Google New Zealand Limited Financial statements for the year ended 31 December 2016 Contents Directors? report independent auditors' report Financial Statements Statement of profit or less and other comprehensive income Statement of financial position Statement of cash ?ows Statement of changes in equity Notes to the ?nancial statements M?x m?dCDm-B- Google New Zealand Limited Directors? report 31 December 2016 Directors' report The Directors present their report together with the financial statements of Googie New Zealand Limited (the ?Company") and the independent auditors' report, for the financial year ended 31 December 2016. Directors The Directors of the Company in office during the year ended St December 2016: Kenneth Hohee Yi Fiona Bones (Appointed: 01.04.2016) John Howell James Marocco (Resigned: 01.02.2016) - The loss of the Company for the financial year after providing for income tax amounted to $603,755 (2015: Loss of $601 ,463). The current tax of the Company was $304360 (2015: $233,396). The shareholders of the Company have exercised their right under Section 211(3) of the Companies Act 1993. whereby pursuant to a decision of the shareholders of the Company who together hold at least 95% of the voting shares, they have agreed not comply with paragraphs and to of section 211(1) or section 211(2) of the Act. The Board of Directors of Google New Zeaiand Limited authorised these financial statements presented on pages 4-22 for issue on the date below. Dividends No dividends were paid or deciared by the Company during the financial year and the Directors do not recommend any dividend to be paid in respect of the ?nancial year ended 31 December 2016. Share options No options over issued shares or interests in the Company were granted during or since the end of financial year and there were no options outstanding at the end of the financial year. The Company's ultimate parent. Alphabet Inc, Operates an employee equity plan in which share options and restricted stock units in Alphabet Inc. are issued to employees of Google New Zealand Limited in connection with the services received by the Company. Auditors The independent auditors, Ernst Young have expressed their wlilingness to accept re-appointment as auditors. For and on behalf of the Board, who authorise the issue of these Financial statements on 25'h May 20W: 25 May 2017 -1- Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent Auditor’s Report to the Shareholders of Google New Zealand Limited Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Google New Zealand Limited (“the company”) on pages 4 to 25, which comprise the statement of financial position of the Company as at 31 December 2016, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended of the Company, and the notes to the financial statements including a summary of significant accounting policies. In our opinion, the financial statements on pages 4 to 25 present fairly, in all material respects, the financial position of the Company as at 31 December 2016 and its financial performance and cash flows for the year then ended in accordance with New Zealand equivalents to International Financial Reporting Standards Reduced Disclosure Regime. This report is made solely to the company's shareholders, as a body. Our audit has been undertaken so that we might state to the company's shareholders those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other than in our capacity as auditor we have no relationship with, or interest in, the company. Partners and employees of our firm may deal with the Company on normal terms within the ordinary course of trading activities of the business of the Company. Directors’ Responsibilities for the Financial Statements The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the financial statements in accordance with New Zealand equivalents to International Financial Reporting Standards Reduced Disclosure Regime, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing on behalf of the entity the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (New Zealand) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located at the External Reporting Board website: https://www.xrb.govt.nz/Site/Auditing_Assurance_Standards/Current_Standards/Page8.aspx. This description forms part of our auditor’s report. Report on the Other Legal and Regulatory Requirements In accordance with the Financial Reporting Act 1993, we report that: ► We have obtained all the information and explanations that we have required. ► In our opinion proper accounting records have been kept by Google New Zealand Limited as far as appears from our examination of those records. Ernst & Young Sydney 25 May 2017 Google New Zealand Limited Statement of proflt or loss and other comprehensive income For the year ended 31 December 2016 2016 2015 Notes N20 N29 Revenue 4 12,593,921 10,729,935 Cost of providing services 5 12,892,816 11,098,002 Loss before income tax (298,895) (368,067) income tax expense 6 304,860 233,396 Loss for the year (603453) Other comprehensive loss for the year - - Total comprehensive loss for the year (603.755) (601.463) Loss for the year is attributabie to: Equity holders of Google New Zealand Limited (603,755) (601,463) I Tolai comprehensive loss for the year is attributable to: Equity holders of Geogle New Zealanci Limited (603,755) (601,463) Fo:r and on behalf of the Board, who authorise the issue of these Financi statements on 25?h May 2017 25*h May 2017 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes, -4- ASSETS Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Property. plant and equipment, net Deferred tax assets Other non-current assets Total non-current assets Total aesets LIABILITIES Current liabilities Trade and other payables Provisions Current tax payables Total current tiabilities Non-current liabilities Provisions Deferred rent Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Accumulated losses Total equity Notes 18(b) Googie New Zealand Limited Statement of financial position As of 31 December 2018 2016 2015 NZD NZD 4,945,033 8,105,150 2,102,369 142,870 7,047,402 8,248,020 827,960 881,473 98,765 98,180 51,610 926,725 1,031,263 7,974,127 9,279,283 3,272,852 5,240,182 363,079 170,214 5,471 65,149 3,641,402 5,475,545 - 100,947 - 23.520 - 124,467 3,641,402 5,600,012 4,332,725 3,679,271 500,000 500,000 5,273,050 0010.741 (1,441,225) (037,470) 4,332,725 3,679,271 The above statement offinanoiai position should be read in conjunction with the accompanying notes. Cash flows from operating activities Loss before income tax Adjustment for: Depreciation of property. plant and equipment Loss on assets disposal Share-based payments expense Interest income Operating cash flows before changes in working capital Working capital changes: (Increaseildecmase in trade and other receivables (lncrease)ldecrease in other non~current assets increase/(decrease) in trade and other payables increase/(decrease) in provisions increase/(decrease) in other non-current Cash ?ows from operations interest received income taxes paid Net cash provided by! (used in) operating activities Cash flows from investing activities Proceeds on sale of property, plant and equipment Purchase of property, plant and equipment Net cash used in investing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year Notes to 18(3) Googte New Zeaiand Limited Statement of Cash flows As of 31 December 2016 2015 2015 N20 N20 (290,395) (368,067) 598,530 585,595 - 5.330 1,257,209 1.165.259 (4.047) 1,555,844 1,752,598 (1,959,500) 4,473,017 51,510 (37,444) (1,907,330) 277,033 91,920 42,594 (23,520) 23,520 (3,808,320) 4,778,720 - 4,047 (355,124) (350,244) (2,515,100) 5,701,554 - 122,421 (545,017) (573,834) (545,017) (551,413) (3,150,117) 5,230,241 8,105,150 2,874,909 4,945,033 8,105,150 The above statement of cash flows should be read in conjunction with the accompanying notes. -5- Google New Zealand Limited Statement of Changes in Equity For the year ended 31 December 2016 Share Retained capital Reserves earnings Total equity Notes N20 N20 NZD NZD Balance at 1 January 2015 500,000 2,851,472 (236,007) 3,115,465 Comprehensive income Loss for the year - (601,463) (601 ,463) Other comprehensive income I (lose) - - - Total com prehensive. income (loss) - - (601,463) (601,463) Transactions with owners Share-based payments 18(3) - 1,165,269 - 1.165.269 Balance at 31 December 2015 500,000 4,016,741 (837,470) 3,679,271 Balance at 1 January 2016 500,000 4,016,741 (837,470) 3,579, 271 Comprehensive income Loss for the year - - (603,755) (603,755) Other comprehensive income I (loss) - . . . Total comprehensive income I (lose) - - (603,755) (603,755) Transactions with owners Share-based payments 18(a) 1,257,209 - 1,257,209 Balance at 31 December 2016 500,000 5,273,950 (1,441,225) 4,332,725 he above statement of changes in equity should be read in conjunction with the accompanying notes. -7. Google New Zealand Limited Notes to the financial statements 31 Decamber 2016 Notes to the financial statements 1. General information The financial statements of Google New Zealand Limited (the ?Company") for the ?nancial year ended 31 December 2016 were authorised for issue In accordance with a resolution of the Directors dated 25th May 201?. The Company is a limited liability company incorporated and domiciied in New Zealand. The Company's registered of?ce is at Simpson Grierson. Level 27. 88 Shortland Street, Auckland, New Zealand and its principal place of business is at Level 27. Tower, 188 Quay Street, Auckland, New Zealand. The Company's ultimate hotding company is Aiphabet, Inc., a company incorporated in the United States of America, while its immediate holding company is Googie International LLC, a company incorporated in the United States of America. Related companies in these financial statements refer to the group oi companies snder the Alphabet Inc. group. The principal activities of the Company during the financial year were to provide services, consulting, advice and assistance required in connection with marketing and support activities ("Services and Marketing services?) for the business of developing, marketing and web search services. Additionaliy. the Company performed certain research and development services (?Research and Development services") with respect to products. utilising Alphabet the. Technology and other appropriate technology from Alphabet inc. or third parties. 2. Summary of significant accounting policies These financiat statements have been prepared in accordance with New Zealand Generally Accepted Accounting P'ractise and the requirements of the Companies Act 1993 and the Financial Reporting Act 2013. They comply with New Zealand equivalents to International Financial Reporting Standards - Reduced Disclosure Regime and other applicabte Financial Reporting Standards, as appropriate for Tier 2 for-profit entities. The Company is eligible and has elected to report in accordance with Tier 2 for-pro?t Accounting Standards on the basis that it does not have public and is not a large for-pro?t public sector entity. From 1 January 2016, the Company transitioned from NZ IFRS Differential Reporting to NZ RDR, no restatements were required as a result of this transition and accordingly there is no impact on the opening equity balance of the Company. Basis of preparation The principal accounting poiicies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Entity reporting The financial statements for the Company are for Google New Zealand Limited as a separate legal entity. The Company is designated as a profit-oriented entity for financial reporting purposes. Statutory base Google New Zealand Limited is a company registered under the Companies Act 1993. Historical cost convention These financial statements have been prepared under the historical cost convention. as modified by the revaluation of certain assets as identified in speci?c accounting policies below. Prior year comparatives Where necessary, comparatives have been reclassified and repositioned for consistency with current period disclosures. -3. Google New Zealand Limited Notes to the financial statements 31 December 2016 (continued) Foreign currency translation Functional and presentation currency The financial statements of the Company's operations are measured using the currency of the primary economic environment in which the Company operates (the ?functional currency"). The financiat statements are presented in New Zealand doilars which is the Company?s functional and presentation currency. (it) Transactions and balances in preparing the financial statements of the Company, transactions in currencies other than the Company's functional currency ("foreign currency") are recorded at rates of exchange prevailing on the date of the transaction. At each reporting date. monetary items denominated in foreign Currencies are re-translated at the rates prevailing on the reporting date. Non? monetery items carried at fair value that are denominated in foreign currencies are re?translated at the rates prevaiting on the date when the fair value was determined. Non?monetary items that are measured in terms of historical cost in a foreign currency are not re?translated. Exchange differences arising on the of monetary items and on transtaticn of monetary items are included in profit or loss for the financial year. Exchange differences arising on the re-translation of non-monetary items carried at fair value are included in profit or loss for the financial year except for differences arising on the re-transtation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items. any exchange component of that gain or loss is also recognised directly in equity. to) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable in the ordinary course of business. Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of the revenue can be measured reliably. The Company bases its estimates on historical recutts, taking into consideration the type of customer. the type of transaction and the specifics of each arrangement. Revenue is presented net of returns. trade allowances. rebates. amounts collected on behalf of third parties and sales related taxes. Revenue is recognised for the major business activities as follows: Service revenue The Company has a service agreement with Google Inc. for the provision of Research and Development services and a service agreement with Google Asia Pacific Pte. Ltd. for the provision of Sales and Marketing services. Expenses incurred by the Company in the performance of agreed upon services and any other expenses as agreed between the parties, except interest expenses. share-based payment expenses and income taxes (in aggregate. the "Expenses?), are incorporated into the service agreements. Revenue is recognised on an accrual basis when the underlying services are performed and expenses are incurred. (if) interest income Interest income is recognised on a time-proportion basis using the effective interest method. .9. Google New Zealand Limited Notes to the financial statements 31 December 2016 (continued) income tax The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the applicable income tax rate for each jurisdiction. plusrminus any prior years' underrover provisions and adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. it establishes provisions where appropriate on the basis of amounts expected to be paid to the taxation authority. (1) Current tax Current tax assets and iiabilities are measured at the amount expected to be recovered from or paid to the taxation authority. Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Current tax assets and tax liabilities are offset where the entity has a legally enforceabte right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Deferred tax Deferred income taxis provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: . where the deferred income tax liability arises from the initiai recognition of goodwill or of an asset or liability in a transaction that is not a business combination and. at the time of the transaction, affects neither the accounting profit nor taxable pro?t or loss. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except: . where the deferred income tax asset rotating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and. at the time of the transaction. affects neither the accounting pro?t nor taxable profit or loss. The carrying amount or deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that suf?cient taxable profit will be available to allow alt or part of the deferred tax asset to be utilised. Unrecognlsed deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will altow the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.- Deferred income tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity and deferred tax arising from a business combination is adjusted against goodwill on acquisition. Deferred income tax assets and deferred income tax liabilities are offset. it a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. is) Goods and Services Tax (GST) Revenue, expenses and assets are recognised net of the amount of associated unless the GST incurred is not recoverable from the taxation authority. in this case. it is rec09nised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inctuslve of the amount of GST receivable or payable. The net amount of GST 'recoverabte from, or payable to. the taxation authority is included with other receivabtes or payables in the statement of financial position. -1 0- Googie New Zealand Limited Notes to the financial statements 31 December 2016 (continued) if) Leases Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the iessor) are taken to profit or loss on a straight-tine basis over the period of the tease. When an operating lease ls terminated before the lease period has expired. any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes piece. (9) Impairment of non-financial assets All non-financial assets are reviewed for impairment whenever events or changes in circumslances indicate that the carrying amount may not be recoverable. An impairment toss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sail and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Cash and cash equivalents For statement of cash tiows presentation purposes. cash and cash equivalents includes cash on hand. deposits hetcl at salt with ?nancial institutions. other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in vaiue, net of bank overdrafts. ii) Financiat assets - Financial assets are recognised on the statement of financial position when, and only when. the Company becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value. plus. in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. A financial asset is derecog nised where the contractual right to receive cash flows from the asset has expired. On derecog niticn of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that has been recognised directly in equity is recognised in profit or loss. Ail regular way purchases and sales of financial assets are recognised or derecognised on the trade date the date that the Company commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financiai assets that require delivery of assets within the period generally established by reguiation or convention in the marketplace concerned. Loans and receivables Financial assets with ?xed or determinabte payments that are not quoted in an active market are classified as loans and receivables. They arise when the Company provides money. goods or services directly to a debtor with no intention of selling the receivable. They are included In current assets, except for those with maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables are included in 'irade and other receivables? in the statement of financial position. Subsequent to initial recognition. loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process. investments in equity instruments whose fair value cannot be reliabiy measured are measured at cost less impairment loss. -11- Google New Zeaiand Limited Notes to the financial statements 31 December 2016 (continued) Financial assets (continued) Impairment of financial assets The Company assesses at each reporting date whether there is objective evidence that a financiat asset or a group of financial assets is impaired. Loans and receivables An aliowance for impairment in value of teens and receivables is recognised when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. The amount of allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in profit or loss. If. in a subsequent period. the amount of the impairment in value decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment in value ls reversed either directly or by adjusting an allowance account. Any subsequent reversal of an impairment in value is recognised in profit or loss. to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal data. (J) Flnancialliabillties Financial liabilities are recognised on the statement of financial position when. and only when. the Company becomes a party to the contractual provisions of the financial instrument. Financial liabliities are recognised initially at fair value, plus. in the case of financiat liabilities other than derivatives, directly attributable transaction costs. Subsequent to initial recognition. all financial liabilities are measured at amortised cost using the effective interest rate method. A financial liability is derecognised when the obiigation under the liability is extinguished. For financial liabilities gains and losses are recognised in profit or loss when the liabilities are derecognised. and through the amortisation process. Fair value estimation The Company measures financial instruments at fair value at each balance sheet date. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a iiability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded affair value are measured and classi?ed in accordance with a three-tier fatrvaiue hierarchy based on the observability of the inputs available in the market used to measure fair value: Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 -?Valuation techniques for which the lowest level input that is significant to the fair vatue measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair vaiue measurement is unobservable Management has determined that the carrying value of cash and cash equivalents. trade and other receivables. amounts due fromllto) related companies. and trade and other payables. based on their notional amounts reasonably approximate their fair values because these are mostly short term in nature or are re?priced frequently. Loans due from/(to) related companies are able to be called on demand therefore the carrying amount is determined to be at fair value. -12- Google New Zealand Limited Notes to the financial statements 31 December 201 6 (continued) (I) Property. plant and equipment Property, plant and equipment are initially recorded at cost. Subsequent to initial recognition, property. plant and equipment are stated at cost less accumulated depreciation and impairment value. if any. The cost of property. plant and equipment includes expenditure that is directly attributable to the acquisition of the items. Dismantlement. removal or restoration costs are included as part of the cost of property. plant and equipment If the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the property. plant and equipment. Subsequent expenditure relating to the property, plant and equipment that has already been recognised is added to the carrying amount of the asset or recognised as a separate asset, as appropriate, when it is probable that the future economic benefits, in excess of standard performance of the asset before the expenditure was made, will flow to the Company, and the cost can be reliably measured. Atl other repairs and maintenance are charged to the profit and loss component of the statement of pro?t or loss and comprehensive income during the financial period in which they are incurred. Depreciation is charged en a straight~line basis so as to expense the cost of the property. plant and equipment over their estimated useful lives as follows: Computer equipment 3 years Motor vehicles and office equipment 2 5 years Leasehold improvements The shorter of 5 years or the lease term Network and production equipment 16 months 3 years Assets under construction are stated at cost less impairment losses. Depreciation begins when the reievant assets are available for use. The carrying values of property. plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual values. useful life and depreciation method of property. plant and equipment are reviewed at each reporting date to ensure that the residual values and depreciation method are consistent with the previous estimates and the expected pattern of consumption of future economic benefits embodied in the items of property, plant and equipment. Property. plant and equipment are derecognised upon disposal or when no future economic benefits are expected from their use or disposal. Any gain or loss arising on disposal. calculated as the difterence between the net disposal proceeds and the carrying amount of the asset, is taken to pro?t or loss when the asset is derecognised. Trade and other payables Trade payables and other payabies represent liabilities for goods and services provided to the Company prior to the end of financial year. which are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. Trade payables approximate fair value due to their short term nature. The amounts are unsecured and are generally paid within 30 days of recognition. Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event. it is more likely than not that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be estimated reliably. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. If it is no longer probabte that an outflow of economic resources will be required to settle the obligation. the provision is reversed. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. When discounting is used. the increase in the provision due to the passage of time is recognised as interest expense. .13. Google New Zeaiand Limited Notes to the financial statements 31 December 2016 (continued) to) Employee benefits (0 Short-term obligations Liabilities for wages and salaries, lnciuding non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in trade and other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measwed at the actuai rates paid or payable. Employee entitiements to eateries and wages. annual leave and other benefits are recognised when they accrue to employees. The liability for employee entitiements is carried at the present value of the estimated future cash out?ows. (to) Share based payments Restricted stock units (RSUs) are measured based on the fair market values of the underlying stock on the dates of grant. For Stock option awards outstanding in the periods presented, the Company determined fair value using the Black Scholes-Merton option pricing model on the dates of grant. {Cl} Economic dependency The Company's service revenues are generated under service agreements with Google Asia Pacific Pte. Ltd.. and Google lnc.. As a consequence. the Company is dependent on the operational support of Google Asia Faci?c Pte. Ltd. and Google lnc. for future revenues and pro?ts under the service agreements as detailed above. Google Inc. has indicated that itwill provide ongoing support to Google New Zealand Limited for a period of at least 12 months from the date of the signing of the financial statements. Standards issued but not yet effective Effective for annual periods beginning on or after NZ 15 Revenue from Contracts with Customers 1 January 2018 NZ IF RS 9 Financiai instruments 1 January 2018 Amendments to NZ IFRS 2 Share-based payments 1 January 2018 NZ 16 Leases 1 January 2019 NZ IFRS 15 Revenue from Contracts with Customers NZ IFRS 15 estabiishes a new five?step model that will apply to revenue arising from contracts with customers. Under NZ IF RS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitied in exchange for transferring goods or services to a customer. Either a full or modified retrospective application ls required for annual periods beginning on or after 1 January 2018 with early adoption permitted. The Company is currently assessing the impact of NZ IFRS 15 and is expecting to early adept for annual periods beginning on or after 1 January 201?. using a modified retrospective application. NZ IFRS 9 Financial Instruments NZ IFRS 9 Financial Instruments introduces new requirements for classification and measurement. impairment of financial assets and hedge accounting. Financial assets are classi?ed according to their contractual cash flow characteristic and the business model under which they are held. The impairment requirements in NZ 9 are based on an expected credit loss model which replace incurred cost model under 39. N2 9 is effective for annual periods beginning on or after 1 January 2018 with eariy application permitted. Retrospective application is required. but comparative Information is not compulsory. The Company is currently assessing the impact of NZ 9 and is considering the timing of the date of adoption. Waco. From a lessee perspective. NZ IFRS 16 eliminates the classi?cation of leases as either operating leases or finance leases as is required by IAS 17 and. instead. introduces a single lessee accounting model. Appiying that model. a lessee is required to recognise assets and liabilities for all leases with a term of more than 12 months (unless the underlying asset is of low value); and depreciation of lease assets separately from interest on lease liabilities in the income statement. Either a fuli or modi?ed retrospective application is required and is effective for annual periods beginning on or after 1 January 2019 with early application only permitted provided NZ IFRS 15 has been adepted. The Company is currently assessing the impact of NZ IFRS 16 and is considering the timing of the date of adoption. -14- 3. Critical accounting estimates and judgments The preparation of financlat statements in accordance with Financial Reporting Standards requires the use of certain accounting estimates and exercise of judgement. Estimates and judgements are continuously evaluated and are based on past experience, reasonable expectations of future events and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and Iiabililtes and the reported amounts of revenue and expenses within the next financial year are discussed below: income taxes Judgment ls involved in determining the Company's income taxes. There are certain transactions and computations for which the ultimate lax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters differs from the amounts that were initiatly recognised. such dtfferences will impact the income tax and deferred tax provisions, in the period in which such determination is made. 4. Revenue 2016 2015 N20 N20 Revenue from provision of services 12,593,921 10,725,288 Interest income - 4,647 Total revenue 10,729,935 5. Expenses 2016 2015 NZD NZD Profit before income tax includes the following specific expenses: Employee benefit expense 7,708,790 6,161,339 Marketing expense 1,469,690 1,135,378 Occupancy and utility expenses 1,177,945 1,061,954 Depreciation expense 698,530 586,596 6. income tax expense 2016 2015 N20 N20 income tax expense Current tax 295,629 251,018 Adjustment for prior year tax 12,112 (5,177) Deferred tax (prior year adjustment and current year) (2,881) (12,445) Total income tax expense 304,860 233,396 (13) Numerical reconciliation of income tax expense to prima facie tax payable Loss before income tax (298,895) (368,067) Tax at the New Zeaiand tax rate of 28% (83,691) (103,059) Income not subject to income tax -, Tax effect of expenses that are non-deductible in determining taxable profit 378,735 341,632 Prior period adjustments with respect to deferred income tax expense (2,296) - Prior period adjustments with respect to income tax expense 12,112 (5,177) Total Income tax expense 304,860 233.396 -15- 7. Financial instruments by category Assets as per statement of financial position At 31 December 2015 Trade and other receivables (excluding prepaid GST receivable} Cash and cash equivalents Total financial instruments assets At 31 December 2016 Trade and other receivables (excluding prepaid GST receivable) Cash and cash equivalents Total financial instruments assets Liabilities as per statement of financial position At 31 December 2015 Trade and other payables (exciuding employee related accruals) Total financial instruments liabilities At 31 December 2016 Trade and other payabies (excluding emptoyee related accruals) Total ?nancial instruments liabilities Loans and receivables Total NZD NZD 68,442 66,442 8,105,150 8,105,150 8,173,592 6,173,592 1,835,037 1,835,037 4,945,033 4,945,033 6,780,070 6,780,070 Financial liabilities measured at amortised cost Total NZD NZD 4,767,621 4,767,621 4,767,621 4,767,621 2,461,497 2,461,497 2,461,497 2,461,497 The carrying amounts of the financial assets and liabilities in the financial statements are reasonable approximation of fair values due to their short?term nature. 