Financial Instruments

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Financial Instruments

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 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 December 31, 2019
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities
Level 2:
Time deposits(1)	$	2,294	$	0	$	0		$	2,294	$	2,294	$	0
Government bonds	55,033		434		(30		)	55,437		4,518		50,919
Corporate debt securities	27,164		337		(3		)	27,498		44		27,454
Mortgage-backed and asset-backed securities	19,453		96		(41		)	19,508		0		19,508
Total	$	103,944	$	867	$	(74	)	$	104,737	$	6,856	$	97,881

⁽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 $185 million, $1.3 billion, and $292 million for the years ended December 31, 2017, 2018, and 2019, respectively. We recognized gross realized losses of $295 million, $143 million, and $143 million for the years ended December 31, 2017, 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):

	As of December 31, 2019
Due in 1 year	$	20,392
Due in 1 year through 5 years	63,151
Due in 5 years through 10 years	2,671
Due after 10 years	11,667
Total	$	97,881

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 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	$	(414	)
Corporate debt securities	10,171		(107		)	11,545		(209		)	21,716		(316		)
Mortgage-backed and asset-backed securities	5,534		(75		)	8,519		(249		)	14,053		(324		)
Total	$	27,724	$	(267	)	$	43,941	$	(787	)	$	71,665	$	(1,054	)

	As of December 31, 2019
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Government bonds	$	6,752	$	(20	)	$	4,590	$	(10	)	$	11,342	$	(30	)
Corporate debt securities	1,665		(2		)	978		(1		)	2,643		(3		)
Mortgage-backed and asset-backed securities	4,536		(13		)	2,835		(28		)	7,371		(41		)
Total	$	12,953	$	(35	)	$	8,403	$	(39	)	$	21,356	$	(74	)

During the years ended December 31, 2017, 2018 and 2019, we did not recognize any significant other-than-temporary impairment losses.

Equity Investments

The following discusses our marketable equity securities, non-marketable equity securities, gains and losses on marketable and non-marketable equity securities, as well as our equity securities accounted for under the equity method.

Our marketable equity securities are publicly traded stocks or funds measured at fair value and classified within Level 1 and 2 in the fair value hierarchy because we use quoted prices for identical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets. All gains and losses on marketable equity securities, realized and unrealized, are recognized in other income (expense), net.

Our non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable equity securities is adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense), net. Non-marketable equity securities that have been remeasured during the period are classified within Level 2 or Level 3 in the fair value hierarchy because we estimate the value based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities we hold.

Gains and losses on marketable and non-marketable equity securities

Gains and losses reflected in other income (expense), net, for our marketable and non-marketable equity securities are summarized below (in millions):

	Year Ended December 31,
	2018		2019
Net gain (loss) on equity securities sold during the period	$	1,458	$	(301	)
Net unrealized gain (loss) on equity securities held as of the end of the period(1)	4,002		2,950
Total gain (loss) recognized in other income (expense), net	$	5,460	$	2,649

⁽¹⁾  Includes net gains of $4.1 billion and $1.8 billion related to non-marketable equity securities for the years ended December 31, 2018 and 2019, respectively.

In the table above, net gain (loss) on equity securities sold during the period reflects the difference between the sale proceeds and the carrying value of the equity securities at the beginning of the period or the purchase date, if later. 

Cumulative net gains on equity securities sold during the period, which is summarized in the following table (in millions), represents the total net gains (losses) recognized after the initial purchase date of the equity security. While these net gains may have been reflected in periods prior to the period of sale, we believe they are important supplemental information as they reflect the economic realized gain on the securities sold during the period. Cumulative net gains is calculated as the difference between the sale price and the initial purchase price for the equity security sold during the period.

	Equity Securities Sold During the Year Ended December 31,
	2018		2019
Total sale price	$	1,965	$	3,134
Total initial cost	515		858
Cumulative net gains	$	1,450	$	2,276

Carrying value of marketable and non-marketable equity securities

The carrying value is measured as the total initial cost plus the cumulative net gain (loss). The carrying values for our marketable and non-marketable equity securities are summarized below (in millions):

	As of December 31, 2018
	Marketable Securities		Non-Marketable Securities		Total
Total initial cost	$	1,168	$	8,168	$	9,336
Cumulative net gain(1)	54		4,107		4,161
Carrying value	$	1,222	$	12,275	$	13,497

⁽¹⁾  Non-marketable securities cumulative net gain is comprised of $4.3 billion unrealized gains and $178 million unrealized losses (including impairment).

	As of December 31, 2019
	Marketable Securities		Non-Marketable Securities		Total
Total initial cost	$	1,935	$	8,297	$	10,232
Cumulative net gain(1)	1,361		3,056		4,417
Carrying value	$	3,296	$	11,353	$	14,649

⁽¹⁾  Non-marketable securities cumulative net gain is comprised of $3.5 billion unrealized gains and $445 million unrealized losses (including impairment).

Marketable equity securities

The following table summarizes marketable equity securities measured at fair value by significant investment categories as of December 31, 2018 and 2019 (in millions):

	As of December 31, 2018				As of December 31, 2019
	Cash and Cash Equivalents		Marketable Securities		Cash and Cash Equivalents		Marketable Securities
Level 1:
Money market funds	$	3,493	$	0	$	4,604	$	0
Marketable equity securities(1)	0		994		0		3,046
	3,493		994		4,604		3,046
Level 2:
Mutual funds	0		228		0		250
Total	$	3,493	$	1,222	$	4,604	$	3,296

⁽¹⁾  The balance as of December 31, 2019 includes investments that were reclassified from non-marketable equity securities following the initial public offering of the issuers.

Non-marketable equity securities

The following is a summary of unrealized gains and losses recorded in other income (expense), net, and included as adjustments to the carrying value of non-marketable equity securities (in millions):

	Year Ended December 31,
	2018			2019
Unrealized gains	$	4,285		$	2,163
Unrealized losses (including impairment)	(178		)	(372		)
Total unrealized gain (loss) for non-marketable equity securities	$	4,107		$	1,791

During the year ended December 31, 2019, included in the $11.4 billion of non-marketable equity securities, $7.6 billion were measured at fair value primarily based on observable market transactions, resulting in a net unrealized gain of $1.8 billion.

Equity securities accounted for under the Equity Method

Equity securities accounted for under the equity method had a carrying value of approximately $1.3 billion as of December 31, 2018 and 2019. Our share of gains and losses including impairment are included as a component of other income (expense), net, in the Consolidated Statements of Income. See Note 7 for further details on other income (expense), net.

Derivative Financial Instruments

We classify our foreign currency and interest rate derivative contracts primarily within Level 2 in the fair value hierarchy as the valuation inputs are based on quoted prices and market observable data of similar instruments.

We recognize derivative instruments as either assets or liabilities in the Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives in the Consolidated Statements of Income as either other income (expense), net, or revenues, or in the Consolidated Balance Sheets in AOCI, as discussed below. Any components excluded from the assessment of hedge effectiveness are recognized in the same income statement line as the hedged item.

We enter into foreign currency contracts with financial institutions to reduce the risk that our cash flows, earnings, and investment in foreign subsidiaries will be adversely affected by foreign currency exchange rate fluctuations. We also use interest rate derivative contracts to hedge interest rate exposures on our fixed income securities and debt issuances. Our program is not used for trading or speculative purposes.

We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. To further reduce credit risk, we enter into collateral security arrangements under which the counterparty is required to provide collateral when the net fair value of certain financial instruments fluctuates from contractually established thresholds. We can take possession of the collateral in the event of counterparty default. As of December 31, 2018 and 2019, we received cash collateral related to the derivative instruments under our collateral security arrangements of $327 million and $252 million, respectively, which was included in other current assets.

Cash Flow Hedges

We use foreign currency forwards and option contracts, including collars (an option strategy comprised of a combination of purchased and written options), designated as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar. The notional principal of these contracts was approximately $11.8 billion and $13.2 billion as of December 31, 2018 and 2019, respectively. These contracts have maturities of 24 months or less.

For forwards and option contracts, we exclude the change in the forward points and time value from our assessment of hedge effectiveness. The initial value of the excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in revenues. The difference between fair value changes of the excluded component and the amount amortized to revenues is recorded in AOCI. We reflect the gains or losses of a cash flow hedge included in our hedge effective assessment as a component of AOCI and subsequently reclassify these gains and losses to revenues when the hedged transactions are recorded. If the hedged transactions become probable of not occurring, the corresponding amounts in AOCI are immediately reclassified to other income (expense), net.

As of December 31, 2019, the net accumulated loss on our foreign currency cash flow hedges before tax effect was $82 million, of which $82 million is expected to be reclassified from AOCI into earnings within the next 12 months.

Fair Value Hedges

We use forward contracts designated as fair value hedges to hedge foreign currency risks for our investments denominated in currencies other than the U.S. dollar. We exclude changes in forward points for the forward contracts from the assessment of hedge effectiveness. We recognize changes in the excluded component in other income (expense), net. The notional principal of these contracts was $2.0 billion and $455 million as of December 31, 2018 and 2019, respectively.

Gains and losses on these forward contracts are recognized in other income (expense), net, along with the offsetting gains and losses of the related hedged items.

Net Investment Hedges

We use forward contracts designated as net investment hedges to hedge the foreign currency risks related to our investment in foreign subsidiaries. We exclude changes in forward points for the forward contracts from the assessment of hedge effectiveness. We recognize changes in the excluded component in other income (expense),

net. The notional principal of these contracts was $6.7 billion and $9.3 billion as of December 31, 2018 and 2019, respectively.

Gains and losses on these forward contracts are recognized in AOCI as part of the foreign currency translation adjustment.

Other Derivatives

Other derivatives not designated as hedging instruments consist of foreign currency forward contracts that we use to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the local currency of a subsidiary. We recognize gains and losses on these contracts, as well as the related costs in other income (expense), net, along with the foreign currency gains and losses on monetary assets and liabilities. The notional principal of the outstanding foreign exchange contracts was $20.1 billion and $43.5 billion as of December 31, 2018 and 2019, respectively.

The fair values of our outstanding derivative instruments were as follows (in millions):

		As of December 31, 2018
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative Assets:
Level 2:
Foreign exchange contracts	Other current and non-current assets	$	459	$	54	$	513
Total		$	459	$	54	$	513
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other liabilities, current and non-current	$	5	$	228	$	233
Total		$	5	$	228	$	233

		As of December 31, 2019
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative Assets:
Level 2:
Foreign exchange contracts	Other current and non-current assets	$	91	$	253	$	344
Total		$	91	$	253	$	344
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other liabilities, current and non-current	$	173	$	196	$	369
Total		$	173	$	196	$	369

The gains (losses) on derivatives in cash flow hedging and net investment hedging relationships recognized in other comprehensive income (OCI) are summarized below (in millions):

	Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect
	Year Ended December 31,
	2017			2018		2019
Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness	$	(955	)	$	332	$	38
Amount excluded from the assessment of effectiveness	0			26		(14		)
Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness	0			136		131
Total	$	(955	)	$	494	$	155

 

The effect of derivative instruments on income is summarized below (in millions):

	Gains (Losses) Recognized in Income
	Year Ended December 31,
	2017						2018						2019
	Revenues			Other income (expense), net			Revenues			Other income (expense), net			Revenues		Other income (expense), net
Total amounts presented in the Consolidated Statements of Income in which the effects of cash flow and fair value hedges are recorded	$	110,855		$	1,015		$	136,819		$	7,389		$	161,857	$	5,394
Gains (Losses) on Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts
Amount of gains (losses) reclassified from AOCI to income	$	(169	)	$	0		$	(139	)	$	0		$	367	$	0
Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach	0			0			1			0			88		0
Amount excluded from the assessment of effectiveness	0			83			0			0			0		0
Gains (Losses) on Derivatives in Fair Value Hedging Relationship:
Foreign exchange contracts
Hedged items	0			197			0			(96		)	0		(19		)
Derivatives designated as hedging instruments	0			(197		)	0			96			0		19
Amount excluded from the assessment of effectiveness	0			23			0			37			0		25
Gains (Losses) on Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness	0			0			0			78			0		243
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts
Derivatives not designated as hedging instruments	0			(230		)	0			54			0		(413		)
Total gains (losses)	$	(169	)	$	(124	)	$	(138	)	$	169		$	455	$	(145	)

Offsetting of Derivatives

We present our forwards and purchased options at gross fair values in the Consolidated Balance Sheets. For foreign currency collars, we present at net fair values where both purchased and written options are with the same counterparty. Our master netting and other similar arrangements allow net settlements under certain conditions. As of December 31, 2018 and 2019, information related to these offsetting arrangements were as follows (in millions):

Offsetting of Assets

	As of December 31, 2018
								Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets			Net Presented in the Consolidated Balance Sheets		Financial Instruments				Cash Collateral Received			Non-Cash Collateral Received			Net Assets Exposed
Derivatives	$	569	$	(56	)	$	513	$	(90	)	(1)	$	(307	)	$	(14	)	$	102
	As of December 31, 2019
								Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets			Net Presented in the Consolidated Balance Sheets		Financial Instruments				Cash Collateral Received			Non-Cash Collateral Received			Net Assets Exposed
Derivatives	$	365	$	(21	)	$	344	$	(88	)	(1)	$	(234	)	$	0		$	22

⁽¹⁾  The balances as of December 31, 2018 and 2019 were related to derivative liabilities which are allowed to be net settled against derivative assets in accordance with our master netting agreements.

Offsetting of Liabilities

	As of December 31, 2018
								Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets			Net Presented in the Consolidated Balance Sheets		Financial Instruments				Cash Collateral Pledged		Non-Cash Collateral Pledged		Net Liabilities
Derivatives	$	289	$	(56	)	$	233	$	(90	)	(2)	$	0	$	0	$	143
	As of December 31, 2019
								Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets			Net Presented in the Consolidated Balance Sheets		Financial Instruments				Cash Collateral Pledged		Non-Cash Collateral Pledged		Net Liabilities
Derivatives	$	390	$	(21	)	$	369	$	(88	)	(2)	$	0	$	0	$	281

⁽²⁾ 

The balances as of December 31, 2018 and 2019 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements.