0001652044-19-000023.txt : 20190726 0001652044-19-000023.hdr.sgml : 20190726 20190725181113 ACCESSION NUMBER: 0001652044-19-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 90 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190726 DATE AS OF CHANGE: 20190725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Alphabet Inc. CENTRAL INDEX KEY: 0001652044 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 611767919 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37580 FILM NUMBER: 19975414 BUSINESS ADDRESS: STREET 1: 1600 AMPHITHEATRE PARKWAY CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 650-253-0000 MAIL ADDRESS: STREET 1: 1600 AMPHITHEATRE PARKWAY CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 goog10-qq22019.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 001-37580
________________________________________________________________________________________
Alphabet Inc.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________
Delaware
61-1767919
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
1600 Ampitheatre Parkway
Mountain View, CA 94043
(Address of principal executive offices, including zip code)
(650) 253-000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, $0.001 par value
GOOGL
Nasdaq Stock Market LLC
 
 
(Nasdaq Global Select Market)
Class C Capital Stock, $0.001 par value
GOOG
Nasdaq Stock Market LLC
 
 
(Nasdaq Global Select Market)
________________________________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
  
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No
As of July 19, 2019, there were 299,531,683 shares of Alphabet’s Class A common stock outstanding, 46,522,084 shares of Alphabet's Class B common stock outstanding, and 347,344,583 shares of Alphabet's Class C capital stock outstanding.




Alphabet Inc.

Alphabet Inc.
Form 10-Q
For the Quarterly Period Ended June 30, 2019
TABLE OF CONTENTS
 
 
Page No.
 
Item 1
 
 
 
 
 
 
Item 2
Item 3
Item 4
 
 
 
Item 1
Item 1A
Item 2
Item 5
Item 6

i

Alphabet Inc.

Note About Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding:
the growth of our business and revenues and our expectations about the factors that influence our success and trends in our business;
our plans to continue to invest in new businesses, products, services and technologies, systems, facilities, and infrastructure, to continue to hire aggressively and provide competitive compensation programs, as well as to continue to invest in acquisitions;
seasonal fluctuations in internet usage and advertiser expenditures, underlying business trends such as traditional retail seasonality, and macroeconomic conditions, which are likely to cause fluctuations in our quarterly results;
the potential for declines in our revenue growth rate and operating margin;
our expectation that we will continue to take steps to improve the relevance of the ads we deliver and to reduce the number of accidental clicks;
fluctuations in our revenue growth, as well as the change in paid clicks and cost-per-click on Google properties and the change in impressions and cost-per-impression on Google Network Members’ properties, and various factors contributing to such fluctuations;
our expectation that our foreign exchange risk management program will not fully offset our net exposure to fluctuations in foreign currency exchange rates;
the expected variability of costs related to hedging activities under our foreign exchange risk management program;
our expectation that our cost of revenues, research and development (R&D) expenses, sales and marketing expenses, and general and administrative expenses will increase in dollars and may increase as a percentage of revenues;
our potential exposure in connection with pending investigations, proceedings, and other contingencies;
our expectation that our monetization trends will fluctuate, which could affect our revenues and margins in the future;
our expectation that our traffic acquisition costs (TAC) and the associated TAC rates will fluctuate in the future;
our expectation that our results will be affected by our performance in international markets as users in developing economies increasingly come online;
our expectation that the portion of our revenues that we derive from non-advertising revenues will continue to increase and may affect margins;
our expectation that our other income (expense), net (OI&E), will fluctuate in the future, as it is largely driven by market dynamics;
estimates of our future compensation expenses;
fluctuations in our effective tax rate;
the sufficiency of our sources of funding;
fluctuations in our capital expenditures;
our expectations related to the operating structure implemented pursuant to the Alphabet holding company reorganization;
the sufficiency and timing of our proposed remedies in response to the European Commission's (EC) decisions;
the expected timing and amount of Alphabet Inc.'s share repurchases;
as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may appear throughout this report and other documents we file with the Securities and Exchange Commission (SEC), including without limitation, the following sections: Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as amended and as may be updated in our subsequent Quarterly Reports on Form 10-Q. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "may," "could," "will likely result," and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as amended, and those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

1

Alphabet Inc.

As used herein, "Alphabet," "the company," "we," "us," "our," and similar terms include Alphabet Inc. and its subsidiaries, unless the context indicates otherwise.
"Alphabet," "Google," and other trademarks of ours appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

2

Alphabet Inc.

PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Alphabet Inc.
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts which are reflected in thousands, and par value per share amounts)
 
As of
December 31, 2018
 
As of
June 30, 2019
 
 
 
(unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
16,701

 
$
16,587

Marketable securities
92,439

 
104,469

Total cash, cash equivalents, and marketable securities
109,140

 
121,056

Accounts receivable, net of allowance of $729 and $721
20,838

 
20,965

Income taxes receivable, net
355

 
352

Inventory
1,107

 
964

Other current assets
4,236

 
4,100

Total current assets
135,676

 
147,437

Non-marketable investments
13,859

 
12,112

Deferred income taxes
737

 
585

Property and equipment, net
59,719

 
64,891

Operating lease assets
0

 
9,713

Intangible assets, net
2,220

 
1,902

Goodwill
17,888

 
18,000

Other non-current assets
2,693

 
2,461

Total assets
$
232,792

 
$
257,101

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,378

 
$
3,925

Accrued compensation and benefits
6,839

 
6,432

Accrued expenses and other current liabilities
16,958

 
19,823

Accrued revenue share
4,592

 
4,567

Deferred revenue
1,784

 
1,717

Income taxes payable, net
69

 
536

Total current liabilities
34,620

 
37,000

Long-term debt
4,012

 
4,074

Deferred revenue, non-current
396

 
387

Income taxes payable, non-current
11,327

 
10,969

Deferred income taxes
1,264

 
1,892

Operating lease liabilities
0

 
9,088

Other long-term liabilities
3,545

 
1,499

Total liabilities
55,164

 
64,909

Commitments and Contingencies (Note 10)

 

Stockholders’ equity:
 
 
 
Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding
0

 
0

Class A and Class B common stock, and Class C capital stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 695,556 (Class A 299,242, Class B 46,636, Class C 349,678) and 694,050 (Class A 299,520, Class B 46,522, Class C 348,008) shares issued and outstanding
45,049

 
47,937

Accumulated other comprehensive loss
(2,306
)
 
(1,091
)
Retained earnings
134,885

 
145,346

Total stockholders’ equity
177,628

 
192,192

Total liabilities and stockholders’ equity
$
232,792

 
$
257,101

See accompanying notes.

3

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2019
 
2018
 
2019
Revenues
$
32,657

 
$
38,944

 
$
63,803

 
$
75,283

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
13,883

 
17,296

 
27,350

 
33,308

Research and development
5,114

 
6,213

 
10,153

 
12,242

Sales and marketing
3,780

 
4,212

 
7,384

 
8,117

General and administrative
1,764

 
2,043

 
3,167

 
4,131

European Commission fines
5,071

 
0

 
5,071

 
1,697

Total costs and expenses
29,612

 
29,764

 
53,125

 
59,495

Income from operations
3,045

 
9,180

 
10,678

 
15,788

Other income (expense), net
1,170

 
2,967

 
4,080

 
4,505

Income before income taxes
4,215

 
12,147

 
14,758

 
20,293

Provision for income taxes
1,020

 
2,200

 
2,162

 
3,689

Net income
$
3,195

 
$
9,947

 
$
12,596

 
$
16,604

 
 
 
 
 
 
 
 
Basic net income per share of Class A and B common stock and Class C capital stock
$
4.60

 
$
14.33

 
$
18.13

 
$
23.91

Diluted net income per share of Class A and B common stock and Class C capital stock
$
4.54

 
$
14.21

 
$
17.89

 
$
23.71

See accompanying notes.

4

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions; unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2019
 
2018
 
2019
Net income
$
3,195

 
$
9,947

 
$
12,596

 
$
16,604

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
(1,142
)
 
118

 
(485
)
 
82

Available-for-sale investments:
 
 
 
 
 
 
 
Change in net unrealized gains (losses)
(148
)
 
741

 
(356
)
 
1,460

Less: reclassification adjustment for net (gains) losses included in net income
(6
)
 
(75
)
 
33

 
(68
)
Net change (net of tax effect of $60, $103, $60, and $191)
(154
)
 
666

 
(323
)
 
1,392

Cash flow hedges:
 
 
 
 
 
 
 
Change in net unrealized gains (losses)
363

 
(25
)
 
101

 
(55
)
Less: reclassification adjustment for net (gains) losses included in net income
78

 
(70
)
 
272

 
(174
)
Net change (net of tax effect of $109, $22, $97, and $23)
441

 
(95
)
 
373

 
(229
)
Other comprehensive income (loss)
(855
)
 
689

 
(435
)
 
1,245

Comprehensive income
$
2,340

 
$
10,636

 
$
12,161

 
$
17,849

See accompanying notes.

5

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share amounts which are reflected in thousands; unaudited)
 
Three Months Ended June 30, 2018
 
Class A and Class B
Common Stock, Class C Capital Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares    
 
Amount    
 
Balance as of March 31, 2018
694,945

 
$
41,487

 
$
(670
)
 
$
120,008

 
$
160,825

Common and capital stock issued
2,909

 
64

 
0

 
0

 
64

Stock-based compensation expense
0

 
2,413

 
0

 
0

 
2,413

Tax withholding related to vesting of restricted stock units and other
0

 
(1,590
)
 
0

 
0

 
(1,590
)
Repurchases of capital stock
(1,908
)
 
(131
)
 
0

 
(1,921
)
 
(2,052
)
Sale of subsidiary shares
0

 
0

 
0

 
0

 
0

Net income
0

 
0

 
0

 
3,195

 
3,195

Other comprehensive income (loss)
0

 
0

 
(855
)
 
0

 
(855
)
Balance as of June 30, 2018
695,946

 
$
42,243

 
$
(1,525
)
 
$
121,282

 
$
162,000

 
Six Months Ended June 30, 2018
 
Class A and Class B
Common Stock, Class C Capital Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares    
 
Amount    
 
Balance as of December 31, 2017
694,783

 
40,247

 
(992
)
 
113,247

 
152,502

Cumulative effect of accounting change
0

 
0

 
(98
)
 
(599
)
 
(697
)
Common and capital stock issued
5,053

 
115

 
0

 
0

 
115

Stock-based compensation expense
0

 
4,870

 
0

 
0

 
4,870

Tax withholding related to vesting of restricted stock units and other
0

 
(2,726
)
 
0

 
0

 
(2,726
)
Repurchases of capital stock
(3,890
)
 
(263
)
 
0

 
(3,962
)
 
(4,225
)
Sale of subsidiary shares
0

 
0

 
0

 
0

 

Net income
0

 
0

 
0

 
12,596

 
12,596

Other comprehensive income (loss)
0

 
0

 
(435
)
 
0

 
(435
)
Balance as of June 30, 2018
695,946

 
$
42,243

 
$
(1,525
)
 
$
121,282

 
$
162,000

See accompanying notes.

