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Financial Instruments

6 Months Ended

Jun. 30, 2021

Debt Securities

We classify our marketable debt securities, which are accounted for as available-for-sale, 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.

For certain marketable debt securities, we have elected the fair value option for which changes in fair value are recorded in other income (expense), net. The fair value option was elected for these securities to align with the unrealized gains and losses from related derivative contracts. Unrealized net gains related to debt securities still held where we have elected the fair value option were $87 million and $52 million as of December 31, 2020 and June 30, 2021, respectively. As of December 31, 2020 and June 30, 2021, the fair value of these debt securities was $2.0 billion and $2.8 billion, respectively.

The following tables summarize our debt securities, for which we did not elect the fair value option, by significant investment categories (in millions):


	As of December 31, 2020
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Level 2:
Time deposits(1)	$	3,564	$	0	$	0	$	3,564	$	3,564	$	0
Government bonds	55,156		793		(9)		55,940		2,527		53,413
Corporate debt securities	31,521		704		(2)		32,223		8		32,215
Mortgage-backed and asset-backed securities	16,767		364		(7)		17,124		0		17,124
Total	$	107,008	$	1,861	$	(18)	$	108,851	$	6,099	$	102,752


	As of June 30, 2021
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Level 2:
Time deposits(1)	$	6,311	$	0	$	0	$	6,311	$	6,311	$	0
Government bonds	50,959		497		(50)		51,406		404		51,002
Corporate debt securities	34,476		444		(41)		34,879		0		34,879
Mortgage-backed and asset-backed securities	17,098		199		(33)		17,264		0		17,264
Total	$	108,844	$	1,140	$	(124)	$	109,860	$	6,715	$	103,145

(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 $306 million and $116 million for the three months ended June 30, 2020 and 2021, respectively, and $563 million and $251 million for the six months ended June 30, 2020 and 2021, respectively. We recognized gross realized losses of $88 million and $15 million for the three months ended June 30, 2020 and 2021, respectively, and $127 million and $151 million for the six months ended June 30, 2020 and 2021, respectively. We reflect these gains and losses as a component of other income (expense), net.

The following table summarizes the estimated fair value of our investments in marketable debt securities by stated contractual maturity dates (in millions):


	As of June 30, 2021
Due in 1 year or less	$	20,663
Due in 1 year through 5 years	69,749
Due in 5 years through 10 years	3,297
Due after 10 years	12,245
Total	$	105,954

The following tables present fair values and gross unrealized losses recorded to AOCI, 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, 2020
	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government bonds	$	5,516	$	(9)	$	3	$	0	$	5,519	$	(9)
Corporate debt securities	1,999		(1)		0		0		1,999		(1)
Mortgage-backed and asset-backed securities	929		(5)		242		(2)		1,171		(7)
Total	$	8,444	$	(15)	$	245	$	(2)	$	8,689	$	(17)


	As of June 30, 2021
	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government bonds	$	19,730	$	(50)	$	0	$	0	$	19,730	$	(50)
Corporate debt securities	9,681		(24)		0		0		9,681		(24)
Mortgage-backed and asset-backed securities	5,044		(32)		174		(1)		5,218		(33)
Total	$	34,455	$	(106)	$	174	$	(1)	$	34,629	$	(107)

During the three and six months ended June 30, 2020 and 2021, we did not recognize any significant credit losses and the ending allowance balances for credit losses were immaterial as of December 31, 2020 and June 30, 2021.

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.

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 upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). Non-marketable equity securities that have been remeasured during the period based on observable transactions are classified within Level 2 or Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities we hold. The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3.

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):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2021		2020		2021
Net gain (loss) on equity securities sold during the period	$	18	$	138	$	233	$	506
Net unrealized gain (loss) on equity securities held as of the end of the period	1,437		2,634		408		7,103
Total gain (loss) recognized in other income (expense), net	$	1,455	$	2,772	$	641	$	7,609

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 (losses) 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 net gains on the securities sold during the period. Cumulative net gains are calculated as the difference between the sale price and the initial purchase price for the equity security sold during the period.


	Equity Securities Sold
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2021		2020		2021
Total sale price	$	590	$	2,629	$	1,499	$	3,353
Total initial cost	424		409		685		766
Cumulative net gains(1)	$	166	$	2,220	$	814	$	2,587

(1)Cumulative net gains excludes cumulative losses of $684 million resulting from our equity derivatives, which hedged the changes in fair value of certain marketable equity securities sold during the second quarter of 2021. The associated derivative liabilities arising from these losses were settled against our holdings of the underlying equity securities.

