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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20182019
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)

Delaware61-1767919
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
1600 Ampitheatre Parkway
Mountain View, CA94043
(Address of principal executive offices, including zip code)
(650) 253-000
(Registrant's telephone number, including area code)
1600 Amphitheatre Parkway
Mountain View, CA 94043Securities registered pursuant to Section 12(b) of the Act:
(AddressTitle of principal executive offices, including zip code)each classTrading Symbol(s)Name of each exchange on which registered
(650) 253-0000Class A Common Stock, $0.001 par valueGOOGLNasdaq Stock Market LLC
(Registrant’s telephone number, including area code) Nasdaq Global Select Market)
Class C Capital Stock, $0.001 par valueGOOGNasdaq 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.    Yesý☒    No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yesý☒    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 filerý☒  Accelerated filer¨☐
Non-accelerated filer
(Do not check if a smaller reporting company)
¨☐ 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 ý☒
As of July 18, 2018,19, 2019, there were 298,914,199299,531,683 shares of Alphabet’s Class A common stock outstanding, 46,880,07646,522,084 shares of Alphabet's Class B common stock outstanding, and 349,883,498347,344,583 shares of Alphabet's Class C capital stock outstanding.


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Alphabet Inc.


Alphabet Inc.
Form 10-Q
For the Quarterly Period Ended June 30, 20182019
TABLE OF CONTENTS
  Page No.
Note About Forward-Looking Statements
1
 
PART I. FINANCIAL INFORMATION
Item 1
Financial Statements (unaudited)
3
 
Consolidated Balance Sheets - December 31, 20172018 and June 30, 20182019
3
 
Consolidated Statements of Income - Three and Six Months Ended June 30, 20172018 and 20182019
4
 
Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 20172018 and 20182019
5
 
Consolidated Statements of Stockholders' Equity - Three and Six Months Ended June 30, 2018 and 2019
6
Consolidated Statements of Cash Flows - Six Months Ended June 30, 20172018 and 20182019
68
 
Notes to Consolidated Financial Statements
79
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3332
Item 3
Quantitative and Qualitative Disclosures About Market Risk
4744
Item 4
Controls and Procedures
4744
   
PART II. OTHER INFORMATION
Item 1
Legal Proceedings
4845
Item 1A
Risk Factors
4845
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
4845
Item 5
Other Information
45
Item 6
Exhibits
4946
Signature
5047


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Alphabet Inc.


NOTE ABOUT FORWARD-LOOKING STATEMENTSNote 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;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;
the anticipated effect of, and our response to, new accounting pronouncements;
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 increasefluctuate 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 effect of the U.S. Tax Cuts and Jobs Act (Tax Act);
the sufficiency of our sources of funding;
our payment terms to certain advertisers, which may increase our working capital requirements;
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, 2017,2018, 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, 2017,2018, 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.

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.


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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, 2017		 As of
June 30, 2018		As of
December 31, 2018		 As of
June 30, 2019
  (unaudited)  (unaudited)
Assets      
Current assets:      
Cash and cash equivalents$10,715
 $14,148
$16,701
 $16,587
Marketable securities91,156
 88,106
92,439
 104,469
Total cash, cash equivalents, and marketable securities101,871
 102,254
109,140
 121,056
Accounts receivable, net of allowance of $674 and $63018,336
 17,043
Accounts receivable, net of allowance of $729 and $72120,838
 20,965
Income taxes receivable, net369
 201
355
 352
Inventory749
 698
1,107
 964
Other current assets2,983
 3,961
4,236
 4,100
Total current assets124,308
 124,157
135,676
 147,437
Non-marketable investments7,813
 11,487
13,859
 12,112
Deferred income taxes680
 685
737
 585
Property and equipment, net42,383
 51,672
59,719
 64,891
Operating lease assets0
 9,713
Intangible assets, net2,692
 2,662
2,220
 1,902
Goodwill16,747
 17,895
17,888
 18,000
Other non-current assets2,672
 3,052
2,693
 2,461
Total assets$197,295
 $211,610
$232,792
 $257,101
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable$3,137
 $3,369
$4,378
 $3,925
Accrued compensation and benefits4,581
 4,642
6,839
 6,432
Accrued expenses and other current liabilities10,177
 15,261
16,958
 19,823
Accrued revenue share3,975
 3,728
4,592
 4,567
Deferred revenue1,432
 1,714
1,784
 1,717
Income taxes payable, net881
 1,189
69
 536
Total current liabilities24,183
 29,903
34,620
 37,000
Long-term debt3,969
 3,981
4,012
 4,074
Deferred revenue, non-current340
 358
396
 387
Income taxes payable, non-current12,812
 11,652
11,327
 10,969
Deferred income taxes430
 479
1,264
 1,892
Operating lease liabilities0
 9,088
Other long-term liabilities3,059
 3,237
3,545
 1,499
Total liabilities44,793
 49,610
55,164
 64,909
Commitments and Contingencies (Note 9)
 
Commitments and Contingencies (Note 10)

 

Stockholders’ equity:      
Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding0
 0
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); 694,783 (Class A 298,470, Class B 46,972, Class C 349,341) and 695,946 (Class A 298,895, Class B 46,891, Class C 350,160) shares issued and outstanding40,247
 42,243
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 outstanding45,049
 47,937
Accumulated other comprehensive loss(992) (1,525)(2,306) (1,091)
Retained earnings113,247
 121,282
134,885
 145,346
Total stockholders’ equity152,502
 162,000
177,628
 192,192
Total liabilities and stockholders’ equity$197,295
 $211,610
$232,792
 $257,101
See accompanying notes.

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Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Revenues$26,010
 $32,657
 $50,760
 $63,803
$32,657
 $38,944
 $63,803
 $75,283
Costs and expenses:              
Cost of revenues10,373
 13,883
 20,168
 27,350
13,883
 17,296
 27,350
 33,308
Research and development4,172
 5,114
 8,114
 10,153
5,114
 6,213
 10,153
 12,242
Sales and marketing2,897
 3,780
 5,541
 7,384
3,780
 4,212
 7,384
 8,117
General and administrative1,700
 2,002
 3,501
 4,037
1,764
 2,043
 3,167
 4,131
European Commission fines2,736
 5,071
 2,736
 5,071
5,071
 0
 5,071
 1,697
Total costs and expenses21,878
 29,850
 40,060
 53,995
29,612
 29,764
 53,125
 59,495
Income from operations4,132
 2,807
 10,700
 9,808
3,045
 9,180
 10,678
 15,788
Other income (expense), net245
 1,408
 496
 4,950
1,170
 2,967
 4,080
 4,505
Income before income taxes4,377
 4,215
 11,196
 14,758
4,215
 12,147
 14,758
 20,293
Provision for income taxes853
 1,020
 2,246
 2,162
1,020
 2,200
 2,162
 3,689
Net income$3,524
 $3,195
 $8,950
 $12,596
$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$5.09
 $4.60
 $12.94
 $18.13
$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$5.01
 $4.54
 $12.74
 $17.89
$4.54
 $14.21
 $17.89
 $23.71
See accompanying notes.

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Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions; unaudited)
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Net income$3,524
 $3,195
 $8,950
 $12,596
$3,195
 $9,947
 $12,596
 $16,604
Other comprehensive income (loss):              
Change in foreign currency translation adjustment565
 (1,142) 1,016
 (485)(1,142) 118
 (485) 82
Available-for-sale investments:              
Change in net unrealized gains (losses)86
 (148) 225
 (356)(148) 741
 (356) 1,460
Less: reclassification adjustment for net (gains) losses included in net income26
 (6) 51
 33
(6) (75) 33
 (68)
Net change (net of tax effect of $0, $60, $0, and $60)112
 (154) 276
 (323)
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)(230) 363
 (459) 101
363
 (25) 101
 (55)
Less: reclassification adjustment for net (gains) losses included in net income(6) 78
 (159) 272
78
 (70) 272
 (174)
Net change (net of tax effect of $143, $109, $292, and $97)(236) 441
 (618) 373
Net change (net of tax effect of $109, $22, $97, and $23)441
 (95) 373
 (229)
Other comprehensive income (loss)441
 (855) 674
 (435)(855) 689
 (435) 1,245
Comprehensive income$3,965
 $2,340
 $9,624
 $12,161
$2,340
 $10,636
 $12,161
 $17,849
See accompanying notes.
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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, 2018694,945
 $41,487
 $(670) $120,008
 $160,825
Common and capital stock issued2,909
 64
 0
 0
 64
Stock-based compensation expense0
 2,413
 0
 0
 2,413
Tax withholding related to vesting of restricted stock units and other0
 (1,590) 0
 0
 (1,590)
Repurchases of capital stock(1,908) (131) 0
 (1,921) (2,052)
Sale of subsidiary shares0
 0
 0
 0
 0
Net income0
 0
 0
 3,195
 3,195
Other comprehensive income (loss)0
 0
 (855) 0
 (855)
Balance as of June 30, 2018695,946
 $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, 2017694,783
 40,247
 (992) 113,247
 152,502
Cumulative effect of accounting change0
 0
 (98) (599) (697)
Common and capital stock issued5,053
 115
 0
 0
 115
Stock-based compensation expense0
 4,870
 0
 0
 4,870
Tax withholding related to vesting of restricted stock units and other0
 (2,726) 0
 0
 (2,726)
Repurchases of capital stock(3,890) (263) 0
 (3,962) (4,225)
Sale of subsidiary shares0
 0
 0
 0
 —
Net income0
 0
 0
 12,596
 12,596
Other comprehensive income (loss)0
 0
 (435) 0
 (435)
Balance as of June 30, 2018695,946
 $42,243
 $(1,525) $121,282
 $162,000
See accompanying notes.

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, 2019694,782
 $46,532
 $(1,780) $138,720
 $183,472
Common and capital stock issued2,403
 34
 0
 0
 34
Stock-based compensation expense0
 2,782
 0
 0
 2,782
Tax withholding related to vesting of restricted stock units and other0
 (1,268) 0
 0
 (1,268)
Repurchases of capital stock(3,135) (256) 0
 (3,321) (3,577)
Sale of subsidiary shares0
 113
 0
 0
 113
Net income0
 0
 0
 9,947
 9,947
Other comprehensive income (loss)0
 0
 689
 0
 689
Balance as of June 30, 2019694,050
 $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, 2018695,556
 $45,049
 $(2,306) $134,885
 $177,628
Cumulative effect of accounting change0
 0
 (30) (4) (34)
Common and capital stock issued4,315
 73
 0
 0
 73
Stock-based compensation expense0
 5,570
 0
 0
 5,570
Tax withholding related to vesting of restricted stock units and other0
 (2,452) 0
 0
 (2,452)
Repurchases of capital stock(5,821) (463) 0
 (6,139) (6,602)
Sale of subsidiary shares0
 160
 0
 0
 160
Net income0
 0
 0
 16,604
 16,604
Other comprehensive income (loss)0
 0
 1,245
 0
 1,245
Balance as of June 30, 2019694,050
 $47,937
 $(1,091) $145,346
 $192,192
See accompanying notes.


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Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
Six Months EndedSix Months Ended
June 30,June 30,
2017 20182018 2019
Operating activities      
Net income$8,950
 $12,596
$12,596
 $16,604
Adjustments:      
Depreciation and impairment of property and equipment2,711
 3,653
3,653
 5,042
Amortization and impairment of intangible assets417
 447
447
 406
Stock-based compensation expense4,012
 4,870
4,870
 5,525
Deferred income taxes538
 (157)(157) 620
(Gain) loss on debt and equity securities, net22
 (4,060)
Gain on debt and equity securities, net(4,060) (3,878)
Other96
 (120)(120) (48)
Changes in assets and liabilities, net of effects of acquisitions:      
Accounts receivable431
 1,388
1,388
 26
Income taxes, net(1,779) (656)(656) 25
Other assets(454) (756)(756) (176)
Accounts payable119
 (23)(23) (443)
Accrued expenses and other liabilities1,687
 4,600
4,600
 1,074
Accrued revenue share6
 (303)(303) (60)
Deferred revenue195
 295
295
 (90)
Net cash provided by operating activities16,951
 21,774
21,774
 24,627
Investing activities      
Purchases of property and equipment(5,339) (12,776)(12,776) (10,764)
Proceeds from disposals of property and equipment54
 49
Purchases of marketable securities(39,676) (23,041)(23,041) (44,724)
Maturities and sales of marketable securities34,238
 25,523
25,523
 40,692
Purchases of non-marketable investments(694) (732)(732) (1,095)
Maturities and sales of non-marketable investments118
 1,191
1,191
 206
Acquisitions, net of cash acquired, and purchases of intangible assets(143) (1,434)(1,434) (247)
Proceeds from collection of notes receivable1,419
 0
Other investing activities49
 89
Net cash used in investing activities(10,023) (11,220)(11,220) (15,843)
Financing activities      
Net payments related to stock-based award activities(2,093) (2,699)(2,699) (2,435)
Repurchases of capital stock(2,745) (4,225)(4,225) (6,602)
Proceeds from issuance of debt, net of costs0
 6,236
6,236
 317
Repayments of debt(56) (6,267)(6,267) (393)
Proceeds from sale of subsidiary shares480
 0
0
 184
Net cash used in financing activities(4,414) (6,955)(6,955) (8,929)
Effect of exchange rate changes on cash and cash equivalents279
 (166)(166) 31
Net increase in cash and cash equivalents2,793
 3,433
Net increase (decrease) in cash and cash equivalents3,433
 (114)
Cash and cash equivalents at beginning of period12,918
 10,715
10,715
 16,701
Cash and cash equivalents at end of period$15,711
 $14,148
$14,148
 $16,587
See accompanying notes.

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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 SheetsSheet as of June 30, 2018,2019, the Consolidated Statements of Income for the three and six months ended June 30, 20172018 and 2018,2019, the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 20172018 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, 20172018 and 20182019 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, 2018,2019, our results of operations for the three and six months ended June 30, 20172018 and 2018,2019, and our cash flows for the six months ended June 30, 20172018 and 2018.2019. The results of operations for the three and six months ended June 30, 20182019 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.2019.
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, 2017,2018, as amended, filed with the SEC on February 5, 2018.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 the accounts receivable,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.
Fair Value of Financial Instruments
Our financial assets and liabilities that are measured at fair value on a recurring basis include cash equivalents, marketable securities, derivative contracts, and non-marketable debt securities. Our financial assets that are measured at fair value on a nonrecurring basis include non-marketable equity securities measured at fair value when observable price changes are identified or are impaired. Other financial assets and liabilities are carried at cost with fair value disclosed, if required.
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable,

these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.
Level 3 - Unobservable inputs that are supported by little or no market activities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In FebruaryJune 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases." Topic 842 supersedes the lease requirements in Accounting Standards Codification (ASC) 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. As currently issued, entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. There are additional optional practical expedients that an entity may elect to apply. Based on our current portfolio of leases, approximately $8 billion of lease assets and liabilities would be recognized on our balance sheet, primarily relating to real estate. We are in the process of implementing changes to our systems and processes in conjunction with our review of lease agreements. We will adopt Topic 842 effective January 1, 2019 and expect to elect certain available transitional practical expedients.
In June 2016, the 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.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 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019.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 the process of evaluating the effect ofpreparation for the adoption of ASU 2016-132016-13. The effect on our consolidated financial statements.statements will largely depend on the composition and credit quality of our investment portfolio and the economic conditions at the time of adoption.

Recently adopted accounting pronouncements
In JanuaryFebruary 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01) "Financial Instruments-Overall (Subtopic 825-10): Recognition2016-02 (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 Measurementliabilities 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 Financial Assets and Financial Liabilities," which amends various aspects ofTopic 842 were the recognition measurement, presentation,of $8.0 billion of operating lease assets and disclosure$8.4 billion of financial instruments.operating lease liabilities and the de-recognition of $1.5 billion of build-to-suit assets and liabilities upon adoption. We adopted ASU 2016-01applied Topic 842 to all leases as of January 1, 2018 using2019 with comparative periods continuing to be reported under Topic 840. In the modified retrospective method for our marketable equity securities and the prospective method for our non-marketable equity securities. This resulted in a $98 million reclassification of net unrealized gains from accumulated other comprehensive income (AOCI) to opening retained earnings. We have elected to use the measurement alternative for our non-marketable equity securities, defined as cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairment. The adoption of ASU 2016-01 increasesTopic 842, we carried forward the volatilityassessment from Topic 840 of whether our contracts contain or are leases, the classification of our other income (expense), net, asleases, and remaining lease terms. Our accounting for finance leases remains substantially unchanged. The standard does not have a resultsignificant effect on our consolidated results of the remeasurement of our equity securities. Foroperations or cash flows. See Note 4 for further information on unrealized gains from equity securities, see Note 3.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16 (ASU 2016-16) "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory." ASU 2016-16 generally accelerates the recognition of income tax consequences for asset transfers between entities under common control. We adopted ASU 2016-16 as of January 1, 2018 using a modified retrospective transition method, resulting in a $701 million reclassification of unrecognized income tax effects related to asset transfers that occurred prior to adoption from other current and non-current assets to opening retained earnings.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
Revenue Recognition
Disaggregated Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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' properties4,825
 5,266
 9,469
 10,304
Google advertising revenues28,087
 32,601
 54,729
 63,321
Google other revenues4,425
 6,181
 8,779
 11,630
Other Bets revenues145
 162
 295
 332
Total revenues(1)
$32,657
 $38,944
 $63,803
 $75,283
 Three Months Ended Six Months Ended
 June 30, June 30,
 2017 2018 2017 2018
Google properties$18,425
 $23,262
 $35,828
 $45,260
Google Network Members' properties4,247
 4,825
 8,255
 9,469
Google advertising revenues22,672
 28,087
 44,083
 54,729
Google other revenues3,241
 4,425
 6,448
 8,779
Other Bets revenues97
 145
 229
 295
Total revenues(1)
$26,010
 $32,657
 $50,760
 $63,803
(1) 
Revenues include hedging gains (losses) of $3$(103) million and $(103)$108 million for the three months ended June 30, 20172018 and 2018,2019, respectively, and $220$(342) million and $(342)$245 million for the six months ended June 30, 20172018 and 2018,2019, respectively, which do not represent revenues recognized from contracts with customers.
The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
United States$12,322
 $14,933
 $24,091
 $29,077
$14,933
 46% $17,863
 46% $29,077
 46% $34,395
 46%
EMEA(1)
8,545
 10,785
 16,636
 21,259
10,785
 33
 12,401
 32
 21,259
 33
 24,192
 32%
APAC(1)
3,730
 5,090
 7,349
 9,894
5,090
 15
 6,551
 17
 9,894
 15
 12,663
 17%
Other Americas(1)
1,413
 1,849
 2,684
 3,573
1,849
 6
 2,129
 5
 3,573
 6
 4,033
 5%
Total revenues(2)
$26,010
 $32,657
 $50,760
 $63,803
$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, 20172018 and 2018.2019.
Advertising Revenues
We generate revenues primarily by delivering advertising on Google properties and Google Network Members’ properties.
Google properties revenues consist primarily of advertising revenues generated on Google.com, the Google Search app, and other Google owned and operated properties like Gmail, Google Maps, Google Play, and YouTube.
Google Network Members’ properties revenues consist primarily of advertising revenues generated on Google Network Members’ properties.
Our customers generally purchase advertising inventory through AdWords, DoubleClick AdExchange, and DoubleClick Bid Manager, among others.
We offer advertising on a cost-per-click basis, which means that an advertiser pays us only when a user clicks on an ad on Google properties or Google Network Members' properties or when a user views certain YouTube engagement ads. For these customers, we recognize revenue each time a user clicks on the ad or when a user views the ad for a specified period of time.
We also offer advertising on other bases such as cost-per-impression, which means an advertiser pays us based on the number of times their ads are displayed on Google properties or Google Network Members’ properties. For these customers, we recognize revenue each time an ad is displayed.
Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration.
For ads placed on Google Network Members’ properties, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). Generally, we report advertising revenues for ads placed on Google Network Members’ properties on a gross basis, that is, the amounts billed to our customers

are recorded as revenues, and amounts paid to Google Network Members are recorded as cost of revenues. Where we are the principal, we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory before it is transferred to our customers, and is further supported by us being primarily responsible to our customers and having a level of discretion in establishing pricing.
Other Revenues
Google other revenues and Other Bets revenues consist primarily of revenues from:
Apps, in-app purchases, and digital content in the Google Play store;
Google Cloud offerings;
Hardware; and
Other miscellaneous products and services.
As it relates to Google other revenues, the most significant judgment is determining whether we are the principal or agent for app sales and in-app purchases through the Google Play store. We report revenues from these transactions on a net basis because our performance obligation is to facilitate a transaction between app developers and end users, for which we earn a commission. Consequently, the portion of the gross amount billed to end users that is remitted to app developers is not reflected as revenues.
Arrangements with Multiple Performance Obligations
Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost plus margin.
Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. The increasedecrease in the deferred revenue balance for the six months ended June 30, 2018 is2019

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, offset by $1.0 billion of revenues recognized that were included in the deferred revenue balance as of December 31, 2017.
Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.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. We reclassified our U.S. government notes included in marketable debt securities from Level 1 to Level 2 within the fair value hierarchy as these securities are priced based on a combination of quoted prices for identical or similar instruments in active markets and models with significant observable market inputs. Prior period amounts have been reclassified to conform with current period presentation. The vast majority of our government bond holdings are highly liquid U.S. government notes.
We classify our non-marketable debt securities within Level 3 in the fair value hierarchy because they are primarily preferred stock and convertible notes issued by private companies without quoted market prices. To estimate the fair value of our non-marketable debt securities, we use a combination of valuation methodologies, including market and income approaches based on prior transaction prices; estimated timing, probability, and amount of cash flows; and illiquidity considerations. Financial information of private companies may not be available and consequently we will estimate the fair value based on the best available information at the measurement date.

The following tables summarize our debt securities by significant investment categories as of December 31, 20172018 and June 30, 20182019 (in millions):
As of December 31, 2017As of December 31, 2018
Adjusted
Cost
 
Gross
Unrealized
Gains
 Gross
Unrealized
Losses		 Fair
Value		 
Cash and Cash
Equivalents
 Marketable
Securities		 Non-Marketable
Securities
Adjusted
Cost
 
Gross
Unrealized
Gains
 Gross
Unrealized
Losses		 Fair
Value		 
Cash and Cash
Equivalents
 Marketable
Securities
Level 2:                        
Time deposits(1)
$359
 $0
 $0
 $359
 $357
 $2
 $0
$2,202
 $0
 $0
 $2,202
 $2,202
 $0
Government bonds(2)
51,548
 10
 (406) 51,152
 1,241
 49,911
 0
53,634
 71
 (414) 53,291
 3,717
 49,574
Corporate debt securities24,269
 21
 (135) 24,155
 126
 24,029
 0
25,383
 15
 (316) 25,082
 44
 25,038
Mortgage-backed and asset-backed securities16,789
 13
 (180) 16,622
 0
 16,622
 0
16,918
 11
 (324) 16,605
 0
 16,605
92,965
 44
 (721) 92,288
 1,724
 90,564
 0
Level 3:             
Non-marketable debt securities1,083
 811
 0
 1,894
 0
 0
 1,894
             
Total$94,048
 $855
 $(721) $94,182
 $1,724
 $90,564
 $1,894
$98,137
 $97
 $(1,054) $97,180
 $5,963
 $91,217
As of June 30, 2018As of June 30, 2019
Adjusted
Cost
 
Gross
Unrealized
Gains
 Gross
Unrealized
Losses		 Fair
Value		 
Cash and Cash
Equivalents
 Marketable
Securities		 Non-Marketable
Securities
Adjusted
Cost
 
Gross
Unrealized
Gains
 Gross
Unrealized
Losses		 Fair
Value		 
Cash and Cash
Equivalents
 Marketable
Securities
(unaudited)(unaudited)
Level 2:                        
Time deposits(1)
$252
 $0
 $0
 $252
 $251
 $1
 $0
$3,469
 $0
 $0
 $3,469
 $3,469
 $0
Government bonds(2)
48,567
 11
 (575) 48,003
 783
 47,220
 0
54,182
 456
 (67) 54,571
 684
 53,887
Corporate debt securities24,490
 10
 (383) 24,117
 21
 24,096
 0
26,020
 266
 (23) 26,263
 7
 26,256
Mortgage-backed and asset-backed securities15,746
 3
 (398) 15,351
 12
 15,339
 0
17,171
 95
 (67) 17,199
 0
 17,199
89,055
 24
 (1,356) 87,723
 1,067
 86,656
 0
Level 3:             
Non-marketable debt securities1,026
 1,184
 0
 2,210
 0
 0
 2,210
             
Total$90,081
 $1,208
 $(1,356) $89,933
 $1,067
 $86,656
 $2,210
$100,842
 $817
 $(157) $101,502
 $4,160
 $97,342
(1) 
The majority of our time deposits are foreigndomestic deposits.
(2)
Government bonds are comprised primarily of U.S. government notes, and also includes U.S. government agencies, foreign government bonds, and municipal securities. 
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 $17$37 million and $37$119 million for the three months ended June 30, 20172018 and 2018,2019, respectively, and $162$39 million and $39$165 million, for the six months ended June 30, 20172018 and 2018,2019, respectively. We recognized gross realized losses of $43$31 million and $31$21 million for the three months ended June 30, 20172018 and 2018,2019, respectively and $213$72 million and $72$69 million for the six months ended June 30, 20172018 and 2018,2019, 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 years59,518
Due in 5 years through 10 years4,773
Due after 10 years10,189
Total$97,342

 As of
June 30, 2018
Due in 1 year$15,357
Due in 1 year through 5 years57,525
Due in 5 years through 10 years2,429
Due after 10 years11,345
Total$86,656

The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 20172018 and June 30, 2018,2019, 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, 2017As of December 31, 2018
Less than 12 Months 12 Months or Greater TotalLess than 12 Months 12 Months or Greater Total
Fair Value 
Unrealized
Loss
 Fair Value 
Unrealized
Loss
 Fair Value Unrealized
Loss		Fair Value 
Unrealized
Loss
 Fair Value 
Unrealized
Loss
 Fair Value Unrealized
Loss
Government bonds(1)
$28,836
 $(211) $17,660
 $(195) $46,496
 $(406)$12,019
 $(85) $23,877
 $(329) $35,896
 $(414)
Corporate debt securities18,300
 (114) 1,710
 (21) 20,010
 (135)10,171
 (107) 11,545
 (209) 21,716
 (316)
Mortgage-backed and asset-backed securities11,061
 (105) 3,449
 (75) 14,510
 (180)5,534
 (75) 8,519
 (249) 14,053
 (324)
Total$58,197
 $(430) $22,819
 $(291) $81,016
 $(721)$27,724
 $(267) $43,941
 $(787) $71,665
 $(1,054)
 As of June 30, 2019
 Less than 12 Months 12 Months or Greater Total
 Fair Value 
Unrealized
Loss
 Fair Value 
Unrealized
Loss
 Fair Value Unrealized
Loss
 (unaudited)
Government bonds$2,744
 $(2) $16,475
 $(65) $19,219
 $(67)
Corporate debt securities618
 (1) 8,867
 (22) 9,485
 (23)
Mortgage-backed and asset-backed securities509
 (1) 6,776
 (66) 7,285
 (67)
Total$3,871
 $(4) $32,118
 $(153) $35,989
 $(157)

 As of June 30, 2018
 Less than 12 Months 12 Months or Greater Total
 Fair Value 
Unrealized
Loss
 Fair Value 
Unrealized
Loss
 Fair Value Unrealized
Loss
 (unaudited)
Government bonds(1)
$32,284
 $(414) $8,144
 $(161) $40,428
 $(575)
Corporate debt securities19,955
 (357) 1,153
 (26) 21,108
 (383)
Mortgage-backed and asset-backed securities11,139
 (282) 2,742
 (116) 13,881
 (398)
Total$63,378
 $(1,053) $12,039
 $(303) $75,417
 $(1,356)
(1)
Government bonds are comprised primarily of U.S. government notes, and also includes U.S. government agencies, foreign government bonds and municipal securities. 
During the three and six months ended June 30, 20172018 and 2018,2019, we did not recognize any significant other-than-temporary impairment losses. Losses on impairment are included as a component of other income (expense), net, in the Consolidated Statements of Income. See Note 67 for further details on other income (expense), net.

The following table presents a reconciliation for our non-marketable debt securities measured and recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3) (in millions, unaudited):
 Six Months Ended
 June 30,
 2017 2018
Beginning balance$1,165
 $1,894
Total net gains (losses)   
    Included in earnings(5) 10
    Included in other comprehensive income126
 395
Purchases70
 12
Sales(1) (41)
Settlements(3) (60)
Ending balance$1,352
 $2,210
Equity Investments
The following discusses our marketable equity securities, non-marketable equity securities, realized and unrealized gains and losses on marketable and non-marketable equity securities, as well as our equity method investments.securities accounted for under the equity method.
Marketable equity securities
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.
Prior to January 1, 2018, we accounted for the majority of our marketable equity securities at fair value with unrealized gains and losses recognized in accumulated other comprehensive income on the balance sheet. Realized gains and losses on marketable equity securities sold or impaired were recognized in other income (expense), net.
On January 1, 2018, we adopted ASU 2016-01. Our marketable equity securities are measured at fair value. Starting January 1, 2018, unrealized gains and losses are recognized in other income (expense), net. Upon adoption, we reclassified $98 millionnet unrealized gains related to marketable equity securities from accumulated other comprehensive income to opening retained earnings.
The following table summarizes marketable equity securities measured at fair value by significant investment categories as of December 31, 20172018 and June 30, 20182019 (in millions):
 As of December 31, 2018 As of June 30, 2019
 Cash and Cash Equivalents Marketable
Securities		 Cash and Cash Equivalents Marketable
Securities
     (unaudited)
Level 1:     
Money market funds$3,493
 $0
 $6,096
 $0
Marketable equity securities(1)
0
 994
 0
 6,880
 3,493
 994
 6,096
 6,880
Level 2:       
Mutual funds0
 228
 0
 247
Total$3,493
 $1,222
 $6,096
 $7,127
  As of December 31, 2017
  
Cash and
Cash
Equivalents
 Marketable
Securities
Level 1:    
Money market funds $1,833
 $0
Marketable equity securities 0
 340
  1,833
 340
Level 2:    
Mutual funds(1)
 0
 252
Total $1,833
 $592

(1) 
The fair value option was elected for mutual funds with gains (losses) recognized in other income (expense), net.balance as of June 30, 2019 includes investments that were reclassified from non-marketable equity securities following the initial public offering of the issuers (certain of which are subject to short-term lock-up restrictions).

  As of June 30, 2018
  (unaudited)
  Cash and Cash Equivalents Marketable Securities
Level 1:    
Money market funds $3,698
 $0
Marketable equity securities 0
 1,211
  3,698
 1,211
Level 2:    
Mutual funds 0
 239
Total $3,698
 $1,450
Non-marketable equity securities
Our non-marketable equity securities are investments in privately held companies without readily determinable market values.
Prior to January 1, 2018, we accounted for our non-marketable equity securities at cost less impairment. Realized gains and losses on non-marketable securities sold or impaired were recognized in other income (expense), net. As of December 31, 2017, non-marketable equity securities accounted for under the cost method had a carrying value of $4.5 billion and a fair value of approximately $8.8 billion.
On January 1, 2018, we adopted ASU 2016-01 which changed the way we account for non-marketable securities. 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. Because we adopted ASU 2016-01 prospectively, we recognize unrealized gains that occurred in prior periods in the first period after January 1, 2018 when there is an observable transaction for our securities. Non-marketable equity securities that have been remeasured during the six months ended June 30, 2018 are classified within 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.
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 held as of June 30, 2018 (in millions, unaudited):
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2019 2018 2019
Unrealized gains$572
 $962
 $3,080
 $1,418
Unrealized losses (including impairment)(81) (72) (104) (138)
Total unrealized gain (loss) for non-marketable equity securities$491
 $890
 $2,976
 $1,280
 Three Months Ended June 30, 2018 Six Months Ended
June 30, 2018
Upward adjustments$572
 $3,080
Downward adjustments (including impairment)(81) (104)
Total unrealized gain (loss) for non-marketable equity securities$491
 $2,976

The following table summarizes the total carrying value of our non-marketable equity securities held as of June 30, 20182019 including cumulative unrealized upwardgains and downward adjustments made to the initial cost basis of the securitieslosses (in millions, unaudited):
Initial cost basis $8,015
Unrealized gains 2,952
Unrealized losses (including impairment) (303)
Total carrying value at the end of the period $10,664
Initial cost basis $4,952
Upward adjustments 3,080
Downward adjustments (including impairment) (104)
Total carrying value at the end of the period $7,928

During the three months ended June 30, 2018,2019, included in the $7.9$10.7 billion of non-marketable equity securities, $1.6$4.3 billion were measured at fair value based on observable market transactions, resulting in a net unrealized gain of $491$890 million.

Gains and losses on marketable and non-marketable equity securities
Realized and unrealized gainsGains and losses for our marketable and non-marketable equity securities are summarized below (in millions, unaudited):
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2019 2018 2019
Net gain (loss) on equity securities sold during the period$515
 $80
 $900
 $130
Unrealized gain (loss) on equity securities held as of the end of the period(1)
547
 2,619
 3,193
 3,652
Total gain (loss) recognized in other income (expense), net$1,062
 $2,699
 $4,093
 $3,782

(1)
Includes $491 million and $890 million for the three months ended June 30, 2018 and 2019, respectively, and $2,976 million and $1,280 million for the six months ended June 30, 2018 and 2019, respectively, related to non-marketable equity securities.
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. The cumulative net gain measured as the sale price less the initial purchase price for equity securities sold during the three and six months ended June 30, 2018 are summarized below (in millions, unaudited):2019 was $182 million and $300 million, respectively.
 Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
Realized gain (loss) for equity securities sold during the period$515
 $900
Unrealized gain (loss) on equity securities held as of the end of the period(1)
547
 3,193
Total gain (loss) recognized in other income (expense), net$1,062
 $4,093
(1)
Includes $491 million and $2,976 million related to non-marketable equityEquity securities for the three and six months ended June 30, 2018, respectively.
Investments accounted for under the Equity Method
As of December 31, 2017 and June 30, 2018, investmentsEquity securities accounted for under the equity method had a carrying value of approximately $1.4$1.3 billion and $1.3$1.2 billion as of December 31, 2018 and June 30, 2019, respectively. Our share of gains and losses in equity method investments including

impairment are included as a component of other income (expense), net, in the Consolidated Statements of Income.net. See Note 67 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,accumulated other comprehensive income (AOCI), as discussed below. As a result of our adoption of Accounting Standard Update No. 2017-12 (ASU 2017-12) "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," theAny components excluded from the assessment of hedge effectiveness are recognized in the same income statement line as the hedged item beginning January 1, 2018.item.
We enter into foreign currency contracts with financial institutions to reduce the risk that our cash flows, earnings, and earningsinvestment 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, 20172018 and June 30, 2018,2019, we received cash collateral related to the derivative instruments under our collateral security arrangements of $15$327 million and $443$262 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 $11.7$11.8 billion and $11.8$12.1 billion as of December 31, 20172018 and June 30, 2018,2019, 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 assessment of hedge effective assessmenteffectiveness 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 June 30, 2018,2019, the net gain oraccumulated loss ofon our foreign currency cash flow hedges before tax effect was a net accumulated gain of $248$14 million, of which a net gain of $248 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 $2.9 billion and $1.5$2.0 billion as of both December 31, 20172018 and June 30, 2018, respectively.2019.
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 $7.7 billion as of December 31, 2018 and June 30, 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 $15.2$20.1 billion and $16.0$22.8 billion as of December 31, 20172018 and June 30, 2018,2019, respectively.
The fair values of our outstanding derivative instruments were as follows (in millions):
  As of December 31, 2017  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 ValueBalance 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 contractsOther current and non-current assets $51
 $29
 $80
Other current and non-current assets $459
 $54
 $513
Total $51
 $29
 $80
 $459
 $54
 $513
Derivative Liabilities:            
Level 2:            
Foreign exchange contractsAccrued expenses and other liabilities, current and non-current $230
 $122
 $352
Accrued expenses and other liabilities, current and non-current $5
 $228
 $233
Total $230
 $122
 $352
 $5
 $228
 $233
   As of June 30, 2019
  
Balance Sheet Location Fair Value of
Derivatives
Designated as
Hedging Instruments		 Fair Value of
Derivatives Not
Designated as
Hedging Instruments		 Total Fair Value
   (unaudited)
Derivative Assets:       
Level 2:       
Foreign exchange contractsOther current and non-current assets $352
 $19
 $371
Total  $352
 $19
 $371
Derivative Liabilities:       
Level 2:       
Foreign exchange contractsAccrued expenses and other liabilities, current and non-current $84
 $272
 $356
Total  $84
 $272
 $356


   As of June 30, 2018
  
Balance Sheet Location Fair Value of
Derivatives
Designated as
Hedging Instruments		 Fair Value of
Derivatives Not
Designated as
Hedging Instruments		 Total Fair Value
   (unaudited)
Derivative Assets:       
Level 2:       
Foreign exchange contractsOther current and non-current assets $310
 $111
 $421
Total  $310
 $111
 $421
Derivative Liabilities:       
Level 2:       
Foreign exchange contractsAccrued expenses and other liabilities, current and non-current $2
 $221
 $223
Total  $2
 $221
 $223
The gains (losses) on derivatives in cash flow hedging and net investment hedging relationships recognized in other comprehensive income (OCI) isare summarized below (in millions, unaudited):
Gains (Losses) Recognized in OCI on Derivatives Before Tax EffectGains (Losses) Recognized in OCI on Derivatives Before Tax Effect
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
Derivatives in Cash Flow Hedging Relationship2017 2018 2017 2018

2018 2019 2018 2019
Derivatives in Cash Flow Hedging Relationship:       
Foreign exchange contracts              
Amount included in the assessment of effectiveness$(374) $443
 $(687) $124
$443
 $(42) $124
 $(48)
Amount excluded from the assessment of effectiveness0
 8
 0
 1
8
 11
 1
 (19)
Derivatives in Net Investment Hedging Relationship:       
Foreign exchange contracts       
Amount included in the assessment of effectiveness0
 (83) 0
 (19)
Total$(374) $451
 $(687) $125
$451
 $(114) $125
 $(86)
The effect of derivative instruments on income is summarized below (in millions, unaudited):
 Gains (Losses) Recognized in Income
 Three Months Ended
 June 30,
 2018 2019
 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$32,657
 $1,170
 $38,944
 $2,967
        
Gains (Losses) on Derivatives in Cash Flow Hedging Relationship:       
Foreign exchange contracts       
Amount of gains (losses) reclassified from AOCI to income$(101) $0
 $85
 $0
Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach(2) 0
 23
 0
Gains (Losses) on Derivatives in Fair Value Hedging Relationship:       
Foreign exchange contracts       
Hedged items0
 (158) 0
 (13)
Derivatives designated as hedging instruments0
 158
 0
 13
Amount excluded from the assessment of effectiveness0
 10
 0
 10
Gains (Losses) on Derivatives in Net Investment Hedging Relationship:       
Foreign exchange contracts       
Amount excluded from the assessment of effectiveness0
 0
 0
 57
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:       
Foreign exchange contracts       
Derivatives not designated as hedging instruments0
 200
 0
 95
Total gains (losses)$(103) $210
 $108
 $162


 Gains (Losses) Recognized in Income
 Six Months Ended
 June 30,
 2018 2019
 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$63,803
 $4,080
 $75,283
 $4,505
        
Gains (Losses) on Derivatives in Cash Flow Hedging Relationship:       
Foreign exchange contracts       
Amount of gains (losses) reclassified from AOCI to income$(348) $0
 $213
 $0
Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach6
 0
 32
 0
Gains (Losses) on Derivatives in Fair Value Hedging Relationship:       
Foreign exchange contracts       
Hedged items0
 (45) 0
 9
Derivatives designated as hedging instruments0
 45
 0
 (9)
Amount excluded from the assessment of effectiveness0
 21
 0
 20
Gains (Losses) on Derivatives in Net Investment Hedging Relationship:       
Foreign exchange contracts       
Amount excluded from the assessment of effectiveness0
 0
 0
 111
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:       
Foreign exchange contracts       
Derivatives not designated as hedging instruments0
 100
 0
 (154)
Total gains (losses)$(342) $121
 $245
 $(23)

  Gains (Losses) Recognized in Income
  Three Months Ended
  June 30,
  2017 2018
  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 $26,010
 $245
 $32,657
 $1,408
         
Gains (Losses) on Derivatives in Cash Flow Hedging Relationship:        
Foreign exchange contracts        
Amount of gains (losses) reclassified from AOCI to income $3
 $0
 $(101) $0
Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach 0
 0
 (2) 0
Amount excluded from the assessment of effectiveness 0
 20
 0
 0
Gains (Losses) on Derivatives in Fair Value Hedging Relationship:        
Foreign exchange contracts        
Hedged items 0
 85
 0
 (158)
Derivatives designated as hedging instruments 0
 (85) 0
 158
Amount excluded from the assessment of effectiveness 0
 5
 0
 10
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:        
Foreign exchange contracts        
Derivatives not designated as hedging instruments 0
 (22) 0
 200
Total gains (losses) $3
 $3
 $(103) $210


  Gains (Losses) Recognized in Income
  Six Months Ended
  June 30,
  2017 2018
  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 $50,760
 $496
 $63,803
 $4,950
         
Gains (Losses) on Derivatives in Cash Flow Hedging Relationship:        
Foreign exchange contracts        
Amount of gains (losses) reclassified from AOCI to income $220
 $0
 $(348) $0
Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach 0
 0
 6
 0
Amount excluded from the assessment of effectiveness 0
 46
 0
 0
Gains (Losses) on Derivatives in Fair Value Hedging Relationship:        
Foreign exchange contracts        
Hedged items 0
 136
 0
 (45)
Derivatives designated as hedging instruments 0
 (136) 0
 45
Amount excluded from the assessment of effectiveness 0
 9
 0
 21
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:        
Foreign exchange contracts        
Derivatives not designated as hedging instruments 0
 (224) 0
 100
Total gains (losses) $220
 $(169) $(342) $121

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, 20172018 and June 30, 2018,2019, information related to these offsetting arrangements were as follows (in millions):

Offsetting of Assets
As of December 31, 2017As of December 31, 2018
      Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset        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 ExposedGross 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$102
 $(22) $80
 $(64)
(1) 
$(4) $(2) $10
$569
 $(56) $513
 $(90)
(1) 
$(307) $(14) $102
                          
As of June 30, 2018As of June 30, 2019
      Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset        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 ExposedGross 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
(unaudited)(unaudited)
Derivatives$451
 $(30) $421
 $(95)
(1) 
$(300) $0
 $26
$389
 $(18) $371
 $(88)
(1) 
$(227) $(47) $9
(1) 
The balances as of December 31, 20172018 and June 30, 20182019 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, 2017As of December 31, 2018
      Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset        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 LiabilitiesGross 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$374
 $(22) $352
 $(64)
(2) 
$0
 $0
 $288
$289
 $(56) $233
 $(90)
(2) 
$0
 $0
 $143
                          
As of June 30, 2018As of June 30, 2019
      Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset       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 LiabilitiesGross 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
(unaudited)(unaudited)
Derivatives$253
 $(30) $223
 $(95)
(2) 
$0
 $0
 $128
$374
 $(18) $356
 $(88)
(2) 
$0
 $0
 $268
(2) 
The balances as of December 31, 20172018 and June 30, 20182019 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements.
Note 4. Leases
We have entered into operating and finance lease agreements primarily for data centers, land and offices throughout the world with lease periods expiring between 2019 and 2063.
We determine if an arrangement is a lease at inception. Operating lease assets and liabilities are included on our Consolidated Balance Sheet beginning January 1, 2019. The current portion of our operating lease liabilities is included in accrued expenses and other current liabilities and the long term portion is included in operating lease liabilities. Finance lease assets are included in property and equipment, net. Finance lease liabilities are included in accrued expenses and other current liabilities or long-term debt.
Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in most of our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms

and payments, and in economic environments where the leased asset is located. Operating lease assets also include any prepaid lease payments and lease incentives. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancelable, lease term when determining the lease assets and liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.
Our lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. We combine fixed payments for non-lease components with our lease payments and account for them together as a single lease component which increases the amount of our lease assets and liabilities.
Payments under our lease arrangements are primarily fixed, however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the operating lease assets and liabilities. These amounts include payments affected by the Consumer Price Index, payments contingent on wind or solar production for power purchase arrangements, and payments for maintenance and utilities.
Components of operating lease expense were as follows (in millions, unaudited):
 Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Operating lease cost$427
 $825
Variable lease cost130
 258
Total operating lease cost$557
 $1,083
Supplemental cash flow information related to operating leases was as follows (in millions, unaudited):
 Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Cash payments for operating leases$396
 $770
New operating lease assets obtained in exchange for operating lease liabilities$1,322
 $2,453

As of June 30, 2019, our operating leases had a weighted average remaining lease term of 10 years and a weighted average discount rate of 2.9%. Future lease payments under operating leases as of June 30, 2019 were as follows (in millions, unaudited):
 Operating Leases
Remainder of 2019$717
20201,635
20211,561
20221,387
20231,221
Thereafter5,898
Total future lease payments12,419
Less imputed interest(2,267)
Total lease liability balance$10,152

As of June 30, 2019, we have entered into leases that have not yet commenced with future lease payments of $5.7 billion that are not reflected in the table above. These leases will commence between 2019 and 2022 with non-cancelable lease terms of 1 to 25 years.
Note 5. Variable Interest Entities (VIEs)
Consolidated VIEs
We consolidate VIEs in which we hold a variable interest and are the primary beneficiary. We are the primary beneficiary because we have the power to direct activities that most significantly affect their economic performance and have the obligation to absorb the majority of their losses or benefits. The results of operations and financial position of these VIEs are included in our consolidated financial statements.

For certain consolidated VIEs, their assets are not available to us and their creditors do not have recourse to us. As of December 31, 20172018 and June 30, 2018,2019, assets that can only be used to settle obligations of these VIEs were $1.7$2.4 billion and $1.5$2.3 billion, respectively, and the liabilities for which creditors do notonly have recourse to usthe VIEs were $997$909 million and $949$727 million, respectively.
Calico
Calico is a life science company with a mission to harness advanced technologies to increase our understanding of the biology that controls lifespan.
In September 2014, AbbVie Inc. (AbbVie) and Calico entered into a research and development collaboration agreement intended to help both companies discover, develop, and bring to market new therapies for patients with age-related diseases, including neurodegeneration and cancer. In the second quarter of 2018, AbbVie and Calico amended the collaboration agreement resulting in an increase in total commitments. As of June 30, 2018,2019, AbbVie has contributed $750 million to fund the collaboration pursuant to the agreement and is committed to an additional $500 million which will be paid by the fourth quarter of 2019. As of June 30, 2018,2019, Calico has contributed $250$500 million and has committed up to an additional $1.0 billion.$750 million.
Calico has used its scientific expertise to establish a world-class research and development facility, with a focus on drug discovery and early drug development; and AbbVie provides scientific and clinical development support and its commercial expertise to bring new discoveries to market. Both companies share costs and profits for projects covered under this agreement equally. AbbVie's contribution has been recorded as a liability on Calico's financial statements, which is reduced and reflected as a reduction to research and development expense as eligible research and development costs are incurred by Calico.
As of June 30, 2018,2019, we have contributed $240$480 million to Calico in exchange for Calico convertible preferred units and are committed to fund up to an additional $990$750 million on an as-needed basis and subject to certain conditions.
Verily
Verily is a life science company with a mission to make the world's health data useful so that people enjoy healthier lives.
In 2017, Temasek,December 2018, Verily received $900 million in cash from a Singapore-based$1.0 billion investment company, purchased a noncontrolling interestround. The remaining $100 million was received in the first quarter of 2019. As of June 30, 2019, Verily forhas received an aggregate amount of $800 million in cash. The transaction was$1.8 billion from sales of equity securities to external investors. These transactions were accounted for as an equity transactiontransactions and no gain or loss was recognized. Noncontrolling interest and net loss attributable to noncontrolling interest were not separately presented on our consolidated financial statements as of and for the three and six months ended June 30, 2018 as the amounts were not material.
Unconsolidated VIEs
Certain renewable energy investments included in our non-marketable equity investments accounted for under the equity method are VIEs. These entities' activities involve power generation using renewable sources. We have determined that the governance structures of these entities do not allow us to direct the activities that would significantly affect their economic performance such as setting operating budgets. Therefore, we do not consolidate these VIEs in our consolidated financial statements. The carrying value and maximum exposure of these VIEs were $896$705 million and $759$622 million as of December 31, 20172018 and June 30, 2018,2019, respectively. The maximum exposure is based on current investments to date. We have determined the single source of our exposure to these VIEs is our capital investment in them.
Other unconsolidated VIEs were not material as of December 31, 20172018 and June 30, 2018.2019.
Note 5.6. Debt
Short-Term Debt
We have a debt financing program of up to $5.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. We had no commercial paper outstanding as of December 31, 20172018 and June 30, 2018, respectively.

2019.
Long-Term Debt
Google issued $3.0 billion of senior unsecured notes in three tranches (collectively, 2011 Notes) in May 2011, due in 2014, 2016, and 2021, as well as $1.0 billion of senior unsecured notes (2014 Notes) in February 2014 due in 2024.
In April 2016, we completed an exchange offer with eligible holders of Google’s 2011 Notes due 2021 and 2014 Notes due 2024 (collectively, the Google Notes). An aggregate principal amount of approximately $1.7 billion of the Google Notes was exchanged for approximately $1.7 billion of Alphabet notes with identical interest rate and maturity.

Because the exchange was between a parent and the subsidiary company and for substantially identical notes, the change was treated as a debt modification for accounting purposes with no gain or loss recognized.
In August 2016, Alphabet issued $2.0 billion of senior unsecured notes (2016 Notes) due 2026. The net proceeds from the issuance of the 2016 Notes were used for general corporate purposes, including the repayment of outstanding commercial paper. The Alphabet notes due in 2021, 2024, and 2026 rank equally with each other and are structurally subordinate to the outstanding Google Notes.
The total outstanding long-term debt is summarized below (in millions):
 As of
December 31, 2018		 As of
June 30, 2019
   (unaudited)
3.625% Notes due on May 19, 2021$1,000
 $1,000
3.375% Notes due on February 25, 20241,000
 1,000
1.998% Notes due on August 15, 20262,000
 2,000
Unamortized discount for the Notes above(50) (46)
Subtotal(1)
3,950
 3,954
Finance lease obligation62
 120
Total long-term debt$4,012
 $4,074
 As of
December 31, 2017		 As of
June 30, 2018
   (unaudited)
Long-term debt   
3.625% Notes due on May 19, 2021$1,000
 $1,000
3.375% Notes due on February 25, 20241,000
 1,000
1.998% Notes due on August 15, 20262,000
 2,000
Unamortized discount for the Notes above(57) (53)
Subtotal(1)
$3,943
 $3,947
Capital lease obligation26
 34
Total long-term debt$3,969
 $3,981

(1) 
Includes the outstanding (and unexchanged) Google Notes issued in 2011 and 2014 and the Alphabet notes exchanged in 2016.
The effective interest yields based on proceeds received from the outstanding notes due in 2021, 2024, and 2026 were 3.734%, 3.377%, and 2.231%, respectively, with interest payable semi-annually. We may redeem these notes at any time in whole or in part at specified redemption prices. The total estimated fair value of all outstanding notes was approximately $3.9 billion and $4.0 billion as of December 31, 20172018 and $3.8 billion as of June 30, 2018.2019, respectively. The fair value was determined based on observable market prices of identical instruments in less active markets and is categorized accordingly as Level 2 in the fair value hierarchy.
Credit Facility
As of June 30, 2018,2019, we have a $4.0 billion of revolving credit facilityfacilities which expiresexpire in February 2021.July 2023. The interest rate for the credit facilityfacilities is determined based on a formula using certain market rates. No amounts were outstanding under the credit facilityfacilities as of December 31, 20172018 and June 30, 2018.2019.

