Financial Instruments

6 Months Ended

Jun. 30, 2023

Fair Value Measurements

Investments Measured at Fair Value on a Recurring Basis

Cash, cash equivalents, and marketable equity securities are measured at fair value and classified within Level 1 and Level 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.

Debt securities are measured at fair value and classified 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.

The following tables summarize our cash, cash equivalents, and marketable securities measured at fair value on a recurring basis (in millions):


		As of December 31, 2022
	Fair Value Hierarchy	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Fair value changes recorded in other comprehensive income
Time deposits	Level 2	$	5,297	$	0	$	0	$	5,297	$	5,293	$	4
Government bonds	Level 2	41,036		64		(2,045)		39,055		283		38,772
Corporate debt securities	Level 2	28,578		8		(1,569)		27,017		1		27,016
Mortgage-backed and asset-backed securities	Level 2	16,176		5		(1,242)		14,939		0		14,939
Total investments with fair value change reflected in other comprehensive income(1)		$	91,087	$	77	$	(4,856)	$	86,308	$	5,577	$	80,731
Fair value adjustments recorded in net income
Money market funds	Level 1							$	7,234	$	7,234	$	0
Current marketable equity securities(2)	Level 1							4,013		0		4,013
Mutual funds	Level 2							339		0		339
Government bonds	Level 2							1,877		440		1,437
Corporate debt securities	Level 2							3,744		65		3,679
Mortgage-backed and asset-backed securities	Level 2							1,686		2		1,684
Total investments with fair value change recorded in net income								$	18,893	$	7,741	$	11,152
Cash								0		8,561		0
Total		$	91,087	$	77	$	(4,856)	$	105,201	$	21,879	$	91,883

(1)Represents gross unrealized gains and losses for debt securities recorded to accumulated other comprehensive income (AOCI).

(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $803 million as of December 31, 2022 is included within other non-current assets.


		As of June 30, 2023
	Fair Value Hierarchy	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Fair value changes recorded in other comprehensive income
Time deposits	Level 2	$	2,913	$	0	$	0	$	2,913	$	2,913	$	0
Government bonds	Level 2	45,339		49		(1,588)		43,800		2,481		41,319
Corporate debt securities	Level 2	23,480		8		(1,162)		22,326		0		22,326
Mortgage-backed and asset-backed securities	Level 2	18,047		4		(1,092)		16,959		0		16,959
Total investments with fair value change reflected in other comprehensive income(1)		$	89,779	$	61	$	(3,842)	$	85,998	$	5,394	$	80,604
Fair value adjustments recorded in net income
Money market funds	Level 1							$	9,472	$	9,472	$	0
Current marketable equity securities(2)	Level 1							4,088		0		4,088
Mutual funds	Level 2							315		0		315
Government bonds	Level 2							2,158		546		1,612
Corporate debt securities	Level 2							3,831		2		3,829
Mortgage-backed and asset-backed securities	Level 2							1,955		0		1,955
Total investments with fair value change recorded in net income								$	21,819	$	10,020	$	11,799
Cash								0		10,515		0
Total		$	89,779	$	61	$	(3,842)	$	107,817	$	25,929	$	92,403

(1)Represents gross unrealized gains and losses for debt securities recorded to AOCI.

(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $892 million as of June 30, 2023 is included within other non-current assets

Investments Measured at Fair Value on a Nonrecurring Basis

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. 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.

As of June 30, 2023 the carrying value of our non-marketable equity securities was $29.1 billion, of which $1.5 billion were remeasured at fair value during the three months ended June 30, 2023 and primarily classified as Level 3

Debt Securities

The following table summarizes the estimated fair value of investments in available-for-sale marketable debt securities by effective contractual maturity dates (in millions):


	As of June 30, 2023
Due in 1 year or less	$	15,403
Due in 1 year through 5 years	43,749
Due in 5 years through 10 years	15,162
Due after 10 years	13,686
Total	$	88,000

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, 2022
	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government bonds	$	21,039	$	(1,004)	$	13,438	$	(1,041)	$	34,477	$	(2,045)
Corporate debt securities	11,228		(440)		15,125		(1,052)		26,353		(1,492)
Mortgage-backed and asset-backed securities	7,725		(585)		6,964		(657)		14,689		(1,242)
Total	$	39,992	$	(2,029)	$	35,527	$	(2,750)	$	75,519	$	(4,779)


