Financial Instruments | Financial Instruments We classify our cash equivalents and marketable securities within Level 1 or Level 2 in the fair value hierarchy 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 in the fair value hierarchy 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, 2016 and September 30, 2017 (in millions): As of December 31, 2016 Adjusted Cost Gross Unrealized Gains Gross Fair Cash and Cash Equivalents Marketable Cash $ 7,078 $ 0 $ 0 $ 7,078 $ 7,078 $ 0 Level 1: Money market and other funds 4,783 0 0 4,783 4,783 0 U.S. government notes 38,454 46 (215 ) 38,285 613 37,672 Marketable equity securities 160 133 0 293 0 293 43,397 179 (215 ) 43,361 5,396 37,965 Level 2: Time deposits (1) 142 0 0 142 140 2 Mutual funds (2) 204 7 0 211 0 211 U.S. government agencies 1,826 0 (11 ) 1,815 300 1,515 Foreign government bonds 2,345 18 (7 ) 2,356 0 2,356 Municipal securities 4,757 15 (65 ) 4,707 2 4,705 Corporate debt securities 12,993 114 (116 ) 12,991 2 12,989 Agency mortgage-backed securities 12,006 26 (216 ) 11,816 0 11,816 Asset-backed securities 1,855 2 (1 ) 1,856 0 1,856 36,128 182 (416 ) 35,894 444 35,450 Total $ 86,603 $ 361 $ (631 ) $ 86,333 $ 12,918 $ 73,415 As of September 30, 2017 Adjusted Cost Gross Unrealized Gains Gross Fair Cash and Cash Equivalents Marketable (unaudited) Cash $ 6,460 $ 0 $ 0 $ 6,460 $ 6,460 $ 0 Level 1: Money market and other funds 1,450 0 0 1,450 1,450 0 U.S. government notes 40,268 12 (163 ) 40,117 919 39,198 Marketable equity securities 226 120 (2 ) 344 0 344 41,944 132 (165 ) 41,911 2,369 39,542 Level 2: Time deposits (1) 145 0 0 145 143 2 Mutual funds (2) 233 14 0 247 0 247 U.S. government agencies 2,841 0 (9 ) 2,832 17 2,815 Foreign government bonds 2,464 8 (15 ) 2,457 0 2,457 Municipal securities 6,774 17 (10 ) 6,781 13 6,768 Corporate debt securities 23,107 49 (35 ) 23,121 1,579 21,542 Agency mortgage-backed securities 10,984 17 (76 ) 10,925 0 10,925 Asset-backed securities 5,261 7 (4 ) 5,264 0 5,264 51,809 112 (149 ) 51,772 1,752 50,020 Total $ 100,213 $ 244 $ (314 ) $ 100,143 $ 10,581 $ 89,562 (1) The majority of our time deposits are foreign deposits. (2) 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 realized gains of $62 million and $21 million for the three months ended September 30, 2016 and 2017 , respectively, and $221 million and $193 million for the nine months ended September 30, 2016 and 2017 , respectively. We recognized gross realized losses of $12 million and $65 million for the three months ended September 30, 2016 and 2017 , respectively, and $347 million and $274 million for the nine months ended September 30, 2016 and 2017 , respectively. 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 $ 22,234 Due in 1 year through 5 years 52,502 Due in 5 years through 10 years 2,172 Due after 10 years 12,063 Total $ 88,971 Impairment Considerations for Marketable Investments The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2016 and September 30, 2017 , 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, 2016 Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized U.S. government notes $ 26,411 $ (215 ) $ 0 $ 0 $ 26,411 $ (215 ) U.S. government agencies 1,014 (11 ) 0 0 1,014 (11 ) Foreign government bonds 956 (7 ) 0 0 956 (7 ) Municipal securities 3,461 (63 ) 46 (2 ) 3,507 (65 ) Corporate debt securities 6,184 (111 ) 166 (5 ) 6,350 (116 ) Agency mortgage-backed securities 10,184 (206 ) 259 (10 ) 10,443 (216 ) Asset-backed securities 391 (1 ) 0 0 391 (1 ) Total $ 48,601 $ (614 ) $ 471 $ (17 ) $ 49,072 $ (631 ) As of September 30, 2017 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 $ 26,626 $ (115 ) $ 5,409 $ (48 ) $ 32,035 $ (163 ) U.S. government agencies 2,751 (9 ) 0 0 2,751 (9 ) Foreign government bonds 1,362 (13 ) 123 (2 ) 1,485 (15 ) Municipal securities 2,118 (6 ) 432 (4 ) 2,550 (10 ) Corporate debt securities 11,153 (27 ) 793 (8 ) 11,946 (35 ) Agency mortgage-backed securities 8,450 (62 ) 728 (14 ) 9,178 (76 ) Asset-backed securities 2,572 (4 ) 0 0 2,572 (4 ) Marketable equity securities 38 (2 ) 0 0 38 (2 ) Total $ 55,070 $ (238 ) $ 7,485 $ (76 ) $ 62,555 $ (314 ) During the three months ended September 30, 2016 and the three and nine months ended September 30, 2017 , we did no t recognize any other-than-temporary impairment losses. During the nine months ended September 30, 2016 , we recognized $87 million of other-than-temporary impairment losses related to our marketable equity securities. Those losses are included in gain (loss) on marketable securities, net , as a component of other income (expense), net, in the accompanying Consolidated Statements of Income. See Note 6 for further details on other income (expense), net. 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 either other income (expense), net, or revenues, or in the accompanying Consolidated Balance Sheets in accumulated other comprehensive income (AOCI), 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, 2016 and September 30, 2017 , we received cash collateral related to the derivative instruments under our collateral security arrangements of $362 million and $47 million , respectively. 