Alphabet Inc. - Annual Report: 2019 (Form 10-K)

---

---

---

•	the growth of our business and revenues and our expectations about the factors that influence our success and trends in our business;

•	the potential for declines in our revenue growth rate and operating margin;

•	our expectation that the shift from an offline to online world will continue to benefit our business;

•	our expectation that the portion of our revenues that we derive from non-advertising revenues will continue to increase and may affect our margins;

•	our expectation that our traffic acquisition costs (TAC) and the associated TAC rates will fluctuate, which could affect our overall margins;

•	our expectation that our monetization trends will fluctuate, which could affect our revenues and margins;

•	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 we will continue to periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks on Google properties and impressions on Google Network Members’ properties;

•	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 our foreign exchange risk management program will not fully offset our net exposure to fluctuations in foreign currency exchange rates;

•	the expected variability of gains and losses related to hedging activities under our foreign exchange risk management program;

•	the amount and timing of revenue recognition for commitments in customer contracts with performance obligations, which could impact our estimate of the remaining amount of commitments and when we expect to recognize revenue;

•	fluctuations in our capital expenditures;

•	our plans to continue to invest in new businesses, products, services and technologies, systems, land and buildings for data centers and offices, and infrastructure, to continue to hire aggressively and provide competitive compensation programs, as well as to continue to invest in acquisitions;

•	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 amount and may increase as a percentage of revenues may be affected by a number of factors;

•	estimates of our future compensation expenses;

•	our expectation that our other income (expense), net (OI&E), will fluctuate in the future, as it is largely driven by market dynamics;

•	fluctuations in our effective tax rate;

•	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 sufficiency of our sources of funding;

•	our potential exposure in connection with pending investigations, proceedings, and other contingencies;

•	the sufficiency and timing of our proposed remedies in response to the European Commission's (EC) and others' decisions;

•	our expectations regarding the timing, design and implementation of our new global enterprise resource planning (ERP) system;

---

•	the expected timing and amount of Alphabet Inc.'s share repurchases;

•	our long-term sustainability goals;

---

---

•

Performance advertising creates and delivers relevant ads that users will click on, leading to direct engagement with advertisers. Most of our performance advertisers pay us when a user engages in their ads. Performance advertising lets our advertisers connect with users while driving measurable results. Our ads tools allow performance advertisers to create simple text-based ads that appear on Google properties and the properties of Google Network Members. In addition, Google Network Members use our platforms to display relevant ads on their properties, generating revenues when site visitors view or click on the ads. We continue to invest in our advertising programs and make significant upgrades.

•	Brand advertising helps enhance users' awareness of and affinity with advertisers' products and services, through videos, text, images, and other interactive ads that run across various devices. We help brand advertisers deliver digital videos and other types of ads to specific audiences for their brand-building marketing campaigns.

---

•	General purpose search engines and information services, such as Baidu, Microsoft's Bing, Naver, Seznam, Verizon's Yahoo, and Yandex.

•	Vertical search engines and e-commerce websites, such as Amazon and eBay (e-commerce), Booking's Kayak (travel queries), Microsoft's LinkedIn (job queries), and WebMD (health queries). Some users will navigate directly to such content, websites, and apps rather than go through Google.

•	Social networks, such as Facebook, Snapchat, and Twitter. Some users increasingly rely on social networks for product or service referrals, rather than seeking information through traditional search engines.

•	Other forms of advertising, such as billboards, magazines, newspapers, radio, and television. Our advertisers typically advertise in multiple media, both online and offline.

•	Other online advertising platforms and networks, including Amazon, AppNexus, Criteo, and Facebook, that compete for advertisers that use Google Ads, our primary auction-based advertising platform.

•	Providers of digital video services, such as Amazon, Apple, AT&T, Disney, Facebook, Hulu, Netflix and TikTok.

•	Other digital content and application platform providers, such as Amazon and Apple.

•	Companies that design, manufacture, and market consumer hardware products, including businesses that have developed proprietary platforms.

•	Providers of enterprise cloud services, including Alibaba, Amazon, and Microsoft.

•	Digital assistant providers, such as Amazon and Apple.

•	Users, for whom other products and services are literally one click away, largely on the basis of the relevance of our advertising, as well as the general usefulness, security and availability of our products and services.

•	Advertisers, primarily based on our ability to generate sales leads, and ultimately customers, and to deliver their advertisements in an efficient and effective manner across a variety of distribution channels.

•	Content providers, primarily based on the quality of our advertiser base, our ability to help these partners generate revenues from advertising, and the terms of our agreements with them.

---

•	We made our largest corporate purchase of renewable energy: 18 new energy deals totaling 1,600 megawatts, which is anticipated to spur the construction of more than $2 billion in new energy infrastructure.

•	100% of Nest products launched in 2019 include recycled plastic content and we launched carbon neutral shipping for Google’s direct customers who buy a product on Google Shopping or purchase Made by Google hardware.

•	The Environmental Insights Explorer is enabling municipalities — which represent more than 70% of global greenhouse gas emissions according to the 2016 United Nations Habitat World Cities Report — to estimate emissions and develop climate action plans. In 2019, we expanded this tool to more than 100 cities worldwide.

---

---

---

---

•	Restrictions on foreign ownership and investments, and stringent foreign exchange controls that might prevent us from repatriating cash earned in countries outside the U.S.

---

•	Import and export requirements, tariffs, trade disputes and barriers, and customs classifications that may prevent us from offering products or providing services to a particular market, or that could limit our ability to source assemblies and finished products from a particular market, and may increase our operating costs.

•	Longer payment cycles in some countries, increased credit risk, and higher levels of payment fraud.

•	Evolving foreign events, including Brexit, the United Kingdom's withdrawal from the European Union (EU). Brexit may adversely affect our revenues and could subject us to new regulatory costs and challenges (including the transfer of personal data between the EU and the United Kingdom), in addition to other adverse effects that we are unable to effectively anticipate.

•	Anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, and other local laws prohibiting certain payments to government officials, violations of which could result in civil and criminal penalties.

•	Uncertainty regarding liability for services and content, including uncertainty as a result of local laws and lack of legal precedent.

•	Different employee/employer relationships, existence of works councils and labor unions, and other challenges caused by distance, language, and cultural differences, making it harder to do business in certain jurisdictions.

---

---

•	Competition laws and regulations around the world.

•	Privacy laws, such as the California Consumer Privacy Act of 2018 that came into effect in January of 2020, which gives new data privacy rights to California residents, and SB-327 in California, which regulates the security of data in connection with internet connected devices.

•	Data protection laws passed by many states within the U.S. and by certain countries regarding notification to data subjects and/or regulators when there is a security breach of personal data.

•

Copyright laws, such as the EU Directive on Copyright in the Digital Single Market (EUCD) of April 17, 2019, which increases the liability of content-sharing services with respect to content uploaded by their users. It has also created a new property right in news publications that will limit the ability of some online services to interact with or present such content. Each EU Member State must implement the EUCD by June 7, 2021. In addition, there are new constraining licensing regimes that limit our ability to operate with respect to copyright protected works.

•	Data localization laws, which generally mandate that certain types of data collected in a particular country be stored and/or processed within that country.

---

•	Various U.S. and international laws that govern the distribution of certain materials to children and regulate the ability of online services to collect information from minors.

•

Various laws with regard to content removal and disclosure obligations, such as the Network Enforcement Act in Germany, which may affect our businesses and operations and may subject us to significant fines if such laws are interpreted and applied in a manner inconsistent with our practices or when we may not proactively discover such content due to the scale of third-party content and the limitations of existing technologies. Other countries, including Singapore, Australia, and the United Kingdom, have implemented or are considering similar legislation imposing penalties for failure to remove certain types of content.

•	We rely on statutory safe harbors, as set forth in the Digital Millennium Copyright Act in the United States and the E-Commerce Directive in Europe, against copyright liability for various linking, caching, and hosting activities. Any legislation or court rulings affecting these safe harbors may adversely affect us.

•	Court decisions such as the judgment of the Court of Justice of the European Union (CJEU) on May 13, 2014 on the ‘right to be forgotten,’ which allows individuals to demand that Google remove search results about them in certain instances, may limit the content we can show to our users and impose significant operational burdens.

•

Court decisions that require Google to remove links not just in the jurisdiction of the issuing court, but for all versions of the search engine worldwide, including in locations where the content at issue is lawful, may limit the content we can show to our users and impose significant operational burdens. The Supreme Court of Canada issued such a decision against Google in June 2017, and others could treat its decision as persuasive. With respect to the ‘right to be forgotten,’ a follow-up case of the CJEU on September 24, 2019 ruled that a search engine operator is not required to remove links from all versions of the search engine worldwide, but the court also noted in some cases, removal of links from all versions of the search engine available from the EU (including non-EU specific versions) may be required.

---

---

•

Our certificate of incorporation provides for a tri-class capital stock structure. As a result of this structure, Larry and Sergey have significant influence over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets. This concentrated control could discourage others from initiating any potential merger, takeover, or other change of control transaction that other stockholders may view as beneficial. As noted above, the issuance of the Class C capital stock could have the effect of continuing the influence of Larry and Sergey.

•	Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors.

•	Our stockholders may not act by written consent. As a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions without holding a stockholders' meeting.

•	Our certificate of incorporation prohibits cumulative voting in the election of directors. This limits the ability of minority stockholders to elect director candidates.

•	Stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting. These provisions may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of our company.

---

•	Our board of directors may issue, without stockholder approval, shares of undesignated preferred stock. The ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

•	Our ability to continue to attract and retain users and customers to our products and services.

•	Our ability to attract user and/or customer adoption of, and generate significant revenues from, new products, services, and technologies in which we have invested considerable time and resources.

•	Our ability to monetize traffic on Google properties and our Google Network Members' properties across various devices.

•	Revenue fluctuations caused by changes in device mix, geographic mix, ongoing product and policy changes, product mix, and property mix.

•	The amount of revenues and expenses generated and incurred in currencies other than U.S. dollars, and our ability to manage the resulting risk through our foreign exchange risk management program.

•	The amount and timing of operating costs and expenses and capital expenditures related to the maintenance and expansion of our businesses, operations, and infrastructure.

•	Our focus on long-term goals over short-term results.

•	The results of our acquisitions, divestitures, and our investments in risky projects, including new businesses, products, services, and technologies.

•	Our ability to keep our products and services operational at a reasonable cost and without service interruptions.

•	The seasonal fluctuations in internet usage, advertising spending, and underlying business trends such as traditional retail seasonality. Our rapid growth has tended to mask the cyclicality and seasonality of our business. As our growth rate has slowed, the cyclicality and seasonality in our business has become more pronounced and caused our operating results to fluctuate.

•	Geopolitical events, including trade disputes.

•	Changes in global business or macroeconomic conditions.

•	Diversion of management time and focus from operating our business to challenges related to acquisitions and other strategic transactions.

•	Failure to successfully integrate and further develop the acquired business or technology.

---

•	Implementation or remediation of controls, procedures, and policies at the acquired company.

•	Integration of the acquired company’s accounting, human resource, and other administrative systems, and coordination of product, engineering, and sales and marketing functions.

•	Transition of operations, users, and customers onto our existing platforms.

•	Failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed upon approval that could, among other things, delay or prevent us from completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of a transaction.

•	In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries.

•	Cultural challenges associated with integrating employees from the acquired company into our organization, and retention of employees from the businesses we acquire.

•	Liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, data privacy and security issues, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities.

•	Litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties.

---

•	Quarterly variations in our operating results or those of our competitors.

•	Announcements by us or our competitors of acquisitions, divestitures, investments, new products, significant contracts, commercial relationships, or capital commitments.

•	Recommendations by securities analysts or changes in earnings estimates.

•	Announcements about our earnings that are not in line with analyst expectations, the risk of which is enhanced because it is our policy not to give guidance on earnings.

•	Announcements by our competitors of their earnings that are not in line with analyst expectations.

---

•	Commentary by industry and market professionals about our products, strategies, and other matters affecting our business and results, regardless of its accuracy.

•	The volume of shares of Class A common stock and Class C capital stock available for public sale.

•	Sales of Class A common stock and Class C capital stock by us or by our stockholders (including sales by our directors, executive officers, and other employees).

•	Short sales, hedging, and other derivative transactions on shares of our Class A common stock and Class C capital stock.

•	The perceived values of Class A common stock and Class C capital stock relative to one another.

•	Any share repurchase program.

---

(1)

In January and July 2019, the board of directors of Alphabet authorized the company to repurchase up to an additional $12.5 billion and $25.0 billion of its Class C capital stock, respectively. Share repurchases pursuant to the January 2019 authorization were completed during the fourth quarter of 2019. 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. Please refer to Note 11 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to share repurchases.

(2)	Average price paid per share includes costs associated with the repurchases.

---

---

---

---

---

•	Our employees are critical to our success and we expect to continue investing in them.

•	Revenues of $161.9 billion and revenue growth of 18% year over year, constant currency revenue growth of 20% year over year.

•	Google segment revenues of $160.7 billion with revenue growth of 18% year over year and Other Bets revenues of $659 million with revenue growth of 11% year over year.

•	Revenues from the United States, EMEA, APAC, and Other Americas were $74.8 billion, $50.6 billion, $26.9 billion, and $9.0 billion, respectively.

•	Cost of revenues was $71.9 billion, consisting of TAC of $30.1 billion and other cost of revenues of $41.8 billion. Our TAC as a percentage of advertising revenues (TAC rate) was 22.3%.

•	Operating expenses (excluding cost of revenues) were $55.7 billion.

•	Income from operations was $34.2 billion.

•	Other income (expense), net, was $5.4 billion.

•	Effective tax rate was 13%.

•	Net income was $34.3 billion with diluted net income per share of $49.16.

•	Operating cash flow was $54.5 billion.

•	Capital expenditures were $23.5 billion.

•	Number of employees was 118,899 as of December 31, 2019. The majority of new hires during the year were engineers and product managers. By product area, the largest headcount additions were in Google Cloud and Search.

---

•

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 and subscription-based products.

•	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.

(1)	YouTube non-advertising revenues are included in Google other revenues.

•	advertiser competition for keywords;

•	changes in advertising quality, formats, delivery or policy;

•	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;

•	seasonality; and

•	traffic growth in emerging markets compared to more mature markets and across various advertising verticals and channels.

---

•	Google Search & other consists of revenues generated on Google search properties (including 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, and Google Play;

•	YouTube ads consists of revenues generated primarily on YouTube properties; and

•	Google Network Members' properties consist of revenues generated primarily on Google Network Members' properties participating in AdMob, AdSense, and Google Ad Manager.

---

•	Google Cloud Platform (GCP), which includes infrastructure, data and analytics, and other services

•	G Suite productivity tools; and

•	other enterprise cloud services.

---

•	Google Play, which includes revenues from sales of apps and in-app purchases (which we recognize net of payout to developers) and digital content sold in the Google Play store;

•	hardware, including Google Nest home products, Pixelbooks, Pixel phones and other devices;

•	YouTube non-advertising, including YouTube Premium and YouTube TV subscriptions and other services; and

•	other products and services.

---

---

(1)	Total revenues and hedging gains (losses) for the year ended December 31, 2017 were $110,855 million and $(169) million, respectively.

---

•	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);

•	Expenses associated with our data centers and other operations (including bandwidth, compensation expenses (including stock-based compensation (SBC)), depreciation, energy, and other equipment costs); and

•	Inventory related costs for hardware we sell.

•	The amount of TAC paid to Google Network Members, which is affected by a combination of factors such as geographic mix, product mix, revenue share terms, and fluctuations of the U.S. dollar compared to certain foreign currencies;

•	The amount of TAC paid to distribution partners, which is affected by changes in device mix, geographic mix, partner mix, partner agreement terms such as revenue share arrangements, and the percentage of queries channeled through paid access points;

•	Relative revenue growth rates of Google properties and Google Network Members' properties;

•	Costs associated with our data centers and other operations to support ads, Google Cloud, Search, YouTube and other products;

•	Content acquisition costs, which are primarily affected by the relative growth rates in our YouTube advertising and subscription revenues;

•	Costs related to hardware sales; and

•	Increased proportion of non-advertising revenues, which generally have higher costs of revenues, relative to our advertising revenues.

---

•	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

•	Professional services fees primarily related to consulting and outsourcing services.

•	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.

•	Compensation expenses (including SBC) and facilities-related costs for employees in our finance, human resources, information technology, and legal organizations;

•	Depreciation expenses;

•	Equipment-related expenses;

•	Legal-related expenses; and

---

•	Professional services fees primarily related to audit, information technology consulting, outside legal, and outsourcing services.

---

---

---

---

(1)	For further information, refer to Note 4 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

(2)

Represents non-cancelable contractual obligations primarily related to information technology assets and data center operation costs; purchases of inventory; and digital media content licensing arrangements. The amounts included above represent the non-cancelable portion of agreements or the minimum cancellation fee. For those agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of December 31, 2019. Excluded from the table above are open orders for purchases that support normal operations.

(3)	Represents our principal and interest payments. For further information on long-term debt, refer to Note 6 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

(4)

Represents one-time transition tax payable incurred as a result of the Tax Act. For further information, refer to Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Excluded from the table above are long-term taxes payable of $2.6 billion as of December 31, 2019 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.

(5)

Represents cash obligations recorded on our Consolidated Balance Sheets, including the short-term portion of these long-term liabilities, primarily for the construction of offices and certain commercial agreements. These amounts do not include the EC fines which are classified as current liabilities on our Consolidated Balance Sheets. For further information regarding the EC fines, refer to Note 10 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

•	Content acquisition costs primarily related to payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee);

•	Expenses associated with our data centers and other operations (including bandwidth, compensation expense (including SBC), depreciation, energy, and other equipment costs); and

•	Inventory related costs for hardware we sell.

---

---

---

---

---

(1)	YouTube non-advertising revenues are included in Google other revenues.

---

(1)	Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America (Other Americas).

•	Google Play, which includes revenues from sale of apps and in-app purchases (which we recognize net of payout to developers) and digital content sold in the Google Play store;

•	hardware, including Google Nest home products, Pixelbooks, Pixel phones and other devices;

•	YouTube non-advertising including, YouTube premium and YouTube TV subscriptions and other services; and

•	other products and services.

---

---

(1)	The majority of our time deposits are domestic deposits.

---

(1)	Includes net gains of $4.1 billion and $1.8 billion related to non-marketable equity securities for the years ended December 31, 2018 and 2019, respectively.

---

(1)	Non-marketable securities cumulative net gain is comprised of $4.3 billion unrealized gains and $178 million unrealized losses (including impairment).

(1)	Non-marketable securities cumulative net gain is comprised of $3.5 billion unrealized gains and $445 million unrealized losses (including impairment).

(1)	The balance as of December 31, 2019 includes investments that were reclassified from non-marketable equity securities following the initial public offering of the issuers.

---

---

---

---

---

(1)	The balances as of December 31, 2018 and 2019 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, 2018 and 2019 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements.

---

(1)	Includes future minimum payments for leases which have not yet commenced.

---

---

(1)	Includes the outstanding (and unexchanged) Google Notes issued in 2011 and 2014 and the Alphabet notes exchanged in 2016.

---

(1)	Includes the effects of foreign exchange and interest. See Note 10 for further details.

---

---

(1)	Interest expense is net of interest capitalized of $48 million, $92 million, and $167 million for the years ended December 31, 2017, 2018, and 2019, respectively.

(2)

Our foreign currency exchange gain (loss), net, are related to the option premium costs and forwards points for our foreign currency hedging contracts, our foreign exchange transaction gains and losses from the conversion of the transaction currency to the functional currency, offset by the foreign currency hedging contract losses and gains. The net foreign currency transaction losses were $226 million, $195 million, and $166 million for the years ended December 31, 2017, 2018, and 2019, respectively.

(3)	During the year ended December 31, 2018, the terms of a non-marketable debt security were modified resulting in an unrealized $1.3 billion gain.

(4)	Performance fees were reclassified for prior periods from general and administrative expenses to other income (expense), net to conform with current period presentation.

---

---

---

---

---

---

---

---

---

---

---

•

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 and subscription-based products.

•	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.

---

(1)

Reconciling items are generally comprised of corporate administrative costs, hedging gains (losses) and other miscellaneous items that are not allocated to individual segments. Reconciling items include the European Commission fines for the years ended December 31, 2017, 2018 and 2019, and a charge from a legal settlement for the year ended December 31, 2019. Performance fees previously included in reconciling items were reclassified for the years ended December 31, 2017 and 2018 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.

(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.

---

(3)	Reconciling items relate to corporate administrative and other 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.

---

---

---

---

---

---

---

---