	As of June 30, 2023
	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government bonds	$	19,195	$	(580)	$	13,976	$	(1,008)	$	33,171	$	(1,588)
Corporate debt securities	3,915		(69)		17,573		(1,008)		21,488		(1,077)
Mortgage-backed and asset-backed securities	6,352		(153)		10,095		(939)		16,447		(1,092)
Total	$	29,462	$	(802)	$	41,644	$	(2,955)	$	71,106	$	(3,757)

We determine realized gains or losses on the sale or extinguishment of debt securities on a specific identification method. The following table summarizes gains and losses for debt securities, reflected as a component of other income (expense), net (in millions):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2023		2022		2023
Unrealized gain (loss) on fair value option debt securities	$	(367)	$	(24)	$	(569)	$	121
Gross realized gain on debt securities	29		28		69		85
Gross realized loss on debt securities	(368)		(303)		(639)		(795)
(Increase) decrease in allowance for credit losses	(84)		(5)		(18)		(8)
Total gain (loss) on debt securities recognized in other income (expense), net	$	(790)	$	(304)	$	(1,157)	$	(597)

Equity Investments

The carrying value of equity securities is measured as the total initial cost plus the cumulative net gain (loss). Our share of gains and losses, including impairments, 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.

The carrying values for marketable and non-marketable equity securities are summarized below (in millions):


	As of December 31, 2022						As of June 30, 2023
	Marketable Equity Securities		Non-Marketable Equity Securities		Total		Marketable Equity Securities		Non-Marketable Equity Securities		Total
Total initial cost	$	5,764	$	16,157	$	21,921	$	5,647	$	17,261	$	22,908
Cumulative net gain (loss)(1)	(608)		12,372		11,764		(352)		11,868		11,516
Carrying value	$	5,156	$	28,529	$	33,685	$	5,295	$	29,129	$	34,424

(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $16.8 billion gains and $4.5 billion losses (including impairments) as of December 31, 2022 and $17.8 billion gains and $5.9 billion losses (including impairments) as of June 30, 2023.

Gains and Losses on Marketable and Non-marketable Equity Securities

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2023		2022		2023
Realized net gain (loss) on equity securities sold during the period	$	26	$	87	$	(230)	$	292
Unrealized net gain (loss) on marketable equity securities	(1,188)		397		(2,462)		349
Unrealized net gain (loss) on non-marketable equity securities(1)	911		(689)		1,371		(469)
Total gain (loss) on equity securities in other income (expense), net	$	(251)	$	(205)	$	(1,321)	$	172

(1)Unrealized gain (loss) on non-marketable equity securities accounted for under the measurement alternative is comprised of $2.2 billion and $75 million of upward adjustments and $1.3 billion and $789 million of downward adjustments (including impairments) for three months ended June 30, 2022 and 2023, respectively, and $3.0 billion and $989 million of upward adjustments and $1.6 billion and $1.5 billion of downward adjustments (including impairments) for the six months ended June 30, 2022 and 2023, respectively.

In the table above, realized 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 sold during the period. While these net gains (losses) may have been reflected in periods prior to the period of sale, we believe they are important supplemental information as they reflect the economic net gains (losses) on the securities sold during the period. Cumulative net gains (losses) 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,
	2022		2023		2022		2023
Total sale price	$	645	$	427	$	1,335	$	739
Total initial cost	168		156		428		367
Cumulative net gain (loss)	$	477	$	271	$	907	$	372

Equity Securities Accounted for Under the Equity Method

As of December 31, 2022 and June 30, 2023 equity securities accounted for under the equity method had a carrying value of approximately $1.5 billion for both periods. Our share of gains and losses, including impairments, 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 Instruments

We use derivative instruments to manage risks relating to our ongoing business operations. The primary risk managed 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 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 and present all other derivatives at gross fair values. The accounting treatment for derivatives is based on the intended use and hedge designation.

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 forward points and time value from our assessment of hedge effectiveness and amortize them on a straight-line basis over the life of the hedging instrument in revenues. The difference between fair value changes of the excluded component and the amount amortized to revenues is recorded in AOCI.

As of June 30, 2023 the net accumulated gain on our foreign currency cash flow hedges before tax effect was $24 million, which is expected to be reclassified from AOCI into revenues 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 marketable securities 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 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 forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in other income (expense), net.

Other Derivatives

We enter into foreign currency forward and option contracts that are not designated as hedging instruments 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 derivatives that are not designated as accounting hedges are primarily recorded 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. From time to time, we enter into derivatives to hedge the market price risk on certain of our marketable equity securities. Gains and losses arising from other derivatives are primarily reflected within the “other” component of other income (expense), net. See Note 6 for further details.