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 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 $10.7 billion and $11.7 billion as of December 31, 2016 and September 30, 2017 , respectively. These contracts have maturities of 24 months or less. We reflect gain or loss 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 are immediately reclassified to other income (expense), net. For foreign currency collars, we include the change in time value in our assessment of hedge effectiveness. For forwards and all other option contracts, we exclude the change in the forward points and time value from our assessment of hedge effectiveness. We recognize changes of the excluded components in other income (expense), net. As of September 30, 2017 , the effective portion of our cash flow hedges before tax effect was a net accumulated loss of $440 million , of which a net loss of $473 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. The notional principal of these contracts was $2.4 billion and $2.5 billion as of December 31, 2016 and September 30, 2017 , respectively. Gains and losses on these forward contracts are recognized in other income (expense), net, along with the offsetting gains and losses of the related hedged items. 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 $7.9 billion and $17.2 billion as of December 31, 2016 and September 30, 2017 , respectively. The fair values of our outstanding derivative instruments were as follows (in millions): As of December 31, 2016 Balance Sheet Location Fair Value of Derivatives Designated as Hedging Instruments Fair Value of Derivatives Not Designated as Hedging Instruments Total Fair Value Derivative Assets: Level 2: Foreign exchange contracts Other current and non-current assets $ 539 $ 57 $ 596 Total $ 539 $ 57 $ 596 Derivative Liabilities: Level 2: Foreign exchange contracts Accrued expenses and other liabilities, current and non-current $ 4 $ 9 $ 13 Total $ 4 $ 9 $ 13 As of September 30, 2017 Balance Sheet Location Fair Value of Fair Value of Total Fair (unaudited) Derivative Assets: Level 2: Foreign exchange contracts Other current and non-current assets $ 53 $ 113 $ 166 Total $ 53 $ 113 $ 166 Derivative Liabilities: Level 2: Foreign exchange contracts Accrued expenses and other liabilities, current and non-current $ 459 $ 123 $ 582 Total $ 459 $ 123 $ 582 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 Nine Months Ended September 30, September 30, Derivatives in Cash Flow Hedging Relationship 2016 2017 2016 2017 Foreign exchange contracts $ 52 $ (324 ) $ 240 $ (1,011 ) Gains (Losses) Reclassified from AOCI into Income (Effective Portion) Three Months Ended Nine Months Ended September 30, September 30, Derivatives in Cash Flow Hedging Relationship Location 2016 2017 2016 2017 Foreign exchange contracts Revenues $ 105 $ (191 ) $ 352 $ 29 Interest rate contracts Other income (expense), net 1 1 4 4 Total $ 106 $ (190 ) $ 356 $ 33 Gains (Losses) Recognized in Income on Derivatives (1) Three Months Ended Nine Months Ended September 30, September 30, Derivatives in Cash Flow Hedging Relationship Location 2016 2017 2016 2017 Foreign exchange contracts Other income (expense), net $ (102 ) $ 26 $ (361 ) $ 72 (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 Nine Months Ended September 30, September 30, Derivatives in Fair Value Hedging Relationship Location 2016 2017 2016 2017 Foreign Exchange Hedges: Foreign exchange contracts Other income (expense), net $ 1 $ (89 ) $ 26 $ (216 ) Hedged item Other income (expense), net 1 94 (24 ) 230 Total $ 2 $ 5 $ 2 $ 14 (2) Amounts excluded from effectiveness testing and the ineffective portion of the fair value hedging relationships were not material in all periods presented. 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 Nine Months Ended September 30, September 30, Derivatives Not Designated As Hedging Instruments Location 2016 2017 2016 2017 Foreign exchange contracts Other income (expense), net $ (67 ) $ (39 ) $ (147 ) $ (263 ) 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, 2016 and September 30, 2017 , information related to these offsetting arrangements were as follows (in millions): Offsetting of Assets As of December 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 Derivatives $ 596 $ 0 $ 596 $ (11 ) (1) $ (337 ) $ (73 ) $ 175 As of September 30, 2017 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 $ 183 $ (17 ) $ 166 $ (122 ) (1) $ (37 ) $ 0 $ 7 (1) The balances as of December 31, 2016 and September 30, 2017 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, 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 Derivatives $ 13 $ 0 $ 13 $ (11 ) (2) $ 0 $ 0 $ 2 As of September 30, 2017 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 $ 599 $ (17 ) $ 582 $ (122 ) (2) $ 0 $ 0 $ 460 (2) The balances as of December 31, 2016 and September 30, 2017 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements. |