6

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share amounts which are reflected in thousands; unaudited)
 
Three Months Ended June 30, 2019
 
Class A and Class B
Common Stock, Class C Capital Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares    
 
Amount    
 
Balance as of March 31, 2019
694,782

 
$
46,532

 
$
(1,780
)
 
$
138,720

 
$
183,472

Common and capital stock issued
2,403

 
34

 
0

 
0

 
34

Stock-based compensation expense
0

 
2,782

 
0

 
0

 
2,782

Tax withholding related to vesting of restricted stock units and other
0

 
(1,268
)
 
0

 
0

 
(1,268
)
Repurchases of capital stock
(3,135
)
 
(256
)
 
0

 
(3,321
)
 
(3,577
)
Sale of subsidiary shares
0

 
113

 
0

 
0

 
113

Net income
0

 
0

 
0

 
9,947

 
9,947

Other comprehensive income (loss)
0

 
0

 
689

 
0

 
689

Balance as of June 30, 2019
694,050

 
$
47,937

 
$
(1,091
)
 
$
145,346

 
$
192,192

 
Six Months Ended June 30, 2019
 
Class A and Class B
Common Stock, Class C Capital Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares    
 
Amount    
 
Balance as of December 31, 2018
695,556

 
$
45,049

 
$
(2,306
)
 
$
134,885

 
$
177,628

Cumulative effect of accounting change
0

 
0

 
(30
)
 
(4
)
 
(34
)
Common and capital stock issued
4,315

 
73

 
0

 
0

 
73

Stock-based compensation expense
0

 
5,570

 
0

 
0

 
5,570

Tax withholding related to vesting of restricted stock units and other
0

 
(2,452
)
 
0

 
0

 
(2,452
)
Repurchases of capital stock
(5,821
)
 
(463
)
 
0

 
(6,139
)
 
(6,602
)
Sale of subsidiary shares
0

 
160

 
0

 
0

 
160

Net income
0

 
0

 
0

 
16,604

 
16,604

Other comprehensive income (loss)
0

 
0

 
1,245

 
0

 
1,245

Balance as of June 30, 2019
694,050

 
$
47,937

 
$
(1,091
)
 
$
145,346

 
$
192,192

See accompanying notes.



7

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
 
Six Months Ended
 
June 30,
 
2018
 
2019
Operating activities
 
 
 
Net income
$
12,596

 
$
16,604

Adjustments:
 
 
 
Depreciation and impairment of property and equipment
3,653

 
5,042

Amortization and impairment of intangible assets
447

 
406

Stock-based compensation expense
4,870

 
5,525

Deferred income taxes
(157
)
 
620

Gain on debt and equity securities, net
(4,060
)
 
(3,878
)
Other
(120
)
 
(48
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
1,388

 
26

Income taxes, net
(656
)
 
25

Other assets
(756
)
 
(176
)
Accounts payable
(23
)
 
(443
)
Accrued expenses and other liabilities
4,600

 
1,074

Accrued revenue share
(303
)
 
(60
)
Deferred revenue
295

 
(90
)
Net cash provided by operating activities
21,774

 
24,627

Investing activities
 
 
 
Purchases of property and equipment
(12,776
)
 
(10,764
)
Purchases of marketable securities
(23,041
)
 
(44,724
)
Maturities and sales of marketable securities
25,523

 
40,692

Purchases of non-marketable investments
(732
)
 
(1,095
)
Maturities and sales of non-marketable investments
1,191

 
206

Acquisitions, net of cash acquired, and purchases of intangible assets
(1,434
)
 
(247
)
Other investing activities
49

 
89

Net cash used in investing activities
(11,220
)
 
(15,843
)
Financing activities
 
 
 
Net payments related to stock-based award activities
(2,699
)
 
(2,435
)
Repurchases of capital stock
(4,225
)
 
(6,602
)
Proceeds from issuance of debt, net of costs
6,236

 
317

Repayments of debt
(6,267
)
 
(393
)
Proceeds from sale of subsidiary shares
0

 
184

Net cash used in financing activities
(6,955
)
 
(8,929
)
Effect of exchange rate changes on cash and cash equivalents
(166
)
 
31

Net increase (decrease) in cash and cash equivalents
3,433

 
(114
)
Cash and cash equivalents at beginning of period
10,715

 
16,701

Cash and cash equivalents at end of period
$
14,148

 
$
16,587

See accompanying notes.

8

Alphabet Inc.

Alphabet Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Google was incorporated in California in September 1998 and re-incorporated in the State of Delaware in August 2003. In 2015, we implemented a holding company reorganization, and as a result, Alphabet Inc. (Alphabet) became the successor issuer to Google.
We generate revenues primarily by delivering relevant, cost-effective online advertising.
Basis of Consolidation
The consolidated financial statements of Alphabet include the accounts of Alphabet and entities consolidated under the variable interest and voting models. Noncontrolling interests are not presented separately as the amounts are not material. All intercompany balances and transactions have been eliminated.
Unaudited Interim Financial Information
The Consolidated Balance Sheet as of June 30, 2019, the Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2019, the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2019, the Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2018 and 2019 and the Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2019 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of June 30, 2019, our results of operations for the three and six months ended June 30, 2018 and 2019, and our cash flows for the six months ended June 30, 2018 and 2019. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019.
These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as amended, filed with the SEC.
Use of Estimates
Preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to bad debt allowance, sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, and contingent liabilities, among others. We base our estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. We will adopt ASU 2016-13 effective January 1, 2020 with the cumulative effect of adoption recorded as an adjustment to retained earnings. We are currently implementing new credit loss models and updating our processes and controls in preparation for the adoption of ASU 2016-13. The effect on our consolidated financial statements will largely depend on the composition and credit quality of our investment portfolio and the economic conditions at the time of adoption.

9

Alphabet Inc.

Recently adopted accounting pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases." Topic 842 supersedes the lease requirements in Accounting Standards Codification Topic 840, "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating.
We adopted Topic 842 effective January 1, 2019. The most significant effects of Topic 842 were the recognition of $8.0 billion of operating lease assets and $8.4 billion of operating lease liabilities and the de-recognition of $1.5 billion of build-to-suit assets and liabilities upon adoption. We applied Topic 842 to all leases as of January 1, 2019 with comparative periods continuing to be reported under Topic 840. In the adoption of Topic 842, we carried forward the assessment from Topic 840 of whether our contracts contain or are leases, the classification of our leases, and remaining lease terms. Our accounting for finance leases remains substantially unchanged. The standard does not have a significant effect on our consolidated results of operations or cash flows. See Note 4 for further details.
Prior Period Reclassifications
Certain amounts in prior periods have been reclassified to conform with current period presentation. Performance fees have been reclassified for all periods from general and administrative expenses to other income (expense), net to align with the presentation of the investment gains and losses on which the performance fees are based. See Note 7 for further details.
Note 2. Revenues
Disaggregated Revenues
The following table presents our revenues disaggregated by revenue source (in millions, unaudited). Sales and usage-based taxes are excluded from revenues.
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2019
 
2018
 
2019
Google properties
$
23,262

 
$
27,335

 
$
45,260

 
$
53,017

Google Network Members' properties
4,825

 
5,266

 
9,469

 
10,304

Google advertising revenues
28,087

 
32,601

 
54,729

 
63,321

Google other revenues
4,425

 
6,181

 
8,779

 
11,630

Other Bets revenues
145

 
162

 
295

 
332

Total revenues(1)
$
32,657

 
$
38,944

 
$
63,803

 
$
75,283

(1) 
Revenues include hedging gains (losses) of $(103) million and $108 million for the three months ended June 30, 2018 and 2019, respectively, and $(342) million and $245 million for the six months ended June 30, 2018 and 2019, respectively, which do not represent revenues recognized from contracts with customers.
The following table presents our revenues disaggregated by geography, based on the addresses of our customers (in millions, unaudited):
 
Three Months Ended
 
Six Months Ended

June 30,
 
June 30,
 
2018
 
2019
 
2018
 
2019
United States
$
14,933

 
46
%
 
$
17,863

 
46
%
 
$
29,077

 
46
%
 
$
34,395

 
46
%
EMEA(1)
10,785

 
33

 
12,401

 
32

 
21,259

 
33

 
24,192

 
32
%
APAC(1)
5,090

 
15

 
6,551

 
17

 
9,894

 
15

 
12,663

 
17
%
Other Americas(1)
1,849

 
6

 
2,129

 
5

 
3,573

 
6

 
4,033

 
5
%
Total revenues(2)
$
32,657

 
100
%
 
$
38,944

 
100
%
 
$
63,803

 
100
%
 
$
75,283

 
100
%
(1) 
Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America (Other Americas).
(2) 
Revenues include hedging gains (losses) for the three and six months ended June 30, 2018 and 2019.
Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. The decrease in the deferred revenue balance for the six months ended June 30, 2019

10

Alphabet Inc.

was primarily driven by the recognition of $1.3 billion of revenues that were included in the deferred revenue balance as of December 31, 2018, offset by cash payments received or due in advance of satisfying our performance obligations.
Note 3. Financial Instruments
Debt Securities
We classify our marketable debt securities within Level 2 in the fair value hierarchy because we use quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine fair value.
The following tables summarize our debt securities by significant investment categories as of December 31, 2018 and June 30, 2019 (in millions):
 
As of December 31, 2018
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Cash and Cash
Equivalents
 
Marketable
Securities
Level 2:
 
 
 
 
 
 
 
 
 
 
 
Time deposits(1)
$
2,202

 
$
0

 
$
0

 
$
2,202

 
$
2,202

 
$
0

Government bonds
53,634

 
71

 
(414
)
 
53,291

 
3,717

 
49,574

Corporate debt securities
25,383

 
15

 
(316
)
 
25,082

 
44

 
25,038

Mortgage-backed and asset-backed securities
16,918

 
11

 
(324
)
 
16,605

 
0

 
16,605

Total
$
98,137

 
$
97

 
$
(1,054
)
 
$
97,180

 
$
5,963

 
$
91,217

 
As of June 30, 2019
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Cash and Cash
Equivalents
 
Marketable
Securities
 
(unaudited)
Level 2:
 
 
 
 
 
 
 
 
 
 
 
Time deposits(1)
$
3,469

 
$
0

 
$
0

 
$
3,469

 
$
3,469

 
$
0

Government bonds
54,182

 
456

 
(67
)
 
54,571

 
684

 
53,887

Corporate debt securities
26,020

 
266

 
(23
)
 
26,263

 
7

 
26,256

Mortgage-backed and asset-backed securities
17,171

 
95

 
(67
)
 
17,199

 
0

 
17,199

Total
$
100,842

 
$
817

 
$
(157
)
 
$
101,502

 
$
4,160

 
$
97,342

(1) 
The majority of our time deposits are domestic deposits.
We determine realized gains or losses on the sale or extinguishment of debt securities on a specific identification method. We recognized gross realized gains of $37 million and $119 million for the three months ended June 30, 2018 and 2019, respectively, and $39 million and $165 million, for the six months ended June 30, 2018 and 2019, respectively. We recognized gross realized losses of $31 million and $21 million for the three months ended June 30, 2018 and 2019, respectively and $72 million and $69 million for the six months ended June 30, 2018 and 2019, respectively. We reflect these gains and losses as a component of other income (expense), net, in the Consolidated Statements of Income.
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities (in millions, unaudited):
 
As of
June 30, 2019
Due in 1 year
$
22,862

Due in 1 year through 5 years
59,518

Due in 5 years through 10 years
4,773

Due after 10 years
10,189

Total
$
97,342



11

Alphabet Inc.

The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2018 and June 30, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions):
 
As of December 31, 2018
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
Government bonds
$
12,019

 
$
(85
)
 
$
23,877

 
$
(329
)
 
$
35,896