Edgar Filing: Google Inc.

Large accelerated filer ý

Accelerated filer ¨

Non-accelerated filer (Do not check if a smaller reporting company) ¨ Smaller reporting company ¨

GOOG-2013.3.31-10Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________

FORM 10-Q

___________________________________________________

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-50726

___________________________________________________

Google Inc.

(Exact name of registrant as specified in its charter)

___________________________________________________



Delaware	77-0493581
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1600 Amphitheatre Parkway

Mountain View, CA 94043

(Address of principal executive offices, including zip code)

(650) 253-0000

(Registrant’s telephone number, including area code)

___________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

At April 18, 2013, there were 271,123,286 shares of Google’s Class A common stock outstanding and 60,642,777 shares of Google’s Class B common stock outstanding.

Table of Contents

Google Inc.

Form 10-Q

For the Quarterly Period Ended March 31, 2013

TABLE OF CONTENTS



		Page No.
Note About Forward-Looking Statements		1
PART I. FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Consolidated Balance Sheets—December 31, 2012 and March 31, 2013 (unaudited)	3
	Consolidated Statements of Income—Three Months Ended March 31, 2012 and 2013 (unaudited)	4
	Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2012 and 2013 (unaudited)	5
	Consolidated Statements of Cash Flows—Three Months Ended March 31, 2012 and 2013 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4	Controls and Procedures	40
PART II. OTHER INFORMATION
Item 1	Legal Proceedings	41
Item 1A	Risk Factors	41
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 6	Exhibits	54
	Signature	55
	Exhibit Index	56

Table of Contents

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding:


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


•	seasonal fluctuations in internet usage and advertiser expenditures, traditional retail seasonality and macroeconomic conditions, which are likely to cause fluctuations in our quarterly results;


•	our plans to continue to invest in new products and technologies, systems, facilities, and infrastructure, to increase our hiring and provide competitive compensation programs, as well as to continue our current pace of acquisitions;


•	the potential for declines in our revenue growth rate;


•	our expectation that growth in advertising revenues from our websites will continue to exceed that from our Google Network Members’ websites, which will have a positive impact on our operating margins;


•	our expectation that we will continue to pay most of the fees we receive from advertisers to our Google Network Members;


•	our expectation that we will continue to take steps to improve the relevance of the ads we deliver and to reduce the number of accidental clicks;


•	fluctuations in aggregate paid clicks and average cost-per-click;


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


•	the expected increase of costs related to hedging activities under our foreign exchange risk management program;


•	our expectation that our cost of revenues, research and development expenses, sales and marketing expenses, and general and administrative expenses will increase in dollars and may increase as a percentage of revenues;


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


•	our expectations about our board of directors’ intention to declare a dividend of shares of the new Class C capital stock, as well as the timing of that dividend, if declared and paid;


•	our expectation that our traffic acquisition costs will fluctuate in the future;


•	our continued investments in international markets;


•	estimates of our future compensation expenses;


•	fluctuations in our effective tax rate;


•	the sufficiency of our sources of funding;


•	our payment terms to certain advertisers, which may increase our working capital requirements;


•	fluctuations in our capital expenditures;

as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may appear throughout this report, including without limitation, the following sections: Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the caption “Risk Factors” in Part II, Item 1A of this report and those discussed in other documents we file with the Securities and Exchange Commission (SEC). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

As used herein, “Google,” “we,” “our,” and similar terms include Google Inc. and its subsidiaries, unless the context indicates otherwise.

Table of Contents

“Google” and other trademarks of ours appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

Table of Contents

PART I - FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Google Inc.

CONSOLIDATED BALANCE SHEETS

(In millions, except share and par value amounts which are reflected in thousands,

and par value per share amounts)