Note 6.7. Supplemental Financial Statement Information
Property and Equipment, Net
Property and equipment, net, consisted of the following (in millions):
 As of
December 31, 2018		 As of
June 30, 2019
   (unaudited)
Land and buildings$30,179
 $32,829
Information technology assets30,119
 33,022
Construction in progress16,838
 19,787
Leasehold improvements5,310
 5,682
Furniture and fixtures61
 110
Property and equipment, gross82,507
 91,430
Less: accumulated depreciation(22,788) (26,539)
Property and equipment, net$59,719
 $64,891
 As of
December 31, 2017		 As of
June 30, 2018
   (unaudited)
Land and buildings$23,183
 $27,253
Information technology assets21,429
 26,148
Construction in progress10,491
 13,669
Leasehold improvements4,496
 4,758
Furniture and fixtures48
 48
Property and equipment, gross59,647
 71,876
Less: accumulated depreciation(17,264) (20,204)
Property and equipment, net$42,383
 $51,672

As of December 31, 20172018 and June 30, 2018,2019, information technology assets under capitalfinance lease with a cost basis of $390$648 million and $520$925 million, respectively, were included in property and equipment, respectively.equipment.

Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in millions):
 As of
December 31, 2018		 As of
June 30, 2019
   (unaudited)
European Commission fines(1)
$7,754
 $9,521
Accrued customer liabilities1,810
 1,765
Other accrued expenses and current liabilities7,394
 8,537
Accrued expenses and other current liabilities$16,958
 $19,823
 As of
December 31, 2017		 As of
June 30, 2018
   (unaudited)
European Commission fines(1)
$2,874
 $7,914
Accrued customer liabilities1,489
 1,445
Other accrued expenses and current liabilities5,814
 5,902
Accrued expenses and other current liabilities$10,177
 $15,261

(1) 
Includes the effects of foreign exchange and interest. See Note 910 for further details.
Accumulated Other Comprehensive Income (Loss)
The components of AOCI, net of tax, were as follows (in millions, unaudited):
Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Available-for-Sale Investments Unrealized Gains (Losses) on Cash Flow Hedges TotalForeign Currency Translation Adjustments Unrealized Gains (Losses) on Available-for-Sale Investments Unrealized Gains (Losses) on Cash Flow Hedges Total
Balance as of December 31, 2016$(2,646) $(179) $423
 $(2,402)
Balance as of December 31, 2017$(1,103) $233
 $(122) $(992)
Cumulative effect of accounting change0
 (98) 0
 (98)
Other comprehensive income (loss) before reclassifications1,016
 225
 (459) 782
(485) (356) 100
 (741)
Amounts excluded from the assessment of hedge effectiveness recorded in AOCI0
 0
 1
 1
Amounts reclassified from AOCI0
 51
 (159) (108)0
 33
 272
 305
Other comprehensive income (loss)1,016
 276
 (618) 674
(485) (323) 373
 (435)
Balance as of June 30, 2017$(1,630) $97
 $(195) $(1,728)
Balance as of June 30, 2018$(1,588) $(188) $251
 $(1,525)
 Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Available-for-Sale Investments Unrealized Gains (Losses) on Cash Flow Hedges Total
Balance as of December 31, 2018$(1,884) $(688) $266
 $(2,306)
Cumulative effect of accounting change0
 0
 (30) (30)
Other comprehensive income (loss) before reclassifications82
 1,460
 (36) 1,506
Amounts excluded from the assessment of hedge effectiveness recorded in AOCI0
 0
 (19) (19)
Amounts reclassified from AOCI0
 (68) (174) (242)
Other comprehensive income (loss)82
 1,392
 (229) 1,245
Balance as of June 30, 2019$(1,802) $704
 $7
 $(1,091)

 Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Available-for-Sale Investments Unrealized Gains (Losses) on Cash Flow Hedges Total
Balance as of December 31, 2017$(1,103) $233
 $(122) $(992)
Other comprehensive income (loss) before reclassifications(1)
(485) (454) 100
 (839)
Amounts excluded from the assessment of hedge effectiveness recorded in AOCI0
 0
 1
 1
Amounts reclassified from AOCI0
 33
 272
 305
Other comprehensive income (loss)(485) (421) 373
 (533)
Balance as of June 30, 2018$(1,588) $(188) $251
 $(1,525)
(1)
The change in unrealized gains (losses) on available-for-sale investments included a $98 million reclassification of net unrealized gains related to marketable equity securities from AOCI to opening retained earnings as a result of the adoption of ASU 2016-01 on January 1, 2018.

The effects on net income of amounts reclassified from AOCI were as follows (in millions, unaudited):
    Gains (Losses) Reclassified from AOCI to the Consolidated Statements of Income
    Three Months Ended Six Months Ended
    June 30, June 30,
 AOCI Components Location 2018 2019 2018 2019
Unrealized gains (losses) on available-for-sale investments        
  Other income (expense), net $6
 $98
 $(33) $96
  Benefit (provision) for income taxes 0
 (23) 0
 (28)
  Net of tax 6
 75
 $(33) $68
Unrealized gains (losses) on cash flow hedges        
Foreign exchange contracts Revenue (101) 85
 $(348) $213
Interest rate contracts Other income (expense), net 1
 2
 2
 3
  Benefit (provision) for income taxes 22
 (17) 74
 (42)
  Net of tax (78) 70
 $(272) $174
Total amount reclassified, net of tax $(72) $145
 $(305) $242
    Gains (Losses) Reclassified from AOCI to the Consolidated Statements of Income
    Three Months Ended Six Months Ended
    June 30, June 30,
 AOCI Components Location 2017 2018 2017 2018
Unrealized gains (losses) on available-for-sale investments        
  Other income (expense), net $(26) $6
 $(51) $(33)
  Provision for income taxes 0
 0
 0
 0
  Net of tax $(26) $6
 $(51) $(33)
Unrealized gains (losses) on cash flow hedges        
Foreign exchange contracts Revenue $3
 $(101) $220
 $(348)
Interest rate contracts Other income (expense), net 2
 1
 3
 2
  Benefit (provision) for income taxes 1
 22
 (64) 74
  Net of tax $6
 $(78) $159
 $(272)
Total amount reclassified, net of tax $(20) $(72) $108
 $(305)

Other Income (Expense), Net
The components of other income (expense), net, were as follows (in millions, unaudited):
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2019 2018 2019
Interest income$456
 $653
 $855
 $1,175
Interest expense(1)
(27) (25) (57) (60)
Foreign currency exchange gain (loss), net(33) (52) (57) 22
Gain (loss) on debt securities, net6
 98
 (33) 96
Gain on equity securities, net1,062
 2,699
 4,093
 3,782
Performance fees(2)
(238) (443) (870) (560)
Loss and impairment from equity method investments, net(105) (16) (112) (56)
Other49
 53
 261
 106
Other income (expense), net$1,170
 $2,967
 $4,080
 $4,505
 Three Months Ended Six Months Ended
 June 30, June 30,
 2017 2018 2017 2018
Interest income$294
 $456
 $606
 $855
Interest expense(1)
(21) (27) (46) (57)
Foreign currency exchange losses, net(46) (33) (48) (57)
Gain (loss) on debt securities, net(26) 6
 (51) (33)
Gain on equity securities, net23
 1,062
 29
 4,093
Loss and impairment from equity method investments, net(13) (105) (62) (112)
Other34
 49
 68
 261
Other income (expense), net$245
 $1,408
 $496
 $4,950

(1) 
Interest expense is net of $12interest capitalized of $23 million and $23$36 million of interest capitalized for the three months ended June 30, 20172018 and 2018,2019, respectively and $19$39 million and $39$67 million for the six months ended June 30, 20172018 and 2018,2019, respectively.
(2)
Performance fees were reclassified for the prior period from general and administrative expenses to other income (expense), net to conform with current period presentation. For further information on the performance fees, see Note 13.

Note 7.8. Acquisitions
Agreement with HTC Corporation (HTC)
In January 2018, we completed the acquisition of a team of engineers and a non-exclusive license of intellectual property from HTC for $1.1 billion in cash. In aggregate, $10 million was cash acquired, $165 million was attributed to intangible assets, $934 million was attributed to goodwill, and $9 million was attributed to net liabilities assumed. Goodwill, which was included in Google, is not deductible for tax purposes. We expect this transaction to accelerate Google’s ongoing hardware efforts. The transaction was accounted for as a business combination.
Other Acquisitions
During the six months ended June 30, 2018,2019, we completed other acquisitions and purchases of intangible assets for total consideration of approximately $520 million.$220 million, net of cash acquired. In aggregate, $10$118 million was cash acquired, $273attributed to goodwill, $110 million was attributed to intangible assets, $268 million was attributed to goodwill, and $31$8 million was attributed to net liabilities assumed. These acquisitions generally enhance the breadth and depth of our offerings and expand our expertise in engineering and other functional areas. The amount of goodwill expected to be deductible for tax purposes is approximately $78 million.
Pro forma results of operations for these acquisitions including HTC, have not been presented because they are not material to the consolidated results of operations, either individually or in the aggregate.
For all intangible assets acquired and purchased during the six months ended June 30, 2018,2019, patents and developed technology have a weighted-average useful life of 3.8 years, customer relationships have a weighted-average useful life of 2.23.9 years and trade names and other have a weighted-average useful life of 3.74.8 years.

Pending Acquisition of Looker
In June 2019, we entered into an agreement to acquire Looker, a unified platform for business intelligence, data applications and embedded analytics, for $2.6 billion in cash, which includes post combination compensation arrangements. The acquisition of Looker is expected to be completed later this year, subject to customary closing conditions, including the receipt of regulatory approvals. Upon the close of the acquisition, Looker will join Google Cloud.
Note 8.9. Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill for the six months ended June 30, 20182019 were as follows (in millions, unaudited):
 Google Other Bets Total Consolidated
Balance as of December 31, 2018$17,521
 $367
 $17,888
Acquisitions118
 0
 118
Foreign currency translation and other adjustments(6) 0
 (6)
Balance as of June 30, 2019$17,633
 $367
 $18,000
 Google Other Bets Total Consolidated
Balance as of December 31, 2017$16,295
 $452
 $16,747
Acquisitions1,202
 0
 1,202
Transfers80
 (80) 0
Foreign currency translation and other adjustments(51) (3) (54)
Balance as of June 30, 2018$17,526
 $369
 $17,895

Other Intangible Assets
Information regarding purchased intangible assets were as follows (in millions):
 As of December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Patents and developed technology$5,125
 $3,394
 $1,731
Customer relationships349
 308
 41
Trade names and other703
 255
 448
Total$6,177
 $3,957
 $2,220
      
 As of June 30, 2019
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 (unaudited)
Patents and developed technology$4,832
 $3,342
 $1,490
Customer relationships94
 70
 24
Trade names and other683
 295
 388
Total$5,609
 $3,707
 $1,902
 As of December 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Patents and developed technology$5,260
 $3,040
 $2,220
Customer relationships359
 263
 96
Trade names and other544
 168
 376
Total$6,163
 $3,471
 $2,692
      
 As of June 30, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 (unaudited)
Patents and developed technology$5,331
 $3,252
 $2,079
Customer relationships355
 282
 73
Trade names and other701
 191
 510
Total$6,387
 $3,725
 $2,662


Amortization expense relating to purchased intangible assets was $200$250 million and $250$209 million for the three months ended June 30, 20172018 and 2018,2019, respectively, and $406$445 million and $445$406 million for the six months ended June 30, 20172018 and 2018,2019, respectively.
As of June 30, 2018,2019, expected amortization expense relating to purchased intangible assets for each of the next five years and thereafter are as follows (in millions, unaudited):
Remainder of 2019$356
2020622
2021568
2022230
202320
Thereafter106
Total$1,902
Remainder of 2018$412
2019717
2020588
2021534
2022207
Thereafter204
Total$2,662

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Alphabet Inc.

Note 9.10. Contingencies
Legal Matters
Antitrust Investigations
On November 30, 2010, the European Commission's (EC)EC's Directorate General for Competition opened an investigation into various antitrust-related complaints against us.
On April 15, 2015, the EC issued a Statement of Objections (SO) regarding the display and ranking of shopping search results and ads, to which we responded on August 27, 2015. On July 14, 2016, the EC issued a Supplementary SO regarding shopping search results and ads. On June 27, 2017, the EC announced its decision that certain actions taken by Google regarding its display and ranking of shopping search results and ads infringed European competition law. The EC decision imposed a €2.42€2.4 billion ($2.742.7 billion as of June 27, 2017) fine. On September 11, 2017, we appealed the EC decision and on September 27, 2017, we implemented product changes to bring shopping ads into compliance with the EC's decision. We recognized a charge of $2.74$2.7 billion for the fine in the second quarter of 2017. TheWhile under appeal, the fine is included in accrued expenses and other current liabilities on our Consolidated Balance Sheets as we provided bank guarantees in lieu of a cash payment for the fine.
On April 20, 2016, the EC issued an SO regarding certain Android distribution practices. We responded to the SO and the EC's informational requests. On July 18, 2018, the EC announced its decision that certain provisions in Google’s Android-related distribution agreements infringed European competition law. The EC decision imposed a €4.34€4.3 billion ($5.075.1 billion as of June 30, 2018) fine and directed the termination of the conduct at issue. TheOn October 9, 2018, we appealed the EC decision represented adecision. On October 29, 2018, we implemented changes to certain of our Android distribution practices. We recognized subsequent event and accordingly a charge was recordedof $5.1 billion for the fine in the second quarter 2018 results. We intend toof 2018. While under appeal, the decision.fine is included in accrued expenses and other current liabilities on our Consolidated Balance Sheets as we provided bank guarantees in lieu of a cash payment for the fine.
On July 14, 2016, the EC issued an SO regarding the syndication of AdSense for Search.Search (AFS). We responded to the SO and continue to respond to the EC's informational requests. There is significant uncertaintyOn March 20, 2019, the EC announced its decision that certain contractual provisions in agreements that Google had with AFS partners infringed European competition law. The EC decision imposed a fine of €1.5 billion ($1.7 billion as of March 20, 2019) and directed actions related to AFS agreements, which we implemented prior to the outcome of this investigation; however, an adverse decision could result in fines and directives to alter or terminate certain conduct. Given the nature of this case,decision. On June 4, 2019, we are unable to estimate the reasonably possible loss or range of loss, if any. We remain committed to working withappealed the EC to resolve these matters.decision. We recognized a charge of $1.7 billion for the fine in the first quarter of 2019. While under appeal, the fine is included in accrued expenses and other current liabilities on our Consolidated Balance Sheets as we provided bank guarantees in lieu of a cash payment for the fine.
The Comision Nacional de Defensa de la Competencia in Argentina, the Competition Commission of India (CCI), Brazil's Administrative Council for Economic Defense (CADE), and the Korean Fair Trade Commission have also opened investigations into certain of our business practices. In November 2016, we responded to the CCI Director General's report with interim findings of competition law infringements regarding search and ads. On February 8, 2018, the CCI issued its final decision, including a fine of approximately $21 million, that was accrued for in the first quarter of 2018, finding no violation of competition law infringement on most of the issues it investigated, but finding violations, including in the display of the “flights unit” in search results, and a contractual provision in certain direct search intermediation agreements. We have appealed the CCI decision. The fine was accrued for in 2018.
Patent and Intellectual Property Claims
We have had patent, copyright, trade secret, and trademark infringement lawsuits filed against us claiming that certain of our products, services, and technologies infringe the intellectual property rights of others. Adverse results in these lawsuits may include awards of substantial monetary damages, costly royalty or licensing agreements, or orders preventing us from offering certain features, functionalities, products, or services, and may also cause us to change our business practices, and require development of non-infringing products or technologies, which could result in a loss of revenues

for us and otherwise harm our business. In addition, the U.S. International Trade Commission (ITC) has increasingly become an important forum to litigate intellectual property disputes because an ultimate loss for a company or its suppliers in an ITC action could result in a prohibition on importing infringing products into the U.S. Because the U.S. is an important market, a prohibition on importation could have an adverse effect on us, including preventing us from importing many important products into the U.S. or necessitating workarounds that may limit certain features of our products.
Furthermore, many of our agreements with our customers and partners require us to indemnify them for certain intellectual property infringement claims against them, which would increase our costs as a result of defending such claims, and may require that we pay significant damages if there were an adverse ruling in any such claims. Our

customers and partners may discontinue the use of our products, services, and technologies, as a result of injunctions or otherwise, which could result in loss of revenues and adversely affect our business.
In 2010, Oracle America, Inc. (Oracle) brought a copyright lawsuit against Google in the Northern District of California, alleging that Google's Android operating system infringes Oracle's copyrights related to certain Java application programming interfaces. After trial, final judgment was entered by the district court in favor of Google on June 8, 2016, and the court decided post-trial motions in favor of Google. Oracle appealed and on March 27, 2018, the appeals court reversed and remanded the case for a trial on damages. On May 29, 2018, we filed a petition for an en banc rehearing at the Federal Circuit, and on August 28, 2018, the Federal Circuit denied the petition. On January 24, 2019, we filed a petition to the appeals court for rehearing en banc.Supreme Court of the United States to review this case. On April 29, 2019, the Supreme Court requested the views of the Solicitor General regarding our petition. We believe this lawsuit is without merit and are defending ourselves vigorously. Given the nature of this case, we are unable to estimate the reasonably possible loss or range of loss, if any, arising from this matter.
Other
We are also regularly subject to claims, suits, regulatory and government investigations, and other proceedings involving competition, (such as the pending EC investigations described above), intellectual property, privacy, tax and related compliance, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, personal injury, consumer protection, and other matters. Such claims, suits, regulatory and government investigations, and other proceedings could result in fines, civil or criminal penalties, or other adverse consequences.
Certain of ourthese outstanding legal matters include speculative, claims for substantial or indeterminate amounts of damages.monetary amounts. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.
With respect to our outstanding legal matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.
We expense legal fees in the period in which they are incurred.
Non-Income Taxes
We are under audit by various domestic and foreign tax authorities with regards to non-income tax matters. The subject matter of non-income tax audits primarily arises from disputes on the tax treatment and tax rate applied to the sale of our products and services in these jurisdictions and the tax treatment of certain employee benefits. We accrue non-income taxes that may result from examinations by, or any negotiated agreements with, these tax authorities when a loss is probable and reasonably estimable. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We believe these matters are without merit and we are defending ourselves vigorously. Due to the inherent complexity and uncertainty of these matters and judicial process in certain jurisdictions, the final outcome may be materially different from our expectations.
For information regarding income tax contingencies, see Note 13.
Note 10. Stockholders’11. Stockholders' Equity
Share Repurchases
In October 2016, the board of directors of Alphabet authorized the company to repurchase up to $7.0 billion of its Class C capital stock, which was completed during the first quarter of 2018. In January 2018, the board of directors

of Alphabet authorized the company to repurchase up to $8.6 billion of its Class C capital stock, which was completed during the first quarter of 2019. In January 2019, the board of directors of Alphabet authorized the company to repurchase up to an additional $12.5 billion of its Class C capital stock. TheIn July 2019, the board of directors of Alphabet authorized the company to repurchase up to an additional $25.0 billion of its Class C capital stock.The repurchases are being executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. The repurchase program does not have an expiration date.
During the six months ended June 30, 2018,2019, we repurchased and subsequently retired 3.95.8 million shares of Alphabet Class C capital stock for an aggregate amount of $4.2$6.6 billion.
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Alphabet Inc.

Note 11.12. Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share of Class A and Class B common stock and Class C capital stock (in millions, except share amounts which are reflected in thousands, and per share amounts, unaudited):
 Three Months Ended June 30,
 2018 2019
 Class A Class B Class C Class A Class B Class C
Basic net income per share:           
Numerator           
Allocation of undistributed earnings$1,371
 $216
 $1,608
 $4,286
 $667
 $4,994
Denominator           
Number of shares used in per share computation298,264
 46,915
 349,756
 299,035
 46,525
 348,409
Basic net income per share$4.60
 $4.60
 $4.60
 $14.33
 $14.33
 $14.33
Diluted net income per share:           
Numerator           
Allocation of undistributed earnings for basic computation$1,371
 $216
 $1,608
 $4,286
 $667
 $4,994
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares216
 0
 0
 667
 0
 0
Reallocation of undistributed earnings(16) (3) 16
 (36) (6) 36
Allocation of undistributed earnings$1,571
 $213
 $1,624
 $4,917
 $661
 $5,030
Denominator           
Number of shares used in basic computation298,264
 46,915
 349,756
 299,035
 46,525
 348,409
Weighted-average effect of dilutive securities           
Add:           
Conversion of Class B to Class A common shares outstanding46,915
 0
 0
 46,525
 0
 0
Restricted stock units and other contingently issuable shares713
 0
 7,599
 453
 0
 5,532
Number of shares used in per share computation345,892
 46,915
 357,355
 346,013
 46,525
 353,941
Diluted net income per share$4.54
 $4.54
 $4.54
 $14.21
 $14.21
 $14.21
 Three Months Ended June 30,
 2017 2018
 Class A Class B Class C Class A Class B Class C
Basic net income per share:           
Numerator           
Allocation of undistributed earnings$1,514
 $240
 $1,770
 $1,371
 $216
 $1,608
Denominator           
Number of shares used in per share computation297,288
 47,133
 347,538
 298,264
 46,915
 349,756
Basic net income per share$5.09
 $5.09
 $5.09
 $4.60
 $4.60
 $4.60
Diluted net income per share:           
Numerator           
Allocation of undistributed earnings for basic computation$1,514
 $240
 $1,770
 $1,371
 $216
 $1,608
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares240
 0
 0
 216
 0
 0
Reallocation of undistributed earnings(22) (4) 22
 (16) (3) 16
Allocation of undistributed earnings$1,732
 $236
 $1,792
 $1,571
 $213
 $1,624
Denominator           
Number of shares used in basic computation297,288
 47,133
 347,538
 298,264
 46,915
 349,756
Weighted-average effect of dilutive securities           
Add:           
Conversion of Class B to Class A common shares outstanding47,133
 0
 0
 46,915
 0
 0
Restricted stock units and other contingently issuable shares1,258
 0
 10,286
 713
 0
 7,599
Number of shares used in per share computation345,679
 47,133
 357,824
 345,892
 46,915
 357,355
Diluted net income per share$5.01
 $5.01
 $5.01
 $4.54
 $4.54
 $4.54


Six Months Ended June 30,Six Months Ended June 30,
2017 20182018 2019
Class A Class B Class C Class A Class B Class CClass A Class B Class C Class A Class B Class C
Basic net income per share:                      
Numerator                      
Allocation of undistributed earnings$3,845
 $611
 $4,494
 $5,407
 $851
 $6,338
$5,407
 $851
 $6,338
 $7,150
 $1,113
 $8,341
Denominator                      
Number of shares used in per share computation297,210
 47,234
 347,313
 298,292
 46,934
 349,618
298,292
 46,934
 349,618
 299,025
 46,562
 348,832
Basic net income per share$12.94
 $12.94
 $12.94
 $18.13
 $18.13
 $18.13
$18.13
 $18.13
 $18.13
 $23.91
 $23.91
 $23.91
Diluted net income per share:                      
Numerator                      
Allocation of undistributed earnings for basic computation$3,845
 $611
 $4,494
 $5,407
 $851
 $6,338
$5,407
 $851
 $6,338
 $7,150
 $1,113
 $8,341
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares611
 0
 0
 851
 0
 0
851
 0
 0
 1,113
 0
 0
Reallocation of undistributed earnings(52) (9) 52
 (68) (11) 68
(68) (11) 68
 (59) (9) 59
Allocation of undistributed earnings$4,404
 $602
 $4,546
 $6,190
 $840
 $6,406
$6,190
 $840
 $6,406
 $8,204
 $1,104
 $8,400
Denominator                      
Number of shares used in basic computation297,210
 47,234
 347,313
 298,292
 46,934
 349,618
298,292
 46,934
 349,618
 299,025
 46,562
 348,832
Weighted-average effect of dilutive securities                      
Add:                      
Conversion of Class B to Class A common shares outstanding47,234
 0
 0
 46,934
 0
 0
46,934
 0
 0
 46,562
 0
 0
Restricted stock units and other contingently issuable shares1,342
 0
 9,671
 804
 0
 8,543
804
 0
 8,543
 482
 0
 5,516
Number of shares used in per share computation345,786
 47,234
 356,984
 346,030
 46,934
 358,161
346,030
 46,934
 358,161
 346,069
 46,562
 354,348
Diluted net income per share$12.74
 $12.74
 $12.74
 $17.89
 $17.89
 $17.89
$17.89
 $17.89
 $17.89
 $23.71
 $23.71
 $23.71
For the periods presented above, the net income per share amounts are the same for Class A and Class B common stock and Class C capital stock because the holders of each class are entitled to equal per share dividends or distributions in liquidation in accordance with the Amended and Restated Certificate of Incorporation of Alphabet Inc.
Note 12.13. Compensation Plans
Stock-Based Compensation
For the three months ended June 30, 20172018 and 2018,2019, total stock-based compensation (SBC) expense was $2.1$2.5 billion and $2.5$2.9 billion, respectively, including amounts associated with awards we expect to settle in Alphabet stock of $2.0$2.4 billion and $2.4$2.8 billion, respectively. For the six months ended June 30, 20172018 and 2018,2019, total stock-based compensationSBC expense was $4.1$5.0 billion and $5.0$5.8 billion, respectively, including amounts associated with awards that we expect to settle in Alphabet stock of $4.0$4.9 billion and $4.9$5.5 billion, respectively.
Stock-Based Award Activities
The following table summarizes the activities for our unvested restricted stock units (RSUs) for the six months ended June 30, 20182019 (unaudited):
 Unvested Restricted Stock Units
 Number of
Shares		 Weighted-
Average
Grant-Date
Fair Value
Unvested as of December 31, 201818,467,678
 $936.96
Granted11,170,484
 $1,060.69
 Vested(6,138,306) $879.62
 Forfeited/canceled(845,101) $976.63
Unvested as of June 30, 201922,654,755
 $1,012.03
 Unvested Restricted Stock Units
 Number of
Shares		 Weighted-
Average
Grant-Date
Fair Value
Unvested as of December 31, 201720,077,346
 $712.45
Granted10,102,033
 $1,082.22
 Vested(7,088,915) $718.22
 Forfeited/canceled(776,371) $742.02
Unvested as of June 30, 201822,314,093
 $876.95

As of June 30, 2018,2019, there was $18.4$21.7 billion of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of 2.7 years.

Performance Fees
We have compensation arrangements with payouts based on realized investment returns. We recognize compensation expense based on the estimated payouts, which may result in expense recognized before investment returns are realized. For the three and six months ended June 30, 2018, performancePerformance fees, of $238 million and $870 million, respectively,which are primarily related to gains on equity securities (for further information on gains on equity securities, see Note 3) were, are accrued and recorded as a component of general and administrative expenses.other income (expense), net. For further information on the performance fees, see Note 7.
Note 13. 14. Income Taxes
On July 27, 2015, the United States Tax Court, in an opinion in Altera Corp. v. Commissioner, invalidated the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing agreement to share stock-based compensation costs. The U.S. Tax Court issued the final decision on December 28, 2015. As a result of that decision, we recorded a tax benefit related to the anticipated reimbursement of cost share payment for previously shared stock-based compensation costs.
On June 7, 2019, the United States Court of Appeals for the Ninth Circuit overturned the 2015 Tax Court decision in Altera Corp. v. Commissioner, and upheld the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. As a result of the Ninth Circuit court decision, our cumulative net tax benefit of $418 million related to previously shared stock-based compensation costs was reversed in the three months ended June 30, 2019.
Our effective tax rate for the three months ended June 30, 2018 and 2019 was 24.2% and 18.1%, respectively. The decrease in effective tax rate is primarily due to discrete items in the three months ended June 30, 2018 and 2019. A non-deductible EC fine and release of our deferred tax asset valuation allowance related to the gains on equity securities impacted the second quarter of 2018, and reversal of the Altera tax benefit impacted the second quarter of 2019.
Our effective tax rate for the three months ended June 30, 2019 was lower than the U.S. federal statutory rate, primarily due to foreign earnings taxed at lower rates and the U.S. Research and Development Tax Credit, partially offset by the reversal of the cumulative net tax benefit as a result of the U.S. Court of Appeals decision in the Altera case.
Our effective tax rate for the three months ended June 30, 2018 was higher than the U.S. federal statutory rate, primarily due to the impact from the 2018 EC fine that is not tax deductible, partially offset by foreign earnings taxed at lower rates and the U.S. Research and Development Tax Credit.
We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Our total gross unrecognized tax benefits were $4.7 billion and $5.1$4.9 billion as of December 31, 20172018 and June 30, 2018,2019, respectively. Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $3.0$2.9 billion and $3.3$3.0 billion as of December 31, 20172018 and June 30, 2018,2019, respectively.
The Tax Act enacted in December 2017 introduced significant changes to U.S. income tax law. Effective 2018, the Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings and certain intercompany payments.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 31, 2017. As we collect and prepare necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service (IRS), and other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments may materially affect our provision for income taxes and effective tax rate in the period in which the adjustments are made. The adjustments made in the second quarter of 2018 were not significant. The accounting for the tax effects of the Tax Act will be completed later in 2018.
In addition, we are subject to the continuous examination of our income tax returns by the IRS and other domestic and foreign tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We continue to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust the provision for income taxes in the period such resolution occurs.
We have received tax assessments in multiple foreign jurisdictions asserting transfer pricing adjustments or permanent establishment. We continue to defend against any and all such claims as presented. While we believe it is more likely than not that our tax position will be sustained, it It is reasonably possible that we will have future obligations relatedcertain U.S. and non-U.S. tax matters may be resolved in the next 12 months, which may decrease our unrecognized tax benefits (either by payment, release or a combination of both) up to these matters.$2.8 billion in the next 12 months.
For information regarding non-income taxes, see Note 9.10.
Note 14.15. Information about Segments and Geographic Areas
We operate our business in multiple operating segments. Google is our only reportable segment. None of our other segments meet the quantitative thresholds to qualify as reportable segments; therefore, the other operating segments are combined and disclosed as Other Bets.
Our reported segments are:
•
Google – Google includes our main products such as ads, Android, Chrome, hardware, Google Cloud, Google Maps, Google Play, Search, and YouTube. Our technical infrastructure is also included in Google. Google generates revenues primarily from advertising; sales of apps, in-app purchases, digital content products, and hardware; and licensing and service fees, including fees received for Google Cloud offerings.
•
Other Bets – Other Bets is a combination of multiple operating segments that are not individually material. Other Bets includes Access, Calico, CapitalG, GV, Verily, Waymo, and X, among others. Revenues from the Other Bets are derived primarily through the sales of internet and TV services through Access as well as licensing and R&D services through Verily.
Google – Google includes our main products such as Ads, Android, Chrome, Commerce, Google Cloud, Google Maps, Google Play, Hardware (including Nest), Search, and YouTube. Our technical infrastructure and some newer efforts like virtual reality are also included in Google. Google generates revenues primarily from advertising; sales of apps, in-app purchases, digital content products, and hardware; and licensing and service fees, including fees received for Google Cloud offerings.
Other Bets – Other Bets is a combination of multiple operating segments that are not individually material. Other Bets includes businesses such as Access, Calico, CapitalG, Chronicle, GV, Verily, Waymo, and X. Revenues from the Other Bets are derived primarily through the sales of internet and TV services through Access as well as licensing and R&D services through Verily.

Revenues, cost of revenues, and operating expenses are generally directly attributed to our segments. Inter-segment revenues are not presented separately, as these amounts are immaterial. Our Chief Operating Decision Maker does not evaluate operating segments using asset information.

In Q1 2018, Nest joined forces with Google’s hardware team. Consequently, the financial results of Nest have been reported in the Google segment, with Nest revenues reflected in Google other revenues. Prior period segment information has been recast to conform to the current period segment presentation. Consolidated financial results are not affected.
Information about segments during the periods presented were as follows (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Revenues:              
Google$25,913
 $32,512
 $50,531
 $63,508
$32,512
 $38,782
 $63,508
 $74,951
Other Bets97
 145
 229
 295
145
 162
 295
 332
Total revenues$26,010
 $32,657
 $50,760
 $63,803
$32,657
 $38,944
 $63,803
 $75,283
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Operating income (loss):              
Google$7,664
 $8,959
 $15,110
 $17,327
$8,959
 $10,388
 $17,327
 $19,713
Other Bets(633) (732) (1,336) (1,303)(732) (989) (1,303) (1,857)
Reconciling items(1)
(2,899) (5,420) (3,074) (6,216)(5,182) (219) (5,346) (2,068)
Total income from operations$4,132
 $2,807
 $10,700
 $9,808
$3,045
 $9,180
 $10,678
 $15,788
(1) 
Reconciling items are primarily comprised of the European CommissionEC fines for the three months ended June 30, 2018 and the six months ended June 30, 20172018 and 2018, respectively, and performance fees for the three and six months ended June 30, 2018,2019 as well as corporate administrative costs and other miscellaneous items that are not allocated to individual segments.segments for all periods presented. Performance fees previously included in reconciling items were reclassified for the prior period from general and administrative expenses to other income (expense), net to conform with current period presentation. For further information on the reclassification, see Note 1.
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Capital expenditures:              
Google$2,838
 $5,299
 $5,247
 $12,968
$5,299
 $6,896
 $12,968
 $11,430
Other Bets148
 10
 315
 65
10
 65
 65
 124
Reconciling items(2)
(155) 168
 (223) (257)168
 (835) (257) (790)
Total capital expenditures as presented on the Consolidated Statements of Cash Flows$2,831
 $5,477
 $5,339
 $12,776
$5,477
 $6,126
 $12,776
 $10,764
(2) 
Reconciling items are related to timing differences of payments as segment capital expenditures are on accrual basis while total capital expenditures shown on the Consolidated Statements of Cash Flow are on cash basis and other miscellaneous differences.

Stock-based compensation and depreciation, amortization, and impairment are included in segment operating income (loss) as shown below (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Stock-based compensation:              
Google$1,884
 $2,288
 $3,766
 $4,592
$2,288
 $2,600
 $4,592
 $5,212
Other Bets81
 127
 167
 239
127
 125
 239
 248
Reconciling items(3)
38
 (2) 79
 39
(2) 35
 39
 69
Total stock-based compensation(4)
$2,003
 $2,413
 $4,012
 $4,870
$2,413
 $2,760
 $4,870
 $5,529
              
Depreciation, amortization, and impairment:              
Google$1,564
 $2,031
 $2,980
 $3,932
$2,031
 $2,756
 $3,932
 $5,285
Other Bets61
 83
 148
 168
83
 79
 168
 163
Total depreciation, amortization, and impairment as presented on the Consolidated Statements of Cash Flows$1,625
 $2,114
 $3,128
 $4,100
Total depreciation, amortization, and impairment$2,114
 $2,835
 $4,100
 $5,448
(3) 
Reconciling items represent corporate administrative costs that are not allocated to individual segments.
(4) 
For purposes of segment reporting, SBC represents awards that we expect to settle in Alphabet stock.
The following table presents our long-lived assets by geographic area (in millions):
 As of
December 31, 2018		 As of
June 30, 2019
   (unaudited)
Long-lived assets:   
United States$74,882
 $82,904
International22,234
 26,760
Total long-lived assets$97,116
 $109,664
 As of
December 31, 2017		 As of
June 30, 2018
   (unaudited)
Long-lived assets:   
United States$55,113
 $66,460
International17,874
 20,993
Total long-lived assets$72,987
 $87,453

For revenues by geography, see Note 2.

Table of Contents
Alphabet Inc.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q.
Executive Overview of Results
Below are our key financial results for the three months ended June 30, 20182019 (consolidated unless otherwise noted):
Revenues of $32.7$38.9 billion and revenue growth of 26%19% year over year, constant currency revenue growth of 23%22% year over year.
Google segment revenues of $32.5$38.8 billion with revenue growth of 25%19% year over year and Other Bets revenues of $145.0$162 million with revenue growth of 49%12% year over year.
Revenues from the United States,, EMEA,, APAC,, and Other Americas were $14.9$17.9 billion, $10.8$12.4 billion, $5.1$6.6 billion, and $1.8$2.1 billion, respectively.
Cost of revenues was $13.9$17.3 billion, consisting of TAC of $6.4$7.2 billion and other cost of revenues of $7.5$10.1 billion. Our TAC as a percentage of advertising revenues was 23%22%.
Operating expenses (excluding cost of revenues) were $16.0 billion, including the European Commission (EC) Android fine of $5.1$12.5 billion.
Income from operations was $2.8$9.2 billion.
Other income (expense), net, was $1.4$3.0 billion.
Effective tax rate was 24%18%.
Net income was $3.2$9.9 billion with diluted net income per share of $4.54.$14.21.
Operating cash flow was $10.1$12.6 billion.
Capital expenditures were $5.5$6.1 billion.
Number of employees was 89,058107,646 as of June 30, 2018.2019. The majority of new hires during the quarter were engineers and product managers. By product area, the largest headcount additions were in Google Cloud and Search.
Information about Segments
We operate our business in multiple operating segments. Google is our only reportable segment. None of our other segments meet the quantitative thresholds to qualify as reportable segments; therefore, the other operating segments are combined and disclosed as Other Bets.
Our reported segments are:
Google – Google includes our main products such as Ads, Android, Chrome, Commerce, Google Cloud, Google Maps, Google Play, Hardware (including Nest), Search, and YouTube. Our technical infrastructure and some newer efforts like virtual reality are also included in Google. Google generates revenues primarily from advertising; sales of apps, in-app purchases, digital content products, and hardware; and licensing and service fees, including fees received for Google Cloud offerings.
Other Bets – Other Bets is a combination of multiple operating segments that are not individually material. Other Bets includes businesses such as Access, Calico, CapitalG, Chronicle, GV, Verily, Waymo, and X. Revenues from the Other Bets are derived primarily through the sales of internet and TV services through Access as well as licensing and R&D services through Verily.
In Q1 2018, Nest joined forces with Google’s hardware team. Consequently, the financial results of Nest have been reported in the Google segment, with Nest revenues reflected in Google other revenues. Prior period segment information has been recast to conform to the current period segment presentation. Consolidated financial results are not affected.
•
Google – Google includes our main products such as ads, Android, Chrome, hardware, Google Cloud, Google Maps, Google Play, Search, and YouTube. Our technical infrastructure is also included in Google. Google generates revenues primarily from advertising; sales of apps, in-app purchases, digital content products, and hardware; and licensing and service fees, including fees received for Google Cloud offerings.
•
Other Bets – Other Bets is a combination of multiple operating segments that are not individually material. Other Bets includes Access, Calico, CapitalG, GV, Verily, Waymo, and X, among others. Revenues from the Other Bets are derived primarily through the sales of internet and TV services through Access as well as licensing and R&D services through Verily.
Please refer to Note 1415 of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Table of Contents
Alphabet Inc.

Revenues
The following table presents our revenues, by segment and revenue source (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Google segment              
Google properties revenues$18,425
 $23,262
 $35,828
 $45,260
$23,262
 $27,335
 $45,260
 $53,017
Google Network Members' properties revenues4,247
 4,825
 8,255
 9,469
4,825
 5,266
 9,469
 10,304
Google advertising revenues22,672
 28,087
 44,083
 54,729
28,087
 32,601
 54,729
 63,321
Google other revenues3,241
 4,425
 6,448
 8,779
4,425
 6,181
 8,779
 11,630
Google segment revenues25,913
 32,512
 50,531
 63,508
32,512
 38,782
 63,508
 74,951
              
Other Bets              
Other Bets revenues97
 145
 229
 295
145
 162
 295
 332
              
Revenues$26,010
 $32,657
 $50,760
 $63,803
$32,657
 $38,944
 $63,803
 $75,283
Google segment
The following table presents our Google segment revenues (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Google segment revenues$25,913
 $32,512
 $50,531
 $63,508
$32,512
 $38,782
 $63,508
 $74,951
Google segment revenues as a percentage of total revenues99.6% 99.6% 99.5% 99.5%99.6% 99.6% 99.5% 99.6%
Use of Monetization Metrics
When assessing our advertising revenues performance, historically we presented the percentage change in the number of paid clicks and cost-per-click for both our Google properties and our Google Network Members’ properties (Network) revenues. As our impression-based revenues have become a more significant driver of Network revenues growth, the percentage change in paid clicks and cost-per-click cover less of our total Network revenues. As a result, in Q1 2018, we transitioned our Network revenue metrics from the percentage change in paid clicks and cost-per-click to the percentage change in impressions and cost-per-impression. Click-based revenues generated by our Network business are included in impression-based metrics, so that these metrics cover nearly all of our Network business. The monetization metrics for Google properties revenues remain unchanged.
Paid clicks for our Google properties represent engagement by users and include clicks on advertisements by end-users related to searches on Google.com, clicks related to advertisements on other owned and operated properties including Gmail, Google Maps, and Google Play; and viewed YouTube engagement ads. Impressions for our Google Network Members' properties include impressions displayed to users served on Google Network Members' properties participating primarily in AdMob, AdSense for Content, AdSense for Search, and DoubleClick AdExchange.Google Ad Manager.
Cost-per-click is defined as click-driven revenues divided by our total number of paid clicks and represents the average amount we charge advertisers for each engagement by users.
Cost-per-impression is defined as impression-based and click-based revenues divided by our total number of impressions and represents the average amount we charge advertisers for each impression displayed to users.
As our business evolves, we periodically review, refine and update our methodologies for monitoring, gathering, and counting the number of paid clicks on our Google properties and the number of impressions on Google Network Members’ properties and for identifying the revenues generated by click activity on our Google properties and the revenues generated by impression activity on Google Network Members’ properties.

Our advertising 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 the correlation between these items, have fluctuatedbeen affected and may continue to fluctuate because ofbe affected by various factors, including:
advertiser competition for keywords;
changes in advertising quality, formats or formats;delivery;
changes in device mix;
changes in foreign currency exchange rates;
fees advertisers are willing to pay based on how they manage their advertising costs;
general economic conditions;
growth rates of revenues within Google properties;
seasonality; and

traffic growth in emerging markets compared to more mature markets and across various advertising verticals and channels.
Our advertising revenue growth rate has fluctuatedbeen affected over time as a result of a number of factors, including challenges in maintaining our growth rate as revenues increase to higher levels, changes in our product mix, changes in advertising quality or formats and delivery, increasing competition, query growth rates, our investments in new business strategies, shifts in the geographic mix of our revenues, and the evolution of the online advertising market. We also expect that our advertising revenue growth rate will continue to be affected by evolving user preferences, the acceptance by users of our products and services as they are delivered on diverse devices and modalities, our ability to create a seamless experience for both users and advertisers, and movements in foreign currency exchange rates.
Google properties
The following table presents our Google properties revenues (in millions, unaudited), and changes in our paid clicks and cost-per-click (expressed as a percentage):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Google properties revenues$18,425
 $23,262
 $35,828
 $45,260
$23,262
 $27,335
 $45,260
 $53,017
Google properties revenues as a percentage of Google segment revenues71.1% 71.5 % 70.9% 71.3 %71.5% 70.5 % 71.3% 70.7 %
Paid clicks change  58 %   59 %  28 %   33 %
Cost-per-click change  (22)%   (21)%  (11)%   (15)%
Google properties revenues consist primarily of advertising revenues that are generated on:
Google search properties which includes revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.; and
Other Google owned and operated properties like Gmail, Google Maps, Google Play, and YouTube.
Our Google properties revenues increased $4,837$4,073 million and $7,757 million from the three and six months ended June 30, 20172018 to the three and six months ended June 30, 2018.2019, respectively. The growth was primarily driven by increases in mobile search resulting from ongoing growth in user adoption and usage, as well as continued growth in advertiser activity. We also experienced growth in YouTube driven primarily by video advertising, as well as growth in desktop search due to improvements in ad formats and delivery. Additionally, theThe growth was favorably affectedpartially offset by the general weakening of the U.S. dollar compared to certain foreign currencies.
Our Google properties revenues increased $9,432 million from the six months ended June 30, 2017 to the six months ended June 30, 2018. The growth was primarily driven by increases in mobile search resulting from ongoing growth in user adoption and usage, as well as continued growth in advertiser activity. We also experienced growth in desktop search due to improvements in ad formats and delivery, as well as growth in YouTube driven primarily by video advertising. Additionally, the growth was favorably affected by the general weakeningstrengthening of the U.S. dollar compared to certain foreign currencies.
The number of paid clicks through our advertising programs on Google properties increased from the three and six months ended June 30, 20172018 to the three and six months ended June 30, 20182019 primarily due to growth in YouTube engagement ads,ads; and to a lesser extent, increases in mobile search queries,queries; improvements we have made in ad formats and delivery,delivery; and continued global expansion of our products, advertisers and user base. The positive effect on our revenues from an increase in paid clicks was partially offset by a decrease in the cost-per-click paid by our

advertisers. The decrease in cost-per-click was primarily driven by continued growth in YouTube engagement ads where cost-per-click remains lower than on our other advertising platforms. Cost-per-click was also affected by changes in device mix, geographic mix, ongoing product changes, product mix, property mix, and fluctuations of the U.S. dollar compared to certain foreign currencies.

Google Network Members' properties
The following table presents our Google Network Members' properties revenues (in millions, unaudited) and changes in our impressions and cost-per-impression (expressed as a percentage):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Google Network Members' properties revenues$4,247
 $4,825
 $8,255
 $9,469
$4,825
 $5,266
 $9,469
 $10,304
Google Network Members' properties revenues as a percentage of Google segment revenues16.4% 14.8% 16.3% 14.9%14.8% 13.6 % 14.9% 13.7 %
Impressions change  1%   1%  11 %   8 %
Cost-per-impression change  14%   16%  (1)%   — %
Google Network Members' properties revenues consist primarily of advertising revenues generated from advertisements served on Google Network Members' properties participating in:
AdMob;
AdSense (such as AdSense for Content, AdSense for Search, etc.); and
DoubleClick AdExchange.Google Ad Manager.
Our Google Network Members' properties revenues increased $578$441 million and $835 million from the three months ended June 30, 2017 to the three months ended June 30, 2018.The growth was primarily driven by strength in both AdMob and programmatic advertising buying as well as the general weakening of the U.S. dollar compared to certain foreign currencies.
Our Google Network Members' properties revenues increased $1,214 million from the six months ended June 30, 20172018 to the three and six months ended June 30, 2018.The2019, respectively. The growth was primarily driven by strength in both programmatic advertising buying and AdMob, as well aspartially offset by the general weakeningstrengthening of the U.S. dollar compared to certain foreign currencies. These increases were offset by a decline in our traditional AdSense businesses.
The impressionsImpressions increased from the three and six months ended June 30, 20172018 to the three and six months ended June 30, 2018 were2019 primarily due to growth in programmatic advertising buying. The cost-per-impression was relatively unchanged with growth in both AdMob and programmatic advertising buying offset by a decrease from our traditional AdSense for Content business due to ongoing product changes. The increases in cost-per-impression were primarily due toa combination of factors including ongoing product and policy changes and improvements we have made in ad formats and delivery, and were also affected by changes in device mix, geographic mix, product mix, property mix, and fluctuations of the U.S. dollar compared to certain foreign currencies.
Google other revenues
The following table presents our Google other revenues (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Google other revenues$3,241
 $4,425
 $6,448
 $8,779
$4,425
 $6,181
 $8,779
 $11,630
Google other revenues as a percentage of Google segment revenues12.5% 13.6% 12.8% 13.8%13.6% 15.9% 13.8% 15.5%
Google other revenues consist primarily of revenues from:
•Apps, in-app purchases, and digital content in the Google Play store;
Google Cloud offerings;
Hardware; and
Hardware.YouTube subscriptions.
Our Google other revenues increased $1,184$1,756 million and $2,851 million from the three months ended June 30, 2017 to the threeand six months ended June 30, 2018 to the three and increased $2,331 million from the six months ended June 30, 2017 to the six months

ended June 30, 2018.2019, respectively. The growth was primarily driven by revenues from Google Cloud offerings as well as revenues from Google Play, largely relating to in-app purchases (revenues which we recognize net of payout to developers),.
Over time, our growth rate for Google other revenues may be affected by the seasonality associated with new product and hardware sales.service launches and market dynamics.

Other Bets
The following table presents our Other Bets revenues (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Other Bets revenues$97
 $145
 $229
 $295
$145
 $162
 $295
 $332
Other Bets revenues as a percentage of total revenues0.4% 0.4% 0.5% 0.5%0.4% 0.4% 0.5% 0.4%
Other Bets revenues consist primarily of revenues and sales from internet and TV services as well as licensing and R&D services.
Our Other Bets revenues increased $48$17 million and $37 million from the three and six months ended June 30, 20172018 to the three and six months ended June 30, 2018.2019, respectively. The growth was primarily driven by revenues from Verily licensing and R&D services and sales of Access internet and TV services.
Our Other Bets revenues increased $66 million from the six months ended June 30, 2017 to the six months ended June 30, 2018. The growth was primarily driven by revenues from sales of Access internet and TV services and revenues from Verily licensing and R&D services.
Revenues by Geography
The following table presents our revenues by geography as a percentage of revenues, determined based on the billing addresses of our customers (unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
United States47% 46% 47% 46%46% 46% 46% 46%
EMEA33% 33% 33% 33%33% 32% 33% 32%
APAC14% 15% 15% 15%15% 17% 15% 17%
Other Americas6% 6% 5% 6%6% 5% 6% 5%
For the amounts offurther details on revenues by geography, see Note 2 of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Use of Constant Currency Revenues and Constant Currency Revenue Growth
The effect of currency exchange rates on our business is an important factor in understanding period to period comparisons. Our international revenues are favorably affected as the U.S. dollar weakens relative to other foreign currencies, and unfavorably affected as the U.S. dollar strengthens relative to other foreign currencies. Our international revenues are also favorably affected by net hedging gains and unfavorably affected by net hedging losses.
We use non-GAAP constant currency revenues and constant currency revenue growth for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe the presentation of results on a constant currency basis in addition to GAAP results helps improve the ability to understand our performance because they exclude the effects of foreign currency volatility that are not indicative of our core operating results.
Constant currency information compares results between periods as if exchange rates had remained constant period over period. We define constant currency revenues as total revenues excluding the effect of foreign exchange rate movements and hedging activities, and use it to determine the constant currency revenue growth on a year-on-year basis. Constant currency revenues are calculated by translating current period revenues using prior period exchange rates, as well as excluding any hedging effects realized in the current period.
Constant currency revenue growth (expressed as a percentage) is calculated by determining the increase in current period revenues over prior period revenues where current period foreign currency revenues are translated using prior period exchange rates and hedging effects are excluded from revenues of both periods.

