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Financial Instruments
9 Months Ended
Sep. 30, 2023
Fair Value Disclosures [Abstract]  
Financial Instruments Financial Instruments
Fair Value Measurements
Investments Measured at Fair Value on a Recurring Basis
Cash, cash equivalents, and marketable equity securities are measured at fair value and classified within Level 1 and Level 2 in the fair value hierarchy, because we use quoted prices for identical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets.
Debt securities are measured at fair value and classified within Level 2 in the fair value hierarchy, because we use quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine fair value. For certain marketable debt securities, we have elected the fair value option for which changes in fair value are recorded in other income (expense), net. The fair value option was elected for these securities to align with the unrealized gains and losses from related derivative contracts.
The following tables summarize our cash, cash equivalents, and marketable securities measured at fair value on a recurring basis (in millions):
As of December 31, 2022
Fair Value HierarchyAdjusted CostGross Unrealized GainsGross Unrealized LossesFair ValueCash and Cash EquivalentsMarketable Securities
Fair value changes recorded in other comprehensive income
Time depositsLevel 2$5,297 $$$5,297 $5,293 $
Government bondsLevel 241,03664 (2,045)39,055 283 38,772 
Corporate debt securitiesLevel 228,578(1,569)27,017 27,016 
Mortgage-backed and asset-backed securitiesLevel 216,176(1,242)14,939 14,939 
Total investments with fair value change reflected in other comprehensive income(1)
$91,087 $77 $(4,856)$86,308 $5,577 $80,731 
Fair value adjustments recorded in net income
Money market fundsLevel 1$7,234 $7,234 $
Current marketable equity securities(2)
Level 14,013 4,013 
Mutual fundsLevel 2339 339 
Government bondsLevel 21,877 440 1,437 
Corporate debt securitiesLevel 23,744 65 3,679 
Mortgage-backed and asset-backed securitiesLevel 21,686 1,684 
Total investments with fair value change recorded in net income$18,893 $7,741 $11,152 
Cash8,561 
Total$91,087 $77 $(4,856)$105,201 $21,879 $91,883 
(1)Represents gross unrealized gains and losses for debt securities recorded to accumulated other comprehensive income (AOCI).
(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $803 million as of December 31, 2022 is included within other non-current assets.
As of September 30, 2023
Fair Value HierarchyAdjusted CostGross Unrealized GainsGross Unrealized LossesFair ValueCash and Cash EquivalentsMarketable Securities
Fair value changes recorded in other comprehensive income
Time depositsLevel 2$2,987 $$$2,987 $2,987 $
Government bondsLevel 250,369 (1,916)48,455 8,505 39,950 
Corporate debt securitiesLevel 222,746 (1,081)21,667 21,667 
Mortgage-backed and asset-backed securitiesLevel 217,652 (1,333)16,320 16,320 
Total investments with fair value change reflected in other comprehensive income(1)
$93,754 $$(4,330)$89,429 $11,492 $77,937 
Fair value adjustments recorded in net income
Money market fundsLevel 1$9,268 $9,268 $
Current marketable equity securities(2)
Level 13,706 3,706 
Mutual fundsLevel 2309309
Government bondsLevel 22,141555 1,586
Corporate debt securitiesLevel 23,48393 3,390
Mortgage-backed and asset-backed securitiesLevel 22,3052,305
Total investments with fair value change recorded in net income$21,212 $9,916 $11,296 
Cash9,294 
Total$93,754 $$(4,330)$110,641 $30,702 $89,233 
(1)Represents gross unrealized gains and losses for debt securities recorded to AOCI.
(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $958 million as of September 30, 2023 is included within other non-current assets
Investments Measured at Fair Value on a Nonrecurring Basis
Our non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable equity securities is adjusted to fair value upon observable transactions for identical or similar investments of the same issuer or impairment. Non-marketable equity securities that have been remeasured during the period based on observable transactions are classified within Level 2 or Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities we hold. The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3.