	As of December 31, 2012		As of March 31, 2013
			(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	14,778	$	15,375
Marketable securities	33,310		34,723
Total cash, cash equivalents, and marketable securities (including securities loaned of $3,160 and $4,155)	48,088		50,098
Accounts receivable, net of allowance of $581 and $533	7,885		7,612
Inventories	505		648
Receivable under reverse repurchase agreements	700		700
Deferred income taxes, net	1,144		1,017
Income taxes receivable, net	0		358
Prepaid revenue share, expenses and other assets	2,132		2,375
Total current assets	60,454		62,808
Prepaid revenue share, expenses and other assets, non-current	2,011		2,195
Non-marketable equity investments	1,469		1,470
Property and equipment, net	11,854		12,300
Intangible assets, net	7,473		7,324
Goodwill	10,537		10,595
Total assets	$	93,798	$	96,692
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,012	$	2,094
Short-term debt	2,549		2,150
Accrued compensation and benefits	2,239		1,445
Accrued expenses and other current liabilities	3,258		3,007
Accrued revenue share	1,471		1,437
Securities lending payable	1,673		2,237
Deferred revenue	895		882
Income taxes payable, net	240		0
Total current liabilities	14,337		13,252
Long-term debt	2,988		2,989
Deferred revenue, non-current	100		79
Income taxes payable, non-current	2,046		2,184
Deferred income taxes, net, non-current	1,872		1,978
Other long-term liabilities	740		737
Stockholders’ equity:
Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding	0		0
Class A and Class B common stock and additional paid-in capital, $0.001 par value per share: 12,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000); 329,979 (Class A 267,448, Class B 62,531) and par value of $330 (Class A $267, Class B $63) and 331,008 (Class A 270,165, Class B 60,843) and par value of $331 (Class A $270, Class B $61) shares issued and outstanding	22,835		23,429
Class C capital stock, $0.001 par value per share: 3,000,000 shares authorized; no shares issued and outstanding	0		0
Accumulated other comprehensive income	538		356
Retained earnings	48,342		51,688
Total stockholders’ equity	71,715		75,473
Total liabilities and stockholders’ equity	$	93,798	$	96,692

See accompanying notes.

Table of Contents

Google Inc.

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except share amounts which are reflected in thousands and per share amounts)



	Three Months Ended
	March 31,
	2012		2013
	(unaudited)
Revenues:
Google (advertising and other)	$	10,645	$	12,951
Motorola Mobile (hardware and other)	0		1,018
Total revenues	10,645		13,969
Costs and expenses:
Cost of revenues - Google (advertising and other) ⁽¹⁾	3,789		5,136
Cost of revenues - Motorola Mobile (hardware and other)⁽¹⁾	0		808
Research and development ⁽¹⁾	1,441		1,837
Sales and marketing ⁽¹⁾	1,269		1,586
General and administrative ⁽¹⁾	757		1,125
Total costs and expenses	7,256		10,492
Income from operations	3,389		3,477
Interest and other income, net	156		134
Income from continuing operations before income taxes	3,545		3,611
Provision for income taxes	655		287
Net income from continuing operations	2,890		3,324
Net income from discontinued operations	0		22
Net income	$	2,890	$	3,346
Net income per share of Class A and Class B common stock - basic:
Continuing operations	$	8.88	$	10.06
Discontinued operations	0.00		0.07
Net income per share of Class A and Class B common stock - basic	$	8.88	$	10.13
Net income per share of Class A and Class B common stock - diluted:
Continuing operations	$	8.75	$	9.87
Discontinued operations	0.00		0.07
Net income per share of Class A and Class B common stock - diluted	$	8.75	$	9.94

Shares used in per share calculation - basic	325,299		330,454
Shares used in per share calculation - diluted	330,136		336,663
______________________
⁽¹⁾ Includes stock-based compensation expense as follows:
Cost of revenues - Google (advertising and other)	$	74	$	99
Cost of revenues - Motorola Mobile (hardware and other)	0		5
Research and development	299		361
Sales and marketing	97		125
General and administrative	86		107
	$	556	$	697

See accompanying notes.

Table of Contents

Google Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)



	Three Months Ended
	March 31,
	2012			2013
	(unaudited)
Net income	$	2,890		$	3,346
Other comprehensive income (loss):
Change in foreign currency translation adjustment	115			(168		)
Available-for-sale investments:
Change in net unrealized gains	196			(55		)
Less: reclassification adjustment for net gains included in net income	(107		)	(46		)
Net change (net of tax effect of $18 and $37)	89			(101		)
Cash flow hedges:
Change in net unrealized gains	(35		)	109
Less: reclassification adjustment for net gains included in net income	(23		)	(22		)
Net change (net of tax effect of $34 and $51)	(58		)	87
Other comprehensive income (loss)	146			(182		)
Comprehensive income	$	3,036		$	3,164

See accompanying notes.

Table of Contents

Google Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)



	Three Months Ended
	March 31,
	2012			2013
	(unaudited)
Operating activities
Net income	$	2,890		$	3,346
Adjustments:
Depreciation and amortization of property and equipment	378			584
Amortization of intangible and other assets	133			315
Stock-based compensation expense	556			708
Excess tax benefits from stock-based award activities	(28		)	(94		)
Deferred income taxes	354			202
Gain on sale of marketable equity securities	(44		)	0
Other	(24		)	37
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable	301			256
Income taxes, net	143			(335		)
Inventories	(32		)	(142		)
Prepaid revenue share, expenses and other assets	(276		)	(212		)
Accounts payable	169			87
Accrued expenses and other liabilities	(855		)	(1,059		)
Accrued revenue share	(11		)	(27		)
Deferred revenue	40			(33		)
Net cash provided by operating activities	3,694			3,633
Investing activities
Purchases of property and equipment	(607		)	(1,203		)
Purchases of marketable securities	(8,688		)	(7,834		)
Maturities and sales of marketable securities	17,201			6,319
Investments in non-marketable equity investments	(103		)	(36		)
Cash collateral related to securities lending	245			564
Investments in reverse repurchase agreements	195			0
Acquisitions, net of cash acquired, and purchases of intangibles and other assets	(92		)	(251		)
Net cash provided by (used in) investing activities	8,151			(2,441		)
Financing activities
Net payments related to stock-based award activities	(47		)	(210		)
Excess tax benefits from stock-based award activities	28			94
Proceeds from issuance of debt, net of costs	3,149			2,922
Repayments of debt	(1,900		)	(3,323		)
Net cash provided by (used in) financing activities	1,230			(517		)
Effect of exchange rate changes on cash and cash equivalents	50			(78		)
Net increase in cash and cash equivalents	13,125			597
Cash and cash equivalents at beginning of period	9,983			14,778
Cash and cash equivalents at end of period	$	23,108		$	15,375

Supplemental disclosures of cash flow information
Cash paid for taxes	$	207		$	385

See accompanying notes.

Table of Contents

Google Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Google Inc. and Summary of Significant Accounting Policies

Nature of Operations

We were incorporated in California in September 1998. We were re-incorporated in the State of Delaware in August 2003. We generate revenues primarily by delivering relevant, cost-effective online advertising in our Google segment. In addition, we generate revenues from sales of mobile devices in our Motorola Mobile segment.

Basis of Consolidation

The consolidated financial statements include the accounts of Google Inc. and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

Unaudited Interim Financial Information

The accompanying Consolidated Balance Sheet as of March 31, 2013, the Consolidated Statements of Income for the three months ended March 31, 2012 and 2013, the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2013, and the Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2013 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of March 31, 2013, our results of operations for the three months ended March 31, 2012 and 2013, and our cash flows for the three months ended March 31, 2012 and 2013. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on January 29, 2013.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, inventory valuations, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Table of Contents

Note 2. Net Income Per Share of Class A and Class B Common Stock

The following table sets forth the computation of basic and diluted net income per share of Class A and Class B common stock (in millions, except share amounts which are reflected in thousands and per share amounts):



	Three Months Ended
	March 31,
	2012					2013
	(unaudited)
	Class A		Class B			Class A		Class B
Basic net income per share:
Numerator
Allocation of undistributed earnings - continuing operations	$	2,296	$	594		$	2,703	$	621
Allocation of undistributed earnings - discontinued operations	0		0			18		4
Total	$	2,296	$	594		$	2,721	$	625
Denominator
Weighted-average common shares outstanding	258,426		66,873			268,767		61,687
Number of shares used in per share computation	258,426		66,873			268,767		61,687
Basic net income per share:
Continuing operations	$	8.88	$	8.88		$	10.06	$	10.06
Discontinued operations	0.00		0.00			0.07		0.07
Basic net income per share	$	8.88	$	8.88		$	10.13	$	10.13
Diluted net income per share:
Numerator
Allocation of undistributed earnings for basic computation - continuing operations	$	2,296	$	594		$	2,703	$	621
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	594		0			621		0
Reallocation of undistributed earnings to Class B shares	0		(9		)	0		(12		)
Allocation of undistributed earnings - continuing operations	$	2,890	$	585		$	3,324	$	609
Allocation of undistributed earnings for basic computation - discontinued operations	$	0	$	0		$	18	$	4
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	0		0			4		0
Allocation of undistributed earnings - discontinued operations	$	0	$	0		$	22	$	4
Denominator
Number of shares used in basic computation	258,426		66,873			268,767		61,687
Weighted-average effect of dilutive securities
Add:
Conversion of Class B to Class A common shares outstanding	66,873		0			61,687		0
Employee stock options, including warrants issued under Transferable Stock Option program	2,957		43			3,129		12
Restricted stock units	1,880		0			3,080		0

Table of Contents



Number of shares used in per share computation	330,136		66,916		336,663		61,699
Diluted net income per share:
Continuing operations	$	8.75	$	8.75	$	9.87	$	9.87
Discontinued operations	0.00		0.00		0.07		0.07
Diluted net income per share	$	8.75	$	8.75	$	9.94	$	9.94

The net income per share amounts are the same for Class A and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

Note 3. Financial Instruments

Fair Value Measurements

We measure our cash equivalents, marketable securities, and foreign currency and interest rate derivative contracts at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Include other inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.

Level 3—Unobservable inputs that are supported by little or no market activities.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Based on the fair value hierarchy, we classify our cash equivalents and marketable securities within Level 1 or Level 2. This is because we value our cash equivalents and marketable securities using quoted market prices or alternative pricing sources and models utilizing market observable inputs. 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 measured at adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment categories as of December 31, 2012 and March 31, 2013 (in millions):

Table of Contents



	As of December 31, 2012
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities
Cash	$	8,066	$	0	$	0		$	8,066	$	8,066	$	0
Level 1:
Money market and other funds	5,221		0		0			5,221		5,221		0
U.S. government notes	10,853		77		(1		)	10,929		0		10,929
Marketable equity securities	12		88		0			100		0		100
	16,086		165		(1		)	16,250		5,221		11,029
Level 2:
Time deposits	984		0		0			984		562		422
Money market and other funds ⁽¹⁾	929		0		0			929		929		0
U.S. government agencies	1,882		20		0			1,902		0		1,902
Foreign government bonds	1,996		81		(3		)	2,074		0		2,074
Municipal securities	2,249		23		(6		)	2,266		0		2,266
Corporate debt securities	7,200		414		(14		)	7,600		0		7,600
Agency residential mortgage-backed securities	7,039		136		(6		)	7,169		0		7,169
Asset-backed securities	847		1		0			848		0		848
	23,126		675		(29		)	23,772		1,491		22,281
Total	$	47,278	$	840	$	(30	)	$	48,088	$	14,778	$	33,310



		As of March 31, 2013
		Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities
	(unaudited)
Cash		$	8,051	$	0	$	0		$	8,051	$	8,051	$	0
Level 1:
Money market and other funds		3,800		0		0			3,800		3,800		0
U.S. government notes		11,089		78		(1		)	11,166		275		10,891
Marketable equity securities		41		103		0			144		0		144
		14,930		181		(1		)	15,110		4,075		11,035
Level 2:
Time deposits		2,160		0		0			2,160		1,712		448
Money market and other funds ⁽¹⁾		1,537		0		0			1,537		1,537		0
U.S. government agencies		2,102		11		0			2,113		0		2,113
Foreign government bonds		2,138		51		(13		)	2,176		0		2,176
Municipal securities		2,627		20		(10		)	2,637		0		2,637
Corporate debt securities		7,488		367		(32		)	7,823		0		7,823
Agency residential mortgage-backed securities		7,462		117		(20		)	7,559		0		7,559
Asset-backed securities		932		0		0			932		0		932
		26,446		566		(75		)	26,937		3,249		23,688
Total		$	49,427	$	747	$	(76	)	$	50,098	$	15,375	$	34,723


(1)	The balances at December 31, 2012 and March 31, 2013 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 below for further discussion on this program.

We determine realized gains or losses on the sale of marketable securities on a specific identification method. We recognized gross realized gains of $133 million and $75 million for the three months ended March 31, 2012 and March 31, 2013. We recognized gross realized losses of $13 million and $15 million for the three months ended

Table of Contents

March 31, 2012 and March 31, 2013. We reflect these gains and losses as a component of interest and other income, net, in the accompanying Consolidated Statements of Income.

The following table summarizes the estimated fair value of our investments in marketable securities, excluding marketable equity securities, designated as available-for-sale and classified by the contractual maturity date of the securities (in millions):



	As of March 31, 2013
	(unaudited)
Due in 1 year	$	4,382
Due in 1 year through 5 years	13,487
Due in 5 years through 10 years	7,661
Due after 10 years	9,049
Total	$	34,579

The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2012 and March 31, 2013, 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, 2012
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government notes	$	842	$	(1	)	$	0	$	0		$	842	$	(1	)
Foreign government bonds	509		(2		)	12		(1		)	521		(3		)
Municipal securities	686		(6		)	9		0			695		(6		)
Corporate debt securities	820		(10		)	81		(4		)	901		(14		)
Agency residential mortgage-backed securities	1,300		(6		)	0		0			1,300		(6		)
Total	$	4,157	$	(25	)	$	102	$	(5	)	$	4,259	$	(30	)



	As of March 31, 2013
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
						(unaudited)
U.S. government notes	$	651	$	(1	)	$	0	$	0		$	651	$	(1	)
Foreign government bonds	501		(13		)	0		0			501		(13		)
Municipal securities	892		(10		)	0		0			892		(10		)
Corporate debt securities	1,496		(30		)	58		(2		)	1,554		(32		)
Agency residential mortgage-backed securities	2,617		(20		)	0		0			2,617		(20		)
Total	$	6,157	$	(74	)	$	58	$	(2	)	$	6,215	$	(76	)

Securities Lending Program

From time to time, we enter into securities lending agreements with financial institutions to enhance investment income. We loan selected securities which are collateralized in the form of cash or securities. Cash collateral is 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.

Table of Contents

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 interest and other income, net, as part of revenues, or as a component of 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 our anticipated debt issuance. 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. At December 31, 2012 and March 31, 2013, we received cash collateral related to the derivative instruments under our collateral security arrangements of $43 million and $72 million.

Cash Flow Hedges

We use 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 $9.5 billion and $9.2 billion as of December 31, 2012 and March 31, 2013. These foreign exchange contracts have maturities of 36 months or less.

In 2012, we entered into forward-starting interest rate swaps that effectively locked in an interest rate on our anticipated debt issuance of $1.0 billion in 2014. The total notional amount of these forward-starting interest swaps was $1.0 billion as of December 31, 2012 and March 31, 2013 with terms calling for us to receive interest at a variable rate and to pay interest at a fixed rate.

We initially report any gain or loss on the effective portion of a cash flow hedge as a component of AOCI and subsequently reclassify 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 reclassified to interest and other income, net. Further, we exclude the change in the time value of the options from our assessment of hedge effectiveness. We record the premium paid or time value of an option on the date of purchase as an asset. Thereafter, we recognize any change to this time value in interest and other income, net.

As of March 31, 2013, the effective portion of our cash flow hedges before tax effect was $149 million, of which $111 million is expected to be reclassified from AOCI to revenues 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. Gains and losses on these contracts are recognized in interest and other income, net, along with the offsetting losses and gains of the related hedged items. We exclude changes in the time value for forward contracts from the assessment of hedge effectiveness . The notional principal of these contracts was $1.1 billion and $1.3 billion as of December 31, 2012 and March 31, 2013.

Other Derivatives

Other derivatives not designated as hedging instruments consist of forward and option 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 interest and other income, net, along with the foreign currency gains and losses on monetary assets and liabilities. The notional principal of foreign exchange contracts outstanding was $6.6 billion and $6.1 billion at December 31, 2012 and March 31, 2013.

Table of Contents

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 interest and other income, 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 interest and other income, net. The total notional amounts of interest rate contracts outstanding were $25 million and $150 million at December 31, 2012 and March 31, 2013.

The fair values of our outstanding derivative instruments were as follows (in millions):



		As of December 31, 2012
	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	$	164	$	13	$	177
Interest rate contracts	Prepaid revenue share, expenses and other assets, current and non-current	1		0		1
Total		$	165	$	13	$	178
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other current liabilities	$	3	$	4	$	7



		As of March 31, 2013
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
		(unaudited)
Derivative Assets:
Level 2:
Foreign exchange contracts	Prepaid revenue share, expenses and other assets, current and non-current	$	285	$	5	$	290
Interest rate contracts	Prepaid revenue share, expenses and other assets, current and non-current	11		0		11
Total		$	296	$	5	$	301
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other current liabilities	$	13	$	1	$	14

Table of Contents

The effect of derivative instruments in cash flow hedging relationships on income and other comprehensive income is summarized below (in millions):



	Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect (Effective Portion)
	Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationship	2012			2013
	(unaudited)
Foreign exchange contracts	$	(55	)	$	163
Interest rate contracts	0			10
Total	$	(55	)	$	173



	Gains Reclassified from AOCI into Income (Effective Portion)
		Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationship	Location	2012		2013
		(unaudited)
Foreign exchange contracts	Revenues	$	37	$	35



	Gains (Losses) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing and Ineffective Portion) ⁽¹⁾
		Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationship	Location	2012			2013
		(unaudited)
Foreign exchange contracts	Interest and other income, net	$	(126	)	$	(51	)


⁽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):



	Gains (Losses) Recognized in Income on Derivatives⁽²⁾
		Three Months Ended March 31,
Derivatives in Fair Value Hedging Relationship	Location	2012			2013
		(unaudited)
Foreign exchange contracts	Interest and other income, net	$	(20	)	$	37
Hedged item	Interest and other income, net	17			(38		)
Total		$	(3	)	$	(1	)


⁽²⁾	Losses related to the amount excluded from effectiveness testing of the hedges were $3 million and $1 million for the three months ended March 31, 2012 and 2013.

The effect of derivative instruments not designated as hedging instruments on income is summarized below (in millions):

Table of Contents



	Gains (Losses) Recognized in Income on Derivatives
		Three Months Ended March 31,
Derivatives Not Designated As Hedging Instruments	Location	2012			2013
		(unaudited)
Foreign exchange contracts	Interest and other income, net	$	(25	)	$	87
Interest rate contracts	Interest and other income, net	2			0
Total		$	(23	)	$	87

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, 2012 and March 31, 2013, information related to these offsetting arrangements was as follows (in millions, unaudited):




Offsetting of Assets
	As of December 31, 2012
								Gross Amounts Not Offset in the Consolidated Balance Sheets
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 Amount
Derivatives	$	178	$	0	$	178		$	(4	)	⁽¹⁾	$	(40	)	$	(12	)	$	122
Reverse repurchase agreements	1,629		0		1,629		⁽²⁾	0				0			(1,629		)	0
Total	$	1,807	$	0	$	1,807		$	(4	)		$	(40	)	$	(1,641	)	$	122


	As of March 31, 2013
								Gross Amounts Not Offset in the Consolidated Balance Sheets
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 Amount
Derivatives	$	301	$	0	$	301		$	(4	)	⁽¹⁾	$	(57	)	$	(125	)	$	115
Reverse repurchase agreements	2,237		0		2,237		⁽²⁾	0				0			(2,237		)	0
Total	$	2,538	$	0	$	2,538		$	(4	)		$	(57	)	$	(2,362	)	$	115

⁽¹⁾ The balances at December 31, 2012 and March 31, 2013 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 at December 31, 2012 and March 31, 2013 included $929 million and $1.5 billion recorded in cash and cash equivalents, respectively, and $700 million and $700 million recorded in receivable under reverse repurchase agreements, respectively.

Table of Contents



Offsetting of Liabilities
	As of December 31, 2012
							Gross Amounts Not Offset in the Consolidated Balance Sheets
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 Amount
Derivatives	$	7	$	0	$	7	$	(4	)	⁽³⁾	$	0	$	0		$	3
Securities lending agreements	1,673		0		1,673		0				0		(1,673		)	0
Total	$	1,680	$	0	$	1,680	$	(4	)		$	0	$	(1,673	)	$	3

	As of March 31, 2013
							Gross Amounts Not Offset in the Consolidated Balance Sheets
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 Amount
Derivatives	$	14	$	0	$	14	$	(4	)	⁽³⁾	$	0	$	0		$	10
Securities lending agreements	2,237		0		2,237		0				0		(2,237		)	0
Total	$	2,251	$	0	$	2,251	$	(4	)		$	0	$	(2,237	)	$	10

⁽³⁾ The balances at December 31, 2012 and March 31, 2013 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements.

Note 4. Debt

Short-Term Debt

We have a debt financing program of up to $3.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. At December 31, 2012 and March 31, 2013, we had $2.5 billion and $2.2 billion of outstanding commercial paper recorded as short-term debt with weighted-average interest rates of 0.2%. In conjunction with this program, we have a $3.0 billion revolving credit facility expiring in July 2016. The interest rate for the credit facility is determined based on a formula using certain market rates. At December 31, 2012 and March 31, 2013, we were in compliance with the financial covenant in the credit facility, and no amounts were outstanding under the credit facility at December 31, 2012 and March 31, 2013.

The estimated fair value of the short-term debt approximated its carrying value at March 31, 2013.

Long-Term Debt

In May 2011, we issued $3.0 billion of unsecured senior notes in three tranches as described in the table below (collectively, the Notes) (in millions):



	As of March 31, 2013
	(unaudited)
1.25% Notes due on May 19, 2014	$	1,000
2.125% Notes due on May 19, 2016	1,000
3.625% Notes due on May 19, 2021	1,000
Unamortized discount for the Notes above	(11		)
Total	$	2,989

Table of Contents

The effective interest yields of the 2014, 2016, and 2021 Notes were 1.258%, 2.241%, and 3.734%, respectively. Interest on the Notes is payable semi-annually in arrears on May 19 and November 19 of each year. We may redeem the Notes at any time in whole or from time to time in part at specified redemption prices. We are not subject to any financial covenants under the Notes. We used the net proceeds from the issuance of the Notes to repay a portion of our outstanding commercial paper and for general corporate purposes. The total estimated fair value of the Notes was approximately $3.2 billion at March 31, 2013. The fair value of the Notes was determined based on observable market prices of identical instruments in markets that are not active and is categorized accordingly as Level 2 in the fair value hierarchy.

Note 5. Balance Sheet Components

Inventories

Inventories consisted of the following (in millions):



	As of December 31, 2012		As of March 31, 2013
			(unaudited)
Raw materials and work in process	$	77	$	140
Finished goods	428		508
Inventories	$	505	$	648

Property and Equipment

Property and equipment consisted of the following (in millions):



	As of December 31, 2012		As of March 31, 2013
			(unaudited)
Information technology assets	$	7,717	$	7,785
Land and buildings	6,257		6,394
Construction in progress	2,240		2,554
Leasehold improvements	1,409		1,451
Furniture and fixtures	74		76
Total	17,697		18,260
Less: accumulated depreciation and amortization	5,843		5,960
Property and equipment, net	$	11,854	$	12,300

Accumulated Other Comprehensive Income

The components of AOCI, net of tax, were as follows (in millions, unaudited):



	Foreign Currency Translation Adjustments			Unrealized Gains on Available-for-Sale Investments			Unrealized Gains on Cash Flow Hedges			Total
Balance as of December 31, 2012	$	(73	)	$	604		$	7		$	538

Other comprehensive income (loss) before reclassifications	(168		)	(55		)	109			(114		)
Amounts reclassified from AOCI	0			(46		)	(22		)	(68		)
Other comprehensive income (loss)	(168		)	(101		)	87			(182		)
Balance as of March 31, 2013	$	(241	)	$	503		$	94		$	356

Table of Contents

The effects on net income of amounts reclassified from AOCI for three months ended March 31, 2013 were as follows (in millions, unaudited):



AOCI Components	Location	Gains (Losses) Reclassified from AOCI to the Consolidated Statement of Income
Unrealized gains on available-for-sale investments	Interest and other income, net	$	60
	Provision for income taxes	(14		)
	Net of tax	$	46

Unrealized gains on cash flow hedges for foreign exchange contracts	Revenue	$	35
	Provision for income taxes	(13		)
	Net of tax	$	22

Total amount reclassified, net of tax		$	68

Note 6. Acquisitions

During the three months ended March 31, 2013, we completed eight acquisitions and purchases of intangible assets for a total cash consideration of approximately $291 million, of which $150 million was attributed to patents and developed technology, $24 million to customer relationships, $133 million to goodwill, and $16 million to net liabilities assumed. These acquisitions generally enhance the breadth and depth of our expertise in engineering and other functional areas, our technologies, and our product offerings. The amount of goodwill expected to be deductible for tax purposes is approximately $20 million.

Pro forma results of operations for these acquisitions have not been presented because they are not material to the consolidated results of operations, either individually or in aggregate.

For all acquisitions completed during the three months ended March 31, 2013, patents and developed technology have a weighted-average useful life of 4.9 years and customer relationships have a weighted-average useful life of 6.0 years.

Note 7. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2013 were as follows (in millions, unaudited):



Balance as of December 31, 2012	$	10,537
Goodwill acquired	133
Goodwill adjustment	(75		)
Balance as of March 31, 2013	$	10,595

Amounts of goodwill related to the Motorola Mobile and Home segments were not material. See Note 14 for further discussion of segment information.

Information regarding our acquisition-related intangible assets was as follows (in millions):

Table of Contents



	As of December 31, 2012
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Patents and developed technology	$	7,310	$	1,323	$	5,987
Customer relationships	2,061		847		1,214
Trade names and other	576		304		272
Total	$	9,947	$	2,474	$	7,473

	As of March 31, 2013
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
	(unaudited)
Patents and developed technology	$	7,449	$	1,527	$	5,922
Customer relationships	2,063		908		1,155
Trade names and other	555		308		247
Total	$	10,067	$	2,743	$	7,324

Amortization expense relating to acquisition-related intangible assets for the three months ended March 31, 2012 and 2013 was $124 million and $315 million.

As of March 31, 2013, expected amortization expense relating to acquisition-related intangible assets, excluding the portion related to the Motorola Home segment, for each of the next five years and thereafter was as follows (in millions, unaudited):



Remainder of 2013	$	807
2014	1,025
2015	869
2016	786
2017	734
2018	692
Thereafter	1,710
	$	6,623

Note 8. Discontinued Operations

In December 2012, we entered into an agreement with Arris Group, Inc. (Arris) and certain other persons providing for the disposition of the Motorola Home segment. The transaction was completed on April 17, 2013. See Note 15 for further discussion of the subsequent event.

The following table presents financial results of the Motorola Home segment in the three months ended March 31, 2013 (in millions, unaudited):



	Three Months Ended March 31, 2013
Revenues	$	738

Income from discontinued operations before income taxes	47
Provision for income taxes	(25		)
Net income from discontinued operations	$	22

Note 9. Restructuring Charges

Subsequent to our acquisition of Motorola Mobility Holdings, Inc. (Motorola) in May 2012, we initiated a restructuring plan primarily in our Motorola Mobile segment to reduce workforce, reorganize management structure, close or consolidate certain facilities, as well as simplify our mobile product portfolio. These changes are designed to return the Motorola Mobile segment to profitability. Pursuant to this restructuring plan, we have incurred

Table of Contents

cumulative charges of approximately $694 million which includes $63 million recognized in the three months ended March 31, 2013.

For the three months ended March 31, 2013, changes to restructuring accruals were as follows (in millions, unaudited):



	Severance and Related			Other Charges			Total
Balance as of December 31, 2012	$	238		$	15		$	253
Charges	53			10			63
Cash payments	(108		)	(4		)	(112		)
Non-cash items⁽¹⁾	(19		)	0			(19		)
Balance as of March 31, 2013	$	164		$	21		$	185


⁽¹⁾	Non-cash items were primarily related to restricted stock units (RSUs) and stock options.

For the three months ended March 31, 2013, restructuring charges were as follows (in millions, unaudited):



	Three months ended March 31, 2013
	Severance and Related		Other Charges		Total
Cost of revenues—Motorola Mobile	$	8	$	0	$	8
Research and development	18		5		23
Sales and marketing	8		1		9
General and administrative	19		0		19
Net income from discontinued operations	0		4		4
Total charges	$	53	$	10	$	63

We continue to evaluate our plans and further restructuring actions may occur which may cause us to incur additional restructuring charges, some of which may be significant.

Note 10. Interest and Other Income, Net

The components of interest and other income, net, were as follows (in millions):



	Three Months Ended March 31,
	2012			2013
	(unaudited)
Interest income	$	182		$	183
Interest expense	(20		)	(21		)
Realized gains on available-for-sale investments, net	120			60
Foreign currency exchange losses, net	(143		)	(70		)
Other	17			(18		)
Interest and other income, net	$	156		$	134

Note 11. Contingencies

Legal Matters

Antitrust Investigations

In June 2011, we received a Civil Investigative Demand (CID) from the U.S. Federal Trade Commission’s (FTC) Bureau of Competition and a subpoena from the FTC’s Bureau of Consumer Protection relating to a review by the FTC of our business practices, including search and advertising. In June 2012, we also received a CID and a subpoena duces tecum from the FTC’s Bureau of Competition seeking documents and information broadly related

Table of Contents

to Motorola’s licensing practices for standards-essential patents and use of standards-essential patents in litigation. In January 2013, the FTC closed its investigations into our business practices, including search and advertising. In connection with the closing of the investigation, we have voluntarily agreed to make certain product changes. In addition, we and Motorola have entered into a consent order with the FTC setting forth certain guidelines on our use of standards-essential patents in litigation. That consent order should become final in the coming months.

State attorneys general from the states of Texas, Ohio, and Mississippi have issued similar CIDs relating to our business practices. We are cooperating with the state attorneys general and are responding to their information requests on an ongoing basis.

The European Commission’s (EC) Directorate General for Competition has also opened an investigation into various antitrust-related complaints against us. Since February 2010, we have received a number of notifications from the EC about antitrust complaints filed against us. On November 30, 2010, the EC formally opened proceedings against us. We believe we have adequately responded to all of the allegations made against us. We continue to cooperate with the EC and are pursuing a potential resolution that would avoid a finding of infringement and a fine. The EC has also opened an investigation into Motorola’s licensing practices for standards-essential patents and use of standards-essential patents in litigation on the basis of complaints brought by Microsoft and Apple. We are cooperating with the EC and responding to the information requests on an ongoing basis.

The Comision Nacional de Defensa de la Competencia in Argentina, the Competition Commission of India, and the Korea Fair Trade Commission in South Korea have also opened investigations into certain of our business practices.

EPA Investigation

In February 2009, we learned of a U.S. Environmental Protection Agency (EPA) investigation into an alleged release of refrigerant at one of our smaller data center facilities, which we acquired from DoubleClick, and the accuracy of related statements and records. In January 2013, we were informed by the U.S. Department of Justice that the EPA investigation has been closed.

Patent and Intellectual Property Claims

We have had patent, copyright, and trademark infringement lawsuits filed against us claiming that certain of our products, services, and technologies, including Android, Google Search, Google AdWords, Google AdSense, Google Books, Google News, Google Image Search, Google Chrome, Google Talk, Google Voice, Motorola devices and YouTube, infringe the intellectual property rights of others. Adverse results in these lawsuits may include awards of substantial monetary damages, costly royalty or licensing agreements, or orders preventing us from offering certain features, functionalities, products, or services, and may also cause us to change our business

practices, and require development of non-infringing products or technologies, which could result in a loss of revenues for us and otherwise harm our business. In addition, the U.S. International Trade Commission (ITC) has increasingly become an important forum to litigate intellectual property disputes because an ultimate loss for a company or its suppliers in an ITC action could result in a prohibition on importing infringing products into the U.S. Since the U.S. is an important market, a prohibition on importation could have an adverse effect on us, including preventing us from importing many important products into the U.S. or necessitating workarounds that may limit certain features of our products.