These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.

The following table presents the foreign exchange effect on our international revenues and total revenues (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
EMEA revenues$8,545
 $10,785
 $16,636
 $21,259
$10,785
 $12,401
 $21,259
 $24,192
Exclude foreign exchange effect on current period revenues using prior year rates396
 (721) 840
 (1,815)(721) 816
 (1,815) 1,578
Exclude hedging effect recognized in current period12
 103
 (146) 320
103
 (88) 320
 (211)
EMEA constant currency revenues$8,953
 $10,167
 $17,330
 $19,764
$10,167
 $13,129
 $19,764
 $25,559
Prior period EMEA revenues, excluding hedging effect$7,415
 $8,557
 $14,426
 $16,490
$8,557
 $10,888
 $16,490
 $21,579
EMEA revenue growth14% 26% 14% 28%26% 15% 28% 14%
EMEA constant currency revenue growth21% 19% 20% 20%19% 21% 20% 18%
              
APAC revenues$3,730
 $5,090
 $7,349
 $9,894
$5,090
 $6,551
 $9,894
 $12,663
Exclude foreign exchange effect on current period revenues using prior year rates(24) (91) (87) (289)(91) 217
 (289) 416
Exclude hedging effect recognized in current period(11) —
 (70) 15
0
 (15) 15
 (31)
APAC constant currency revenues$3,695
 $4,999
 $7,192
 $9,620
$4,999
 $6,753
 $9,620
 $13,048
Prior period APAC revenues, excluding hedging effect$2,900
 $3,719
 $5,672
 $7,279
$3,719
 $5,090
 $7,279
 $9,909
APAC revenue growth28% 36% 29% 35%36% 29% 35% 28%
APAC constant currency revenue growth27% 34% 27% 32%34% 33% 32% 32%
              
Other Americas revenues$1,413
 $1,849
 $2,684
 $3,573
$1,849
 $2,129
 $3,573
 $4,033
Exclude foreign exchange effect on current period revenues using prior year rates(8) 44
 (85) 25
44
 184
 25
 376
Exclude hedging effect recognized in current period(4) —
 (4) 7
0
 (5) 7
 (3)
Other Americas constant currency revenues$1,401
 $1,893
 $2,595
 $3,605
$1,893
 $2,308
 $3,605
 $4,406
Prior period Other Americas revenues, excluding hedging effect$1,072
 $1,409
 $1,996
 $2,680
$1,409
 $1,849
 $2,680
 $3,580
Other Americas revenue growth31% 31% 33% 33%31% 15% 33% 13%
Other Americas constant currency revenue growth31% 34% 30% 35%34% 25% 35% 23%
              
United States revenues$12,322
 $14,933
 $24,091
 $29,077
$14,933
 $17,863
 $29,077
 $34,395
United States revenue growth23% 21% 24% 21%21% 20% 21% 18%
              
Total revenues$26,010
 $32,657
 $50,760
 $63,803
$32,657
 $38,944
 $63,803
 $75,283
Total constant currency revenues$26,371
 $31,992
 $51,208
 $62,066
$31,992
 $40,053
 $62,066
 $77,408
Prior period revenues, excluding hedging effect$26,007
 $32,760
 $50,540
 $64,145
Total revenue growth21% 26% 22% 26%26% 19% 26% 18%
Total constant currency revenue growth23% 23% 23% 23%23% 22% 23% 21%
Our EMEA revenues for the three and six months ended June 30, 20182019 were favorablyunfavorably affected by foreign currency exchange rates, slightly offset by hedging losses,benefits, primarily due to the U.S. dollar weakeningstrengthening relative to certain currencies, including the Euro and British pound.
Our revenues from APAC for the three months ended June 30, 20182019 were favorablyunfavorably affected by foreign currency exchange rates, offset by hedging benefits, primarily due to the U.S. dollar weakeningstrengthening relative to certain currencies including the Australian dollar, Japanese yen, South

Korean won and Thai baht.Indian rupee. Our revenues from APAC for the six months ended June 30, 20182019 were favorablyunfavorably affected by foreign currency exchange rates, slightly offset by hedging losses. The foreign exchange effect wasbenefits, primarily due to the U.S. dollar weakeningstrengthening relative to certain currencies including the Australian dollar, Japanese yen, Australian dollar,Indian rupee and South Korean won, and Thai baht.won.

Our revenues from Other Americas for the three months ended June 30, 20182019 were unfavorably affected by foreign currency exchange rates, offset by hedging benefits, primarily due to the U.S. dollar strengthening relative to the Argentine peso and Brazilian real. Our revenues from Other Americas for the six months ended June 30, 20182019 were unfavorably affected by foreign currency exchange rates, andoffset by hedging losses. The foreign exchange effect wasbenefits, primarily due to the U.S. dollar strengthening relative to certain currencies, including the Brazilian real and Argentine peso, partially offset by the effect of the U.S. dollar weakening relative to the Canadian dollar and Mexican peso.
Costs and Expenses
Cost of Revenues
Cost of revenues consists of TAC which are paid to Google Network Members primarily for ads displayed on their properties and amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers.
The cost of revenues related to revenues generated from ads placed on Google Network Members' properties are significantly higher than the cost of revenues related to revenues generated from ads placed on Google properties because most of the advertiser revenues from ads served on Google Network Members’ properties are paid as TAC to our Google Network Members.
Additionally, other cost of revenues (which is the cost of revenues excluding TAC) includes the following:
Amortization of certain intangible assets;
Content acquisition costs primarily related to payments to content providers from whom we license video and other content for distribution on YouTube advertising and subscription services and Google Play (we pay fees to these content providers based on revenues generated or a flat fee);
Credit card and other transaction fees related to processing customer transactions;
Expenses associated with our data centers and other operations (including bandwidth, compensation expenses (including SBC), depreciation, energy, and other equipment costs); and
Inventory related costs for hardware we sell.

The following tables present our cost of revenues, including TAC (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
TAC$5,091
 $6,420
 $9,720
 $12,708
$6,420
 $7,238
 $12,708
 $14,098
Other cost of revenues5,282
 7,463
 10,448
 14,642
7,463
 10,058
 14,642
 19,210
Total cost of revenues$10,373
 $13,883
 $20,168
 $27,350
$13,883
 $17,296
 $27,350
 $33,308
Total cost of revenues as a percentage of revenues39.9% 42.5% 39.7% 42.9%42.5% 44.4% 42.9% 44.2%
       
Three Months Ended Six Months Ended
June 30, June 30,
2017 2018 2017 2018
TAC to distribution partners$2,049
 $3,009
 $3,854
 $5,911
TAC to distribution partners as a percentage of Google properties revenues(1) (Google properties TAC rate)
11.1% 12.9% 10.8% 13.1%
       
TAC to Google Network Members$3,042
 $3,411
 $5,866
 $6,797
TAC to Google Network Members as a percentage of Google Network Members' properties revenues(1) (Network Members TAC rate)
71.6% 70.7% 71.1% 71.8%
       
TAC$5,091
 $6,420
 $9,720
 $12,708
TAC as a percentage of advertising revenues(1) (Aggregate TAC rate)
22.5% 22.9% 22.0% 23.2%
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2019 2018 2019
TAC to distribution partners$3,009
 $3,617
 $5,911
 $7,000
TAC to distribution partners as a percentage of Google properties revenues(1) (Google properties TAC rate)
12.9% 13.2% 13.1% 13.2%
        
TAC to Google Network Members$3,411
 $3,621
 $6,797
 $7,098
TAC to Google Network Members as a percentage of Google Network Members' properties revenues(1) (Network Members TAC rate)
70.7% 68.8% 71.8% 68.9%
        
TAC$6,420
 $7,238
 $12,708
 $14,098
TAC as a percentage of advertising revenues(1) (Aggregate TAC rate)
22.9% 22.2% 23.2% 22.3%
(1) 
Revenues include hedging gains (losses) which affect TAC rates.
Cost of revenues increased $3,510$3,413 million from the three months ended June 30, 20172018 to the three months ended June 30, 2018.2019. The increase was due to increases in TAC and other cost of revenues and TAC of $1,329$2,595 million and $2,181$818 million, respectively. Cost of revenues increased $7,182$5,958 million from the six months ended June 30, 20172018 to the six

months ended June 30, 2018.2019. The increase was due to increases in TAC and other cost of revenues and TAC of $2,988$4,568 million and $4,194$1,390 million, respectively.
The increase in other cost of revenues from the three and six months ended June 30, 2018 to the three and six months ended June 30, 2019 was due to an increase in data center and other operations costs and an increase in content acquisition costs primarily related to YouTube.
The increase in total TAC from the three and six months ended June 30, 2018 to the three and six months ended June 30, 2019 was primarily due to increases in TAC paid to distribution partners and TAC to Google Network Members. The decrease in the aggregate TAC rate was a result of the favorable revenue mix shift from Google Network Members' properties to Google properties.
The increase in TAC to distribution partners from the three and six months ended June 30, 20172018 to the three and six months ended June 30, 20182019 was a result ofprimarily due to an increase in Google properties revenues and the associated TAC rate.revenues. The increase in the Google properties TAC rate was driven by changes in partner agreements andincreased due to the ongoing shift to mobile, which carries higher TAC because more mobile searches are channeled through paid access points.points, partially offset by an increase in YouTube advertising revenues where the associated content acquisition costs are included in other cost of revenues.
The increase in TAC to Google Network Members from the three months ended June 30, 2017 to the threeand six months ended June 30, 2018 to the three and six months ended June 30, 2019 was a result of an increase in Google Network Members' properties revenues offset by a decrease in the associated TAC rate. The decrease in the Network Members TAC rate from the three months ended June 30, 2017 to the three months ended June 30, 2018 was primarily due to a shift to lower TAC products within programmatic advertising buying. The decrease was offset by the ongoing shiftchanges in advertising buying to programmatic advertising buying which carries higher TAC.product mix.
The increase in TAC to Google Network Members from the six months ended June 30, 2017 to the six months ended June 30, 2018 was a result of an increase in Google Network Members' properties revenues and the associated TAC rate. The increase in the Network Members TAC rate from the six months ended June 30, 2017 to the six months ended June 30, 2018 was driven by the ongoing shift in advertising buying to programmatic advertising buying which carries higher TAC.
The increase in the aggregate TAC rate from the three months ended June 30, 2017 to the three months ended June 30, 2018 was a result of an increase in Google properties TAC rate, partially offset by a favorable revenue mix shift from Google Network Members' properties to Google properties. The increase in the aggregate TAC rate from the six months ended June 30, 2017 to the six months ended June 30, 2018 was a result of increases in Google properties and Google Network Members' properties TAC rates, partially offset by a favorable revenue mix shift from Google Network Members' properties to Google properties.

The increase in otherOver time, cost of revenues from the three and six months ended June 30, 2017 to the three and six months ended June 30, 2018 was due to an increase in data center and other operations costs, which was affected by increased allocations primarily from general and administrative expenses, and content acquisition costs as a result of increased activities related to YouTube. In addition, there was an increase in hardware related costs.
We expect cost of revenues to increase in dollar amount and as a percentage of total revenues in future periods based onmay be affected by a number of factors, including the following:
Google Network Members TAC rates, which are affected by a combination of factors such as geographic mix, product mix, revenue share terms, and fluctuations of the ongoing shift in advertising buying from our traditional network businessU.S. dollar compared to programmatic advertising buying which carries higher TAC;certain foreign currencies;
Google properties TAC rates, which are affected by changes in device mix between mobile, desktop, and tablet, partner mix, partner agreement terms such as revenue share arrangements, and the percentage of queries channeled through paid access points;
GrowthRelative revenue growth rates of expensesGoogle properties and Google Network Members' properties;
Costs associated with our data centers and other operations contentto support ads, Google Cloud, Search and YouTube and other products;
Content acquisition costs, as well aswhich are affected by the relative growth rates in our YouTube advertising and subscription businesses;
Costs related to hardware inventorysales; and related costs;
Increased proportion of non-advertising revenues, whosewhich generally have higher costs of revenues, are generally higher in relationrelative to our advertising revenues; and
Relative revenue growth rates of Google properties and our Google Network Members' properties.revenues.
Research and Development
The following table presents our R&D expenses (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Research and development expenses$4,172
 $5,114
 $8,114
 $10,153
$5,114
 $6,213
 $10,153
 $12,242
Research and development expenses as a percentage of revenues16.0% 15.7% 16.0% 15.9%15.7% 16.0% 15.9% 16.3%
R&D expenses consist primarily of:
Compensation expenses (including SBC) and facilities-related costs for engineering and technical employees responsible for R&D of our existing and new products and services;
Depreciation expenses;
Equipment-related expenses; and
DepreciationProfessional services fees primarily related to consulting and equipment-related expenses.outsourcing services.
R&D expenses increased $942$1,099 million from the three months ended June 30, 20172018 to the three months ended June 30, 2018.2019. The increase was primarily due to an increase in compensation expenses (including SBC) and facilities-related costs of $723$773 million, largely resulting from a 22%23% increase in headcount. In addition, there was an increase in depreciation and equipment-related expenses of $142 million.

R&D expenses increased $2,039$2,089 million from the six months ended June 30, 20172018 to the six months ended June 30, 2018.2019. The increase was primarily due to an increase in compensation expenses (including SBC) and facilities-related costs of $1,474$1,498 million, largely resulting from a 19%25% increase in headcount. In addition, there was an increase in depreciation and equipment-related expenses of $429 million.
We expect thatOver time, R&D expenses will increase in dollar amount and may fluctuate as a percentage of revenues may be affected by a number of factors including continued investment in future periods.ads, Android, Chrome, Google Cloud, Google Play, hardware, machine learning, and Search.
Sales and Marketing
The following table presents our sales and marketing expenses (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Sales and marketing expenses$2,897
 $3,780
 $5,541
 $7,384
$3,780
 $4,212
 $7,384
 $8,117
Sales and marketing expenses as a percentage of revenues11.1% 11.6% 10.9% 11.6%11.6% 10.8% 11.6% 10.8%
Sales and marketing expenses consist primarily of:
Advertising and promotional expenditures related to our products and services; and
Compensation expenses (including SBC) and facilities-related costs for employees engaged in sales and marketing, sales support, and certain customer service functions.
Sales and marketing expenses increased $883$432 million from the three months ended June 30, 20172018 to the three months ended June 30, 2018.2019. The increase was primarily due to an increase in compensation expenses (including SBC) and facilities-related costs of $360$209 million, largely resulting from an 11%a 17% increase in headcount. In addition, there was an increase in advertising and promotional expenses of $299$194 million, largely resulting from increases in marketing and promotion-related expenses for our Cloud offerings anddriven by the Google Assistant, and an increase in professional services feeslaunch of $138 million primarily due to additional outsourced services.new hardware products.
Sales and marketing expenses increased $1,843$733 million from the six months ended June 30, 20172018 to the six months ended June 30, 2018.2019. The increase in dollar amount was primarily due to an increase in advertising and promotional expenses of $728 million, largely resulting from increases in marketing and promotion-related expenses for our Cloud offerings, the Google Assistant, and hardware products. In addition, there was an increase in compensation expenses (including SBC) and facilities-related costs of $693$544 million, largely resulting from an 8%18% increase in headcount, and an increase in professional services fees of $252 million primarily due to additional outsourced services.headcount.
We expect thatOver time, sales and marketing expenses will increase in dollar amount and may fluctuate as a percentage of revenues in future periods.may be affected by a number of factors including the seasonality associated with new product and service launches.
General and Administrative
The following table presents our general and administrative expenses (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
General and administrative expenses$1,700
 $2,002
 $3,501
 $4,037
$1,764
 $2,043
 $3,167
 $4,131
General and administrative expenses as a percentage of revenues6.5% 6.1% 6.9% 6.3%5.4% 5.2% 5.0% 5.5%
General and administrative expenses consist primarily of:
Amortization of certain intangible assets;
Compensation expenses (including SBC) and facilities-related costs for employees in our facilities, finance, human resources, information technology, and legal organizations;
Depreciation and equipment-relatedDepreciation;
Equipment-related expenses; and
Professional services fees primarily related to audit, information technology consulting, outside legal, and outsourcing services.
General and administrative expenses increased $302$279 million from the three months ended June 30, 20172018 to the three months ended June 30, 2018.2019. The increase was primarily due to an increase in compensation expenses (including SBC) and facilities-related costs of $327$221 million, largely resulting from accrued performance fees related to gains on securities. In addition, there was ana 21% increase in professional services fees of $90 million. The increases were offset by reduced allocations (with a corresponding net increase primarily in cost of revenues).headcount.
General and administrative expenses increased $536$964 million from the six months ended June 30, 20172018 to the six months ended June 30, 2018. The2019. Of the increase, $429 million was primarily due to legal matters, including the effect of a legal

settlement gain recorded in the first quarter of 2018. In addition, there was an increase in compensation expenses (including SBC) and facilities-related costs of $942$408 million, largely resulting from accrued performance fees related to gains on securities. Thea 20% increase was offset by reduced allocations (with a corresponding net increase primarily in cost of revenues).headcount.
We expectOver time, general and administrative expenses will increase in dollar amount and may fluctuate as a percentage of revenues in future periods.may be affected by discrete items.
European Commission Fines
In June 2017, the EC announced its decision that certain actions taken by Google regarding its display and ranking of shopping search results and ads infringed European competition law. The EC decision imposed a €2.42 billion ($2.74 billion as of June 27, 2017) fine, which was accrued in the second quarter of 2017.

In July 2018, the EC announced its decision that certain provisions in Google's Android-related distribution agreements infringed European competition law. The EC decision imposed a €4.34€4.3 billion ($5.075.1 billion as of June 30, 2018) fine, which was accrued in the second quarter of 2018.
In March 2019, the EC announced its decision that certain contractual provisions in agreements that Google had with AdSense for Search partners infringed European competition law. The EC decision imposed a €1.5 billion ($1.7 billion as of March 20, 2019) fine, which was accrued in the first quarter of 2019.
Please refer to Note 910 of the Notes to Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for further information.
Other Income (Expense), Net
The following table presents other income (expense), net (in millions, unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Other income (expense), net$245
 $1,408
 $496
 $4,950
$1,170
 $2,967
 $4,080
 $4,505
Other income (expense), net, as a percentage of revenues0.9% 4.3% 1.0% 7.8%3.6% 7.6% 6.4% 6.0%
Other income (expense), net, increased $1,163$1,797 million from the three months ended June 30, 20172018 to the three months ended June 30, 2018.2019. This increase was primarily driven by an increase in unrealized gains on equity securities.
Other income (expense), net, increased $4,454$425 million from the six months ended June 30, 20172018 to the six months ended June 30, 2018.2019. This increase was primarily driven by gains on equity securities.an increase in interest income.
We expectOver time, other income (expense), net will fluctuate in dollar amount andas a percentage of revenues in future periods as it is largely drivenmay be affected by market dynamics. Marketabledynamics and non-marketable equity security investments are remeasured as equity values increase and decrease and contribute to volatility of other income (expense), net.factors. Equity values generally change daily for marketable equity securities and sporadically forupon the occurrence of observable price changes or upon impairment of non-marketable equity securities. In addition, volatility in the global economic climate and financial markets could result in a significant change in the value of our equity securities. Fluctuations in the value of these investments could contribute to the volatility of OI&E in future periods. For additional information about equity investments, please see Note 3 of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Provision for Income Taxes
The following table presents our provision for income taxes (in millions, except for effective tax rate; unaudited):
Three Months Ended Six Months EndedThree Months Ended Six Months Ended
June 30, June 30,June 30, June 30,
2017 2018 2017 20182018 2019 2018 2019
Provision for income taxes$853
 $1,020
 $2,246
 $2,162
$1,020
 $2,200
 $2,162
 $3,689
Effective tax rate19.5% 24.2% 20.1% 14.6%24.2% 18.1% 14.6% 18.2%
Our provision for income taxes increased $167 millioneffective tax rate decreased 6.1% from the three months ended June 30, 20172018 to the three months ended June 30, 20182019. The decrease is primarily due to an increasediscrete items in income before income taxes excluding the non-deductible EC fines, offset by the effects of the Tax Act that became effective in 2018.
Our effective tax rate increased from the three months ended June 30, 2017 to the three months ended June 30, 2018. The increase is primarily due to the larger2018 and 2019. A non-deductible EC fine in 2018 as compared to 2017, neither of which are tax deductible, benefits recognized in 2017 from the resolution of a multi-year audit in the U.S. that did not recur in 2018, partially offset by the effects of the Tax Act, and a release of our deferred tax asset valuation allowance related to the gains on equity securities.securities impacted the second quarter of 2018, and reversal of the Altera tax benefit impacted the second quarter of 2019.
Our provision for income taxes decreased by $84 millioneffective tax rate increased 3.6% from the six months ended June 30, 2017 to the six months ended June 30, 2018 to the six months ended June 30, 2019. The increase is primarily due to athe release of our deferred tax asset valuation allowance related to the gains on equity securities in 2018 and the effectsreversal of the Tax Act, offset by the increase in income before income taxes excluding the non-deductible EC fines.
Our effectiveAltera tax rate decreased from the six months ended June 30, 2017 to the six months ended June 30, 2018. The decrease is primarily due to the effectsbenefit as a result of the Tax Act, and a releaseU.S. Court of our deferred tax asset valuation allowance related to gains on equity securities,Appeals decision, partially offset by a largersmaller EC fine in 20182019 as compared to 2017,2018, neither of which are tax deductible, and benefits recognizeddeductible.

For additional information about the Altera case, please see Note 14 of the Notes to Consolidated Financial Statements included in 2017 from the resolutionPart I, Item 1 of a multi-year audit in the U.S. that did not recur in 2018.this Quarterly Report on Form 10-Q.
Our future effective tax rate couldmay be adversely affected by the geographic mix of earnings being lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higherwith different statutory rates, changes in

the valuation of our deferred tax assets or liabilities, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.
Capital Resources and Liquidity
As of June 30, 2018,2019, we had $102.3$121.1 billion in cash, cash equivalents, and marketable securities. CashCash equivalents and marketable securities are comprised of time deposits, money market funds, highly liquid debt instruments of government bonds, corporate debt securities, mortgage-backed and asset-backed securities. From time to time, we may holdsecurities and marketable equity securities obtained through acquisitions or strategic investments in private companies that subsequently go public.(certain of which are subject to short-term lock-up restrictions).
In December, 2017, the Tax Act was enacted andAs of June 30, 2019, we recordedhad long-term taxes payable of $7.0 billion related to a tax liability for the one-time transition tax on accumulated foreign subsidiary earnings of $10.2 billion, of which $890 million has been paid, andpayable incurred as a result of the remaining balance of $9.3 billion, $873 million and $8.4 billion were presented within “income tax payable, current” and “income tax payable, non-current,” respectively, on our Consolidated Balance Sheets as of June 30, 2018.Tax Act. As permitted by the Tax Act, we will pay the one-time transition tax in annual interest-free installments through 2025.
During the years ended December 31, 2017 and 2018, the EC announced decisions that certain actions taken by Google infringed European competition law and imposed fines of €2.4 billion ($2.7 billion as of June 27, 2017) and €4.3 billion ($5.1 billion as of June 30, 2018), respectively. In July 2018,March 2019, the EC announced its decision that certain contractual provisions in Google's Android-related distribution agreements that Google had with AdSense for Search partners infringed European competition law. The EC decision imposed a €4.34€1.5 billion ($5.071.7 billion as of June 30, 2018)March 20, 2019) fine, which was accrued in the secondfirst quarter of 2018. We anticipate2019. While under appeal, EC fines are included in accrued expenses and other current liabilities on our Consolidated Balance Sheets as we provided bank guarantees in lieu of a cash payment for the finerespective fines.
In June 2019, we entered into an agreement to acquire Looker, a unified platform for business intelligence, data applications and embedded analytics, for $2.6 billion in cash, which includes post combination compensation arrangements. The acquisition of Looker is expected to be due in October 2018 and we are evaluating payment options that include cash payment and bank guarantees.completed later this year, subject to customary closing conditions, including the receipt of regulatory approvals. Upon the close of the acquisition, Looker will join Google Cloud.
Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, as well as the cash flow that we generate from our operations. We have a short-term debt financing program of up to $5.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. As of June 30, 2018,2019, we had no commercial paper outstanding. As of June 30, 2018,2019, we have a $4.0 billion of revolving credit facilityfacilities expiring in February 2021July 2023 with no amounts outstanding. The interest rate for the credit facilityfacilities is determined based on a formula using certain market rates. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements including capital expenditures, working capital requirements, potential acquisitions, and other liquidity requirements through at least the next 12 months.
As of June 30, 2018,2019, we have senior unsecured notes outstanding due in 2021, 2024, and 2026 with a total carrying value of $3.9$4.0 billion.
In October 2016, the board of directors of Alphabet authorized the company to repurchase up to $7.0 billion of its Class C capital stock, which was completed during the first quarter of 2018. In January 2018, the board of directors of Alphabet authorized the company to repurchase up to an additional $8.6 billion of its Class C capital stock, which was completed during the first quarter of 2019. In January 2019, the board of directors of Alphabet authorized the company to repurchase up to an additional $12.5 billion of its Class C capital stock. TheAs of June 30, 2019, $7.6 billion remains available for repurchase. In July 2019, the board of directors of Alphabet authorized the company to repurchase up to an additional $25.0 billion of its Class C capital stock.The repurchases are being executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. The repurchase program does not have an expiration date. During the six months ended June 30, 2018,2019, we repurchased and subsequently retired 3.95.8 million shares of Alphabet Class C capital stock for an aggregate amount of $4.2$6.6 billion.
For the six months ended June 30, 2017 and 2018,The following table presents our cash flows were as follows (in millions, unaudited):
Six Months EndedSix Months Ended
June 30,June 30,
2017 20182018 2019
Net cash provided by operating activities$16,951
 $21,774
$21,774
 $24,627
Net cash used in investing activities$(10,023) $(11,220)$(11,220) $(15,843)
Net cash used in financing activities$(4,414) $(6,955)$(6,955) $(8,929)

Cash Provided by Operating Activities
Our largest source of cash provided by our operations are advertising revenues generated by Google properties and Google Network Members' properties. Additionally, we generate cash through sales of apps, in-app purchases, digital content products, and hardware; and licensing and service fees including fees received for Google Cloud offerings.
Our primary uses of cash from our operating activities include payments to our Google Network Members and distribution partners, and payments for content acquisition costs. In addition, uses of cash from operating activities include compensation and related costs, hardware inventory costs, other general corporate expenditures, and income taxes.

Net cash provided by operating activities increased from the six months ended June 30, 20172018 to the six months ended June 30, 20182019 primarily due to increases in cash received from advertising revenues and Google other revenues (net of payouts to app developers) offset by increases in cash paid for cost of revenues and operating expenses.
Cash Used in Investing Activities
Cash provided by or used in investing activities primarily consists of purchases of property and equipment;equipment, which primarily includes our investments in land and buildings for offices and data centers, as well as, servers to provide capacity for the growth of our businesses; purchases, maturities, and sales of marketable and non-marketable securities; and payments for acquisitions.
Net cash used in investing activities increased from the six months ended June 30, 20172018 to the six months ended June 30, 2018 primarily2019 due to increasesa net increase in purchases of property and equipment, including the purchase of the Chelsea Market building, and increases in payments for acquisitions. In addition, there was a decrease in maturities and sales of marketable securities. These changes weresecurities, partially offset by a decrease in purchases of marketable securities.property and equipment and payments for acquisitions. The decrease in purchases of property and equipment was driven by decreases in purchases of servers as well as land and buildings for offices, partially offset by an increase in data center construction.
Cash Used in Financing Activities
Cash provided by or used in financing activities consists primarily of net proceeds or payments fromrelated to stock-based award activities, repurchases of capital stock, and net proceeds or payments from issuance or repayments of debt.debt, and proceeds from sale of subsidiary shares.
Net cash used in financing activities increased from the six months ended June 30, 20172018 to the six months ended June 30, 20182019 primarily due to higheran increase in cash payments for repurchases of capital stock, andpartially offset by a decrease in net payments related to stock-based award activities offset by lower cashand an increase in proceeds from the sale of subsidiary shares.
Contractual Obligations
We had short-term and long-term taxes payable of $9.3 billion as of June 30, 2018 related to a one-time transition tax payable incurred as a result of the Tax Act. For further information on the Tax Act, see Note 13. In addition, we had long-term taxes payable of $3.2 billion as of June 30, 2018 primarily related to uncertain tax positions, for which we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.
Impairment of Securities
We periodically review our debt securities for impairment. If we conclude that any of these investments are impaired, we determine whether such impairment is other-than-temporary. Factors we consider to make such determination include the duration and severity of the impairment, the reason for the decline in value and the potential recovery period and our intent to sell. We also consider whether (1) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, and (2) the amortized cost basis cannot be recovered as a result of credit losses. If any impairment is considered other-than-temporary, we will write down the asset to its fair value and record the corresponding charge as other income (expense), net.
Our equity securities not accounted for under the equity method are carried at fair value or under the measurement alternative with changes recognized in net income upon the adoption of ASU 2016-01 on January 1, 2018. Under the measurement alternative, the carrying value of our non-marketable equity securities is determined primarily based on a market approach as of the transaction date. We review impairment of those equity securities at each reporting period end when there are qualitative indicators that may reduce the carrying value. Once the qualitative indicators are identified and the fair value of the securities are less than carrying value, we will write down the asset to its fair value and record the corresponding charge as other income (expense), net.
See Note 1 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, see Part I,II, Item 7, "Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2017.2018, as amended. There have been no other material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2017.2018, as amended.

Available Information
Our website is located at www.abc.xyz, and our investor relations website is located at www.abc.xyz/investor. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our Proxy Statements,and any amendments to these reports, are available through our investor relations website, free of charge, after we file them with the SEC. We also provide a link to the section of the SEC's website at www.sec.gov that has all of the reports that we file or furnish with the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You can get information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We webcast via our investor relations website our earnings calls and certain events we participate in or host with members of the investment community. Our investor relations website also provides notifications of news or announcements regarding our financial performance and other items of interest to our investors, including SEC filings, investor events, press and earnings releases, and blogs. We also share Google news and product updates on Google’s Keyword blog at https://www.blog.google/, which may be of interest or material to our investors. Further, corporate governance information, including our certificate of incorporation, bylaws, governance guidelines, board committee charters, and code of conduct, is also available on our investor relations website under the heading "Other." The content of our websites are not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in foreign currency exchange rates, interest rates and interest rates.equity investment risks. Our exposure to market risk has not changed materially since December 31, 2017.2018. For quantitative and qualitative disclosures about market risk, refer to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2017Annual Report on Form 10-K.10-K for the year ended December 31, 2018, as amended.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2018,2019, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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Alphabet Inc.

PART II.OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see Note 910 “Contingencies - Legal Matters” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
ITEM 1A.
RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017,2018, as amended, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2017.2018, as amended.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table presents information with respect to Alphabet's repurchases of Class C capital stock during the quarter ended June 30, 2018.2019.
Period 
Total Number of Shares Purchased
(in thousands) (1)
 
Average Price Paid per Share (2)
 
Total Number of Shares Purchased as Part of Publicly Announced Programs
(in thousands) (1)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
(in millions)
 
Total Number of Shares Purchased
(in thousands) (1)
 
Average Price Paid per Share (2)
 
Total Number of Shares Purchased as Part of Publicly Announced Programs
(in thousands) (1)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
(in millions)
April 1 - 30 698
 $1,034.35
 698
 $7,868
 804
 $1,222.81
 804
 $10,180
May 1 - 31 681
 $1,066.14
 681
 $7,142
 1,049
 $1,150.87
 1,049
 $8,973
June 1 - 30 529
 $1,140.18
 529
 $6,538
 1,282
 $1,081.33
 1,282
 $7,587
Total 1,908
 $1,075.05
 1,908
   3,135
 
 3,135
  
(1) 
In January 2018, the board of directors of Alphabet authorized the company to repurchase up to $8.6 billion of its Class C capital stock, which was completed during the first quarter of 2019. In January 2019, the board of directors of Alphabet authorized the company to repurchase an additional $12.5 billion of its Class C capital stock. The repurchases are being executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. The repurchase program does not have an expiration date. See Note 1011 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to share repurchases.
(2) 
Average price paid per share includes costs associated with the repurchases.
ITEM 5.OTHER INFORMATION

The online technology industry and our company have received increased regulatory scrutiny in recent months. In July 2019, the Department of Justice (DOJ) announced that it will begin an antitrust review of market-leading online platforms. We continue to engage with the DOJ, the EC, and other regulators around the world regarding competition matters.
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ITEM 6.EXHIBITS
Exhibit
Number
  Description Incorporated by reference herein
 Form Date
10.01
u

Alphabet Inc. Amended and Restated 2012 Stock Plan
 
Current Report on Form 8-K (File8-K(File No. 001-37580)
 June 8, 201821, 2019
10.02u
Letter Agreement, dated April 24, 2019, between Robin L. Washington and Alphabet Inc.
Current Report on Form 8-K(File No. 001-37580)April 30, 2019
31.01*
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
31.02*
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
32.01‡
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.    
101.SCH XBRL Taxonomy Extension Schema Document    
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document    
101.DEF XBRL Taxonomy Extension Definition Linkbase Document    
101.LAB XBRL Taxonomy Extension Label Linkbase Document    
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document    
______________________________________________ 
uIndicates management compensatory plan, contract, or arrangement.
*Filed herewith.
‡Furnished herewith.



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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  ALPHABET INC.
July 23, 201825, 2019By:/s/    RUTH M. PORAT        
  Ruth M. Porat
  Senior Vice President and Chief Financial Officer
  ALPHABET INC.
July 23, 201825, 2019By:/s/    AMIE THUENER O'TOOLE        
  Amie Thuener O'Toole
  Vice President and Chief Accounting Officer




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