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


	As of December 31, 2022		As of June 30, 2023
Derivatives designated as hedging instruments:
Foreign exchange contracts
Cash flow hedges	$	15,972	$	15,823
Fair value hedges	$	2,117	$	1,472
Net investment hedges	$	8,751	$	9,371
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	34,979	$	34,185
Other contracts	$	7,932	$	9,133

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


	As of December 31, 2022				As of June 30, 2023
	Assets(1)		Liabilities(2)		Assets(1)		Liabilities(2)
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	271	$	556	$	228	$	201

Derivatives not designated as hedging instruments:
Foreign exchange contracts	365		207		130		136
Other contracts	40		47		39		67
Total derivatives not designated as hedging instruments	405		254		169		203
Total	$	676	$	810	$	397	$	404

(1) Derivative assets are recorded as other current and non-current assets in the Consolidated Balance Sheets.

(2) Derivative liabilities are recorded as accrued expenses and other liabilities, current and non-current in the Consolidated Balance Sheets.

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,
	2022		2023		2022		2023
Derivatives in cash flow hedging relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness	$	1,131	$	77	$	1,266	$	(61)
Amount excluded from the assessment of effectiveness	(39)		80		(54)		127

Derivatives in net investment hedging relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness	509		(59)		658		(274)
Total	$	1,601	$	98	$	1,870	$	(208)

The table below presents the gains (losses) of our derivatives on the Consolidated Statements of Income: (in millions):


	Gains (Losses) Recognized in Income
	Three Months Ended
	June 30,
	2022				2023
	Revenues		Other income (expense), net		Revenues		Other income (expense), net
Total amounts in the Consolidated Statements of Income	$	69,685	$	(439)	$	74,604	$	65

Effect of cash flow hedges:
Foreign exchange contracts
Amount reclassified from AOCI to income	$	400	$	0	$	(2)	$	0
Amount excluded from the assessment of effectiveness (amortized)	(24)		0		6		0
Effect of fair value hedges:
Foreign exchange contracts
Hedged items	0		(136)		0		22
Derivatives designated as hedging instruments	0		136		0		(22)
Amount excluded from the assessment of effectiveness	0		2		0		5
Effect of net investment hedges:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness	0		28		0		72
Effect of non designated hedges:
Foreign exchange contracts	0		(149)		0		124
Other contracts	0		86		0		(4)
Total gains (losses)	$	376	$	(33)	$	4	$	197


	Gains (Losses) Recognized in Income
	Six Months Ended
	June 30,
	2022				2023
	Revenues		Other income (expense), net		Revenues		Other income (expense), net
Total amounts in the Consolidated Statements of Income	$	137,696	$	(1,599)	$	144,391	$	855

Effect of cash flow hedges:
Foreign exchange contracts
Amount of gains (losses) reclassified from AOCI to income	$	697	$	0	$	86	$	0
Amount excluded from the assessment of effectiveness (amortized)	(43)		0		2		0
Effect of fair value hedges:
Foreign exchange contracts
Hedged items	0		(123)		0		54
Derivatives designated as hedging instruments	0		124		0		(54)
Amount excluded from the assessment of effectiveness	0		3		0		10
Effect of net investment hedges:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness	0		40		0		123
Effect of non designated hedges:
Foreign exchange contracts	0		(396)		0		154
Other Contracts	0		124		0		(1)
Total gains (losses)	$	654	$	(228)	$	88	$	286

Offsetting of Derivatives

We enter into master netting arrangements and collateral security arrangements to reduce credit risk. 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.

The gross amounts of 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):


	As of December 31, 2022
							Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts Recognized		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts Presented in the Consolidated Balance Sheets		Financial Instruments(1)		Cash and Non-Cash Collateral Received or Pledged		Net Amounts
Derivatives assets	$	760	$	(84)	$	676	$	(463)	$	(132)	$	81
Derivatives liabilities	$	894	$	(84)	$	810	$	(463)	$	(28)	$	319


	As of June 30, 2023
							Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts Recognized		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts Presented in the Consolidated Balance Sheets		Financial Instruments(1)		Cash and Non-Cash Collateral Received or Pledged		Net Amounts
Derivatives assets	$	444	$	(47)	$	397	$	(138)	$	(226)	$	33
Derivatives liabilities	$	451	$	(47)	$	404	$	(138)	$	(34)	$	232

(1)The balances as of December 31, 2022 and June 30, 2023 were related to derivatives allowed to be net settled in accordance with our master netting agreements.