC)

Stock Services (4 HC)

Treasury Focus Areas Status in 2007

17

• Foreign Exchange – Didn’t exist

• Portfolio Management – 1 FTE, 90% outsourced to 4 managers, Treasuries & municipal bonds ($11B)

• Corporate Finance – Didn’t exist

• Financial Risk Management – Didn’t exist

• Cash Management/Operations – Before: 1 FTE, largely manual processes, visibility into ~50% of worldwide cash daily. No

operations group.

• Risk Management – Before: 1 temp, tactical 3rd party insurance purchases

• Stock Services – Before: 4 FTE, 1 broker, Transferrable Stock Option (TSO) program pending

Treasury Systems Architecture Status in 2007

18

Banks (Cash positions)

CitiDirect

Bloomberg

Ext. Money Mgrs

State Street (Custodian)

Portfolio Processes

Cash Mgmt Processes

Manual data entry to create cash visibility

Banks (FX BS txns)

FX Processes

In the middle of difficulty lies opportunity

Albert Einstein

19

Personnel Focus

20

• Take a long-term focus • Hire for strategy

‒ High level strategy drives hires

‒ Personnel drive bottoms-up strategy validation and details

‒ Don’t rush hiring

‒ Hire expertise + adaptive intelligence + desire to build

‒ Bar should be to be as good as counterparties

Google Treasury Organization – Q1 ‘07

21

Brent Callinicos VP, Treasurer

Portfolio Manager (1 HC)

Assistant Treasurer (1 HC)

Operations & Cash Management

(1 HC)

Stock Services (4 HC)

Google Treasury Organization – Q3 ‘12


VP, Treasurer

Assistant Treasurer Cash Mgmt, Insurance &

Stock Services

Assistant Treasurer, Stock

Services

Stock Manager Stock Manager

Sr. Stock Analyst Sr. Stock Analyst

Sr. Stock Analyst Stock Analyst

Stock Analyst

Treasury Manager, Cash

Mgmt

Sr. Cash Analyst Sr. Cash Analyst

Cash Analyst Cash Analyst

Cash Analyst Cash Analyst

Treasury Ops Manager

Treasury Ops Manager

Treasury Ops Analyst

Business Risk Manager

(Insurance)

Business Risk Manager

(Insurance)

Treasury Manager

Treasury Manager Cash Manager

Sr. Treasury Analyst Treasury Analyst

Treasury Analyst

Assistant Treasurer PMG, FX, Corp Fin, Green

Energy & GFS

Assistant Treasurer, PMG

Director, Portfolio Manager

Portfolio Analyst Portfolio Analyst

Director, Portfolio Manger

Portfolio Analyst

Portfolio Manager (ex.

Mgrs)

Sr. Portfolio Analyst Portfolio Analyst

Director, FX & GFS

FX Manager

Sr. FX Analyst FX Analyst

FX Analyst

Treasury Manager

Sr. Treasury Analyst

Sr. Treasury Analyst

Treasury Analyst Treasury Analyst

Treasury Analyst Treasury Analyst

Corp Fin Manager

Sr. Capital Markets Analyst

RE Lead Associate

Capital Markets Analyst

Capital Markets Associate

Financial Analyst

Capital Markets Manager

Executive Assistant

Executive Assistant

Foreign Exchange

23

• Risk-based approach • Deep quantitative analysis

‒ Statistical, scenario, backtesting

• Decision based on “where do we want to go?” ‒ Not “where have others gone?”

‒ Not “incremental tweak to current approach”

‒ Data drives the decision

• Quantitative insurance appropriate benchmarks

The time to repair the roof is when the sun is shining.

John F. Kennedy

24

Foreign Exchange

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Year

EURU

SDSp

ot R

ate

EURUSD: 2000 to Present

25

Inception of EUR CashFlow Hedging Program

Source: Bloomberg, rates data from 3-Jan-2000 to 29-Aug-2012

Quarterly Realized Hedge Benefit

26 Source: Google public filings, 2008 - 2012

$- $5

$34

$129

$154

$124

$39

$8 $10

$79 $89

$25 $14

$4 $1

$25 $37

$81

$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2008 2009 2010 2011 2012

Real

ized

Reve

nue

Hedg

e Be

nefit

($ in

MM

) Cashflow Hedging Program (EUR, GBP, CAD) has led to

nearly $1bn in realized revenue hedge benefit since inception

Portfolio Management

27

• Risk-based approach • Deep quantitative analysis

‒ Statistical, scenario, backtesting

• Decision based on “where do we want to go?” ‒ Not “where have others gone?”

‒ Not “incremental tweak to current approach”

‒ Data drives the decision

• Standard market performance benchmarks

Credit Spreads

28

Began transition to diversified portfolio

Financial Crisis

Completed diversified portfolio analysis

Many of life's failures are people who did not realize how close they were to success when they gave up (Thomas Edison)

-500

0

500

1000

1500

2000

2500

HIGH YIELD

EMERGING MARKET

INVESTMENT GRADE

AGENCY MBS INDEX

2-YEAR AGENCY BOND

Cumulative PMG Value-Added vs Cash (Sep 2007 – present)

Portfolio Results

29

*Proxied by 1-yr US T-Bill

Traditional Cash Mgmt Approach* PMG Incremental Interest Income

PMG Realized Gains PMG Change in Unrealized G/L and Tax Benef its

Adopted Total Rate of Return Approach Roll-out of New PMG Strategy

Treasury Systems Architecture Status in 2007

30

Banks (Cash positions)

CitiDirect

Bloomberg

Ext. Money Mgrs

State Street (Custodian)

Portfolio Processes

Cash Mgmt Processes

Manual data entry to create cash visibility

Banks (FX BS txns)

FX Processes

Treasury Systems Architecture

31

32

Treasury Areas of Initial Focus Progress Made

33

• Foreign Exchange – Before: didn’t exist – After: risk-based policy, $ multi-billion hedging programs (3), group led by Director with 20+ years of F/X experience. Multiple systems. – ~$1B revenue benefit from hedging in past 4+ years

• Portfolio Management – Before: 1 FTE, 90% outsourced to 4 managers, Treasuries & munis ($11B) – After: risk-based policy, 70%+ in-house, 14 external managers, wide-range of fixed income assets, experienced (and growing) team. World

class systems – Consistently outperformed industry standard benchmarks

• Corporate Finance – Before: didn’t exist – After: work on areas like affordable housing tax credit investing, green energy, capital structure (e.g. recent Commercial Paper issuance

and debt ratings), acquisitions/strategic investments

• Financial Risk Management – Before: didn’t exist – After: small group of mostly Phd’s, who are checks and balances for F/X and portfolio and work as consultants with each group

• Cash Management/Operations – Before: 1 FTE, largely manual processes, visibility into ~50% of worldwide cash daily. No operations group. – Now: very automated, visibility into 98% of cash on demand, and a newly formed operations group

• Risk Management – Before: 1 temp, tactical 3rd party insurance purchases – Now: strategic risk analysis to ensure optimal coverage methodologies

• Stock Services – Before: 4 FTE, 1 broker, Transferrable Stock Option (TSO) program pending – Now: 2 brokers, TSO program up and running

Far better is it to dare mighty things, to win glorious triumphs, even though

checkered by failure... than to rank with those poor spirits who...know not victory

nor defeat. Theodore Roosevelt

34

Going Beyond the Base

35

• Corporate Finance

• Green Energy

• GFS

• Insurance

Corporate Finance

36

• Where can we add most value at Google ‒ Capital structure ($3B CP program then $3B in long-term debt)

‒ Affordable Housing tax credit portfolio

‒ Green Energy investments / contracts

‒ Google Financial Services

‒ M&A / Strategic investment support

Managing the Capital Structure Increasing Options & Reducing Risk

37

$3,000,000,000 Debt IPO

$1,000,000,000 1.250% Notes due 2014

$1,000,000,000 2.125% Notes due 2016

$1,000,000,000 3.625% Notes due 2021

Joint Book-Running Managers

Citi Goldman, Sachs & Co. J.P. Morgan

Bank of America Merrill Lynch Credit Suisse Morgan Stanley

May 16, 2011

Debt Outstanding ($ in millions)

Historical 10yr US Treasury Yields

LT Issuer Rating: AA- / Aa2 0.75%

1.50%

2.25%

3.00%

3.75%

1.65%

$2,122

$3,465 $3,216

$1,217 $1,218 $1,218 $2,468

$3,218

$2,985 $2,986 $2,986

$2,987

$2,987

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12

($m

m)

Commercial Paper LT Debt

$4,202 $4,204 $4,204

$5,455

$6,205

Google's Electricity Consumption in 2011

Electricity Generated by Projects When Built

• Over $915M invested in two years

• Will generate 174% of Google’s annual energy consumption

• Energy to power ~350,000 homes

4.7 MILLION MWh

2.7 MILLION MWh 174%

ATLANTIC WIND$17M | Oct 2010

BRANDENBERG, GERMANY$5M | May 2011

SOLARCITY$280M | May 2011CLEAN POWER FINANCE

$75M | Aug 2011

ALTA WIND$158M | Jun 2011

RECURRENT ENERGY$94M | Dec 2011

BRIGHTSOURCE$168M | Apr 2011

SHEPERD’S FLAT$103M | Apr 2011

PEACE GARDEN$39M | Apr 2010

Renewable Energy Investment Impact

38

• Google has facilitated the construction of over 3000 affordable housing units

Sunnyvale, CA

Fresno, CA

Fontana, CA

Palm Springs, CA

Inglewood, CA

Waukegan, IL

Boston, MA

Milwaukee, WIMinneapolis, MN

Apple Valley, MN

Des Moines, IA

Santa Fe, NM

Honolulu, HI

Mt. View, CA

Waterloo, IA

Salinas, CA

Low Income Housing Investment Impact TBU: Checking with Jim Prosser

39

Making Money and Doing Good are not Mutually Exclusive

40

Google Financial Services AdWords Business Credit (“ABC”) Overview

41

ABC addresses customer credit constraints SMB Advertisers are credit constrained

• Many of Google’s SMB advertisers are unable to maximize benefits of AdWords advertising due to:

⁻ Limited advertising budgets

⁻ Expensive financing costs

⁻ Seasonality

⁻ Inadequate cash flow and / or credit line constraints

• ABC is a Google branded credit card, for AdWords advertising only, that eases credit constraints with:

⁻ Large credit line (~1 year of spend)

⁻ Competitive interest rate (8.99%)

⁻ Flexible payment terms and no annual fees

• Launched pilot in Q3’11; strong SMB interest & significant revenue uplift for Google

Positive feedback from ABC cardholders

• “Thank you guys for helping my small business with affordable credit access and helping me to expand my ad budget and sales. It is a very major help to my business.”

• “We have grown three fold this year because of Google AdWords Business Credit.”

• “Please ensure that this business credit program is grown! It's one of the greatest assets that Google has provided!”

• “Hats off to who thought of this, this is why we prefer Google advertising, forward thinking.”

• “If it were not for the AdWords Business credit card, I would not have spent as much in Google advertising and would have scaled back advertising spend in my off season months.”

• “It's great! Keep doing it! I now need one less line of credit thanks to the AdWords Business Credit card... and a decent line of credit is hard to get these days.”

The Future

42

• Raise the bar in every area in every year – i.e. make the trains go faster, run better

• Figure out new areas of innovation – i.e. which wildernesses do we want to build new tracks through

• Continue to drive system solutions wherever logical

• Don’t be afraid of failure

Thank you.


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