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Exhibit
Exhibit 99.1

Alphabet Announces Fourth Quarter and Fiscal Year 2015 Results

MOUNTAIN VIEW, Calif. – February 1, 2016 – Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter and fiscal year ended December 31, 2015.
"Our very strong revenue growth in Q4 reflects the vibrancy of our business, driven by mobile search as well as YouTube and programmatic advertising, all areas in which we’ve been investing for many years.  We’re excited about the opportunities we have across Google and Other Bets to use technology to improve the lives of billions of people,” said Ruth Porat, CFO of Alphabet.
Q4 2015 financial highlights
The following summarizes our consolidated financial results for the quarters ended December 31, 2014 and 2015 (in millions, except for per share information; unaudited):
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2015
Revenues

$18,103

 

$21,329

Increase in revenues year over year
15
%
 
18
%
Increase in constant currency revenues year over year
18
%
 
24
%
 
 
 
 
GAAP operating income

$4,399

 

$5,380

GAAP operating margin
24
%
 
25
%
Non-GAAP operating income

$5,600

 

$6,816

Non-GAAP operating margin
31
%
 
32
%
 
 
 
 
GAAP net income*

$4,675

 

$4,923

Non-GAAP net income

$4,654

 

$6,043

 
 
 
 
GAAP diluted EPS for Class A and B common stock and Class C capital stock*

$6.79

 

$7.06

Non-GAAP diluted EPS for Class A and B common stock and Class C capital stock

$6.76

 

$8.67

Diluted shares (in thousands)
688,491

 
697,025

*For the three months ended December 31, 2014, GAAP net income and diluted EPS includes net income from discontinued operations.
Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense from continuing operations. Non-GAAP net income and non-GAAP diluted EPS exclude SBC expense from continuing operations, net of the related tax benefits, as well as the impact from net income from discontinued operations. These non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, and non-GAAP constant currency revenues and growth, are described and reconciled to the corresponding GAAP measures at the end of this release.
The following summarizes our full year segment results where Google is presented as a single segment and all other Alphabet businesses are combined as Other Bets (in millions; unaudited). For additional information on segment results, please see the tables captioned "Segment results" included at the end of this release.
 
Twelve Months Ended December 31, 2014
 
Twelve Months Ended December 31, 2015
Google segment revenues

$65,674

 

$74,541

Google operating income

$19,011

 

$23,425

 
 
 
 
Other Bets revenues

$327

 

$448

Other Bets operating loss

($1,942
)
 

($3,567
)



Q4 2015 consolidated financial summary
Revenues (in millions; unaudited):
 
Three Months Ended December 31, 2015
 
Change from Q4 2014 to Q4 2015 (YoY)
 
Change from Q3 2015 to Q4 2015 (QoQ)
Revenues

$21,329

 
18
%
 
14
%
Constant currency revenues (YoY)

$22,330

 
24
%
 
N/A

Constant currency revenues (QoQ)

$21,208

 
N/A

 
15
%
Our revenues and constant currency revenues are reconciled in the financial tables following this release.
Costs and expenses
Cost of revenues, operating expenses, SBC expense, and depreciation, amortization, and impairment charges (in millions; unaudited):
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2015
Cost of revenues

$6,921

 

$8,188

Cost of revenues as % of revenues
38
%
 
38
%
 
 
 
 
Operating expenses (other than cost of revenues)

$6,783

 

$7,761

Operating expenses as % of revenues
37
%
 
36
%
 
 
 
 
SBC expense*

$1,201

 

$1,436

Tax benefit related to SBC expense

($255
)
 

($316
)
Depreciation, amortization, and impairment charges

$1,267

 

$1,404

*Excludes the impact from discontinued operations for the three months ended December 31, 2014 and expense for awards accounted for as stock-based compensation that will ultimately settle in cash.
Supplemental information (in millions, except for headcount data; unaudited)
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2015
Cash, cash equivalents, and marketable securities

$64,395

 

$73,066

Net cash provided by operating activities

$6,364

 

$6,415

Capital expenditures

$3,551

 

$2,100

Free cash flow

$2,813

 

$4,315

Effective tax rate (ETR)*
18
%
 
5
%
Headcount
53,600

 
61,814

*For Q4 2015, our effective tax rate reflects impact of certain one-time items in the U.S., specifically the resolution of a multi-year audit with an ETR impact of 9%, as well as the full year impact of the R&D tax credit with an ETR impact of 8%.



Q4 2015 Google segment summary
Revenues and monetization
Google segment revenues by source (in millions; unaudited):
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2015
 
Change from Q4 2014 to Q4 2015 (YoY)
Google segment
 
 
 
 
 
Google websites

$12,429

 

$14,936

 
20
%
Google Network Members' websites
3,880

 
4,142

 
7
%
Google advertising revenues*
16,309

 
19,078

 
17
%
Google other revenues
1,688

 
2,100

 
24
%
Google segment revenues

$17,997

 

$21,178

 
18
%
*Advertising revenues are generally reported on a gross basis, consistent with GAAP, without deducting TAC.
Paid clicks and cost-per-click information (unaudited):
 
Change from Q4 2014 to Q4 2015 (YoY)
 
Change from Q3 2015 to Q4 2015 (QoQ)
Aggregate paid clicks
31
 %
 
17
 %
Paid clicks on Google websites
40
 %
 
22
 %
Paid clicks on Google Network Members' websites
2
 %
 
1
 %
 
 
 
 
Aggregate cost-per-click
(13
)%
 
(5
)%
Cost-per-click on Google websites
(16
)%
 
(8
)%
Cost-per-click on Google Network Members' websites
(8
)%
 
7
 %
Traffic acquisition costs (TAC) and operating income
TAC to Google Network Members and distribution partners, operating income, and SBC expense (in millions; unaudited):
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2015
TAC to Google Network Members

$2,656

 

$2,864

TAC to Google Network Members as % of Google Network Members' revenues
68
%
 
69
%
TAC to distribution partners

$968

 

$1,191

TAC to distribution partners as % of Google website revenues
8
%
 
8
%
Total TAC

$3,624

 

$4,055

Total TAC as % of Google advertising revenues
22
%
 
21
%
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2015
Operating income, excluding SBC expense

$6,301

 

$8,043

SBC expense

$1,078

 

$1,271

Operating income

$5,223

 

$6,772

Supplemental information (in millions; unaudited)
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2015
Capital expenditures

$3,755

 

$1,781

Depreciation, amortization, and impairment

$1,214

 

$1,313



Full year 2015 Other Bets summary
Revenues and operating results
Other Bets revenues, operating loss, and SBC expense (in millions; unaudited):
 
Twelve Months Ended December 31, 2014
 
Twelve Months Ended December 31, 2015
Other Bets revenues

$327

 

$448

Operating loss, excluding SBC expense

($1,595
)
 

($3,069
)
SBC expense

$347

 

$498

Operating loss

($1,942
)
 

($3,567
)
Supplemental information (in millions; unaudited)
 
Twelve Months Ended December 31, 2014
 
Twelve Months Ended December 31, 2015
Capital expenditures

$501

 

$869

Depreciation, amortization, and impairment

$148

 

$203

Stock repurchase
During the fourth quarter of 2015, we repurchased 2.4 million shares of Alphabet stock for an aggregate amount of $1.8 billion. In January 2016, the board of directors of Alphabet authorized the company to repurchase an additional 514 thousand shares, with a total remaining authorization for future purchases of approximately $3.7 billion. The authorization has no expiration date.
Adjustments to previously reported financial information
In the fourth quarter of 2015, we elected to early adopt Accounting Standards Update 2015-17 "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes, on a retrospective basis. Prior period amounts have been adjusted accordingly.
In the second quarter of 2015, we identified an incorrect classification of certain revenues between legal entities, and as a consequence, we revised our income tax expense for periods beginning in 2008 through the first quarter of 2015 in the cumulative amount of $711 million. The income tax amount is not material to the periods impacted and consolidated revenues are not impacted. We elected to revise previously issued consolidated financial statements for the periods impacted.
In the first quarter of 2015, we reclassified revenues primarily related to DoubleClick ad serving software revenues from Google other revenues to Advertising revenues from Google Network Members' websites. Prior period amounts have been adjusted to conform with our current period presentation.
Google Inc.'s consolidated financial statements
In our Annual Report on Form 10-K for the year ended December 31, 2015, we will also present Google Inc.'s consolidated financial statements, which will have nominal differences from Alphabet's consolidated financial statements included in this press release.
Webcast and conference call information
A live audio webcast of our fourth quarter 2015 earnings release call will be available at http://abc.xyz/investor. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, is also available on that site.
We also announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events and our press and earnings releases, on our investor relations website (http://abc.xyz/investor).
Forward-looking statements
This press release may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions “Risk Factors” and “Management’s


Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2014 and our most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, which are on file with the SEC and are available on our investor relations website at http://abc.xyz/investor and on the SEC website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2015.  All information provided in this release and in the attachments is as of February 1, 2016, and we undertake no duty to update this information unless required by law.
About non-GAAP financial measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted EPS, free cash flow, non-GAAP constant currency revenues, and non-GAAP constant currency revenue growth. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain items that may not be indicative of our recurring core business operating results, such as our revenues excluding the impact for foreign currency fluctuations or our operating performance excluding not only non-cash charges, such as SBC, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.
For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures," "Reconciliation from net cash provided by operating activities to free cash flow," and "Reconciliation from GAAP revenues to non-GAAP constant currency revenues" included at the end of this release.
Contact
Investor relations
investor-relations@abc.xyz
Media
press@abc.xyz



Alphabet 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, 2014
 
As of
December 31, 2015
 
 
 
(unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
18,347

 
$
16,549

Marketable securities
46,048

 
56,517

Total cash, cash equivalents, and marketable securities (including securities loaned of $4,058 and $4,531)
64,395

 
73,066

Accounts receivable, net of allowance of $225 and $296
9,383

 
11,556

Receivable under reverse repurchase agreements
875

 
450

Income taxes receivable, net
591

 
1,903

Prepaid revenue share, expenses and other assets
3,412

 
3,139

Total current assets
78,656

 
90,114

Prepaid revenue share, expenses and other assets, non-current
3,187

 
3,181

Non-marketable investments
3,079

 
5,183

Deferred income tax assets, non-current
176

 
251

Property and equipment, net
23,883

 
29,016

Intangible assets, net
4,607

 
3,847

Goodwill
15,599

 
15,869

Total assets
$
129,187

 
$
147,461

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,715

 
$
1,931

Short-term debt
2,009

 
3,225

Accrued compensation and benefits
3,069

 
3,539

Accrued expenses and other current liabilities
4,408

 
4,768

Accrued revenue share
1,952

 
2,329

Securities lending payable
2,778

 
2,428

Deferred revenue
752

 
788

Income taxes payable, net
96

 
302

Total current liabilities
16,779

 
19,310

Long-term debt
3,228

 
1,995

Deferred revenue, non-current
104

 
151

Income taxes payable, non-current
3,340

 
3,663

Deferred income tax liabilities, non-current
758

 
189

Other long-term liabilities
1,118

 
1,822

Commitments and contingencies
 
 
 




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 Class C capital stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 680,172 (Class A 286,560, Class B 53,213, Class C 340,399) and par value of $680 (Class A $287, Class B $53, Class C $340) and 687,348 (Class A 292,297, Class B 50,295, Class C 344,756) and par value of $687 (Class A $292, Class B $50, Class C $345) shares issued and outstanding
28,767

 
32,982

Accumulated other comprehensive income (loss)
27

 
(1,874
)
Retained earnings
75,066

 
89,223

Total stockholders’ equity
103,860

 
120,331

Total liabilities and stockholders’ equity
$
129,187

 
$
147,461





Alphabet Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2014
 
2015
 
2014
 
2015 (a)
 
(unaudited)
 
 
 
(unaudited)
Revenues
$
18,103

 
$
21,329

 
$
66,001

 
$
74,989

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
6,921

 
8,188

 
25,691

 
28,164

Research and development
2,813

 
3,510

 
9,832

 
12,282

Sales and marketing
2,377

 
2,679

 
8,131

 
9,047

General and administrative
1,593

 
1,572

 
5,851

 
6,136

Total costs and expenses
13,704

 
15,949

 
49,505

 
55,629

Income from operations
4,399

 
5,380

 
16,496

 
19,360

Other income (expense), net
128

 
(180
)
 
763

 
291

Income from continuing operations before income taxes
4,527

 
5,200

 
17,259

 
19,651

Provision for income taxes
819

 
277

 
3,639

 
3,303

Net income from continuing operations
3,708

 
4,923

 
13,620

 
16,348

Net income from discontinued operations
967

 
0

 
516

 
0

Net income
$
4,675

 
$
4,923

 
$
14,136

 
$
16,348

Less: Adjustment Payment to Class C capital stockholders
0

 
0

 
0

 
522

Net income available to all stockholders
$
4,675

 
$
4,923

 
$
14,136

 
$
15,826

 
 
 
 
 
 
 
 
Basic net income per share of Class A and B common stock:
 
 
 
 
 
 
 
Continuing operations
$
5.46

 
$
7.16

 
$
20.15

 
$
23.11

Discontinued operations
1.43

 
0.00

 
0.76

 
0.00

Basic net income per share of Class A and B common stock
$
6.89

 
$
7.16

 
$
20.91

 
$
23.11

 
 
 
 
 
 
 
 
Basic net income per share of Class C capital stock:
 
 
 
 
 
 
 
Continuing operations
$
5.46

 
$
7.16

 
$
20.15

 
$
24.63

Discontinued operations
1.43

 
0.00

 
0.76

 
0.00

Basic net income per share of Class C capital stock
$
6.89

 
$
7.16

 
$
20.91

 
$
24.63

 
 
 
 
 
 
 
 
Diluted net income per share of Class A and B common stock:
 
 
 
 
 
 
 
Continuing operations
$
5.38

 
$
7.06

 
$
19.82

 
$
22.84

Discontinued operations
1.41

 
0.00

 
0.75

 
0.00

Diluted net income per share of Class A and B common stock
$
6.79

 
$
7.06

 
$
20.57

 
$
22.84

 
 
 
 
 
 
 
 
Diluted net income per share of Class C capital stock:
 
 
 
 
 
 
 
Continuing operations
$
5.38

 
$
7.06

 
$
19.82

 
$
24.34

Discontinued operations
1.41

 
0.00

 
0.75

 
0.00

Diluted net income per share of Class C capital stock
$
6.79

 
$
7.06

 
$
20.57

 
$
24.34

(a) Basic and diluted net income per share for the twelve months ended December 31, 2015 includes impact from Adjustment Payment to Class C capital stockholders.




Alphabet Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2014
 
2015
 
2014
 
2015
 
(unaudited)
 
 
 
(unaudited)
Operating activities
 
 
 
 
 
 
 
Net income
$
4,675

 
$
4,923

 
$
14,136

 
$
16,348

Adjustments:
 
 
 
 
 
 
 
Depreciation and impairment of property and equipment
1,010

 
1,153

 
3,523

 
4,132

Amortization and impairment of intangible assets
257

 
251

 
1,456

 
931

Stock-based compensation expense
1,187

 
1,436

 
4,279

 
5,203

Excess tax benefits from stock-based award activities
(181
)
 
(194
)
 
(648
)
 
(548
)
Deferred income taxes
394

 
387

 
(104
)
 
(179
)
Gain on divestiture of business
(740
)
 
0

 
(740
)
 
0

(Gain) loss on marketable and non-marketable investments, net
(13
)
 
302

 
(390
)
 
334

Other
35

 
55

 
192

 
212

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
Accounts receivable
(1,151
)
 
(1,758
)
 
(1,641
)
 
(2,094
)
Income taxes, net
14

 
(1,272
)
 
591

 
(179
)
Prepaid revenue share, expenses and other assets
(47
)
 
(522
)
 
459

 
(318
)
Accounts payable
549

 
371

 
436

 
203

Accrued expenses and other liabilities
341

 
777

 
757

 
1,597

Accrued revenue share
209

 
408

 
245

 
339

Deferred revenue
(175
)
 
98

 
(175
)
 
43

Net cash provided by operating activities
6,364

 
6,415

 
22,376

 
26,024

Investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
(3,551
)
 
(2,100
)
 
(10,959
)
 
(9,915
)
Purchases of marketable securities
(13,118
)
 
(18,151
)
 
(56,310
)
 
(74,368
)
Maturities and sales of marketable securities
14,665

 
16,045

 
51,315

 
62,905

Purchases of non-marketable investments
(691
)
 
(401
)
 
(1,227
)
 
(2,172
)
Cash collateral related to securities lending
(626
)
 
(838
)
 
1,403

 
(350
)
Investments in reverse repurchase agreements
(50
)
 
(50
)
 
(775
)
 
425

Proceeds from divestiture of business
386

 
0

 
386

 
0

Acquisitions, net of cash acquired, and purchases of intangibles and other assets
(256
)
 