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, 2020
	Marketable Securities		Non-Marketable Securities		Total
Total initial cost	$	2,227	$	14,616	$	16,843
Cumulative net gain (loss)(1)	3,631		4,277		7,908
Carrying value(2)	$	5,858	$	18,893	$	24,751

(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $6.1 billion unrealized gains and $1.9 billion unrealized losses (including impairment).

(2)The long-term portion of marketable equity securities of $429 million is included within other non-current assets.


	As of June 30, 2021
	Marketable Securities(2)		Non-Marketable Securities		Total
Total initial cost	$	2,662	$	14,743	$	17,405
Cumulative net gain (loss)(1)	4,208		8,730		12,938
Carrying value(2)	$	6,870	$	23,473	$	30,343

(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $10.4 billion unrealized gains and $1.7 billion unrealized losses (including impairment).

(2)The long-term portion of marketable equity securities of $591 million is included within other non-current assets.

Marketable equity securities

The following table summarizes marketable equity securities measured at fair value by significant investment categories (in millions):


	As of December 31, 2020				As of June 30, 2021
	Cash and Cash Equivalents		Marketable Securities		Cash and Cash Equivalents		Marketable Securities
Level 1:
Money market funds	$	12,210	$	0	$	9,516	$	0
Marketable equity securities(1)(2)	0		5,470		0		6,514
	12,210		5,470		9,516		6,514
Level 2:
Mutual funds	0		388		0		356
Total	$	12,210	$	5,858	$	9,516	$	6,870

(1)The balance as of December 31, 2020 and June 30, 2021 includes investments that were reclassified from non-marketable equity securities following the commencement of public market trading of the issuers or acquisition by public entities (certain of which are subject to short-term lock-up restrictions).

(2)As of December 31, 2020 and June 30, 2021 the long-term portion of marketable equity securities of $429 million and $591 million, respectively, is included within other non-current assets.

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):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2021		2020		2021
Unrealized gains	$	189	$	1,852	$	545	$	5,128
Unrealized losses (including impairment)	(98)		(65)		(1,395)		(67)
Total unrealized gain (loss) for non-marketable equity securities	$	91	$	1,787	$	(850)	$	5,061

During the three months ended June 30, 2021, included in the $23.5 billion of non-marketable equity securities, $4.7 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

As of December 31, 2020 and June 30, 2021, equity securities accounted for under the equity method had a carrying value of approximately $1.4 billion and $1.6 billion, respectively. 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 6 for further details on other income (expense), net.

Derivative Financial InstrumentsWe enter into derivative instruments to manage risks relating to our ongoing business operations. The primary risk managed with derivative instruments is foreign exchange risk. We use foreign currency contracts 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 enter into derivative instruments to partially offset our exposure to other risks and enhance investment returns.

We recognize derivative instruments as either assets or liabilities in the Consolidated Balance Sheets at fair value and classify the derivatives primarily within Level 2 in the fair value hierarchy. We present our collar contracts (an option strategy comprised of a combination of purchased and written options) at net fair values where both the purchased and written options are with the same counterparty. For other derivative contracts, we present at gross fair values. We primarily record changes in the fair value 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.

We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. Further, we enter into collateral security arrangements that provide for collateral to be received or pledged when the net fair value of certain financial instruments fluctuates from contractually established thresholds. Cash collateral received related to derivative instruments under our collateral security arrangements are included in other current assets with a corresponding liability. Cash and non-cash collateral pledged related to derivative instruments under our collateral security arrangements are included in other current assets.

Cash Flow Hedges

We designate foreign currency forward and option contracts (including collars) as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar. These contracts have maturities of 24 months or less.

Cash flow hedge amounts included in the assessment of hedge effectiveness are deferred in AOCI and subsequently reclassified to revenue when the hedged item is recognized in earnings. We exclude the change in 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. If the hedged transactions become probable of not occurring, the corresponding amounts in AOCI are reclassified to other income (expense), net in the period of de-designation.

As of June 30, 2021, the net accumulated gain on our foreign currency cash flow hedges before tax effect was $87 million, which is expected to be reclassified from AOCI into earnings within the next 12 months.

Fair Value Hedges

We designate foreign currency forward contracts as fair value hedges to hedge foreign currency risks for our investments denominated in currencies other than the U.S. dollar. Fair value hedge amounts included in the assessment of hedge effectiveness are recognized in other income (expense), net, along with the offsetting gains and losses of the related hedged items. We exclude changes in forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in other income (expense), net.

Net Investment Hedges

We designate foreign currency forward contracts as net investment hedges to hedge the foreign currency risks related to our investment in foreign subsidiaries. Net investment hedge amounts included in the assessment of hedge effectiveness are recognized in AOCI along with the foreign currency translation adjustment. We exclude changes in forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in other income (expense), net.

