Document and Entity Information

3 Months Ended

Mar. 31, 2014

Apr. 22, 2014

Class A Common Stock

Apr. 22, 2014

Class B Common Stock

Document Information

Document Type

10-Q

Amendment Flag

false

Document Period End Date

Mar. 31, 2014

Document Fiscal Year Focus

2014

Document Fiscal Period Focus

Q1

Trading Symbol

FB

Entity Registrant Name

FACEBOOK INC

Entity Central Index Key

0001326801

Current Fiscal Year End Date

--12-31

Entity Filer Category

Large Accelerated Filer

Entity Common Stock, Shares Outstanding

1,993,729,703

572,617,477

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $)

In Millions, unless otherwise specified

Mar. 31, 2014

Dec. 31, 2013

Current assets:

Cash and cash equivalents

$ 2,998

$ 3,323

Marketable securities

9,631

8,126

Accounts receivable, net of allowances for doubtful accounts of $31 and $38 as of March 31, 2014 and December 31, 2013, respectively

1,006

1,109

Prepaid expenses and other current assets

425

512

Total current assets

14,060

13,070

Property and equipment, net

3,074

2,882

Goodwill and intangible assets, net

1,682

1,722

Other assets

212

221

Total assets

19,028

17,895

Current liabilities:

Accounts payable

85

87

Developer partners payable

188

181

Accrued expenses and other current liabilities

525

555

Deferred revenue and deposits

38

Current portion of capital lease obligations

201

239

Total current liabilities

1,037

1,100

Capital lease obligations, less current portion

191

237

Other liabilities

1,063

1,088

Total liabilities

2,291

2,425

Stockholders' equity:

Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 1,991 million and 1,970 million shares issued and outstanding, including 5 million and 6 million outstanding shares subject to repurchase, as of March 31, 2014 and December 31, 2013, respectively; 4,141 million Class B shares authorized, 573 million and 577 million shares issued and outstanding, including 6 million outstanding shares subject to repurchase, as of March 31, 2014 and December 31, 2013, respectively

0

Additional paid-in capital

12,921

12,297

Accumulated other comprehensive income

15

14

Retained earnings

3,801

3,159

Total stockholders' equity

16,737

15,470

Total liabilities and stockholders' equity

$ 19,028

$ 17,895

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)

In Millions, except Share data, unless otherwise specified

Mar. 31, 2014

Dec. 31, 2013

Current assets:

Accounts receivable, allowances for doubtful accounts

$ 31

$ 38

Stockholders' equity:

Common stock, par value (in dollars per share)

$ 0.000006

Class A Common Stock

Stockholders' equity:

Common stock, shares authorized

5,000,000,000

Common stock, shares issued

1,991,000,000

1,970,000,000

Common stock, shares outstanding

1,991,000,000

1,970,000,000

Common stock, outstanding shares subject to repurchase

5,000,000

6,000,000

Class B Common Stock

Stockholders' equity:

Common stock, shares authorized

4,141,000,000

Common stock, shares issued

573,000,000

577,000,000

Common stock, shares outstanding

573,000,000

577,000,000

Common stock, outstanding shares subject to repurchase

6,000,000

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (USD $)

In Millions, except Per Share data, unless otherwise specified

3 Months Ended

Mar. 31, 2014

Mar. 31, 2013

Revenue

$ 2,502

$ 1,458

Costs and expenses:

Cost of revenue

462

413

Research and development

455

293

Marketing and sales

323

203

General and administrative

187

176

Total costs and expenses

1,427

1,085

Income from operations

1,075

373

Interest and other income/(expense), net

0

(20)

Income before provision for income taxes

1,075

353

Provision for income taxes

433

134

Net income

642

219

Less: Net income attributable to participating securities

3

2

Net income attributable to Class A and Class B common stockholders

639

217

Earnings per share attributable to Class A and Class B common stockholders:

Basic (in dollars per share)

$ 0.25

$ 0.09

Diluted (in dollars per share)

$ 0.25

$ 0.09

Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:

Basic (in shares)

2,545

2,386

Diluted (in shares)

2,609

2,499

Share-based compensation expense included in costs and expenses:

Share-based compensation expense

274

170

Cost of revenue

Share-based compensation expense included in costs and expenses:

Share-based compensation expense

12

8

Research and development

Share-based compensation expense included in costs and expenses:

Share-based compensation expense

181

117

Marketing and sales

Share-based compensation expense included in costs and expenses:

Share-based compensation expense

43

24

General and administrative

Share-based compensation expense included in costs and expenses:

Share-based compensation expense

$ 38

$ 21

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $)

In Millions, unless otherwise specified

3 Months Ended

Mar. 31, 2014

Mar. 31, 2013

Statement of Comprehensive Income [Abstract]

Net income

$ 642

$ 219

Other comprehensive income (loss):

Change in foreign currency translation adjustment

(1)

(18)

Change in unrealized gain/loss on available-for-sale investments, net of tax

2

0

Change in unrealized gain/loss on derivative, net of tax

0

1

Comprehensive income

$ 643

$ 202

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)

In Millions, unless otherwise specified

3 Months Ended

Mar. 31, 2014

Mar. 31, 2013

Cash flows from operating activities

Net income

$ 642

$ 219

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

264

233

Lease abandonment

(13)

8

Share-based compensation

274

170

Deferred income taxes

(1)

(7)

Tax benefit from share-based award activity

345

59

Excess tax benefit from share-based award activity

(348)

(62)

Other

9

Changes in assets and liabilities:

Accounts receivable

105

54

Prepaid expenses and other current assets

(4)

(1)

Other assets

16

(36)

Accounts payable

(10)

1

Developer partners payable

7

21

Accrued expenses and other current liabilities

(27)

(33)

Other liabilities

26

84

Net cash provided by operating activities

1,285

719

Cash flows from investing activities

Purchases of property and equipment

(363)

(327)

Purchases of marketable securities

(2,974)

(1,508)

Sales of marketable securities

847

699

Maturities of marketable securities

619

903

Acquisitions of businesses, net of cash acquired, and purchases of intangible assets

0

(99)

Other investing activities, net

(1)

6

Net cash used in investing activities

(1,872)

(326)

Cash flows from financing activities

Taxes paid related to net share settlement of equity awards

(3)

(405)

Proceeds from exercise of stock options

1

8

Principal payments on capital lease obligations

(84)

(109)

Excess tax benefit from share-based award activity

348

62

Net cash provided by (used in) financing activities

262

(444)

Effect of exchange rate changes on cash and cash equivalents

0

(8)

Net decrease in cash and cash equivalents

(325)

(59)

Cash and cash equivalents at beginning of period

3,323

2,384

Cash and cash equivalents at end of period

2,998

2,325

Cash paid during the period for:

Interest

4

12

Income taxes

37

9

Non-cash investing and financing activities:

Fair value of shares issued related to acquisitions of businesses and other assets

0

33

Net Change in Accounts Payable Accrued Expenses And Other Current Liabilities

Non-cash investing and financing activities:

Property and equipment expenditures incurred but not yet paid

(3)

47

Capital Lease Obligations

Non-cash investing and financing activities:

Property and equipment expenditures incurred but not yet paid

$ 0

$ 11

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The condensed consolidated balance sheet as of December 31, 2013 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

The condensed consolidated financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2014.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 that have had a material impact on our condensed consolidated financial statements and related notes.

Use of Estimates

Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.

Earnings per Share

We compute earnings per share (EPS) of Class A and Class B common stock using the two-class method required for participating securities. We consider restricted stock awards to be participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares.

Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. Basic EPS is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of our Class A and Class B common stock outstanding, adjusted for outstanding shares that are subject to repurchase.

For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities, including awards under our equity compensation plans. In addition, the computation of the diluted EPS of Class A common stock assumes the conversion of our Class B common stock to Class A common stock, while the diluted EPS of Class B common stock does not assume the conversion of those shares to Class A common stock. Diluted EPS attributable to common stockholders is computed by dividing the resulting net income attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding.

We have excluded 3 million and 18 million restricted stock units (RSUs) from the EPS calculation for the three months ended March 31, 2014 and 2013 because the impact would be anti-dilutive.

Basic and diluted EPS are the same for each class of common stock because they are entitled to the same liquidation and dividend rights.

The numerators and denominators of the basic and diluted EPS computations for our common stock were calculated as follows (in millions, except per share amounts):



	Three Months Ended March 31,
	2014				2013
	Class A		Class B		Class A		Class B
Basic EPS:
Numerator
Net income	$	498	$	144	$	156	$	63
Less: Net income attributable to participating securities	2		1		1		1
Net income attributable to common stockholders	$	496	$	143	$	155	$	62
Denominator
Weighted average shares outstanding	1,982		574		1,709		691
Less: Shares subject to repurchase	5		6		4		10
Number of shares used for basic EPS computation	1,977		568		1,705		681
Basic EPS	$	0.25	$	0.25	$	0.09	$	0.09
Diluted EPS:
Numerator
Net income attributable to common stockholders	$	496	$	143	$	155	$	62
Reallocation of net income attributable to participating securities	3		—		2		—
Reallocation of net income as a result of conversion of Class B to Class A common stock	143		—		62		—
Reallocation of net income to Class B common stock	—		7		—		7
Net income attributable to common stockholders for diluted EPS	$	642	$	150	$	219	$	69
Denominator
Number of shares used for basic EPS computation	1,977		568		1,705		681
Conversion of Class B to Class A common stock	568		—		681		—
Weighted average effect of dilutive securities:
Employee stock options	15		15		80		80
RSUs	41		20		29		29
Shares subject to repurchase	8		5		4		4
Number of shares used for diluted EPS computation	2,609		608		2,499		794
Diluted EPS	$	0.25	$	0.25	$	0.09	$	0.09

Cash and Cash Equivalents, and Marketable Securities

Cash, Cash Equivalents and Marketable Securities

The following table sets forth the cash, cash equivalents and marketable securities (in millions):



	March 31, 2014		December 31, 2013
Cash and cash equivalents:
Cash	$	1,122	$	1,044
Money market funds	1,876		2,279
Total cash and cash equivalents	2,998		3,323
Marketable securities:
U.S. government securities	6,759		5,687
U.S. government agency securities	2,872		2,439
Total marketable securities	9,631		8,126
Total cash, cash equivalents and marketable securities	$	12,629	$	11,449

The gross unrealized gains or losses on our marketable securities as of March 31, 2014 and December 31, 2013 were not significant. In addition, there were no securities in a continuous loss position for 12 months or longer as of March 31, 2014 and December 31, 2013.

The following table classifies our marketable securities by contractual maturities (in millions):



	March 31, 2014
Due in one year	$	6,581
Due in one to two years	3,050
Total	$	9,631

Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):



			Fair Value Measurement at Reporting Date Using
Description	March 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market funds	$	1,876	$	1,876	$	—	$	—
Marketable securities:
U.S. government securities	6,759		6,759		—		—
U.S. government agency securities	2,872		2,872		—		—
Total cash equivalents and marketable securities	$	11,507	$	11,507	$	—	$	—



			Fair Value Measurement at Reporting Date Using
Description	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market funds	$	2,279	$	2,279	$	—	$	—
Marketable securities:
U.S. government securities	5,687		5,687		—		—
U.S. government agency securities	2,439		2,439		—		—
Total cash equivalents and marketable securities	$	10,405	$	10,405	$	—	$	—

Property and Equipment

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



	March 31, 2014			December 31, 2013
Network equipment	$	2,444		$	2,351
Land	45			45
Buildings	1,076			1,071
Leasehold improvements	214			203
Computer software, office equipment and other	104			95
Construction in progress	487			377
Total	4,370			4,142
Less: Accumulated depreciation	(1,296		)	(1,260		)
Property and equipment, net	$	3,074		$	2,882

Construction in progress includes costs primarily related to the construction of data centers in Iowa and Sweden and network equipment infrastructure to support our data centers around the world. Construction in progress also includes the ongoing construction to expand our corporate headquarters in Menlo Park, California. Interest capitalized during the periods presented was not material.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2014 are as follows (in millions):



Balance as of December 31, 2013	$	839
Effect of currency translation adjustment	1
Balance as of March 31, 2014	$	840

Intangible assets consisted of the following (in millions):



		March 31, 2014							December 31, 2013
	Useful lives from date of acquisitions (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Acquired patents	2 - 18	$	773	$	(167	)	$	606	$	773	$	(142	)	$	631
Acquired technology	2 - 10	227		(75		)	152		227		(65		)	162
Tradename and other	2 - 10	138		(54		)	84		138		(48		)	90
Total		$	1,138	$	(296	)	$	842	$	1,138	$	(255	)	$	883

Amortization expense of intangible assets was $41 million and $33 million for the three months ended March 31, 2014 and 2013, respectively.

