Financial Instruments | Financial Instruments 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. The following tables summarize our debt securities by significant investment categories as of December 31, 2018 and March 31, 2019 (in millions): As of December 31, 2018 Adjusted Cost Gross Unrealized Gains Gross Fair Cash and Cash Equivalents Marketable Level 2: Time deposits (1) $ 2,202 $ 0 $ 0 $ 2,202 $ 2,202 $ 0 Government bonds 53,634 71 (414 ) 53,291 3,717 49,574 Corporate debt securities 25,383 15 (316 ) 25,082 44 25,038 Mortgage-backed and asset-backed securities 16,918 11 (324 ) 16,605 0 16,605 Total $ 98,137 $ 97 $ (1,054 ) $ 97,180 $ 5,963 $ 91,217 As of March 31, 2019 Adjusted Cost Gross Unrealized Gains Gross Fair Cash and Cash Equivalents Marketable (unaudited) Level 2: Time deposits (1) $ 2,612 $ 0 $ 0 $ 2,612 $ 2,598 $ 14 Government bonds 54,291 195 (206 ) 54,280 4,114 50,166 Corporate debt securities 25,482 128 (109 ) 25,501 8 25,493 Mortgage-backed and asset-backed securities 16,465 36 (188 ) 16,313 0 16,313 Total $ 98,850 $ 359 $ (503 ) $ 98,706 $ 6,720 $ 91,986 (1) The majority of our time deposits are domestic deposits. We determine realized gains or losses on the sale or extinguishment of debt securities on a specific identification method. We recognized gross realized gains of $2 million and $46 million for the three months ended March 31, 2018 and 2019 , respectively. We recognized gross realized losses of $41 million and $48 million for the three months ended March 31, 2018 and 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 Due in 1 year $ 21,969 Due in 1 year through 5 years 57,477 Due in 5 years through 10 years 2,522 Due after 10 years 10,018 Total $ 91,986 The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2018 and March 31, 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, 2018 Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Government bonds $ 12,019 $ (85 ) $ 23,877 $ (329 ) $ 35,896 $ (414 ) Corporate debt securities 10,171 (107 ) 11,545 (209 ) 21,716 (316 ) Mortgage-backed and asset-backed securities 5,534 (75 ) 8,519 (249 ) 14,053 (324 ) Total $ 27,724 $ (267 ) $ 43,941 $ (787 ) $ 71,665 $ (1,054 ) As of March 31, 2019 Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized (unaudited) Government bonds $ 1,089 $ (1 ) $ 24,177 $ (205 ) $ 25,266 $ (206 ) Corporate debt securities 1,503 (5 ) 13,503 (104 ) 15,006 (109 ) Mortgage-backed and asset-backed securities 899 (2 ) 10,361 (186 ) 11,260 (188 ) Total $ 3,491 $ (8 ) $ 48,041 $ (495 ) $ 51,532 $ (503 ) During the three months ended March 31, 2018 and 2019 , we did no t 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 7 The following discusses our marketable equity securities, non-marketable equity securities, gains and losses on marketable and non-marketable equity securities, as well as our equity securities accounted for under the equity method. 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. The following table summarizes marketable equity securities measured at fair value by significant investment categories as of December 31, 2018 and March 31, 2019 (in millions): As of December 31, 2018 Cash and Cash Equivalents Marketable Level 1: Money market funds $ 3,493 $ 0 Marketable equity securities 0 994 3,493 994 Level 2: Mutual funds 0 228 Total $ 3,493 $ 1,222 As of March 31, 2019 (unaudited) Cash and Cash Equivalents Marketable Securities Level 1: Money market funds $ 6,452 $ 0 Marketable equity securities (1) 0 2,115 6,452 2,115 Level 2: Mutual funds 0 239 Total $ 6,452 $ 2,354 (1) Includes an investment that was reclassified from non-marketable equity securities following the initial public offering of the issuer. Non-marketable equity securities Our non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable equity securities is adjusted to fair value 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. Non-marketable equity securities that have been remeasured 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 (in millions, unaudited): Three Months Ended March 31, 2018 2019 Unrealized gains $ 2,511 $ 456 Unrealized losses (including impairment) (23 ) (66 ) Total unrealized gain (loss) for non-marketable equity securities $ 2,488 $ 390 The following table summarizes the total carrying value of our non-marketable equity securities held as of March 31, 2019 including cumulative unrealized gains and losses (in millions, unaudited): Initial cost basis $ 8,561 Unrealized gains 4,634 Unrealized losses (including impairment) (248 ) Total carrying value at the end of the period $ 12,947 During the three months ended March 31, 2019 , included in the $12.9 billion of non-marketable equity securities, $1.4 billion were measured at fair value based on observable market transactions, resulting in a net unrealized gain of $390 million . Gains and losses on marketable and non-marketable equity securities Gains and losses for our marketable and non-marketable equity securities are summarized below (in millions, unaudited): Three Months Ended March 31, 2018 2019 Net gain (loss) on equity securities sold during the period $ 387 $ 42 Unrealized gain (loss) on equity securities held as of the end of the period (1) 2,644 1,041 Total gain (loss) recognized in other income (expense), net $ 3,031 $ 1,083 (1) Includes $2,488 million and $390 million related to non-marketable equity securities for the three months ended March 31, 2018 and 2019 , respectively. 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 period ending March 31, 2019 was $118 million . Equity securities accounted for under the Equity Method Equity securities accounted for under the equity method had a carrying value of approximately $ 1.3 billion as of December 31, 2018 and March 31, 2019 . Our share of gains and losses including impairment are included as a component of other income (expense), net. See Note 7 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 accumulated other comprehensive income (AOCI), as discussed below. Any components excluded from the assessment of hedge effectiveness are recognized in the same income statement line as the hedged item. We enter into foreign currency contracts with financial institutions to reduce the risk that our cash flows, earnings, and investment in foreign subsidiaries will be adversely affected by foreign currency exchange rate fluctuations. We also 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, 2018 and March 31, 2019 , we received cash collateral related to the derivative instruments under our collateral security arrangements of $327 million and $518 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 $11.8 billion and $12.4 billion as of December 31, 2018 and March 31, 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 effectiveness 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 March 31, 2019 , the net accumulated gain on our foreign currency cash flow hedges before tax effect was $113 million , which 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 $2.0 billion as of both December 31, 2018 and March 31, 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 $ 7.1 billion as of December 31, 2018 and March 31, 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 $20.1 billion and $18.6 billion as of December 31, 2018 and March 31, 2019 , respectively. The fair values of our outstanding derivative instruments were as follows (in millions): 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 Value Derivative Assets: Level 2: Foreign exchange contracts Other current and non-current assets $ 459 $ 54 $ 513 Total $ 459 $ 54 $ 513 Derivative Liabilities: Level 2: Foreign exchange contracts Accrued expenses and other liabilities, current and non-current $ 5 $ 228 $ 233 Total $ 5 $ 228 $ 233 As of March 31, 2019 Balance Sheet Location Fair Value of Fair Value of Total Fair Value (unaudited) Derivative Assets: Level 2: Foreign exchange contracts Other current and non-current assets $ 475 $ 15 $ 490 Total $ 475 $ 15 $ 490 Derivative Liabilities: Level 2: Foreign exchange contracts Accrued expenses and other liabilities, current and non-current $ 13 $ 348 $ 361 Total $ 13 $ 348 $ 361 The gains (losses) on derivatives in cash flow hedging and net investment hedging relationships recognized in other comprehensive income (OCI) are summarized below (in millions, unaudited): Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect Three Months Ended March 31, 2018 2019 Derivatives in Cash Flow Hedging Relationship: Foreign exchange contracts Amount included in the assessment of effectiveness $ (319 ) $ (6 ) Amount excluded from the assessment of effectiveness (7 ) (30 ) Derivatives in Net Investment Hedging Relationship: Foreign exchange contracts Amount included in the assessment of effectiveness 0 64 Total $ (326 ) $ 28 The effect of derivative instruments on income is summarized below (in millions, unaudited): Gains (Losses) Recognized in Income Three Months Ended March 31, 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 $ 31,146 $ 2,910 $ 36,339 $ 1,538 Gains (Losses) on Derivatives in Cash Flow Hedging Relationship: Foreign exchange contracts Amount of gains (losses) reclassified from AOCI to income $ (247 ) $ 0 $ 128 $ 0 Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach 8 0 9 0 Gains (Losses) on Derivatives in Fair Value Hedging Relationship: Foreign exchange contracts Hedged items 0 113 0 22 Derivatives designated as hedging instruments 0 (113 ) 0 (22 ) Amount excluded from the assessment of effectiveness 0 11 0 10 Gains (Losses) on Derivatives in Net Investment Hedging Relationship: Foreign exchange contracts Amount excluded from the assessment of effectiveness 0 0 0 54 Gains (Losses) on Derivatives Not Designated as Hedging Instruments: Foreign exchange contracts Derivatives not designated as hedging instruments 0 (100 ) 0 (249 ) Total gains (losses) $ (239 ) $ (89 ) $ 137 $ (185 ) 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, 2018 and March 31, 2019 , information related to these offsetting arrangements were as follows (in millions): Offsetting of Assets As of December 31, 2018 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Net Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received Non-Cash Collateral Received Net Assets Exposed Derivatives $ 569 $ (56 ) $ 513 $ (90 ) (1) $ (307 ) $ (14 ) $ 102 As of March 31, 2019 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Net Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received Non-Cash Collateral Received Net Assets Exposed (unaudited) Derivatives $ 529 $ (39 ) $ 490 $ (85 ) (1) $ (399 ) $ (2 ) $ 4 (1) The balances as of December 31, 2018 and March 31, 2019 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, 2018 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Non-Cash Collateral Pledged Net Liabilities Derivatives $ 289 $ (56 ) $ 233 $ (90 ) (2) $ 0 $ 0 $ 143 As of March 31, 2019 Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Pledged Non-Cash Collateral Pledged Net Liabilities (unaudited) Derivatives $ 400 $ (39 ) $ 361 $ (85 ) (2) $ 0 $ 0 $ 276 (2) The balances as of December 31, 2018 and March 31, 2019 |