Other Derivatives

Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. Gains and losses on these contracts, as well as the related costs, are recognized in other income (expense), net, along with the foreign currency gains and losses on monetary assets and liabilities.

We also use derivatives not designated as hedging instruments to manage risks relating to interest rates, commodity prices, credit exposures and to enhance investment returns. Additionally, from time to time, we enter into derivatives to hedge the market price risk on certain of our marketable equity securities. Gains (losses) arising from these derivatives are reflected within the "other" component of other income (expense), net and the offsetting recognized gains (losses) on the marketable equity securities are reflected within the gain (loss) on equity

securities, net component of other income (expense), net. See Note 6 for further details on other income (expense), net.

The gross notional amounts of our outstanding derivative instruments were as follows (in millions):


	As of December 31, 2020		As of June 30, 2021
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts
Cash flow hedges	$	10,187	$	15,941
Fair value hedges	$	1,569	$	2,578
Net investment hedges	$	9,965	$	10,167
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	$	39,861	$	43,795
Other contracts	$	2,399	$	2,933

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


		As of December 31, 2020
	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	$	33	$	316	$	349
Other contracts	Other current and non-current assets	0		16		16
Total		$	33	$	332	$	365
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other liabilities, current and non-current	$	395	$	185	$	580
Other contracts	Accrued expenses and other liabilities, current and non-current	0		942		942
Total		$	395	$	1,127	$	1,522


		As of June 30, 2021
	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	$	355	$	115	$	470
Other contracts	Other current and non-current assets	0		39		39
Total		$	355	$	154	$	509
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other liabilities, current and non-current	$	61	$	201	$	262
Other contracts	Accrued expenses and other liabilities, current and non-current	0		93		93
Total		$	61	$	294	$	355

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
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2021		2020		2021
Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness	$	(44)	$	(60)	$	368	$	102
Amount excluded from the assessment of effectiveness	(49)		(4)		3		45

Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness	(121)		(179)		(41)		199
Total	$	(214)	$	(243)	$	330	$	346

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


	Gains (Losses) Recognized in Income
	Three Months Ended
	June 30,
	2020				2021
	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	$	38,297	$	1,894	$	61,880	$	2,624

Gains (Losses) on Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts
Amount of gains (losses) reclassified from AOCI to income	$	140	$	0	$	(3)	$	0
Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach	11		0		(4)		0
Gains (Losses) on Derivatives in Fair Value Hedging Relationship:
Foreign exchange contracts
Hedged items	0		9		0		28
Derivatives designated as hedging instruments	0		(9)		0		(28)
Amount excluded from the assessment of effectiveness	0		1		0		2
Gains (Losses) on Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness	0		33		0		21
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	0		(69)		0		(64)
Other Contracts	0		(211)		0		(142)
Total gains (losses)	$	151	$	(246)	$	(7)	$	(183)


	Gains (Losses) Recognized in Income
	Six Months Ended
	June 30,
	2020				2021
	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	$	79,456	$	1,674	$	117,194	$	7,470

Gains (Losses) on Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts
Amount of gains (losses) reclassified from AOCI to income	$	166	$	0	$	(108)	$	0
Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach	34		0		(8)		0
Gains (Losses) on Derivatives in Fair Value Hedging Relationship:
Foreign exchange contracts
Hedged items	0		(8)		0		28
Derivatives designated as hedging instruments	0		8		0		(28)
Amount excluded from the assessment of effectiveness	0		2		0		4
Gains (Losses) on Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness	0		111		0		41
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	0		160		0		(404)
Other Contracts	0		(239)		0		181
Total gains (losses)	$	200	$	34	$	(116)	$	(178)

Offsetting of Derivatives

The gross amounts of our derivative instruments subject to master netting arrangements with various counterparties, and cash and non-cash collateral received and pledged under such agreements were as follows (in millions):

Offsetting of Assets


	As of December 31, 2020
							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	$	397	$	(32)	$	365	$	(295)	(1)	$	(16)	$	0	$	54

	As of June 30, 2021
							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	$	554	$	(45)	$	509	$	(208)	(1)	$	(190)	$	0	$	111

(1)The balances as of December 31, 2020 and June 30, 2021 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, 2020
							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	$	1,554	$	(32)	$	1,522	$	(295)	(2)	$	(1)	$	(943)	$	283

	As of June 30, 2021
							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	$	400	$	(45)	$	355	$	(208)	(2)	$	(2)	$	(86)	$	59

(2) The balances as of December 31, 2020 and June 30, 2021 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements.