Financial Instruments | Financial Instruments We classify our cash equivalents and marketable securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. We classify our foreign currency and interest rate derivative contracts primarily within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. Cash, Cash Equivalents and Marketable Securities The following tables summarize our cash, cash equivalents and marketable securities by significant investment categories as of December 31, 2015 and March 31, 2016 (in millions): As of December 31, 2015 Adjusted Cost Gross Unrealized Gains Gross Fair Cash and Cash Equivalents Marketable Cash $ 7,380 $ 0 $ 0 $ 7,380 $ 7,380 $ 0 Level 1: Money market and other funds 5,623 0 0 5,623 5,623 0 U.S. government notes 20,922 27 (48 ) 20,901 258 20,643 Marketable equity securities 692 155 0 847 0 847 27,237 182 (48 ) 27,371 5,881 21,490 Level 2: Time deposits (1) 3,223 0 0 3,223 2,012 1,211 Money market and other funds (2) 1,140 0 0 1,140 1,140 0 Fixed-income bond funds (3) 219 0 0 219 0 219 U.S. government agencies 1,367 2 (3 ) 1,366 0 1,366 Foreign government bonds 2,242 14 (23 ) 2,233 0 2,233 Municipal securities 3,812 47 (4 ) 3,855 0 3,855 Corporate debt securities 13,809 53 (278 ) 13,584 136 13,448 Agency mortgage-backed securities 9,680 48 (57 ) 9,671 0 9,671 Asset-backed securities 3,032 0 (8 ) 3,024 0 3,024 38,524 164 (373 ) 38,315 3,288 35,027 Total $ 73,141 $ 346 $ (421 ) $ 73,066 $ 16,549 $ 56,517 As of March 31, 2016 Adjusted Cost Gross Unrealized Gains Gross Fair Cash and Cash Equivalents Marketable (unaudited) Cash $ 7,388 $ 0 $ 0 $ 7,388 $ 7,388 $ 0 Level 1: Money market and other funds 4,536 0 0 4,536 4,536 0 U.S. government notes 22,140 183 (1 ) 22,322 3 22,319 Marketable equity securities 462 72 0 534 0 534 27,138 255 (1 ) 27,392 4,539 22,853 Level 2: Time deposits (1) 1,761 0 0 1,761 1,021 740 Money market and other funds (2) 1,814 0 0 1,814 1,814 0 Mutual funds (4) 213 2 0 215 0 215 U.S. government agencies 2,160 2 0 2,162 0 2,162 Foreign government bonds 2,285 29 (10 ) 2,304 0 2,304 Municipal securities 3,825 66 (2 ) 3,889 27 3,862 Corporate debt securities 14,366 172 (132 ) 14,406 322 14,084 Agency mortgage-backed securities 10,865 118 (13 ) 10,970 0 10,970 Asset-backed securities 2,965 1 (3 ) 2,963 0 2,963 40,254 390 (160 ) 40,484 3,184 37,300 Total $ 74,780 $ 645 $ (161 ) $ 75,264 $ 15,111 $ 60,153 (1) The majority of our time deposits are foreign deposits. (2) The balances as of December 31, 2015 and March 31, 2016 were related to cash collateral received in connection with our securities lending program, which was invested in reverse repurchase agreements maturing within three months. See section titled "Securities Lending Program" below for further discussion of this program. (3) Fixed-income bond funds consist of mutual funds that primarily invest in corporate and government bonds. (4) The fair value option was elected for mutual funds with gains (losses) recognized in other income (expense), net. We determine realized gains or losses on the sale of marketable securities on a specific identification method. We recognized gross gains of $77 million and $68 million for the three months ended March 31, 2015 and 2016 . We recognized gross losses of $45 million and $235 million for the three months ended March 31, 2015 and 2016 . We reflect these gains and losses as a component of other income (expense), net, in the accompanying Consolidated Statements of Income. The following table summarizes the estimated fair value of our investments in marketable debt securities, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities (in millions, unaudited): As of Due in 1 year $ 9,102 Due in 1 year through 5 years 31,651 Due in 5 years through 10 years 7,590 Due after 10 years 11,061 Total $ 59,404 Impairment Considerations for Marketable Investments The following tables present gross unrealized losses and fair values for those marketable investments that were in an unrealized loss position as of December 31, 2015 and March 31, 2016 , 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, 2015 Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized U.S. government notes $ 13,757 $ (48 ) $ 0 $ 0 $ 13,757 $ (48 ) U.S. government agencies 864 (3 ) 0 0 864 (3 ) Foreign government bonds 885 (18 ) 36 (5 ) 921 (23 ) Municipal securities 1,116 (3 ) 41 (1 ) 1,157 (4 ) Corporate debt securities 9,192 (202 ) 784 (76 ) 9,976 (278 ) Agency mortgage-backed securities 5,783 (34 ) 721 (23 ) 6,504 (57 ) Asset-backed securities 2,508 (7 ) 386 (1 ) 2,894 (8 ) Total $ 34,105 $ (315 ) $ 1,968 $ (106 ) $ 36,073 $ (421 ) As of March 31, 2016 Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized (unaudited) U.S. government notes $ 2,037 $ (1 ) $ 0 $ 0 $ 2,037 $ (1 ) Foreign government bonds 544 (6 ) 46 (4 ) 590 (10 ) Municipal securities 606 (1 ) 51 (1 ) 657 (2 ) Corporate debt securities 3,583 (83 ) 785 (49 ) 4,368 (132 ) Agency mortgage-backed securities 1,012 (3 ) 836 (10 ) 1,848 (13 ) Asset-backed securities 1,281 (1 ) 328 (2 ) 1,609 (3 ) Total $ 9,063 $ (95 ) $ 2,046 $ (66 ) $ 11,109 $ (161 ) During the three months ended March 31, 2015 , we did not recognize any other-than-temporary impairment loss. During the three months ended March 31, 2016 , we recognized $87 million of other-than-temporary impairment losses related to our marketable equity securities. Those losses are included in gains (losses) on marketable securities, net, as a component of other income (expense), net, in the accompanying Consolidated Statements of Income. See Note 8 for further details on other income (expense), net. Securities Lending Program From time to time, we enter into securities lending agreements with financial institutions to enhance investment income. We loan certain securities which are collateralized in the form of cash or securities. Cash collateral is usually invested in reverse repurchase agreements which are collateralized in the form of securities. We classify loaned securities as cash equivalents or marketable securities and record the cash collateral as an asset with a corresponding liability in the accompanying Consolidated Balance Sheets. We classify reverse repurchase agreements maturing within three months as cash equivalents and those longer than three months as receivable under reverse repurchase agreements in the accompanying Consolidated Balance Sheets. For security collateral received, we do not record an asset or liability except in the event of counterparty default. Our securities lending transactions were accounted for as secured borrowings with significant investment categories as follows (in millions): As of December 31, 2015 Remaining Contractual Maturity of the Agreements Securities Lending Transactions Overnight and Continuous Up to 30 days 30 - 90 Days Greater Than 90 Days Total U.S. government notes $ 1,322 $ 31 $ 0 $ 306 $ 1,659 U.S. government agencies 504 77 0 0 581 Corporate debt securities 188 0 0 0 188 Total $ 2,014 $ 108 $ 0 $ 306 $ 2,428 Gross amount of recognized liabilities for securities lending in offsetting disclosure $ 2,428 Amounts related to agreements not included in securities lending in offsetting disclosure $ 0 As of March 31, 2016 Remaining Contractual Maturity of the Agreements Securities Lending Transactions Overnight and Continuous Up to 30 days 30 - 90 Days Greater Than 90 Days Total (unaudited) U.S. government notes $ 1,090 $ 2 $ 156 $ 102 $ 1,350 U.S. government agencies 241 395 0 0 636 Corporate debt securities 185 0 0 0 185 Total $ 1,516 $ 397 $ 156 $ 102 $ 2,171 Gross amount of recognized liabilities for securities lending in offsetting disclosure $ 2,171 Amounts related to agreements not included in securities lending in offsetting disclosure $ 0 Derivative Financial Instruments We recognize derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. We record changes in the fair value (i.e. gains or losses) of the derivatives in the accompanying Consolidated Statements of Income as other income (expense), net, revenues, or accumulated other comprehensive income (AOCI) in the accompanying Consolidated Balance Sheets, as discussed below. We enter into foreign currency contracts with financial institutions to reduce the risk that our cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. We use certain 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, 2015 and March 31, 2016 , we received cash collateral related to the derivative instruments under our collateral security arrangements of $192 million and $60 million . Cash Flow Hedges We use options to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar and at times we use interest rate swaps to effectively lock interest rates on anticipated debt issuances. These transactions are designated as cash flow hedges. The notional principal of these contracts was approximately $16.4 billion and $15.1 billion as of December 31, 2015 and March 31, 2016 , respectively. These contracts have maturities of 36 months or less. We reflect gains or losses on the effective portion of a cash flow hedge as a component of AOCI and subsequently reclassify cumulative gains and losses to revenues or interest expense when the hedged transactions are recorded. If the hedged transactions become probable of not occurring, the corresponding amounts in AOCI would be immediately reclassified to other income (expense), net. Further, we exclude the change in the time value of the options from our assessment of hedge effectiveness. We record the time value of an option on the date of purchase as an asset. Thereafter, we recognize changes to this time value in other income (expense), net. As of March 31, 2016 , the effective portion of our cash flow hedges before tax effect was $237 million , of which $181 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 the difference between spot rates and forward rates for these forward contracts from the assessment of hedge effectiveness. The notional principal of these contracts was $1.8 billion and $1.8 billion as of December 31, 2015 and March 31, 2016 , respectively. We use interest rate swaps designated as fair value hedges to hedge interest rate risk for certain fixed rate securities. The notional principal of these contracts was $295 million and $295 million as of December 31, 2015 and March 31, 2016 , respectively. Gains and losses on these forward contracts and interest rate swaps are recognized in other income (expense), net, along with the offsetting losses and gains of the related hedged items. Cash flows from these forward contracts and interest rate swaps are reported within investment activities in the Consolidated Statements of Cash Flows, consistent with the impact of the hedged items. Other Derivatives Other derivatives not designated as hedging instruments consist of 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 foreign exchange contracts outstanding was $7.5 billion and $6.3 billion as of December 31, 2015 and March 31, 2016 , respectively. We also use exchange-traded interest rate futures contracts and “To Be Announced” (TBA) forward purchase commitments of mortgage-backed assets to hedge interest rate risks on certain fixed income securities. The TBA contracts meet the definition of derivative instruments in cases where physical delivery of the assets is not taken at the earliest available delivery date. Our interest rate futures and TBA contracts (together interest rate contracts) are not designated as hedging instruments. We recognize gains and losses on these contracts, as well as the related costs, in other income (expense), net. The gains and losses are generally economically offset by unrealized gains and losses in the underlying available-for-sale securities, which are recorded as a component of AOCI until the securities are sold or other-than-temporarily impaired, at which time the amounts are moved from AOCI into other income (expense), net. The total notional amounts of interest rate contracts outstanding were $50 million as of December 31, 2015 and $200 million as of March 31, 2016 . The fair values of our outstanding derivative instruments were as follows (in millions): As of December 31, 2015 Balance Sheet Location Fair Value of Derivatives Designated as Hedging Instruments Fair Value of Derivatives Not Designated as Hedging Instruments Total Fair Value Derivative Assets: Level 2: Foreign exchange contracts Prepaid revenue share, expenses and other assets, current and non-current $ 626 $ 2 $ 628 Total $ 626 $ 2 $ 628 Derivative Liabilities: Level 2: Foreign exchange contracts Accrued expenses and other current liabilities $ 1 $ 13 $ 14 Interest rate contracts Accrued expenses and other liabilities, current and non-current 2 0 2 Total $ 3 $ 13 $ 16 As of March 31, 2016 Balance Sheet Location Fair Value of Fair Value of Total Fair (unaudited) Derivative Assets: Level 2: Foreign exchange contracts Prepaid revenue share, expenses and other assets, current and non-current $ 436 $ 2 $ 438 Total $ 436 $ 2 $ 438 Derivative Liabilities: Level 2: Foreign exchange contracts Accrued expenses and other current liabilities $ 1 $ 3 $ 4 Interest rate contracts Accrued expenses and other liabilities, current and non-current 6 0 6 Total $ 7 $ 3 $ 10 The effect of derivative instruments in cash flow hedging relationships on income and other comprehensive income (OCI) is summarized below (in millions, unaudited): Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect (Effective Portion) Three Months Ended March 31, Derivatives in Cash Flow Hedging Relationship 2015 2016 Foreign exchange contracts $ 836 $ 33 Gains Reclassified from AOCI into Income (Effective Portion) Three Months Ended March 31, Derivatives in Cash Flow Hedging Relationship Income Statement Location 2015 2016 Foreign exchange contracts Revenues $ 311 $ 169 Interest rate contracts Other income (expense), net 1 1 Total $ 312 $ 170 Gains (Losses) Recognized in Income on Derivatives (1) (Amount Excluded from Effectiveness Testing and Ineffective Portion) Three Months Ended March 31, Derivatives in Cash Flow Hedging Relationship Income Statement Location 2015 2016 Foreign exchange contracts Other income (expense), net $ (101 ) $ (139 ) (1) Gains (losses) related to the ineffective portion of the hedges were not material in all periods presented. The effect of derivative instruments in fair value hedging relationships on income is summarized below (in millions, unaudited): Gains (Losses) Recognized in Income on Derivatives (2) Three Months Ended March 31, Derivatives in Fair Value Hedging Relationship Income Statement Location 2015 2016 Foreign Exchange Hedges: Foreign exchange contracts Other income (expense), net $ 111 $ (28 ) Hedged item Other income (expense), net (113 ) 28 Total $ (2 ) $ 0 Interest Rate Hedges: Interest rate contracts Other income (expense), net $ (2 ) $ (5 ) Hedged item Other income (expense), net 2 5 Total $ 0 $ 0 (2) Losses related to the amount excluded from effectiveness testing of the hedges were $2 million for the three months ended March 31, 2015 and $0 million for the three months ended March 31, 2016 . The effect of derivative instruments not designated as hedging instruments on income is summarized below (in millions, unaudited): Gains (Losses) Recognized in Income on Derivatives Three Months Ended March 31, Derivatives Not Designated As Hedging Instruments Income Statement Location 2015 2016 Foreign exchange contracts Other income (expense), net $ 157 $ (74 ) Interest rate contracts Other income (expense), net (7 ) (8 ) Total $ 150 $ (82 ) Offsetting of Derivatives, Securities Lending and Reverse Repurchase Agreements We present our derivatives, securities lending and reverse repurchase agreements at gross fair values in the Consolidated Balance Sheets. However, our master netting and other similar arrangements allow net settlements under certain conditions. As of December 31, 2015 and March 31, 2016 , these offsetting arrangements were as follows (in millions): Offsetting of Assets As of December 31, 2015 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Description Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Net Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received Non-Cash Collateral Received Net Assets Exposed Derivatives $ 628 $ 0 $ 628 $ (13 ) (1) $ (189 ) $ (214 ) $ 212 Reverse repurchase agreements 1,590 0 1,590 (2) 0 0 (1,590 ) 0 Total $ 2,218 $ 0 $ 2,218 $ (13 ) $ (189 ) $ (1,804 ) $ 212 As of March 31, 2016 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Description Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Net Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received Non-Cash Collateral Received Net Assets Exposed (unaudited) Derivatives $ 438 $ 0 $ 438 $ (2 ) (1) $ (57 ) $ (114 ) $ 265 Reverse repurchase agreements 2,164 0 2,164 (2) 0 0 (2,164 ) 0 Total $ 2,602 $ 0 $ 2,602 $ (2 ) $ (57 ) $ (2,278 ) $ 265 (1) The balances as of December 31, 2015 and March 31, 2016 were related to derivative liabilities which are allowed to be net settled against derivative assets in accordance with our master netting agreements. (2) The balances as of December 31, 2015 and March 31, 2016 included $1,140 million and $1,814 million , respectively, recorded in cash and cash equivalents, and $450 million and $350 million , respectively, recorded in receivable under reverse repurchase agreements. Offsetting of Liabilities As of December 31, 2015 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Description Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Non-Cash Collateral Pledged Net Liabilities Derivatives $ 16 $ 0 $ 16 $ (13 ) (3) $ (3 ) $ 0 $ 0 Securities lending agreements 2,428 0 2,428 0 0 (2,401 ) 27 Total $ 2,444 $ 0 $ 2,444 $ (13 ) $ (3 ) $ (2,401 ) $ 27 As of March 31, 2016 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Description Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Non-Cash Collateral Pledged Net Liabilities (unaudited) Derivatives $ 10 $ 0 $ 10 $ (2 ) (3) $ (3 ) $ 0 $ 5 Securities lending agreements 2,171 0 2,171 0 0 (2,145 ) 26 Total $ 2,181 $ 0 $ 2,181 $ (2 ) $ (3 ) $ (2,145 ) $ 31 (3) The balances as of December 31, 2015 and March 31, 2016 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements. |