8. Current assets - Cash and cash equivalents Cash at bank Total cash and cash equivalents 9. Current assets - Trade and other receivables Amounts due from related parties Other receivables Total trade and other receivables -16- 2016 2015 N20 N20 4,945,033 3.105.150 4,945,033 8,105,150 2016 2015 NZD NZD 1,823,598 63,878 278,771 73,994 2,102,369 142.870 10. Non-current assets - Property, plant and equipment, net Motor Vehicles Network and Computer and office Leasehold production equipment equipment improvements equipment Totai NZD NZD NZD NZD NZD At1January2015 Cost 431924 136401 382825 L361364 2298614 Accumulated depreciation (358,909) (118,649) (224,051) (674,969) (1,376,578) Netbookanmunt 79015 17A52 138774 680795 922036 Year2015 OpeMngnetbookamoum 79015 11452 138774 686795 922036 Additions 169,902 - 21,099 482,833 673,834 Doposam (111788) - (4853) (8380) (127801) Depreciation charge (80,040) (6,877) (60,940) (438,739) (586,596) Closing net book amount 51,109 10,575 94,280 725,509 881,473 At1January2016 . Cost 490057 136401 379272 L63K797 2643227 Accumulated depreciation (438.948) (125,526) (284,992) (912,288) (1,761,754) Netbookanmunt 51109 10575 94280 725509 88L473 Year2016 Opening net book amount 51,109 10,575 94,280 725,509 881,473 Adamons - E484 257354 380356 646196 Dmposak {179) - - - (179) (30671) (6542) Q13A60) (448n57) (698530} 20259 1t517 130474 65L710 82Z980 At 31 December 2016 Cost 489,878 143,585 636,626 1,902,376 3,172,465 Accumulated depreciation (469,619) (132,068) (498,152) (1,244,666) (2,344,505) Net book amount 20,259 11,517 138,474 657,710 827,960 11. Non-current assets Deferred tax assets 2016 2045 N20 N20 The balance comprises temporary differences attributable to: Accrued expenses 8,389 3,934 Provisions 59,009 46,864 Accelerated depreciation 31,367 47,382 Net deferred tax assets 98,765 98,180 -17- 11. Non-current assets - Deferred tax assets (continued) Movements: AM January 2015 Charged to the statement of profit and toss and other comprehensive income Al 31 December 2015 At 1 January 2016 Charged?credited) to the statement of profit and loss and other comprehensive income At 31 December 2016 12. Non?current assets - Other non-current assets Deposits Total non-current assets 13. Current liabilities - Trade and other payables Trade payables Amounts due to related parties Employee benefits accruals Accrued expenses Deferred Rent Total trade and other payables 14. Current liabilities Provisions Employee benefits Asset retirements obligation Totat current - Provisions As at 1 January 2016 Arising during the year Utillsed Reclassified from Non-current liabilities As at 31 December 2016 Accrued expenses Fixed assets Total NZD NZD NZD 47,820 37.915 85.735 2,978 9,467 12,445 50,798 47,382 98,180 50,798 47,382 98,180 16.600 (16.015) 585 67,398 31,367 98,765 2016 2015 NZD NZD - 51.610 - 51 ,61 0 2016 2015 NZD NZD 499.071 341.414 2103) 1,525,668 4,199,367 811.355 496.08? 413,238 203,320 23,520 - 3,272,852 5,240,182 2016 2015 NZD NZD 227,179 160,934 135,900 9,280 363,079 170,214 Asset Employee retirements benefits obligation Total NZD NZD NZD 160,934 9,280 170,214 85.049 25.673 110,722 (18,804} - (18,804) - 100,947 100,947 227,179 135,900 363,079 -18.. 15. Non-current liabilities Provisions 2016 2015 NZD 0520 Asset retirements obligation - 100.94? Total non-current liabilities - Provisions - 100,947 Asset retirements obligation Total N20 N20 As at 1 January 2016 100,947 100,947 Reclassified from Non?current provision to current provisions - (100,947) {100.947} As at 31 December 2016 - - 16. Contributed capital Share capital Number of shares NZD Ordinary shares Authorised: As at 1 ?January 2016 - 100 500.000 As at 31 December 2016 100 500,000 Issued and fuily paid: As at 1 January 2016 100 500.000 As at 31 December 2016 100 500,000 As at 31 December 2016, there were 100 shares issued and fully paid (2015: 100) Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. All ordinary shares have equal voting rights. The ordinary shares have no par value. 17. Share-based payments Class A and Ciass Common Stock and Class Capital Stock The ultimate parent Company Alphabet Inc?s (formerly Google lnc.?s) board of directors has authorized three classes of stock, Class A and Class 8 common stock. and Ciass capitai stock. The rights of the holders of each class of stock are identical. except with respect to voting Each share of Class A common stock is entitled to one vote per share. Each share of Class common stock is entitled to 10 votes per share. Class capital stock has no voting rights, except as required by applicable law. Shares of Class 13 common stock may be converted at any time at the option of the stockholder and automatically convert upon sale or transfer to Class A common stock. Stock Plans Through its ultimate parentAlphabet inc, the Company operates an equity?settled share-based payment plan. During the year ended December 31. 