8

 
(4,888
)
 
(236
)
Net cash used in investing activities
(3,241
)
 
(5,487
)
 
(21,055
)
 
(23,711
)
Financing activities
 
 
 
 
 
 
 
Net payments related to stock-based award activities
(521
)
 
(765
)
 
(2,069
)
 
(2,375
)
Excess tax benefits from stock-based award activities
181

 
194

 
648

 
548

Adjustment Payment to Class C capital stockholders
0

 
0

 
0

 
(47
)
Repurchases of capital stock
0

 
(1,780
)
 
0

 
(1,780
)
Proceeds from issuance of debt, net of costs
2,458

 
3,373

 
11,625

 
13,705

Repayments of debt
(2,462
)
 
(3,387
)
 
(11,643
)
 
(13,728
)
Net cash used in financing activities
(344
)
 
(2,365
)
 
(1,439
)
 
(3,677
)
Effect of exchange rate changes on cash and cash equivalents
(197
)
 
(82
)
 
(433
)
 
(434
)




Net increase (decrease) in cash and cash equivalents
2,582

 
(1,519
)
 
(551
)
 
(1,798
)
Cash and cash equivalents at beginning of period
15,605

 
18,068

 
18,898

 
18,347

Reclassification of assets previously held for sale
160

 
0

 
0

 
0

Cash and cash equivalents at end of period
$
18,347

 
$
16,549

 
$
18,347

 
$
16,549





Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures
The following table presents certain non-GAAP consolidated results before certain items (in millions, except share amounts which are reflected in thousands and per share amounts, unaudited):
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2015
 
GAAP Actual
 
Adjustments
 
Non-GAAP Results
 
GAAP Actual
 
Adjustments
 
Non-GAAP Results
Revenues
$
18,103

 
 
 
$
18,103

 
$
21,329

 
 
 
$
21,329

 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenues
6,921

 
$
171

(b) 
6,750

 
8,188

 
$
252

(b) 
7,936

Research and development
2,813

 
631

(b) 
2,182

 
3,510

 
739

(b) 
2,771

Sales and marketing
2,377

 
213

(b) 
2,164

 
2,679

 
240

(b) 
2,439

General and administrative
1,593

 
186

(b) 
1,407

 
1,572

 
205

(b) 
1,367

Income from operations
$
4,399

 
$
1,201

 
$
5,600

 
$
5,380

 
$
1,436

 
$
6,816

Operating margin (a)
24.3
%
 
 
 
30.9
%
 
25.2
%
 
 
 
32.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,201

(b) 
 
 
 
 
$
1,436

(b) 
 
 
 
 
(255
)
(c) 
 
 
 
 
(316
)
(c) 
 
 
 
 
(967
)
(d) 
 
 
 
 
0

 
 
Net income
$
4,675

 
$
(21
)
 
$
4,654

 
$
4,923

 
$
1,120

 
$
6,043

 
 
 
 
 
 
 
 
 
 
 
 
Diluted net income per share for Class A and B common stock and Class C capital stock
$
6.79

 
 
 
$
6.76

 
$
7.06

 
 
 
$
8.67

Shares used in per share calculation - diluted
688,491

 
 
 
688,491

 
697,025

 
 
 
697,025

(a) Operating margin is defined as income from operations divided by revenues.
Non-GAAP operating margin is defined as non-GAAP income from operations divided by revenues.
(b) To eliminate SBC expense from continuing operations. SBC expense does not include expenses related to awards that will ultimately settle in cash.
(c) To eliminate income tax effects related to expense noted in (b).
(d) To eliminate net income from discontinued operations.
Non-GAAP operating income and operating margin. We define non-GAAP operating income as income from operations excluding expenses related to SBC, and, as applicable, other special items. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenues. Alphabet considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of SBC, and as applicable, other special items so that Alphabet's management and investors can compare Alphabet's recurring core business operating results over multiple periods. For purposes of determining non-GAAP operating income, we define SBC as awards accounted for under FASB ASC Topic 718 that we expect to settle in stock. SBC does not include expenses related to awards that will ultimately settle in cash. Alphabet's management believes that providing a non-GAAP financial measure that excludes SBC allows investors to make meaningful comparisons between Alphabet's recurring core business operating results and those of other companies, as well as providing Alphabet's management with an important tool for financial and operational decision making and for evaluating Alphabet's own recurring core business operating results over different periods of time. There are a number of limitations related to the use of non-GAAP operating income versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes some costs, namely, SBC, that are recurring. SBC has been and will continue to be for the foreseeable future a significant recurring expense in Alphabet's business. Second, SBC is an important part of our employees' compensation. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP.
Non-GAAP net income and diluted EPS. We define non-GAAP net income as net income excluding expenses related to SBC and, as applicable, other special items less the related tax effects, as well as net income (loss) from discontinued operations. The tax effects of SBC and, as applicable, other special items are based on the tax-deductible portion of SBC, and, as applicable, other special items, and applying the entity-specific, U.S. federal and blended state tax rates.  We define non-GAAP diluted EPS as non-GAAP net income divided by total weighted average outstanding shares, on a fully-diluted basis. We consider these non-GAAP financial measures to be useful metrics for management and investors for the same reasons that Alphabet uses non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we exclude from non-GAAP net income and non-GAAP diluted EPS the tax effects associated with SBC and, as applicable, other special items. Without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on our operating results. The same limitations described above regarding Alphabet's use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP diluted EPS. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP diluted EPS and evaluating non-GAAP net income and non-GAAP diluted EPS together with net income and diluted EPS calculated in accordance with GAAP.




Reconciliation from net cash provided by operating activities to free cash flow (in millions, unaudited):
 
Three Months Ended December 31, 2015
Net cash provided by operating activities
$
6,415

Less: purchases of property and equipment
(2,100
)
Free cash flow
$
4,315

 
 
Net cash used in investing activities (a)
$
(5,487
)
 
 
Net cash used in financing activities
$
(2,365
)
(a) Includes purchases of property and equipment.
 
Free cash flow. We define free cash flow as net cash provided by operating activities less capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, including information technology assets and land and buildings, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow also facilitates management's comparisons of our operating results to competitors' operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Alphabet is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it reflects the cash used for capital expenditures during the period. Our management compensates for this limitation by providing information about our capital expenditures on the face of the statement of cash flows and under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Alphabet has computed free cash flow using the same consistent method from quarter to quarter and year to year.




Reconciliation from GAAP revenues to non-GAAP constant currency revenues (in millions, unaudited):
 
Three Months Ended December 31, 2015
 
Three Months Ended December 31, 2015
 
(using Q4'14's FX rates)
 
(using Q3'15's FX rates)
United Kingdom revenues (GAAP)
$
1,922

 
$
1,922

Exclude foreign exchange impact on Q4'15 revenues using Q4'14 rates
110

 
N/A

Exclude foreign exchange impact on Q4'15 revenues using Q3'15 rates
N/A

 
44

Exclude hedging gains recognized in Q4'15
(39
)
 
(39
)
United Kingdom revenues excluding foreign exchange and hedging impact (Non-GAAP)
$
1,993

 
$
1,927

 
 
 
 
Rest of the world revenues (GAAP)
$
9,114

 
$
9,114

Exclude foreign exchange impact on Q4'15 revenues using Q4'14 rates
1,223

 
N/A

Exclude foreign exchange impact on Q4'15 revenues using Q3'15 rates
N/A

 
167

Exclude hedging gains recognized in Q4'15
(293
)
 
(293
)
Rest of the world revenues excluding foreign exchange and hedging impact (Non-GAAP)
$
10,044

 
$
8,988

 
 
 
 
United States revenues (GAAP)
$
10,293

 
$
10,293

 
 
 
 
Constant currency revenues (Non-GAAP)
$
22,330

 
$
21,208

Prior period revenues, excluding hedging gains (Non-GAAP)
$
17,955

 
$
18,389

Constant currency revenue growth (Non-GAAP)
24
%
 
15
%
Non-GAAP constant currency revenues and growth. We define non-GAAP constant currency revenues as total revenues excluding the impact of foreign exchange rate movements and hedging activities, and use it to determine the constant currency revenue growth on year-on-year and quarter-on-quarter bases. Non-GAAP constant currency revenues are calculated by translating current quarter revenues using prior period exchange rates and excluding any hedging gains recognized in the current quarter. Constant currency revenue growth (expressed as a percentage) is calculated by determining the increase in current quarter revenues over prior period revenues, where current quarter international revenues are translated using prior period exchange rates and hedging benefits are excluded from revenues of both periods. We consider non-GAAP constant currency revenues and growth as useful metrics as they facilitate management's internal comparison to our historical performance because they exclude the effects of foreign currency volatility that are not indicative of our core operating results.




Other income (expense), net
The following table presents our other income (expense), net, (in millions, unaudited):
 
Three Months Ended
 
December 31,
 
2014
 
2015
Interest income
$
222

 
$
274

Interest expense
(25
)
 
(26
)
Gain (loss) on marketable securities, net
13

 
(287
)
Foreign currency exchange losses, net
(133
)
 
(161
)
Loss on non-marketable investments, net
0

 
(15
)
Other
51

 
35

Other income (expense), net
$
128

 
$
(180
)




Segment results
The following tables present our revenues, operating income, stock-based compensation, capital expenditures, and depreciation, amortization, and impairment by segment (in millions, unaudited):
 
Twelve Months Ended
 
December 31,
 
2013
 
2014
 
2015
Revenues:
 
 
 
 
 
Google
55,507

 
65,674

 
74,541

Other Bets
12

 
327

 
448

Total revenues
$
55,519

 
$
66,001

 
$
74,989

 
 
 
 
 
 
Segment operating income / (loss), excluding stock-based compensation(1):
 
 
 
 
 
Google
$
19,171

 
$
22,688

 
$
28,012

Other Bets
(403
)
 
(1,595
)
 
(3,069
)
Reconciling items(2)
(238
)
 
(422
)
 
(380
)
Total income from operations, excluding stock-based compensation
$
18,530

 
$
20,671

 
$
24,563

 
 
 
 
 
 
Stock-based compensation(1):
 
 
 
 
 
Google
$
2,911

 
$
3,677

 
$
4,587

Other Bets
124

 
347

 
498

Reconciling items(2)
92

 
151

 
118

Total stock-based compensation
$
3,127

 
$
4,175

 
$
5,203

 
 
 
 
 
 
Segment operating income / (loss):
 
 
 
 
 
Google
$
16,260

 
$
19,011

 
$
23,425

Other Bets
(527
)
 
(1,942
)
 
(3,567
)
Reconciling items(2)
(330
)
 
(573
)
 
(498
)
Total income from operations
$
15,403

 
$
16,496

 
$
19,360

 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
Google
$
7,006

 
$
11,173

 
$
8,849

Other Bets
187

 
501

 
869

Reconciling items(3)(4)
165

 
(715
)
 
197

Total capital expenditures
$
7,358

 
$
10,959

 
$
9,915

 
 
 
 
 
 
Depreciation, amortization and impairment:
 
 
 
 
 
Google
$
3,668

 
$
4,778

 
$
4,839

Other Bets
24

 
148

 
203

 Reconciling items(2)(4)
247

 
53

 
21

Total depreciation, amortization and impairment
$
3,939

 
$
4,979

 
$
5,063

(1) 
For purposes of determining SBC for segment reporting, we define SBC as awards accounted for under FASB ASC Topic 718 that we expect to settle in stock. SBC does not include expenses related to awards that we will ultimately settle in cash. Amounts exclude SBC from discontinued operations.
(2) 
Reconciling items are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segments.
(3) 
Reconciling items are related to timing differences of payments as segment capital expenditures are on accrual basis while total capital expenditures shown on Consolidated Statements of Cash Flow are on cash basis and other miscellaneous differences.
(4) 
Reconciling items include items related to Motorola Mobile and Motorola Home for fiscal years 2013 and 2014.




 
Three Months Ended
 
Dec 31,
 
Mar 31,
 
Jun 30,
 
Sep 30,
 
Dec 31,
 
2014
 
2015
 
2015
 
2015
 
2015
Revenues:
 
 
 
 
 
 
 
 
 
Google
17,997

 
17,178

 
17,652

 
18,533

 
21,178

Other Bets
106

 
80

 
75

 
142

 
151

Total revenues
$
18,103

 
$
17,258

 
$
17,727

 
$
18,675

 
$
21,329

 
 
 
 
 
 
 
 
 
 
Segment operating income / (loss), excluding stock-based compensation(1):
Google
$
6,301

 
$
6,243

 
$
6,622

 
$
7,104

 
$
8,043

Other Bets
(533
)
 
(516
)
 
(574
)
 
(875
)
 
(1,104
)
Reconciling items(2)
(168
)
 