As of March 31, 2014, estimated amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):



The remainder of 2014	$	119
2015	150
2016	138
2017	116
2018	82
2019	64
Thereafter	173
	$	842

Long-term Debt

In August 2013, we entered into a five-year senior unsecured revolving credit facility (2013 Revolving Credit Facility) that allows us to borrow up to $6.5 billion to fund working capital and general corporate purposes with interest payable on the borrowed amounts set at LIBOR plus 1.0%, as well as an annual commitment fee of 0.10% on the daily undrawn balance of the facility. We paid origination fees at closing of the 2013 Revolving Credit Facility, which fees are being amortized over the term of the facility. Any amounts outstanding under this facility will be due and payable on August 15, 2018. As of March 31, 2014, no amounts had been drawn down and we were in compliance with the covenants under this facility.

Commitments and Contingencies

Leases

We entered into various capital lease arrangements to obtain property and equipment for our operations. Additionally, on occasion we have purchased property and equipment for which we have subsequently obtained capital financing under sale-leaseback transactions. These agreements are typically for three years, except for a building lease which is for 15 years, with interest rates ranging from 1% to 13%. The leases are secured by the underlying leased buildings, leasehold improvements, and equipment. We have also entered into various non-cancelable operating lease agreements for certain of our offices, equipment, land and data centers with original lease periods expiring between 2014 and 2029. We are committed to pay a portion of the related actual operating expenses under certain of these lease agreements. Certain of these arrangements have free rent periods or escalating rent payment provisions, and we recognize rent expense under such arrangements on a straight-line basis.

Operating lease expense was $29 million and $41 million for the three months ended March 31, 2014 and 2013, respectively.

Other Agreements

In February 2014, we entered into an agreement to acquire WhatsApp Inc. (WhatsApp), a privately-held cross-platform mobile messaging company, for 183,865,778 shares of our Class A common stock and approximately $4 billion in cash, subject to certain adjustments such that the cash paid will comprise at least 25% of the aggregate transaction consideration. Upon closing, we will also grant 45,966,445 RSUs to WhatsApp employees. The value of the equity component of the final purchase price and RSUs granted will be determined for accounting purposes based on the fair value of our common stock on the closing date. This acquisition is subject to customary closing conditions, including certain regulatory approvals, and is expected to close later in 2014. We have agreed to pay a termination fee to WhatsApp of $1 billion in cash and issue a number of shares of our Class A common stock equal to $1 billion, based on the average closing price of the ten trading days preceding such termination, if the closing of this acquisition has not occurred by August 19, 2014 (or August 19, 2015, if as of August 19, 2014, all closing conditions have been completed except for the receipt of certain regulatory approvals).

In March 2014, we entered into an agreement to acquire Oculus VR, Inc. (Oculus), a privately-held company developing virtual reality technology, for 23,071,377 shares of our Class B common stock and approximately $400 million in cash. The value of the equity component of the final purchase price will be determined for accounting purposes based on the fair value of our common stock on the closing date. Further, up to an additional 3,460,706 shares of our Class B common stock and $60 million in cash would be payable upon the completion of certain milestones. The earn-out portion that would be payable to employee stockholders is also subject to continuous employment through the applicable payment dates. This acquisition is subject to customary closing conditions, including certain regulatory approvals, and is expected to close in the second quarter of 2014.

Contingencies

Beginning on May 22, 2012, multiple putative class actions, derivative actions, and individual actions were filed in state and federal courts in the United States and in other jurisdictions against us, our directors, and/or certain of our officers alleging violation of securities laws or breach of fiduciary duties in connection with our initial public offering (IPO) and seeking unspecified damages. We believe these lawsuits are without merit, and we intend to continue to vigorously defend them. On October 4, 2012, on our motion, the vast majority of the cases in the United States, along with multiple cases filed against The NASDAQ OMX Group, Inc. and The Nasdaq Stock Market LLC (collectively referred to herein as NASDAQ) alleging technical and other trading-related errors by NASDAQ in connection with our IPO, were ordered centralized for coordinated or consolidated pre-trial proceedings in the U.S. District Court for the Southern District of New York. On February 13, 2013, the court granted our motion to dismiss four derivative actions against our directors and certain of our officers with leave to amend. On December 18, 2013, the court denied our motion to dismiss the consolidated securities class action. On December 23, 2013, the court granted our motion to dismiss, and denied the plaintiffs’ motion to remand to state court, another derivative action against our directors and certain of our officers; on February 28, 2014, the plaintiffs in this action filed a notice of appeal. In addition, the events surrounding our IPO have been the subject of various government inquiries, and we are cooperating with those inquiries.

We are also party to various legal proceedings and claims that arise in the ordinary course of business. Among these pending legal matters, one case is currently scheduled for trial in the near future. Rembrandt Social Media, LP v. Facebook, Inc., et al., was scheduled to begin trial December 2013 in the U.S. District Court for the Eastern District of Virginia. In the Rembrandt case, the plaintiff alleges that we infringe certain patents held by the plaintiff. The plaintiff is seeking significant monetary damages and equitable relief. The trial date was vacated in December 2013 pending appeal, which the court of appeals declined to hear on April 7, 2014. Accordingly, this case is in the process of being rescheduled for trial, which will likely take place between May and July of 2014. We believe the claims made by the plaintiff in the Rembrandt case are without merit, and we intend to defend ourselves vigorously.

With respect to our outstanding legal matters, we believe that the amount or estimable range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of litigation is inherently uncertain. Therefore, if one or more of these legal matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period, could be materially adversely affected.

Stockholders' Equity

Share-based Compensation Plans

We maintain two share-based employee compensation plans: the 2012 Equity Incentive Plan (2012 Plan) and the 2005 Stock Plan (collectively, Stock Plans). Our 2012 Plan serves as the successor to our 2005 Stock Plan and provides for the issuance of incentive and nonstatutory stock options, restricted stock awards, stock appreciation rights, RSUs, performance shares and stock bonuses to qualified employees, directors and consultants. Outstanding awards under the 2005 Stock Plan continue to be subject to the terms and conditions of the 2005 Stock Plan. The maximum term for stock options granted under the 2012 Plan may not exceed ten years from the date of grant. Our 2012 Plan will terminate ten years from the date of approval unless it is terminated earlier by our compensation committee.

We have initially reserved 25,000,000 shares of our Class A common stock for issuance under our 2012 Plan, which amount increases on the first day of January of each year through 2022 based on a formula or as determined by the board of directors. Our board of directors elected not to increase the number of shares reserved for issuance in 2014. In addition, shares available for grant under the 2005 Stock Plan, which were reserved but not issued or subject to outstanding awards under the 2005 Stock Plan as of the effective date of our IPO, were added to the reserves of the 2012 Plan and shares that were withheld in connection with the net settlement of RSUs were also added to the reserves of the 2012 Plan. In January 2014, we began requiring that employees sell a portion of the shares that they receive upon the vesting of RSUs in order to cover any required withholding taxes, rather than our previous approach of net share settlement.

In February 2014, we terminated our 2005 Officers' Plan as the only outstanding option issued under this plan had been exercised in full.

The following table summarizes the stock option activity under the Stock Plans during the three months ended March 31, 2014:



	Shares Subject to Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value⁽¹⁾
	(in thousands)				(in years)	(in millions)
Balance as of December 31, 2013	22,102		$	3.56
Stock options exercised	(2,705	)	0.32
Balance as of March 31, 2014	19,397		$	4.01	4.60	$	1,091
Stock options vested and expected to vest as of March 31, 2014	19,378		$	4.01	4.60	$	1,090
Stock options exercisable as of March 31, 2014	14,911		$	2.06	4.10	$	868


(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing price of our Class A common stock of $60.24 on March 31, 2014.

The aggregate intrinsic value of the options exercised was $161 million and $311 million for the three months ended March 31, 2014 and 2013, respectively.

The following table summarizes the activities for our unvested RSUs for the three months ended March 31, 2014:



	Unvested RSUs
	Number of Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Unvested at December 31, 2013	103,971		$	27.30
Granted	19,523		68.13
Vested	(14,550	)	24.53
Forfeited	(2,575	)	31.55
Unvested at March 31, 2014	106,369		$	35.07

The fair value as of the respective vesting dates of RSUs that vested during the three months ended March 31, 2014 and 2013 was $952 million and $485 million, respectively.

As of March 31, 2014, there was $3.67 billion of unrecognized share-based compensation expense, of which $3.42 billion is related to RSUs and $254 million is related to restricted shares and stock options. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years.

Income Taxes

Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter we update our estimate of the annual effective tax rate, and if our estimated annual tax rate changes, we make a cumulative adjustment in that quarter. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, are subject to significant volatility due to several factors, including our ability to accurately predict our income (loss) before provision for income taxes in multiple jurisdictions, including the portions of our share-based compensation that will not generate tax benefits, and the effects of acquisitions and the integration of those acquisitions. In addition, our effective tax rate can be more or less volatile based on the amount of income before provision for income taxes.

Our effective tax rate has exceeded the U.S. statutory rate primarily because of the effect of non-deductible share-based compensation and the impact of acquiring intellectual property and integrating it into our business. Our effective tax rate in the future will depend on the portion of our profits earned within and outside the United States, which will also be affected by our methodologies for valuing our intellectual property and intercompany transactions.

We are subject to taxation in the United States and various other state and foreign jurisdictions. The material jurisdictions in which we are subject to potential examination include the United States and Ireland. We are under examination by the Internal Revenue Service (IRS) for our 2008, 2009 and 2010 tax years. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations, and we do not anticipate a significant impact to our gross unrecognized tax benefits within the next 12 months related to these years. Our 2011 and subsequent tax years remain subject to examination by the IRS and all tax years starting in 2008 remain subject to examination in Ireland. We remain subject to possible examinations or are undergoing audits in various other jurisdictions that are not anticipated to be material to our financial statements.

Although the timing of the resolution, settlement, and closure of any audit is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining that are subject to examination, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

Geographical Information

Revenue by geography is based on the billing address of the marketer or developer. The following tables set forth revenue and property and equipment, net by geographic area (in millions):



	Three Months Ended March 31,
	2014		2013
Revenue:
United States	$	1,129	$	681
Rest of the world ⁽¹⁾	1,373		777
Total revenue	$	2,502	$	1,458


(1)	No individual country exceeded 10% of our total revenue for any period presented.



	March 31, 2014		December 31, 2013
Property and equipment, net:
United States	$	2,525	$	2,368
Sweden	423		415
Rest of the world	126		99
Total property and equipment, net	$	3,074	$	2,882

Summary of Significant Accounting Policies (Policies)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The condensed consolidated balance sheet as of December 31, 2013 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

The condensed consolidated financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2014.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 that have had a material impact on our condensed consolidated financial statements and related notes.

Use of Estimates

Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management's knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.

Earnings per Share (Tables)

Numerators and Denominators of Basic and Diluted EPS Computations for Common Stock

The numerators and denominators of the basic and diluted EPS computations for our common stock were calculated as follows (in millions, except per share amounts):



	Three Months Ended March 31,
	2014				2013
	Class A		Class B		Class A		Class B
Basic EPS:
Numerator
Net income	$	498	$	144	$	156	$	63
Less: Net income attributable to participating securities	2		1		1		1
Net income attributable to common stockholders	$	496	$	143	$	155	$	62
Denominator
Weighted average shares outstanding	1,982		574		1,709		691
Less: Shares subject to repurchase	5		6		4		10
Number of shares used for basic EPS computation	1,977		568		1,705		681
Basic EPS	$	0.25	$	0.25	$	0.09	$	0.09
Diluted EPS:
Numerator
Net income attributable to common stockholders	$	496	$	143	$	155	$	62
Reallocation of net income attributable to participating securities	3		—		2		—
Reallocation of net income as a result of conversion of Class B to Class A common stock	143		—		62		—
Reallocation of net income to Class B common stock	—		7		—		7
Net income attributable to common stockholders for diluted EPS	$	642	$	150	$	219	$	69
Denominator
Number of shares used for basic EPS computation	1,977		568		1,705		681
Conversion of Class B to Class A common stock	568		—		681		—
Weighted average effect of dilutive securities:
Employee stock options	15		15		80		80
RSUs	41		20		29		29
Shares subject to repurchase	8		5		4		4
Number of shares used for diluted EPS computation	2,609		608		2,499		794
Diluted EPS	$	0.25	$	0.25	$	0.09	$	0.09

Cash and Cash Equivalents and Marketable Securities (Tables)

Cash, Cash Equivalents and Marketable Securities

The following table sets forth the cash, cash equivalents and marketable securities (in millions):



	March 31, 2014		December 31, 2013
Cash and cash equivalents:
Cash	$	1,122	$	1,044
Money market funds	1,876		2,279
Total cash and cash equivalents	2,998		3,323
Marketable securities:
U.S. government securities	6,759		5,687
U.S. government agency securities	2,872		2,439
Total marketable securities	9,631		8,126
Total cash, cash equivalents and marketable securities	$	12,629	$	11,449

Marketable Securities by Contractual Maturities

The following table classifies our marketable securities by contractual maturities (in millions):