As of September 30, 2023, the carrying value of our non-marketable equity securities was $28.8 billion, of which $10.4 billion were remeasured at fair value during the three months ended September 30, 2023 and primarily classified as Level 2
Debt Securities
The following table summarizes the estimated fair value of investments in available-for-sale marketable debt securities by effective contractual maturity dates (in millions):
As of
September 30, 2023
Due in 1 year or less$13,958 
Due in 1 year through 5 years42,554 
Due in 5 years through 10 years15,114 
Due after 10 years13,592 
Total$85,218 
The following tables present fair values and gross unrealized losses recorded to AOCI, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions):
 As of December 31, 2022
 Less than 12 Months12 Months or GreaterTotal
 Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Government bonds$21,039 $(1,004)$13,438 $(1,041)$34,477 $(2,045)
Corporate debt securities11,228 (440)15,125 (1,052)26,353 (1,492)
Mortgage-backed and asset-backed securities7,725 (585)6,964 (657)14,689 (1,242)
Total$39,992 $(2,029)$35,527 $(2,750)$75,519 $(4,779)
 As of September 30, 2023
 Less than 12 Months12 Months or GreaterTotal
 Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Government bonds$15,506 $(463)$19,121 $(1,453)$34,627 $(1,916)
Corporate debt securities4,163 (60)17,162 (935)21,325 (995)
Mortgage-backed and asset-backed securities6,888 (239)9,212 (1,094)16,100 (1,333)
Total$26,557 $(762)$45,495 $(3,482)$72,052 $(4,244)
We determine realized gains or losses on the sale or extinguishment of debt securities on a specific identification method. The following table summarizes gains and losses for debt securities, reflected as a component of OI&E (in millions):    
Three Months EndedNine Months Ended
September 30,September 30,
 2022202320222023
Unrealized gain (loss) on fair value option debt securities$(177)$(86)$(746)$35 
Gross realized gain on debt securities14 83 93 
Gross realized loss on debt securities(551)(402)(1,190)(1,197)
(Increase) decrease in allowance for credit losses(17)(23)(35)(31)
Total gain (loss) on debt securities recognized in other income (expense), net$(731)$(503)$(1,888)$(1,100)
Equity Investments
The carrying value of equity securities is measured as the total initial cost plus the cumulative net gain (loss). Our share of gains and losses, including impairments, are included as a component of OI&E in the Consolidated Statements of Income. See Note 6 for further details on OI&E.
The carrying values for marketable and non-marketable equity securities are summarized below (in millions):
As of December 31, 2022As of September 30, 2023
Marketable Equity SecuritiesNon-Marketable Equity SecuritiesTotalMarketable Equity SecuritiesNon-Marketable Equity SecuritiesTotal
Total initial cost$5,764 $16,157 $21,921 $5,331 $17,504 $22,835 
Cumulative net gain (loss)(1)
(608)12,372 11,764 (358)11,317 10,959 
Carrying value$5,156 $28,529 $33,685 $4,973 $28,821 $33,794 
(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $16.8 billion gains and $4.5 billion losses (including impairments) as of December 31, 2022 and $18.0 billion gains and $6.7 billion losses (including impairments) as of September 30, 2023.
Gains and Losses on Marketable and Non-marketable Equity Securities
Gains and losses (including impairments), net, for marketable and non-marketable equity securities included in OI&E are summarized below (in millions):
Three Months EndedNine Months Ended
September 30,September 30,
2022202320222023
Realized net gain (loss) on equity securities sold during the period$(73)$42 $(355)$348 
Unrealized net gain (loss) on marketable equity securities(86)(224)(2,494)136 
Unrealized net gain (loss) on non-marketable equity securities(1)
(488)(184)881 (678)
Total gain (loss) on equity securities in other income (expense), net$(647)$(366)$(1,968)$(194)
(1)Unrealized gain (loss) on non-marketable equity securities accounted for under the measurement alternative is comprised of $219 million and $599 million of upward adjustments and $707 million and $783 million of downward adjustments (including impairments) for three months ended September 30, 2022 and 2023, respectively, and $3.2 billion and $1.6 billion of upward adjustments and $2.4 billion and $2.3 billion of downward adjustments (including impairments) for the nine months ended September 30, 2022 and 2023, respectively.
In the table above, realized net gain (loss) on equity securities sold during the period reflects the difference between the sale proceeds and the carrying value of the equity securities at the beginning of the period or the purchase date, if later.
Cumulative net gains (losses) on equity securities sold during the period, which is summarized in the following table (in millions), represents the total net gains (losses) recognized after the initial purchase date of the equity security sold during the period. While these net gains (losses) may have been reflected in periods prior to the period of sale, we believe they are important supplemental information as they reflect the economic net gains (losses) on the securities sold during the period. Cumulative net gains (losses) are calculated as the difference between the sale price and the initial purchase price for the equity security sold during the period.
Equity Securities Sold
Three Months EndedNine Months Ended
September 30,September 30,
 2022202320222023
Total sale price$296 $736 $1,631 $1,475 
Total initial cost310 549 738 916 
Cumulative net gain (loss)$(14)$187 $893 $559 
Equity Securities Accounted for Under the Equity Method
As of December 31, 2022 and September 30, 2023, equity securities accounted for under the equity method had a carrying value of approximately $1.5 billion for both periods. Our share of gains and losses, including impairments, are included as a component of OI&E, in the Consolidated Statements of Income. See Note 6 for further details on OI&E.
Derivative Financial Instruments
We use derivative instruments to manage risks relating to our ongoing business operations. The primary risk managed is foreign exchange risk. We use foreign currency contracts to reduce the risk that our cash flows, earnings, and investment in foreign subsidiaries will be adversely affected by foreign currency exchange rate fluctuations. We also enter into derivative instruments to partially offset our exposure to other risks and enhance investment returns.
We recognize derivative instruments in the Consolidated Balance Sheets at fair value and classify the derivatives primarily within Level 2 in the fair value hierarchy. We present our collar contracts (an option strategy comprised of a combination of purchased and written options) at net fair values and present all other derivatives at gross fair values. The accounting treatment for derivatives is based on the intended use and hedge designation.
Cash Flow Hedges
We designate foreign currency forward and option contracts (including collars) as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar. These contracts have maturities of 24 months or less.
Cash flow hedge amounts included in the assessment of hedge effectiveness are deferred in AOCI and subsequently reclassified to revenue when the hedged item is recognized in earnings. We exclude forward points and time value from our assessment of hedge effectiveness and amortize them on a straight-line basis over the life of the hedging instrument in revenues. The difference between fair value changes of the excluded component and the amount amortized to revenues is recorded in AOCI.
As of September 30, 2023, the net accumulated gain on our foreign currency cash flow hedges before tax effect was $691 million, which is expected to be reclassified from AOCI into revenues within the next 12 months.
Fair Value Hedges
We designate foreign currency forward contracts as fair value hedges to hedge foreign currency risks for our marketable securities denominated in currencies other than the U.S. dollar. Fair value hedge amounts included in the assessment of hedge effectiveness are recognized in OI&E, along with the offsetting gains and losses of the related hedged items. We exclude forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in OI&E.
Net Investment Hedges
We designate foreign currency forward contracts as net investment hedges to hedge the foreign currency risks related to our investment in foreign subsidiaries. Net investment hedge amounts included in the assessment of hedge effectiveness are recognized in AOCI along with the foreign currency translation adjustment. We exclude forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in OI&E.
Other Derivatives
We enter into foreign currency forward and option contracts that are not designated as hedging instruments to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. Gains and losses on these derivatives that are not designated as accounting hedges are primarily recorded in OI&E along with the foreign currency gains and losses on monetary assets and liabilities.
We also use derivatives not designated as hedging instruments to manage risks relating to interest rates, commodity prices, credit exposures, and to enhance investment returns. From time to time, we enter into derivatives to hedge the market price risk on certain of our marketable equity securities. Gains and losses arising from other derivatives are primarily reflected within the “other” component of OI&E. See Note 6 for further details.
The gross notional amounts of outstanding derivative instruments were as follows (in millions):
As of December 31, 2022As of September 30, 2023
Derivatives designated as hedging instruments:
Foreign exchange contracts
Cash flow hedges $15,972 $17,225 
Fair value hedges$2,117 $1,384 
Net investment hedges$8,751 $9,547 
Derivatives not designated as hedging instruments:
Foreign exchange contracts$34,979 $36,585 
Other contracts$7,932 $11,572 
The fair values of outstanding derivative instruments were as follows (in millions):
 As of December 31, 2022As of September 30, 2023
  
Assets(1)
Liabilities(2)
Assets(1)
Liabilities(2)
Derivatives designated as hedging instruments:
Foreign exchange contracts$271 $556 $1,102 $14 
Derivatives not designated as hedging instruments:
Foreign exchange contracts365207123496
Other contracts404714985
Total derivatives not designated as hedging instruments405 254 272 581 
Total$676 $810 $1,374 $595 
(1)    Derivative assets are recorded as other current and non-current assets in the Consolidated Balance Sheets.
(2)    Derivative liabilities are recorded as accrued expenses and other liabilities, current and non-current in the Consolidated Balance Sheets.
The gains (losses) on derivatives in cash flow hedging and net investment hedging relationships recognized in other comprehensive income (OCI) are summarized below (in millions):
 Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect
Three Months EndedNine Months Ended
 September 30,September 30,
2022202320222023
Derivatives in cash flow hedging relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness$1,486 $652 $2,752 $591 
Amount excluded from the assessment of effectiveness(77)16 (131)143 
Derivatives in net investment hedging relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness760 336 1,418 62 
Total$2,169 $1,004 $4,039 $796 
 The table below presents the gains (losses) of our derivatives on the Consolidated Statements of Income: (in millions):
 Gains (Losses) Recognized in Income
Three Months Ended
 September 30,
20222023
RevenuesOther income (expense), netRevenuesOther income (expense), net
Total amounts in the Consolidated Statements of Income$69,092 $(902)$76,693 $(146)
Effect of cash flow hedges:
Foreign exchange contracts
Amount reclassified from AOCI to income$658 $$(15)$
Amount excluded from the assessment of effectiveness (amortized)(20)14 
Effect of fair value hedges:
Foreign exchange contracts
Hedged items(226)(48)
Derivatives designated as hedging instruments226 48 
Amount excluded from the assessment of effectiveness
Effect of net investment hedges:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness59 13 
Effect of non designated hedges:
Foreign exchange contracts(495)(340)
Other contracts34 83 
Total gains (losses)$638 $(396)$(1)$(242)
 Gains (Losses) Recognized in Income
Nine Months Ended
 September 30,
20222023
RevenuesOther income (expense), netRevenuesOther income (expense), net
Total amounts in the Consolidated Statements of Income$206,788 $(2,501)$221,084 $709 
Effect of cash flow hedges:
Foreign exchange contracts
Amount of gains (losses) reclassified from AOCI to income$1,355 $$71 $
Amount excluded from the assessment of effectiveness (amortized)(63)16 
Effect of fair value hedges:
Foreign exchange contracts
Hedged items(349)
Derivatives designated as hedging instruments350 (6)
Amount excluded from the assessment of effectiveness12 
Effect of net investment hedges:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness99 136 
Effect of non designated hedges:
Foreign exchange contracts(891)(186)
Other contracts158 82 
Total gains (losses)$1,292 $(624)$87 $44 
Offsetting of Derivatives
We enter into master netting arrangements and collateral security arrangements to reduce credit risk. Cash collateral received related to derivative instruments under our collateral security arrangements are included in other current assets with a corresponding liability. Cash and non-cash collateral pledged related to derivative instruments under our collateral security arrangements are included in other current assets.
The gross amounts of derivative instruments subject to master netting arrangements with various counterparties, and cash and non-cash collateral received and pledged under such agreements were as follows (in millions):
As of December 31, 2022
Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
Gross Amounts RecognizedGross Amounts Offset in the Consolidated Balance SheetsNet Amounts Presented in the Consolidated Balance Sheets
Financial Instruments(1)
Cash and Non-Cash Collateral Received or PledgedNet Amounts
Derivatives assets$760 $(84)$676 $(463)$(132)$81 
Derivatives liabilities$894 $(84)$810 $(463)$(28)$319 
As of September 30, 2023
Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
Gross Amounts RecognizedGross Amounts Offset in the Consolidated Balance SheetsNet Amounts Presented in the Consolidated Balance Sheets
Financial Instruments(1)
Cash and Non-Cash Collateral Received or PledgedNet Amounts
Derivatives assets$1,396 $(22)$1,374 $(448)$(730)$196 
Derivatives liabilities$617 $(22)$595 $(448)$(25)$122 
(1)The balances as of December 31, 2022 and September 30, 2023 were related to derivatives allowed to be net settled in accordance with our master netting agreements.