(77
)
 
(91
)
 
(89
)
 
(123
)
Total income from operations, excluding stock-based compensation
$
5,600

 
$
5,650

 
$
5,957

 
$
6,140

 
$
6,816

 
 
 
 
 
 
 
 
 
 
Stock-based compensation(1):
 
 
 
 
 
 
 
 
 
Google
$
1,078

 
$
1,055

 
$
992

 
$
1,269

 
$
1,271

Other Bets
101

 
117

 
109

 
134

 
138

Reconciling items(2)
22

 
31

 
31

 
29

 
27

Total stock-based compensation
$
1,201

 
$
1,203

 
$
1,132

 
$
1,432

 
$
1,436

 
 
 
 
 
 
 
 
 
 
Segment operating income / (loss):
 
 
 
 
 
 
 
 
 
Google
$
5,223

 
$
5,188

 
$
5,630

 
$
5,835

 
$
6,772

Other Bets
(634
)
 
(633
)
 
(683
)
 
(1,009
)
 
(1,242
)
Reconciling items(2)
(190
)
 
(108
)
 
(122
)
 
(118
)
 
(150
)
Total income from operations
$
4,399

 
$
4,447

 
$
4,825

 
$
4,708

 
$
5,380

 
 
 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
 
 
Google
$
3,755

 
$
2,678

 
$
2,058

 
$
2,332

 
$
1,781

Other Bets
142

 
157

 
234

 
279

 
199

Reconciling items(3)(4)
(346
)
 
92

 
223

 
(238
)
 
120

Total capital expenditures
$
3,551

 
$
2,927

 
$
2,515

 
$
2,373

 
$
2,100

 
 
 
 
 
 
 
 
 
 
Depreciation, amortization and impairment:
 
 
 
 
 
 
 
 
 
Google
$
1,214

 
$
1,137

 
$
1,189

 
$
1,200

 
$
1,313

Other Bets
51

 
40

 
45

 
48

 
70

 Reconciling items(2)(4)
2

 
—

 
—

 
—

 
21

Total depreciation, amortization and impairment
$
1,267

 
$
1,177

 
$
1,234

 
$
1,248

 
$
1,404

(1) 
For purposes of determining SBC for segment reporting, we define SBC as awards accounted for under FASB ASC Topic 718 that we expect to settle in stock. SBC does not include expenses related to awards that we will ultimately settle in cash. Amount excludes SBC from discontinued operations.
(2) 
Reconciling items are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segments.
(3) 
Reconciling items are related to timing differences of payments as segment capital expenditures are on accrual basis while total capital expenditures shown on Consolidated Statements of Cash Flow are on cash basis and other miscellaneous differences.
(4) 
Reconciling items include items related to Motorola Mobile and Motorola Home for the quarter ended December 31, 2014.




Revenues by source
The following tables present our revenues by revenue source (in millions, unaudited):
 
Twelve Months Ended
 
December 31,
 
2013
 
2014
 
2015
Revenues:
 
 
 
 
 
Google websites
$
37,422

 
$
45,085

 
$
52,357

Google Network Members' websites
13,650

 
14,539

 
15,033

Google advertising revenues
51,072

 
59,624

 
67,390

Google other revenues
4,435

 
6,050

 
7,151

Google segment revenues
55,507

 
65,674

 
74,541

Other Bets revenues
12

 
327

 
448

Total revenues
$
55,519

 
$
66,001

 
$
74,989

 
Three Months Ended
 
Dec 31,
 
Mar 31,
 
Jun 30,
 
Sep 30,
 
Dec 31,
 
2014
 
2015
 
2015
 
2015
 
2015
Revenues:
 
 
 
 
 
 
 
 
 
Google websites
$
12,429

 
$
11,932

 
$
12,402

 
$
13,087

 
$
14,936

Google Network Members' websites
3,880

 
3,576

 
3,621

 
3,694

 
4,142

Google advertising revenues
16,309

 
15,508

 
16,023

 
16,781

 
19,078

Google other revenues
1,688

 
1,670

 
1,629

 
1,752

 
2,100

Google segment revenues
17,997

 
17,178

 
17,652

 
18,533

 
21,178

Other Bets revenues
106

 
80

 
75

 
142

 
151

Total revenues
$
18,103

 
$
17,258

 
$
17,727

 
$
18,675

 
$
21,329




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