	March 31, 2014
Due in one year	$	6,581
Due in one to two years	3,050
Total	$	9,631

Fair Value Measurements (Tables)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below (in millions):



			Fair Value Measurement at Reporting Date Using
Description	March 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market funds	$	1,876	$	1,876	$	—	$	—
Marketable securities:
U.S. government securities	6,759		6,759		—		—
U.S. government agency securities	2,872		2,872		—		—
Total cash equivalents and marketable securities	$	11,507	$	11,507	$	—	$	—



			Fair Value Measurement at Reporting Date Using
Description	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market funds	$	2,279	$	2,279	$	—	$	—
Marketable securities:
U.S. government securities	5,687		5,687		—		—
U.S. government agency securities	2,439		2,439		—		—
Total cash equivalents and marketable securities	$	10,405	$	10,405	$	—	$	—

Property and Equipment (Tables)

Property and equipment

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



	March 31, 2014			December 31, 2013
Network equipment	$	2,444		$	2,351
Land	45			45
Buildings	1,076			1,071
Leasehold improvements	214			203
Computer software, office equipment and other	104			95
Construction in progress	487			377
Total	4,370			4,142
Less: Accumulated depreciation	(1,296		)	(1,260		)
Property and equipment, net	$	3,074		$	2,882

Goodwill and Intangible Assets (Tables)

Changes in Carrying Amount of Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2014 are as follows (in millions):



Balance as of December 31, 2013	$	839
Effect of currency translation adjustment	1
Balance as of March 31, 2014	$	840

Intangible Assets

Intangible assets consisted of the following (in millions):



		March 31, 2014							December 31, 2013
	Useful lives from date of acquisitions (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Acquired patents	2 - 18	$	773	$	(167	)	$	606	$	773	$	(142	)	$	631
Acquired technology	2 - 10	227		(75		)	152		227		(65		)	162
Tradename and other	2 - 10	138		(54		)	84		138		(48		)	90
Total		$	1,138	$	(296	)	$	842	$	1,138	$	(255	)	$	883

Estimated Amortization Expense for Unamortized Acquired Intangible Assets

As of March 31, 2014, estimated amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):



The remainder of 2014	$	119
2015	150
2016	138
2017	116
2018	82
2019	64
Thereafter	173
	$	842

Stockholders' Equity (Tables)

Stock Option Activity under Stock Plans

The following table summarizes the stock option activity under the Stock Plans during the three months ended March 31, 2014:



	Shares Subject to Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value⁽¹⁾
	(in thousands)				(in years)	(in millions)
Balance as of December 31, 2013	22,102		$	3.56
Stock options exercised	(2,705	)	0.32
Balance as of March 31, 2014	19,397		$	4.01	4.60	$	1,091
Stock options vested and expected to vest as of March 31, 2014	19,378		$	4.01	4.60	$	1,090
Stock options exercisable as of March 31, 2014	14,911		$	2.06	4.10	$	868


(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing price of our Class A common stock of $60.24 on March 31, 2014.

Restricted Stock Units Award Activity

The following table summarizes the activities for our unvested RSUs for the three months ended March 31, 2014:



	Unvested RSUs
	Number of Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Unvested at December 31, 2013	103,971		$	27.30
Granted	19,523		68.13
Vested	(14,550	)	24.53
Forfeited	(2,575	)	31.55
Unvested at March 31, 2014	106,369		$	35.07

Geographical Information (Tables)

Revenue and Property and Equipment by Geographic Area

Revenue by geography is based on the billing address of the marketer or developer. The following tables set forth revenue and property and equipment, net by geographic area (in millions):



	Three Months Ended March 31,
	2014		2013
Revenue:
United States	$	1,129	$	681
Rest of the world ⁽¹⁾	1,373		777
Total revenue	$	2,502	$	1,458


(1)	No individual country exceeded 10% of our total revenue for any period presented.



	March 31, 2014		December 31, 2013
Property and equipment, net:
United States	$	2,525	$	2,368
Sweden	423		415
Rest of the world	126		99
Total property and equipment, net	$	3,074	$	2,882

Earnings per Share (Details) (USD $)

In Millions, except Per Share data, unless otherwise specified

3 Months Ended

Mar. 31, 2014

Mar. 31, 2013

Numerator

Net income

$ 642

$ 219

Less: Net income attributable to participating securities

3

2

Net income attributable to common stockholders

639

217

Denominator

Number of shares used for basic EPS computation (in shares)

2,545

2,386

Basic EPS (in dollars per share)

$ 0.25

$ 0.09

Numerator

Net income attributable to common stockholders

639

217

Denominator

Number of shares used for basic EPS computation (in shares)

2,545

2,386

Number of shares used for diluted EPS computation (in shares)

2,609

2,499

Diluted EPS (in dollars per share)

$ 0.25

$ 0.09

Class A Common Stock

Numerator

Net income

498

156

Less: Net income attributable to participating securities

2

1

Net income attributable to common stockholders

496

155

Denominator

Weighted average shares outstanding (in shares)

1,982

1,709

Less: Shares subject to repurchase (in shares)

5

4

Number of shares used for basic EPS computation (in shares)

1,977

1,705

Basic EPS (in dollars per share)

$ 0.25

$ 0.09

Numerator

Net income attributable to common stockholders

496

155

Reallocation of net income attributable to participating securities

3

2

Reallocation of net income as a result of conversion of Class B to Class A common stock

143

62

Reallocation of net income to Class B common stock

0

Net income attributable to common stockholders for diluted EPS

642

219

Denominator

Number of shares used for basic EPS computation (in shares)

1,977

1,705

Conversion of Class B to Class A common stock (in shares)

568

681

Shares subject to repurchase (in shares)

8

4

Number of shares used for diluted EPS computation (in shares)

2,609

2,499

Diluted EPS (in dollars per share)

$ 0.25

$ 0.09

Class A Common Stock |
Employee Stock Options

Denominator

Share based payment arrangements (in shares)

15

80

Class A Common Stock |
Restricted Stock Units (RSUs)

Denominator

Share based payment arrangements (in shares)

41

29

Class B Common Stock

Numerator

Net income

144

63

Less: Net income attributable to participating securities

1

Net income attributable to common stockholders

143

62

Denominator

Weighted average shares outstanding (in shares)

574

691

Less: Shares subject to repurchase (in shares)

6

10

Number of shares used for basic EPS computation (in shares)

568

681

Basic EPS (in dollars per share)

$ 0.25

$ 0.09

Numerator

Net income attributable to common stockholders

143

62

Reallocation of net income attributable to participating securities

0

Reallocation of net income as a result of conversion of Class B to Class A common stock

0

Reallocation of net income to Class B common stock

7

Net income attributable to common stockholders for diluted EPS

$ 150

$ 69

Denominator

Number of shares used for basic EPS computation (in shares)

568

681

Conversion of Class B to Class A common stock (in shares)

0

Shares subject to repurchase (in shares)

5

4

Number of shares used for diluted EPS computation (in shares)

608

794

Diluted EPS (in dollars per share)

$ 0.25

$ 0.09

Class B Common Stock |
Employee Stock Options

Denominator

Share based payment arrangements (in shares)

15

80

Class B Common Stock |
Restricted Stock Units (RSUs)

Denominator

Share based payment arrangements (in shares)

20

29

Restricted Stock Units (RSUs)

Earnings Per Share, Basic, by Common Class, Including Two Class Method

Antidilutive securities excluded from computation of earnings per share

3

18

Cash and Cash Equivalents and Marketable Securities (Details) (USD $)

In Millions, unless otherwise specified

Mar. 31, 2014

security

Dec. 31, 2013

security

Mar. 31, 2013

Dec. 31, 2012

Cash, Cash Equivalents, and Marketable Securities

Number of positions in a continuous loss position for 12 months or longer

0

Cash and cash equivalents:

Cash

$ 1,122

$ 1,044

Money market funds

1,876

2,279

Total cash and cash equivalents

2,998

3,323

2,325

2,384

Marketable securities:

Total marketable securities

9,631

8,126

Total cash, cash equivalents and marketable securities

12,629

11,449

Marketable Securities

Marketable securities:

U.S. government securities

6,759

5,687

U.S. government agency securities

$ 2,872

$ 2,439

Cash, Cash Equivalents and Marketable Securities - Contractual Maturities of Debt Securities (Details) (USD $)

In Millions, unless otherwise specified

Mar. 31, 2014

Dec. 31, 2013

Cash and Cash Equivalents, and Marketable Securities [Abstract]

Due in one year

$ 6,581

Due in one to two years

3,050

Marketable securities

$ 9,631

$ 8,126

Fair Value Measurements (Details) (USD $)

In Millions, unless otherwise specified

Mar. 31, 2014

Dec. 31, 2013