2016. shares reserved for future grants under the 20041 Stock Plan expired and Alphabet Inc. began granting awards from the 2012 Stock Plan ("Stock Plan"). Under the Stock Plan, RSUs may be granted. An RSU award is an agreement to issue shares of our stock at the time the award vests. incentive and non-quali?ed stock options. or rights to purchase common stock, are generally granted for a term of 10 years. RSUs granted to participants under the Stock Plan generatly vest over four years contingent upon employment or service with the Company on the vesting date. -19.. 17. Share-based payments (continued) Fair value of options granted in the year There were no options granted during the current or prior year. The total expense arising from share-based payment transactions is NZD 1,257,209 (2015: NZD 1,166,269). Movements in share options during the period The following table illustrates the number and weighted average exercise prices of, and movements in, share options during the year. 2016 2015 Number WAEP Number WAEP N20 N20 Baiance at1 January 24 154.29 224 160.19 Exercised ?l - - [200) 164.12 Balance at31 December 24 154.29 24 154.29 Vested and exercisable as of 31 December 24 154.29 24 154.29 (?There were no share Options exercised during the year ended 31 December 2016. (2015: 200 share options were exercised at weighted average share price of NZD 986.54) The weighted average remaining contractual life for the share options outstanding as at 31 December 2016 is 0.76 years {2015: 1.76 years). Movements in restricted stock units and restricted shares during the period The foilowing summarises the activity for unvested RSUs and restricted shares for the period: Unvested Restricted Stock Units and Restricted Shares 2016 2015 Number Weighted Number Weighted average grant average grant date fair value data fair value NZD NZD Unvested at 1 January 3,660 525.86 2,942 441.99 Granted 1,524 766.36 2.118 540.11 Vested (1.898) 511.20 (1.623} 448.70 Forfeited - (28) 415.69 Transferred 509 499.18 251 492.61 Unvested at 31 December 3,895 604.78 3,660 525.86 18. Reserves and retained earnings 2016 2015 N213 NZD Shareabased payments reserve Share-based payments reserve 5,273,950 4,016,741 Movements: Batance ?1 January 4,016,741 2,851,472 Option and Restricted Stock Unit expense 1,257,209 1,165,269 Balance 31 December 5,273,950 4,016,741 18. Reserves and retained earnings (continued) The share-based payments reserve is used to recognise the fair value of options and Restricted Stock Units. The expense is recognised over the vesting period which ranges from between 1 and 4 years following the grant date. Retained earnings Movements in retained earnings are as follows: 2016 2015 NZD NZD Balance 1 January (837,470) (236,007) Net loss for the year (603,755) (601,463) Balance 31 December (1,441,225) (837,470) 1 9. Contingencies There were no contingent liabilities as at year end (2015: nil). 20. Commitments As at 31 December 2016, the Company had no capital commitments (2015: nil}. Non-canceliable operating leases The Company teases of?ce premises under non?cancellable operating leases with lease terms of less than one year. Future minimum lease payments under non?cancellable operating leases at the reporting date were as follows: 2016 2015 NZD NZD Within one year 412,810 771,411 Later than one year but not later than five years - 363,640 Later than five years Total future minimum lease payments 412,810 1,135,251 21. Significant related party transactions In addition to the transactions disclosed elsewhere in the financial statements, the following were the signi?cant related party transactions based on terms as agreed between the parties during the ?nancial year: Transactions with related parties The following transactions occurred with related parties: 2016 2015 NZD NZD With other related parties Service fee 12,593,921 10,725,288 Payments on behalf cat/(for) the Company 168,659 (1,078,331) Transfer of property, plant and equipment and other materials (1,521,351?) 1,556,266 Transfer of intercompany batances (61,532) Settlement of intercompany balances (6,746,270) (16,397,838) -21- 21. Significant related party transactions (continued) Key management personnel are remunerated by a related party of the Company. (to) Outstanding balances arising from transactions with related parties The following batances are outstanding at the reporting date in relation to transactions with related parties: 2016 2015 N20 NZD Amounts due from related parties Immediate holding company . . Other related parties 1,823,598 633376 Amounts due to related parties Immediate holding company . - Other related parties - (1,525,668) 22. Events occurring after the balance date No matter or circumstance has occurred subsequent to the end of the reporting period that has signi?cantly affected. or may significantly affect: the operations of the Company, the results of those operations or the state of affairs of the Company in subsequent ?nancial years. -22- Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Registrar of Companies PO Box 5771 Auckland New Zealand Dear Sirs I, Meredith Scott of Ernst & Young Australia, am a member of CAANZ and my membership number is 78508. Our firm was responsible for the audit of Google New Zealand Limited for the year ended 31 December 2016 and I was the signing partner on that engagement. Yours sincerely Meredith Scott Partner Sydney, Australia 25 May 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation