FACEBOOK INC, 10-K filed on 2/1/2013
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2012
Jun. 29, 2012
Jan. 29, 2013
Class A Common Stock
Jan. 29, 2013
Class B Common Stock
Document Information
 
 
 
 
Document Type
10-K 
 
 
 
Amendment Flag
false 
 
 
 
Document Period End Date
Dec. 31, 2012 
 
 
 
Document Fiscal Year Focus
2012 
 
 
 
Document Fiscal Period Focus
FY 
 
 
 
Trading Symbol
FB 
 
 
 
Entity Registrant Name
FACEBOOK INC 
 
 
 
Entity Central Index Key
0001326801 
 
 
 
Current Fiscal Year End Date
--12-31 
 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
 
Entity Common Stock, Shares Outstanding
 
 
1,684,185,170 
697,948,924 
Entity Public Float
 
$ 47,206,114,899 
 
 
Well-known Seasoned Issuer
No 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 2,384 
$ 1,512 
Marketable securities
7,242 
2,396 
Accounts receivable, net of allowances for doubtful accounts of $22 and $17 as of December 31, 2012 and 2011, respectively
719 
547 
Income tax refundable
451 
0 
Prepaid expenses and other current assets
471 
149 
Total current assets
11,267 
4,604 
Property and equipment, net
2,391 
1,475 
Goodwill and intangible assets, net
1,388 
162 
Other assets
57 
90 
Total assets
15,103 
6,331 
Current liabilities:
 
 
Accounts payable
65 
63 
Platform partners payable
169 
171 
Accrued expenses and other current liabilities
423 
296 
Deferred revenue and deposits
30 
90 
Current portion of capital lease obligations
365 
279 
Total current liabilities
1,052 
899 
Capital lease obligations, less current portion
491 
398 
Long-term debt
1,500 
0 
Other liabilities
305 
135 
Total liabilities
3,348 
1,432 
Commitments and contingencies
   
   
Stockholders' equity:
 
 
Convertible preferred stock
0 
615 
Common stock value
0 
0 
Additional paid-in capital
10,094 
2,684 
Accumulated other comprehensive income (loss)
2 
(6)
Retained earnings
1,659 
1,606 
Total stockholders’ equity
11,755 
4,899 
Total liabilities and stockholders’ equity
$ 15,103 
$ 6,331 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Accounts receivable, allowances for doubtful accounts
$ 22 
$ 17 
Stockholders' equity:
 
 
Common stock, par value
$ 0.000006 
$ 0.000006 
Convertible Preferred Stock
 
 
Stockholders' equity:
 
 
Convertible preferred stock, par value
$ 0.000006 
$ 0.000006 
Convertible preferred stock, shares authorized
0 
569,000,000 
Convertible preferred stock, shares issued
0 
543,000,000 
Convertible preferred stock, shares, outstanding
0 
543,000,000 
Class A Common Stock
 
 
Stockholders' equity:
 
 
Common stock, par value
$ 0.000006 
 
Common stock, shares authorized
5,000,000,000 
4,141,000,000 
Common stock, shares, issued
1,671,277,621 
117,000,000 
Common stock, shares outstanding
1,671,277,621 
117,000,000 
Outstanding shares subject to repurchase
2,000,000 
1,000,000 
Class B Common Stock
 
 
Stockholders' equity:
 
 
Common stock, par value
$ 0.000006 
 
Common stock, shares authorized
4,141,000,000 
4,141,000,000 
Common stock, shares, issued
701,427,574 
1,213,000,000 
Common stock, shares outstanding
701,427,574 
1,213,000,000 
Outstanding shares subject to repurchase
11,000,000 
2,000,000 
CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Revenue
$ 5,089 
$ 3,711 
$ 1,974 
Costs and expenses:
 
 
 
Cost of revenue
1,364 
860 
493 
Research and development
1,399 
388 
144 
Marketing and sales
896 
393 
167 
General and administrative
892 
314 
138 
Total costs and expenses
4,551 
1,955 
942 
Income from operations
538 
1,756 
1,032 
Interest and other income (expense), net:
 
 
 
Interest expense
(51)
(42)
(22)
Other income (expense), net
7 
(19)
(2)
Income before provision for income taxes
494 
1,695 
1,008 
Provision for income taxes
441 
695 
402 
Net income
53 
1,000 
606 
Less: Net income attributable to participating securities
21 
332 
234 
Net income attributable to Class A and Class B common stockholders
32 
668 
372 
Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
Basic
$ 0.02 
$ 0.52 
$ 0.34 
Diluted
$ 0.01 
$ 0.46 
$ 0.28 
Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
Basic
2,006 
1,294 
1,107 
Diluted
2,166 
1,508 
1,414 
Share-based compensation expense included in costs and expenses:
 
 
 
Share-based compensation expense
1,572 
217 
20 
Cost of revenue
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
Share-based compensation expense
88 
9 
0 
Research and development
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
Share-based compensation expense
843 
114 
9 
Marketing and sales
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
Share-based compensation expense
306 
37 
2 
General and administrative
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
Share-based compensation expense
$ 335 
$ 57 
$ 9 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Statement of Other Comprehensive Income [Abstract]
 
 
 
Net income
$ 53 
$ 1,000 
$ 606 
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
9 
0 
(6)
Unrealized gain on available-for-sale investments, net of tax
1 
0 
0 
Unrealized loss on derivatives arising during period, net of tax
(2)
0 
0 
Comprehensive income
$ 61 
$ 1,000 
$ 600 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Millions, except Share data, unless otherwise specified
Total
Convertible Preferred Stock
Convertible Preferred Stock
Series A Preferred Stock
Convertible Preferred Stock
Series B - C Preferred Stock
Convertible Preferred Stock
Series A - E Preferred Stock
Class A and Class B Common Stock
Class A and Class B Common Stock
Series A Preferred Stock
Class A and Class B Common Stock
Series B - C Preferred Stock
Class A and Class B Common Stock
Series A - E Preferred Stock
Additional Paid-In Capital
Additional Paid-In Capital
Series A Preferred Stock
Additional Paid-In Capital
Series B - C Preferred Stock
Additional Paid-In Capital
Series A - E Preferred Stock
Accumulated Other Comprehensive (Loss) Income
Retained Earnings
Total Stockholders’ Equity
Total Stockholders’ Equity
Series A Preferred Stock
Total Stockholders’ Equity
Series B - C Preferred Stock
Total Stockholders’ Equity
Series A - E Preferred Stock
Common stock, value, outstanding beginning at Dec. 31, 2009
 
 
 
 
 
$ 0 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible preferred stock, value, outstanding beginning at Dec. 31, 2009
 
615 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Stockholders' Equity, beginning at Dec. 31, 2009
 
 
 
 
 
 
 
 
 
253 
 
 
 
0 
0 
868 
 
 
 
Convertible preferred stock, shares, outstanding beginning at Dec. 31, 2009
 
543,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, shares outstanding beginning at Dec. 31, 2009
 
 
 
 
 
1,070,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock, net of issuance costs, shares
 
 
 
 
 
24,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock, net of issuance costs, value
 
 
 
 
 
0 
 
 
 
500 
 
 
 
 
 
500 
 
 
 
Issuance of common stock for cash upon exercise of stock options, shares
 
 
 
 
 
70,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock for cash upon exercise of stock options, value
 
 
 
 
 
0 
 
 
 
6 
 
 
 
 
 
6 
 
 
 
Issuance of common stock related to acquisitions, shares
 
 
 
 
 
6,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock related to acquisitions, value
 
 
 
 
 
0 
 
 
 
60 
 
 
 
 
 
60 
 
 
 
Conversion of stock into common stock
 
 
(2,000,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, amount converted
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, shares
 
 
 
 
 
 
2,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, value
 
 
 
 
 
 
0 
 
 
 
0 
 
 
 
 
 
0 
 
 
Reclassification of option liability to additional paid-in capital
 
 
 
 
 
 
 
 
 
3 
 
 
 
 
 
3 
 
 
 
Share-based compensation, related to employee share-based awards
 
 
 
 
 
 
 
 
 
17 
 
 
 
 
 
17 
 
 
 
Share-based compensation, related to nonemployee share-based awards
 
 
 
 
 
 
 
 
 
1 
 
 
 
 
 
1 
 
 
 
Excess tax benefit from share-based award activity, net of deferred tax impact
 
 
 
 
 
 
 
 
 
107 
 
 
 
 
 
107 
 
 
 
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
(6)
 
(6)
 
 
 
Net income
606 
 
 
 
 
 
 
 
 
 
 
 
 
 
606 
606 
 
 
 
Total Stockholders' Equity, ending at Dec. 31, 2010
 
 
 
 
 
 
 
 
 
947 
 
 
 
(6)
606 
2,162 
 
 
 
Common stock, value, outstanding ending at Dec. 31, 2010
 
 
 
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, shares outstanding ending at Dec. 31, 2010
 
 
 
 
 
1,172,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible preferred stock, value, outstanding beginning at Dec. 31, 2010
 
615 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible preferred stock, shares, outstanding beginning at Dec. 31, 2010
 
541,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock, net of issuance costs, shares
 
 
 
 
 
48,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock, net of issuance costs, value
 
 
 
 
 
0 
 
 
 
998 
 
 
 
 
 
998 
 
 
 
Issuance of common stock for cash upon exercise of stock options, shares
 
 
 
 
 
102,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock for cash upon exercise of stock options, value
 
 
 
 
 
0 
 
 
 
28 
 
 
 
 
 
28 
 
 
 
Issuance of common stock related to nonemployees for past services, shares
 
 
 
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock related to nonemployees for past services, value
 
 
 
 
 
0 
 
 
 
3 
 
 
 
 
 
3 
 
 
 
Issuance of common stock related to acquisitions, shares
 
 
 
 
 
2,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock related to acquisitions, value
 
 
 
 
 
0 
 
 
 
58 
 
 
 
 
 
58 
 
 
 
Exercise of stock warrants
 
8,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock warrants, shares
0 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock into common stock
 
 
 
(6,000,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, amount converted
 
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, shares
 
 
 
 
 
 
 
6,000,000 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, value
 
 
 
 
 
 
 
0 
 
 
 
0 
 
 
 
 
 
0 
 
Share-based compensation, related to employee share-based awards
 
 
 
 
 
 
 
 
 
217 
 
 
 
 
 
217 
 
 
 
Excess tax benefit from share-based award activity, net of deferred tax impact
 
 
 
 
 
 
 
 
 
433 
 
 
 
 
 
433 
 
 
 
Net income
1,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,000 
1,000 
 
 
 
Common stock, value, outstanding ending at Dec. 31, 2011
 
 
 
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible preferred stock, value, outstanding ending at Dec. 31, 2011
 
615 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Stockholders' Equity, ending at Dec. 31, 2011
4,899 
 
 
 
 
 
 
 
 
2,684 
 
 
 
(6)
1,606 
4,899 
 
 
 
Convertible preferred stock, shares, outstanding ending at Dec. 31, 2011
 
543,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, shares outstanding ending at Dec. 31, 2011
 
 
 
 
 
1,330,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock, net of issuance costs, shares
 
 
 
 
 
180,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock, net of issuance costs, value
 
 
 
 
 
0 
 
 
 
6,760 
 
 
 
 
 
6,760 
 
 
 
Issuance of common stock for cash upon exercise of stock options, shares
135,505,000 
 
 
 
 
135,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock for cash upon exercise of stock options, value
 
 
 
 
 
0 
 
 
 
17 
 
 
 
 
 
17 
 
 
 
Issuance of common stock related to nonemployees for past services, shares
 
 
 
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock related to nonemployees for past services, value
 
 
 
 
 
0 
 
 
 
1 
 
 
 
 
 
1 
 
 
 
Issuance of common stock related to acquisitions, shares
 
 
 
 
 
26,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock related to acquisitions, value
 
 
 
 
 
0 
 
 
 
274 
 
 
 
 
 
274 
 
 
 
Issuance of common stock settlement of restricted stock units (RSUs)
279,000,000 
 
 
 
 
279,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares withheld related to net share settlement of RSUs, shares
(123,000,000)
 
 
 
 
(123,000,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares withheld related to net share settlement of RSUs, value
2,862 
 
 
 
 
 
 
 
 
(2,862)
 
 
 
 
 
(2,862)
 
 
 
Conversion of stock into common stock
 
 
 
 
(543,000,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, amount converted
 
 
 
 
(615)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, shares
 
 
 
 
 
 
 
 
545,000,000 
 
 
 
 
 
 
 
 
 
 
Conversion of stock, value
 
 
 
 
 
 
 
 
0 
 
 
 
615 
 
 
 
 
 
0 
Share-based compensation, related to employee share-based awards
 
 
 
 
 
 
 
 
 
1,572 
 
 
 
 
 
1,572 
 
 
 
Excess tax benefit from share-based award activity, net of deferred tax impact
 
 
 
 
 
 
 
 
 
1,033 
 
 
 
 
 
1,033 
 
 
 
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
8 
 
8 
 
 
 
Net income
53 
 
 
 
 
 
 
 
 
 
 
 
 
 
53 
53 
 
 
 
Common stock, value, outstanding ending at Dec. 31, 2012
 
 
 
 
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible preferred stock, value, outstanding ending at Dec. 31, 2012
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Stockholders' Equity, ending at Dec. 31, 2012
$ 11,755 
 
 
 
 
 
 
 
 
$ 10,094 
 
 
 
$ 2 
$ 1,659 
$ 11,755 
 
 
 
Convertible preferred stock, shares, outstanding ending at Dec. 31, 2012
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, shares outstanding ending at Dec. 31, 2012
 
 
 
 
 
2,372,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities
 
 
 
Net income
$ 53 
$ 1,000 
$ 606 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
649 
323 
139 
Loss on write-off of equipment
15 
4 
3 
Share-based compensation
1,572 
217 
20 
Deferred income taxes
(186)
(30)
23 
Tax benefit from share-based award activity
1,033 
433 
115 
Excess tax benefit from share-based award activity
(1,033)
(433)
(115)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(170)
(174)
(209)
Income tax refundable
(451)
0 
0 
Prepaid expenses and other current assets
(14)
(24)
(38)
Other assets
2 
(5)
(6)
Accounts payable
1 
6 
12 
Platform partners payable
(2)
96 
75 
Accrued expenses and other current liabilities
160 
37 
20 
Deferred revenue and deposits
(60)
49 
37 
Other liabilities
43 
50 
16 
Net cash provided by operating activities
1,612 
1,549 
698 
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(1,235)
(606)
(293)
Purchases of marketable securities
(10,307)
(3,025)
0 
Sales of marketable securities
2,100 
113 
0 
Maturities of marketable securities
3,333 
516 
0 
Investments in non-marketable equity securities
(2)
(3)
0 
Acquisitions of businesses, net of cash acquired, and purchases of intangible and other assets
(911)
(24)
(22)
Change in restricted cash and deposits
(2)
6 
(9)
Net cash used in investing activities
(7,024)
(3,023)
(324)
Cash flows from financing activities
 
 
 
Net proceeds from issuance of common stock
6,760 
998 
500 
Taxes paid related to net share settlement of equity awards
(2,862)
0 
0 
Proceeds from exercise of stock options
17 
28 
6 
Proceeds from long-term debt, net of issuance cost
1,496 
0 
250 
Repayments of long-term debt
0 
(250)
0 
Proceeds from sale and lease-back transactions
205 
170 
0 
Principal payments on capital lease obligations
(366)
(181)
(90)
Excess tax benefit from share-based award activity
1,033 
433 
115 
Net cash provided by financing activities
6,283 
1,198 
781 
Effect of exchange rate changes on cash and cash equivalents
1 
3 
(3)
Net increase (decrease) in cash and cash equivalents
872 
(273)
1,152 
Cash and cash equivalents at beginning of period
1,512 
1,785 
633 
Cash and cash equivalents at end of period
2,384 
1,512 
1,785 
Cash paid during the period for:
 
 
 
Interest
38 
28 
23 
Income taxes, net
53 
197 
261 
Non-cash investing and financing activities:
 
 
 
Fair value of shares issued related to acquisitions of businesses and other assets
274 
58 
60 
Net change in accounts payable and accrued expenses and other liabilities
 
 
 
Non-cash investing and financing activities:
 
 
 
Capital expenditures incurred but not yet paid
(40)
135 
47 
Capital Lease Obligations
 
 
 
Non-cash investing and financing activities:
 
 
 
Capital expenditures incurred but not yet paid
$ 340 
$ 473 
$ 217 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies  
Organization and Description of Business  
Facebook was incorporated in Delaware in July 2004. Our mission is to make the world more open and connected. We build products that support our mission by providing utility to Facebook users, Platform developers, and marketers. We generate substantially all of our revenue from advertising and from fees associated with our Payments infrastructure that enables users to purchase virtual and digital goods from our Platform developers.  
Basis of Presentation  
We prepared the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.  
Use of Estimates  
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the 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 share-based awards, 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.
Reclassifications
We have reclassified certain prior period amounts within our consolidated statements of income and cash flows to conform to our current year presentation. These reclassifications did not affect previously reported revenue, total costs and expenses, income from operations, net income in the consolidated statements of income, or net cash provided by operating activities in the consolidated statements of cash flows.  
Revenue Recognition  
We generate substantially all of our revenue from advertising and payment processing fees. We recognize revenue once all of the following criteria have been met:  
•
persuasive evidence of an arrangement exists;
•
delivery of Facebook's obligations to our customer has occurred;
•
the price is fixed or determinable; and
•
collectability of the related receivable is reasonably assured.  
Revenue for the years ended December 31, 2012, 2011, and 2010 consists of the following (in millions):  
 
Year Ended December 31,
 
2012
 
2011
 
2010
Advertising
$
4,279

 
$
3,154

 
$
1,868

Payments and other fees
810

 
557

 
106

Total revenue
$
5,089

 
$
3,711

 
$
1,974

 
Advertising  
Advertising revenue is generated by displaying ad products on the Facebook website or mobile app and third-party affiliated websites or mobile apps. The arrangements are evidenced by either online acceptance of terms and conditions or contracts that stipulate the types of advertising to be delivered, the timing and the pricing. Marketers pay for ad products either directly or through their relationships with advertising agencies, based on the number of impressions delivered or the number of clicks made by our users. The typical term of an advertising arrangement is approximately 30 days with billing generally occurring after the delivery of the advertisement.  
We recognize revenue from the delivery of click-based ads in the period in which a user clicks on the content. We recognize revenue from the display of impression-based ads in the contracted period in which the impressions are delivered. Impressions are considered delivered when an ad is displayed to users.
Payments and Other Fees  
We enable Payments from our users to our Platform developers. Our users can transact and make payments on the Facebook Platform by using credit cards, PayPal or other payment methods available on our website. The primary method for users to transact with the developers on the Facebook Platform is via the purchase of our virtual currency, which enables our users to purchase virtual and digital goods in games and apps. Upon the initial sale of our virtual currency, we record consideration received from a user as a deposit. 
When a user engages in a payment transaction utilizing our virtual currency for the purchase of a virtual or digital good from a Platform developer, we reduce the user's virtual currency balance by the price of the purchase, which is a price that is solely determined by the Platform developer. We remit to the Platform developer an amount that is based on the total amount of virtual currency redeemed less the processing fee that we charge the Platform developer for the transaction. Our revenue is the net amount of the transaction, representing our processing fee for the service performed. We record revenue on a net basis as we do not consider ourselves to be the principal in the sale of the virtual or digital good to the user.
Our Payments terms and conditions provide for a 30-day claim period subsequent to a Payments transaction during which the customer may dispute the virtual or digital goods transaction. Through the third quarter of 2012, we had deferred recognition of Payments revenue until the expiration of this period as we were unable to make reasonable and reliable estimates of future refunds or chargebacks arising during this claim period, due to lack of historical transactional information. Beginning in the fourth quarter of 2012, we had 24 months of historical transactional information which enabled us to estimate future refunds and chargebacks. Accordingly, in the fourth quarter of 2012, we recorded all Payments revenues at the time of the purchase of the related virtual or digital goods, net of estimated refunds or chargebacks. This change resulted in a one-time increase in Payments revenue in the fourth quarter of 2012 of approximately $66 million as we recognized revenue from four months of transactions.
Other fees, which includes user Promoted Posts and, to a lesser extent, Facebook Gifts, have not been material in all periods presented in our financial statements.  
Revenue is recognized net of applicable sales and other taxes.
Cost of Revenue  
Our cost of revenue consists primarily of expenses associated with the delivery and distribution of our products. These include expenses related to the operation of our data centers such as facility and server equipment depreciation, facility and server equipment rent expense, energy and bandwidth costs, support and maintenance costs, and salaries, benefits and share-based compensation for certain personnel on our operations teams. Cost of revenue also includes credit card and other transaction fees related to processing customer transactions.
Share-based Compensation  
We account for share-based employee compensation plans under the fair value recognition and measurement provisions of GAAP. Those provisions require all share-based payments to employees, including grants of stock options and RSUs, to be measured based on the grant-date fair value of the awards, with the resulting expense generally recognized in our consolidated statements of income over the period during which the employee is required to perform service in exchange for the award.
Prior to January 1, 2011, we granted RSUs (Pre-2011 RSUs) under our 2005 Stock Plan to our employees and members of our board of directors that vested upon the satisfaction of both a service condition and a liquidity condition. The service condition for the majority of these awards is satisfied over four years. The liquidity condition was satisfied six months after our initial public offering (IPO) in May 2012. The vesting condition that was satisfied six months following our IPO did not affect the expense attribution period for the RSUs for which the service condition has been met as of the date of our IPO. This six-month period was not a substantive service condition and, accordingly, beginning on the effectiveness of our IPO in May 2012, we recognized cumulative share-based compensation expense for the portion of the RSUs that had met the service condition, following the accelerated attribution method (net of estimated forfeitures). In the year ended December 31, 2012, we recognized $1.04 billion of share-based compensation expense related to our Pre-2011 RSUs. Refer to Note 11 Stockholders' Equity for disclosure with respect to the settlement of the Pre-2011 RSUs. 
RSUs granted on or after January 1, 2011 (Post-2011 RSUs) under our 2005 Stock Plan or 2012 Equity Incentive Plan (2012 Plan)are not subject to a liquidity condition in order to vest, and compensation expense related to these grants is based on the grant date fair value of the RSUs and is recognized on a straight-line basis over the applicable service period. The majority of Post-2011 RSUs are earned over a service period of four to five years, and vested shares will be settled beginning in 2013.
Share-based compensation expense is recorded net of estimated forfeitures in our consolidated statements of income and as such, only those share-based awards that we expect to vest are recorded. We estimate the forfeiture rate based on historical forfeitures of equity awards and adjust the rate to reflect changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates. 
We have historically issued unvested restricted shares to employee stockholders of certain acquired companies. As these awards are generally subject to continued post-acquisition employment, we have accounted for them as post-acquisition share-based compensation expense. We recognize compensation expense equal to the grant date fair value of the common stock on a straight-line basis over the employee's required service period.
During the years ended December 31, 2012, 2011, and 2010, we realized tax benefits from share-based award activity of $1.03 billion, $433 million and $115 million, respectively. These amounts reflect the extent that the total reduction to our income tax liability from share-based award activity was greater than the amount of the deferred tax assets that we had previously recorded in anticipation of these benefits. These amounts are the aggregate of the individual transactions in which the reduction to our income tax liability was greater than the deferred tax assets that we recorded, reduced by any individual transactions in which the reduction to our income tax liability was less than the deferred tax assets that were recorded. These net amounts were recorded as an adjustment to stockholders' equity in each period, as an increase to cash flows from operating activities, and were not recognized in our consolidated statements of income.  
The tax benefits realized from share-based award activity of $1.03 billion relate to both the reduction of current year income tax liabilities and the expected refund of $451 million from income tax loss carrybacks to 2010 and 2011.
In addition, we reported excess tax benefits that decreased our cash flows from operating activities and increased our cash flows from financing activities for the years ended December 31, 2012, 2011, and 2010, by $1.03 billion, $433 million, $115 million, respectively. The amounts of these excess tax benefits reflect the total of the individual transactions in which the reduction to our income tax liability was greater than the deferred tax assets that were recorded, but were not reduced by any of the individual transactions in which the reduction to our income tax liability was less than the deferred tax assets that were recorded.
Income Taxes  
We recognize income taxes under the asset and liability method. We recognize deferred income tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date.  
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.  
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. The provision for income taxes includes the effects of any reserves that are considered appropriate, as well as the related net interest and penalties.  
Advertising Expense  
Advertising costs are expensed when incurred and are included in marketing and sales expenses in the accompanying consolidated statements of income. We incurred advertising expenses of $67 million, $28 million, and $8 million for the years ended December 31, 2012, 2011, and 2010, respectively.
Cash and Cash Equivalents, and Marketable Securities  
Cash and cash equivalents primarily consist of cash on deposit with banks and investments in money market funds, and U.S. government and U.S. government agency securities with maturities of 90 days or less from the date of purchase.
We hold investments in marketable securities, consisting of U.S. government and U.S. government agency securities. We classify our marketable securities as available-for-sale investments in our current assets because they represent investments of cash available for current operations. Our available-for-sale investments are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive income/(loss) in stockholders' equity. Unrealized losses are charged against other income (expense), net when a decline in fair value is determined to be other-than-temporary. We have not recorded any such impairment charge in the periods presented. We determine realized gains or losses on sale of marketable securities on a specific identification method, and record such gains or losses as other income (expense), net.  
We classify certain restricted cash balances within prepaid expenses and other current assets and other assets on the accompanying consolidated balance sheets based upon the term of the remaining restrictions.  
Non-Marketable Securities  
We invest in certain investment funds that are not publicly traded. We carry these investments at cost because we do not have significant influence over the underlying investee. We assess for any other-than-temporary impairment at least on an annual basis. No impairment charge has been recorded to-date on our non-marketable securities. We classify these investments within other assets on the accompanying consolidated balance sheets.
Derivative Financial Instruments
We account for derivative instruments as either assets or liabilities and carry them at fair value. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash-flow hedges, the effective portion of the gain or loss on the derivative instruments is initially reported as a separate component of accumulated other comprehensive income (AOCI) in shareholders' equity and is subsequently recognized in earnings when the hedge exposure is recognized in earnings. The ineffective portion of the gain or loss on the derivative instruments, if any, is recognized in earnings. To receive hedge accounting treatment, a cash flow hedge must be highly effective in offsetting changes to expected future cash flows on the hedged transaction.
In October 2012 we entered into an interest rate swap agreement to hedge our exposure to interest rate fluctuation with respect to our $1.5 billion floating rate three-year unsecured term loan facility. The critical terms of the interest rate swap agreement and the related debt agreement match and allow us to designate the interest rate swap as a highly effective cash flow hedge under GAAP. We periodically assess the effectiveness of our hedged transaction. The interest rate swap agreement is currently our only derivative instrument and is not used for trading purpose. Refer to Note 9 Long-term Debt for further disclosure on the interest rate swap agreement.
Fair Value of Financial Instruments  
We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:  
Level 1-Quoted prices in active markets for identical assets or liabilities.  
Level 2-Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  
Level 3-Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability.  
Our valuation techniques used to measure the fair value of money market funds and marketable debt securities were derived from quoted prices in active markets for identical assets or liabilities and our valuation technique used to measure the fair value of our derivative instrument was based on a model-driven valuation using significant inputs derived from or corroborated by observable market data. 
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We make estimates for the allowance for doubtful accounts based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect customers' ability to pay.
Property and Equipment  
Property and equipment, which includes amounts recorded under capital leases, are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the remaining lease term, in the case of a capital lease, whichever is shorter.  
The estimated useful lives of property and equipment are described below:  
Property and Equipment 
 
Useful Life 
Network equipment
 
Three to four years
Buildings
 
15 to 20 years
Computer software, office equipment and other
 
Two to five years
Leased equipment and leasehold improvements
 
Lesser of estimated useful life or remaining lease term
 
Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of property and equipment that have not yet been placed in service for their intended use.  
The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in income from operations.
Lease Obligations  
We lease office space, data centers, and equipment under non-cancelable capital and operating leases with various expiration dates through 2027. Certain of the operating lease agreements contain rent holidays, rent escalation provisions, and purchase options. Rent holidays and rent escalation provisions are considered in determining the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease inception.
Loss Contingencies 
We are involved in various lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. We record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions at least quarterly and adjust these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
Business Combinations
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets  
We evaluate the recoverability of property and equipment and amortizable intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any such impairment charge during the years presented.
We review goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of our single reporting operating unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment under the new authoritative guidance issued by the Financial Accounting Standards Board (FASB). If we determine that it is more likely than not that its fair value is less than its carrying amount, then the two-step goodwill impairment test is performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step would need to be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. As of December 31, 2012, no impairment of goodwill has been identified.  
Acquired amortizable intangible assets, which are included in goodwill and intangible assets, net, are amortized on a straight-line basis over the estimated useful lives of the assets. The estimated remaining useful lives for intangible assets range from less than one year to 17 years.  
In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of property and equipment and amortizable intangible assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated useful life.   
Deferred Revenue and Deposits  
Deferred revenue consists of billings in advance of revenue recognition. Deposits relate to unused virtual currency held by our users. Once this virtual currency is utilized by a user, approximately 70% of this amount would then be payable to the Platform developer and the balance would be recognized as revenue.  
Deferred revenue and deposits consists of the following (in millions):  
 
December 31,
 
2012
 
2011
Deferred revenue
$
8

 
$
75

Deposits
22

 
15

Total deferred revenue and deposits
$
30

 
$
90

 
Foreign Currency  
Generally the functional currency of our international subsidiaries is the local currency. We translate the financial statements of these subsidiaries to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenue, costs, and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity. Net losses resulting from foreign exchange transactions were $9 million, $29 million and $1 million for the years ended December 31, 2012, 2011 and 2010, respectively. These losses were recorded as other income (expense), net on our consolidated statements of income.
Credit Risk and Concentration  
Financial instruments owned by the company that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, marketable securities, accounts receivable, and derivative instruments. Cash equivalents consist of short-term money market funds and U.S. government and U.S. government agency securities, which are deposited with reputable financial institutions. Marketable securities consist of investments in U.S. government and U.S. government agency securities. Our investment policy limits investment instruments to U.S. government and U.S. government agency securities with the main objective of preserving capital and maintaining liquidity.  
Accounts receivable are typically unsecured and are derived from revenue earned from customers across different industries and countries. We generated 51%, 56%, and 62% of our revenue for the years ended December 31, 2012, 2011, and 2010, respectively, from marketers and Platform developers based in the United States, with the majority of revenue outside of the United States coming from customers located in western Europe, Canada, Australia, and Brazil.  
We perform ongoing credit evaluations of our customers, and generally do not require collateral. We maintain an allowance for estimated credit losses. During the years ended December 31, 2012, 2011, and 2010, our bad debt expenses were $9 million, $8 million, and $9 million, respectively. In the event that accounts receivable collection cycles deteriorate, our operating results and financial position could be adversely affected.  
Revenue from one customer, Zynga, represented 12% of total revenue for the year ended December 31, 2011. Revenue from Zynga consisted of payments processing fees related to their sale of virtual goods and from direct advertising purchased by Zynga. No customer represented 10% or more of total revenue during the years ended December 31, 2012 and 2010.  
 Segments  
Our chief operating decision-maker is our Chief Executive Officer who reviews financial information presented on a consolidated basis. There are no segment managers who are held accountable by the chief operating decision-maker, or anyone else, for operations, operating results, and planning for levels or components below the consolidated unit level. Accordingly, we have determined that we have a single reporting segment and operating unit structure.  
Recently Issued and Adopted Accounting Pronouncement  
Comprehensive Income
In May 2011, the FASB issued guidance that changed the requirement for presenting "Comprehensive Income" in the consolidated financial statements. The update requires an entity to present the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. We adopted this new guidance on January 1, 2012.
Goodwill Impairment Testing
In September 2011, the FASB issued an amendment to an existing accounting standard which provides entities an option to perform a qualitative assessment to determine whether further impairment testing on goodwill is necessary. An entity now has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this new standard on January 1, 2012 and the adoption did not have a material impact on our financial statements.
Acquisitions
Acquisitions
Acquisitions
In August 2012, we completed our acquisition of Instagram, Inc. (Instagram), a privately-held company which has built a mobile phone-based photo-sharing service that is expected to enhance our photos product offerings and to enable users to increase their levels of mobile engagement and photo sharing. We have accounted for this transaction as a business acquisition for a total purchase price of $521 million, consisting of the issuance of approximately 12 million vested shares of our Class B common stock to non-employee stockholders of Instagram and $300 million in cash. The value of the equity component of the purchase price was determined for accounting purposes based on the fair value of our common stock on the closing date. We also issued approximately 11 million unvested shares of our Class B common stock to employee stockholders of Instagram on the closing date, with an aggregate fair value of $194 million, which will be recognized as they vest over a three-year service period as share-based compensation expense.
In 2012, we also completed other business acquisitions for total consideration of $87 million. These acquisitions were not material to our consolidated financial statements individually or in the aggregate. Pro forma results of operations related to our acquisition of Instagram or of other companies during the year ended December 31, 2012 have not been presented because they are not material to our consolidated statements of income, either individually or in the aggregate.
The following table summarizes the allocation of the fair values of the assets acquired and liabilities assumed and the related useful lives, where applicable:
 
Instagram, Inc.
 
Other
 
(in millions)
 
Useful lives (in years)
 
(in millions)
 
Useful lives (in years)
Amortizable intangible assets:
 
 
 
 
 
 
 
Acquired technology
$
74

 
5
 
$
20

 
3 - 5
Tradename and other
64

 
2 - 7
 
8

 
2 - 3
Net liabilities assumed
(1
)
 
 
 
(4
)
 
 
Deferred tax liabilities
(49
)
 
 
 
(9
)
 
 
Net assets acquired
$
88

 
 
 
$
15

 
 
Goodwill
433

 
 
 
72

 
 
Total fair value considerations
$
521

 
 
 
$
87

 
 

Goodwill generated from all business acquisitions completed during 2012 is primarily attributable to expected synergies from future growth and potential monetization opportunities and is not deductible for tax purposes.
In 2012, we also acquired $633 million of patents and other intellectual property rights. We completed the largest of these intangible asset purchases in June 2012 under an agreement with Microsoft Corporation pursuant to which we were assigned Microsoft's rights to acquire approximately 615 U.S. patents and patent applications and certain of their foreign counterparts, consisting of approximately 170 foreign patents and patent applications, that were subject to an agreement between AOL Inc. and Microsoft entered into on April 5, 2012. We paid $550 million in cash in exchange for these patents and patent applications. As part of this transaction, we established a deferred tax liability of $49 million to reflect the difference between the future tax basis and book basis in the acquired patents and patent applications, which also increased the capitalized patent cost by this amount. As part of this transaction, we obtained a license to the other AOL patents and patent applications being purchased by Microsoft and granted Microsoft a license to the AOL patents and patent applications that we acquired. The acquisitions of these patents, patent applications and other intellectual property rights were accounted for as asset acquisitions. Patents acquired during 2012 have estimated useful lives ranging from three to 17 years from the dates of acquisition.
Earnings per Share
Earnings per Share
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. Prior to the date of the IPO, we considered all series of our convertible preferred stock to be participating securities due to their non-cumulative dividend rights. Immediately after the completion of our IPO in May 2012, all outstanding shares of convertible preferred stock converted to Class B common stock. Additionally, 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 these participating securities are subtracted from net income in determining net income attributable to common stockholders. Net losses, if any are not allocated to these participating securities. 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 from Class B common stock, while the diluted EPS of Class B common stock does not assume the conversion of those shares. 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.
Dilutive securities in our diluted EPS calculation for the years ended December 31, 2011 and 2010 do not include Pre-2011 RSUs. Vesting of these RSUs is dependent upon the satisfaction of both a service condition and a liquidity condition. The liquidity condition is satisfied upon the occurrence of a qualifying event, defined as a change of control transaction or six months following the completion of our IPO. Our IPO did not occur until May 2012. Therefore, prior to this date the holders of these RSUs had no rights in our undistributed earnings and accordingly, they are excluded from the effect of basic and dilutive securities. However, subsequent to the completion of our IPO in May 2012, these RSUs are included in our basic and diluted EPS calculation. Post-2011 RSUs are not subject to a liquidity condition in order to vest, and are thus included in the calculation of diluted EPS. We also excluded 15 million and three million Post-2011 RSUs for the years ended December 31, 2012 and December 31, 2011, respectively, and two million shares issuable upon exercise of employee stock options for the year ended December 31, 2010 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 are calculated as follows (in millions, except per share amounts):  
 
Year Ended December 31,
 
2012
 
2011
 
2010
 
Class
A
 
Class
B
 
Class
A
 
Class
B
 
Class
A
 
Class
B 
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
Net income
$
18

 
$
35

 
$
85

 
$
915

 
$
18

 
$
588

Less: Net income attributable to participating securities
7

 
14

 
28

 
304

 
7

 
227

Net income attributable to common stockholders
$
11

 
$
21

 
$
57

 
$
611

 
$
11

 
$
361

Denominator
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
668

 
1,344

 
110

 
1,189

 
32

 
1,081

Less: Shares subject to repurchase
1

 
5

 
—

 
5

 
—

 
6

Number of shares used for basic EPS computation
667

 
1,339

 
110

 
1,184

 
32

 
1,075

Basic EPS
$
0.02

 
$
0.02

 
$
0.52

 
$
0.52

 
$
0.34

 
$
0.34

Diluted EPS:
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
11

 
$
21

 
$
57

 
$
611

 
$
11

 
$
361

Reallocation of net income attributable to participating securities
—

 
—

 
31

 
—

 
30

 
—

Reallocation of net income as a result of conversion of Class B to Class A common stock
21

 
—

 
611

 
—

 
361

 
—

Reallocation of net income to Class B common stock
—

 
1

 
—

 
37

 
—

 
32

Net income attributable to common stockholders for diluted EPS
$
32

 
$
22

 
$
699

 
$
648

 
$
402

 
$
393

Denominator
 
 
 
 
 
 
 
 
 
 
 
Number of shares used for basic EPS computation
667

 
1,339

 
110

 
1,184

 
32

 
1,075

Conversion of Class B to Class A common stock
1,339

 
—

 
1,184

 
—

 
1,075

 
—

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Employee stock options
134

 
134

 
204

 
204

 
295

 
295

RSUs
23

 
23

 
5

 
5

 
—

 
—

Shares subject to repurchase
3

 
3

 
3

 
3

 
4

 
4

Warrants
—

 
—

 
2

 
2

 
8

 
8

Number of shares used for diluted EPS computation
2,166

 
1,499

 
1,508

 
1,398

 
1,414

 
1,382

Diluted EPS
$
0.01

 
$
0.01

 
$
0.46

 
$
0.46

 
$
0.28

 
$
0.28

Cash and Cash Equivalents, and Marketable Securities
Cash and Cash Equivalents, and Marketable Securities
Cash and Cash Equivalents, and Marketable Securities
The following table sets forth the cash, cash equivalents and marketable securities for the periods presented (in millions):
 
December 31,
 
2012
 
2011
Cash and cash equivalents:
 
 
 
Cash
$
1,513

 
$
510

Cash equivalents:
 
 
 
Money market funds
871

 
892

U.S. government securities
—

 
60

U.S. government agency securities
—

 
50

Total cash and cash equivalents
2,384

 
1,512

Marketable securities:
 
 
 
U.S. government securities
5,165

 
1,415

U.S. government agency securities
2,077

 
981

Total marketable securities
7,242

 
2,396

Total cash, cash equivalents and marketable securities
$
9,626

 
$
3,908


The gross unrealized gains or losses on our marketable securities as of December 31, 2012 and 2011 were not significant. In addition, there were no securities in a continuous loss position for 12 months or longer as of December 31, 2012 and 2011.
The following table classifies our marketable securities by contractual maturities: (in millions):  
 
December 31,
 
2012
 
2011
Due in one year
$
4,815

 
$
1,964

Due in one to two years
2,427

 
432

Total
$
7,242

 
$
2,396

Fair Value Measurements
Fair Value Measurements
Fair Value Measurement
The following table summarizes, for assets or liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy (in millions):  
 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description 
 
December 31,
2012
 
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
 
$
871

 
$
871

 
$
—

 
$
—

Marketable securities:
 
 
 
 
 
 
 
 
U.S. government securities
 
5,165

 
5,165

 
—

 
—

U.S. government agency securities
 
2,077

 
2,077

 
—

 
—

Total cash equivalents and marketable securities
 
$
8,113

 
$
8,113

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Other current liabilities:
 
 
 
 
 
 
 
 
Contingent consideration liability
 
$
4

 
$
—

 
$
—

 
$
4

 
 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
Derivative financial instrument
 
$
4

 
$
—

 
$
4

 
$
—

 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description
 
December 31,
2011
 
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
 
$
892

 
$
892

 
—

 
—

U.S. government securities
 
60

 
60

 
—

 
—

U.S. government agency securities
 
50

 
50

 
—

 
—

Total cash equivalents
 
1,002

 
1,002

 
—

 
—

Marketable securities:
 
 
 
 
 
 
 
 
U.S. government securities
 
1,415

 
1,415

 
—

 
—

U.S. government agency securities
 
981

 
981

 
—

 
—

Total cash equivalents and marketable securities
 
$
3,398

 
$
3,398

 
$
—

 
$
—


There was no contingent consideration liability or interest rate swap as of December 31, 2011.
Our Level 2 derivative financial instrument represents our interest rate swap agreement which is valued based on a valuation model using significant inputs derived from or corroborated by observable market data.
We estimate the fair value of our Level 3 contingent consideration liability based on the probability assessment of the earn-out criteria. In developing these estimates, we consider factors not observed in the market and thus this represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value. Our fair value estimate of this liability was $6 million at the date of acquisition. Changes in the fair value of the contingent consideration liability subsequent to the acquisition date, such as changes in the probability assessment and our stock prices, are recognized in earnings in the period when the change in the estimated fair value occurs.
Property and Equipment
Property and Equipment
Property and Equipment  
Property and equipment consists of the following (in millions):
 
December 31,
 
2012
 
2011
Network equipment
$
1,912

 
$
1,016

Land
36

 
34

Buildings
594

 
355

Leasehold improvements
194

 
120

Computer software, office equipment and other
93

 
73

Construction in progress
444

 
327

Total
3,273

 
1,925

Less: accumulated depreciation
(882
)
 
(450
)
Property and equipment, net
$
2,391

 
$
1,475

 
Depreciation expense on property and equipment was $566 million, $303 million and $129 million during 2012, 2011 and 2010, respectively.
Property and equipment at December 31, 2012 and 2011 includes $1.28 billion and $881 million, respectively, acquired under capital lease agreements of which the majority is included in computer software, office equipment, and other. Accumulated depreciation of property and equipment acquired under these capital leases was $437 million and $210 million at December 31, 2012 and 2011, respectively.
Construction in progress includes costs primarily related to the construction of data centers and equipment located in our data centers in Oregon, North Carolina, and Sweden. Interest capitalized during the years presented was not material.
Goodwill and Intangible Assets
Goodwill and Intangible Assets
Goodwill and Intangible Assets
The changes in carrying amount of goodwill for the years ended December 31, 2012 and 2011 are as follows (in millions):
Balance as of December 31, 2010
$
37

Goodwill acquired
48

Effect of currency translation adjustment
(3
)
Balance as of December 31, 2011
82

Goodwill acquired
505

Balance as of December 31, 2012
$
587


Intangible assets consist of the following (in millions):
 
 
 
December 31, 2012
 
December 31, 2011
 
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
3 - 18
 
$
684

 
$
(53
)
 
$
631

 
$
51

 
$
(4
)
 
$
47

Acquired technology
2 - 10
 
133

 
(32
)
 
101

 
38

 
(15
)
 
23

Tradename and other
2 - 7
 
94

 
(25
)
 
69

 
23

 
(13
)
 
10

Total
 
 
$
911

 
$
(110
)
 
$
801

 
$
112

 
$
(32
)
 
$
80

 
Amortization expense of intangible assets for the years ended December 31, 2012, 2011, and 2010 was $78 million, $20 million, and $9 million, respectively.
As of December 31, 2012, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):  
2013
$
126

2014
120

2015
112

2016
102

2017
86

Thereafter
255

Total
$
801

Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities
The components of accrued expenses and other current liabilities were as follows (in millions):
 
December 31,
 
2012
 
2011
Accrued compensation and benefits
$
146

 
$
57

Other current liabilities
277

 
239

Total accrued expenses and other current liabilities
$
423

 
$
296

Long-term Debt
Long-term Debt
Long-term Debt
In 2011, we entered into an agreement for an unsecured five-year revolving credit facility that allowed us to borrow up to $2.5 billion, with interest payable on borrowed amounts set at LIBOR plus 1.0%. No amounts were drawn down under this agreement as of December 31, 2011. This credit facility was terminated in February 2012.
In February 2012, we entered into a new agreement for an unsecured five-year revolving credit facility that allows us to borrow up to $5 billion for general corporate purposes, with interest payable on the borrowed amounts set at LIBOR plus 1.0%. Origination fees are amortized over the term of the credit facility. Under the terms of the agreement, we are obligated to pay a commitment fee of 0.10% per annum on the daily undrawn balance. As of December 31, 2012, no amounts were drawn down and we were in compliance with the covenants under this credit facility.
Concurrent with our entering into the revolving credit facility in February 2012, we also entered into a bridge credit facility agreement that allows us to borrow up to $3 billion to fund tax withholding and remittance obligations related to the settlement of RSUs in connection with our IPO, with interest payable on the borrowed amounts set at LIBOR plus 1.0% and an additional 0.25% payable on drawn balances outstanding from and after the 180th day of borrowing. Under the terms of the agreement, we are obligated to pay a commitment fee of 0.10% per annum on the daily undrawn balance from and after the 90th day following the date we entered into the bridge facility.
In October 2012, we amended and restated our bridge credit facility, and converted it into a three-year unsecured term loan facility (Amended and Restated Term Loan) that allows us to borrow up to $1.5 billion to fund tax withholding and remittance obligations related to the settlement of RSUs in connection with our IPO 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 Amended and Restated Term Loan, which fees are being amortized over the term of the facility. On October 25, 2012, we fully drew down the $1.5 billion available on the Amended and Restated Term Loan to fund a portion of the withholding tax liability that arise due to the vesting and settlement of RSUs in October and November 2012. We paid an additional upfront fee of 0.15% of the $1.5 billion drawn down on the funding date, which fee is being amortized over the remaining term of the facility. The amount outstanding under this facility will become due and payable on October 25, 2015. As of December 31, 2012, we were in compliance with the covenants in the Amended and Restated Term Loan.
In connection with the draw down of the Amended and Restated Term Loan, we entered into an interest rate swap agreement with an effective date of October 25, 2012. The notional amount of the interest rate swap agreement is $1.5 billion and the agreement converts the one-month LIBOR rate on the corresponding notional amount of debt to a fixed interest rate of 1.46% to hedge our exposure to interest rate fluctuation. This interest rate swap has a maturity date of October 25, 2015. We have designated the interest rate swap agreement as a qualifying hedging instrument and accounted for it as a cash flow hedge.
As of December 31, 2012 the change in fair value of this interest rate swap agreement, net of tax was $2 million and is recognized in AOCI with the corresponding fair value of $4 million included in other liabilities on our consolidated balance sheet. For the year ended December 31, 2012, the amount of loss in other comprehensive income reclassified to interest expense was not significant. There were no realized gains or losses on derivative other than those related to the periodic settlement of the interest rate swap.
We estimate that $3 million of derivative losses included in AOCI will be reclassified into earnings within the next 12 months. This amount has been calculated based on the variable interest rate assumptions used in the fair value calculation of the interest rate swap agreement as of December 31, 2012.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
Commitments
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 building leases which are 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 now and 2027. 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.
The following is a schedule, by years, of the future minimum lease payments required under non-cancelable capital and operating leases as of December 31, 2012 (in millions):  
 
Capital
Leases
 
Operating
Leases
2013
$
398

 
$
142

2014
278

 
128

2015
125

 
117

2016
20

 
110

2017
15

 
102

Thereafter
143

 
252

Total minimum lease payments
$
979

 
$
851

Less: amount representing interest and taxes
(123
)
 
 
Less: current portion of the present value of minimum lease payments
(365
)
 
 
Capital lease obligations, net of current portion
$
491

 
 

Operating lease expenses totaled $196 million, $219 million, and $178 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Other contractual commitments
We also have $749 million of non-cancelable contractual commitments as of December 31, 2012, primarily related to equipment and supplies for our data center operations, and, to a lesser extent, construction of our data center sites. The majority of these commitments are due in 2013.  
Contingencies  
Legal Matters  
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 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 United States District Court for the Southern District of New York. In addition, the events surrounding our IPO have become the subject of various government inquiries, and we are cooperating with those inquiries.
In the opinion of management, there was not at least a reasonable possibility we may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies relating to the matters set forth above. However, the outcome of litigation is inherently uncertain. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against us in the same reporting period for amounts in excess of management's expectations, our consolidated financial statements of a particular reporting period could be materially adversely affected.
We are also party to various legal proceedings and claims which arise in the ordinary course of business. Among these pending legal matters, two cases are currently scheduled for trial in the near future:  Summit 6 LLC v. Research in Motion Corporation et al., Case No. 3:11cv00367, is scheduled to begin trial as early as February 19, 2013, in the U.S. District Court for the Northern District of Texas, and Timelines, Inc. v. Facebook, Inc., Case No. 1:2011cv06867, is scheduled to begin trial on April 22, 2013, in the U.S. District Court for the Northern District of Illinois.  In the Summit 6 case, the plaintiffs allege that Facebook infringes certain patents held by the plaintiffs.  In the Timelines case, the plaintiffs allege that Facebook infringes a trademark held by the plaintiffs. In both cases, the plaintiffs are seeking significant monetary damages and equitable relief.
We believe the claims made by the Summit 6 plaintiffs and the Timelines plaintiffs are without merit, and we intend to continue to defend ourselves vigorously in both cases.  Although the outcome of litigation is inherently uncertain, we do not believe the possibility of loss in either of these cases is probable.  We are unable to estimate a range of loss, if any, that could result were there to be an adverse final decision, and we have not accrued a liability for either matter.  If an unfavorable outcome were to occur in the Summit 6 case and/or the Timelines case, it is possible that the impact could be material to our results of operations in the period(s) in which any such outcome becomes probable and estimable.
Indemnifications  
In the normal course of business, to facilitate transactions of services and products, we have agreed to indemnify certain parties with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers, directors, and certain employees, and our certificate of incorporation and bylaws contain similar indemnification obligations.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material impact on our consolidated financial position, results of operations or cash flows. In our opinion, as of December 31, 2012, there was not at least a reasonable possibility we had incurred a material loss with respect to indemnification of such parties. We have not recorded any liability for costs related to indemnification through December 31, 2012.
Stockholders' Equity
Stockholders' Equity
Stockholders' Equity  
Initial Public Offering
In May 2012, we completed our IPO in which we issued and sold 180,000,000 shares of Class A common stock at a public offering price of $38.00 per share and the selling stockholders sold 241,233,615 shares of Class A common stock. We did not receive any proceeds from the sale of shares by the selling stockholders. The total net proceeds received from the IPO were $6.8 billion after deducting underwriting discounts and commissions of $75 million and other offering expenses of approximately $7 million.
Convertible Preferred Stock
Upon the closing of our IPO, all shares of our then-outstanding convertible preferred stock, as shown on the table below, automatically converted into an aggregate of 545,401,443 shares of our Class B common stock.
The following table summarizes the convertible preferred stock outstanding immediately prior to the conversion into common stock, and the rights and preferences of our respective series as of December 31, 2011 and immediately prior to the conversion into common stock:
 
Shares
 
Aggregate
Liquidation
Preference
 
Dividend
Per Share
Per Annum
 
Conversion
Ratio
Per Share
 
Authorized
 
Issued and
Outstanding
 
 
(in thousands)
 
(in thousands)
 
(in millions)
 
 
 
 
Series A
134,747

 
133,055

 
$
1

 
$
0.00036875

 
1.000000

Series B
226,032

 
224,123

 
13

 
0.00456

 
1.004910

Series C
95,768

 
91,410

 
26

 
0.02297335

 
1.004909

Series D
67,454

 
50,591

 
375

 
0.593

 
1.012561

Series E
45,000

 
44,038

 
200

 
0.3633264

 
1.000000

Total
569,001

 
543,217

 
$
615

 
 

 
 

Common Stock
Our certificate of incorporation authorizes the issuance of Class A common stock and Class B common stock. As of December 31, 2012, we are authorized to issue 5,000,000,000 shares of Class A common stock and 4,141,000,000 shares of Class B common stock, each with a par value of $0.000006 per share. Holders of our Class A common stock and Class B common stock are entitled to dividends when, as and if, declared by our board of directors, subject to the rights of the holders of all classes of stock outstanding having priority rights to dividends. As of December 31, 2012, we did not declare any dividends and our credit facilities contain restrictions on our ability to pay dividends. The holder of each share of Class A common stock is entitled to one vote, while the holder of each share of Class B common stock is entitled to ten votes. Shares of our Class B common stock are convertible into an equivalent number of shares of our Class A common stock and generally convert into shares of our Class A common stock upon transfer. Class A common stock and Class B common stock are referred to as common stock throughout the notes to these financial statements, unless otherwise noted.
Upon the closing of our IPO, an aggregate of 335,943,024 shares of Class B common stock were converted into Class A common stock. As of December 31, 2012, there were 1,671,277,621 shares and 701,427,574 shares of Class A common stock and Class B common stock, respectively, issued and outstanding.
Share-based Compensation Plans
We maintain three share-based employee compensation plans: the 2012 Plan, the 2005 Stock Plan and the 2005 Officers' Stock Plan (collectively, Stock Plans). Our 2012 Plan was approved by our board of directors in January 2012 and adopted by our stockholders in April 2012. The 2012 Plan, effective on May 17, 2012, 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. No new awards will be issued under the 2005 Stock Plan as of the effective date of the 2012 Plan. Outstanding awards under the 2005 Stock Plan continue to be subject to the terms and conditions of the 2005 Stock Plan. 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, were added to the reserves of the 2012 Plan.
We have initially reserved 25,000,000 shares of our Class A common stock for issuance under our 2012 Plan. The number of shares reserved for issuance under our 2012 Plan will increase automatically on the first day of January of each of 2013 through 2022 by a number of shares of Class A common stock equal to the lesser of (i) 2.5% of the total outstanding shares of our common stock as of the immediately preceding December 31st or (ii) a number of shares determined by the board of directors. 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.
The 2005 Officers' Stock Plan provides for up to 120,000,000 shares of incentive and nonstatutory stock options to certain of our employees or officers. The 2005 Officers' Stock Plan will terminate ten years after its adoption unless terminated earlier by our compensation committee. Stock options become vested and exercisable at such times and under such conditions as determined by our compensation committee on the date of grant. In November 2005, we issued a nonstatutory stock option to our CEO to purchase 120,000,000 shares of our Class B common stock under the 2005 Officers' Stock Plan. As of December 31, 2012, the option had been partially exercised in respect of 60,000,000 shares with the remainder remaining outstanding and fully vested, and no options were available for future issuance under the 2005 Officers' Stock Plan.

The following table summarizes the stock option and RSU award activities under the Stock Plans for the year ended December 31, 2012:  
 
 
 
Shares Subject to Options Outstanding 
 
Outstanding RSUs 
 
Shares
Available
for Grant(1)
 
Number of
Shares
 
Weighted
Average
Exercise
Price 
 
Weighted-
Average
Remaining
Contractual
Term 
 
Aggregate
Intrinsic
Value(2)
 
Outstanding
RSUs(3)
 
Weighted
Average
Grant
Date Fair
Value 
 
(in thousands)
 
(in thousands)
 
 
 
(in years)
 
(in millions)
 
(in thousands)
 
 
Balance as of December 31, 2011
52,318

 
258,539

 
$
0.47

 
4.38
 
$
7,360

 
378,772

 
$
6.83

Stock options exercised
—

 
(135,505
)
 
0.12

 
 
 
 
 
—

 
 
Stock options forfeited/cancelled
213

 
(213
)
 
1.41

 
 
 
 
 
—

 
 
RSUs granted
(41,252
)
 
—

 
 
 
 
 
 
 
41,252

 
32.60

RSUs settled
—

 
—

 
 
 
 
 
 
 
(278,846
)
 
3.02

Shares withheld related to net share settlement of RSUs
122,757

 
—

 
 
 
 
 
 
 
—

 
 
RSUs forfeited and cancelled
12,955

 
—

 
 
 
 
 
 
 
(12,955
)
 
20.00

2012 Equity Incentive Plan shares authorized
25,000

 
—

 
 
 
 
 
 
 
—

 
 
Balance as of December 31, 2012
171,991

 
122,821

 
$
0.85

 
3.79
 
$
3,166

 
128,223

 
$
22.08

Stock options vested and expected to vest as of December 31, 2012
 
 
122,791

 
$
0.85

 
3.79
 
$
3,166

 
 
 
 
Stock options exercisable as of December 31, 2012
 
 
113,688

 
$
0.34

 
3.53
 
$
2,989

 
 
 
 
 
(1)
After excluding 195 thousand restricted stock awards included in the table above, 171,796 thousand shares are available for grant under the Stock Plans as of December 31, 2012.
(2)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the assessed fair value of our common stock as of December 31, 2011 and the closing market price of our common stock as of December 31, 2012.
(3)
During the year ended December 31, 2012 69,196 thousand RSUs were vested and the total grant date fair value of these RSUs vested is $9.14. As of December 31, 2012 and 2011, we have 113,044 thousand and 153,943 thousand of unvested RSUs.
Under net settlement procedures currently applicable to our outstanding RSUs for current and former employees, upon each settlement date, RSUs are withheld to cover the required withholding tax, which is based on the value of the RSU on the settlement date as determined by the closing price of our common stock on the trading day immediately preceding the applicable settlement date. The remaining amounts are delivered to the recipient as shares of our common stock. We settled 279 million of Pre-2011 RSUs in 2012 of which 273 million RSUs were net settled by withholding 123 million shares, which represented the employees' minimum statutory obligation for each such employee's applicable income and other employment taxes and remitted cash totaling of $2.86 billion to the appropriate tax authorities. The amount remitted to the tax authorities for the employees' tax obligation to the tax authorities was reflected as a financing activity within our consolidated statements of cash flows. These shares withheld by us as a result of the net settlement of Pre-2011 RSUs are no longer considered issued and outstanding, thereby reducing our shares outstanding used to calculate earnings per share. These shares are returned to the reserves and are available for future issuance under the 2012 Plan.
We estimate the fair value of stock options granted using the Black-Scholes-Merton single option valuation model, which requires inputs such as expected term, expected volatility and risk-free interest rate. Further, the estimated forfeiture rate of awards also affects the amount of aggregate compensation. These inputs are subjective and generally require significant analysis and judgment to develop.
We estimate the expected term based upon the historical behavior of our employees for employee grants. We estimate expected volatility based on a study of publicly traded industry peer companies. The forfeiture rate is derived primarily from our historical data, and the risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues. Our dividend yield is 0%, since we have not paid, and do not expect to pay, dividends.
The fair values of employee options granted during 2010 have been estimated as of the date of grant using the following weighted-average assumptions.  
 
December 31,
2010
Expected term from grant date (in years)
7.15
Risk-free interest rate
1.69%
Expected volatility
0.46
Dividend yield
—

The weighted-average fair value of employee options granted during the year ended December 31, 2010 was $5.26 per share. There were no options granted for the years ended December 31, 2012 and 2011.
The following table summarizes additional information regarding outstanding and exercisable options under the Stock Plans at
December 31, 2012:
 
 
Options Outstanding 
 
Options Exercisable 
Exercise
Price (Range) 
 
Number of
Shares
 
Weighted-
Average
Remaining
Life
 
Weighted-
Average
Exercise
Price 
 
Number of
Shares 
 
Weighted-
Average
Exercise
Price 
 
 
(in thousands)
 
(in years)
 
 
 
(in thousands)
 
 
$0.00 - 0.04
 
5,381
 
2.65
 
$
0.04

 
5,381

 
$
0.04

0.06
 
63,379
 
2.86
 
0.06

 
63,379

 
0.06

0.10 - 0.18
 
18,096
 
3.66
 
0.15

 
18,096

 
0.15

0.29 - 0.33
 
14,701
 
4.40
 
0.31

 
14,701

 
0.31

1.78
 
4,693
 
5.59
 
1.78

 
3,701

 
1.78

1.85
 
4,865
 
6.04
 
1.85

 
3,938

 
1.85

2.95
 
2,506
 
6.64
 
2.95

 
1,567

 
2.95

3.23
 
4,500
 
6.82
 
3.23

 
2,925

 
3.23

10.39
 
3,500
 
7.56
 
10.39

 
—

 
—

15.00
 
1,200
 
7.81
 
15.00

 
—

 
—

 
 
122,821
 
3.79
 
$
0.85

 
113,688

 
$
0.34


The aggregate intrinsic value of the options exercised in the years ended December 31, 2012, 2011, and 2010 was $4.23 billion, $2.38 billion and $492 million, respectively. The total grant date fair value of stock options vested during the years ended December 31, 2012, 2011, and 2010 was $5 million, $6 million and $16 million, respectively.
As of December 31, 2012, there was $2.21 billion of unrecognized share-based compensation expense, of which $1.96 billion is related to RSUs, and $244 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.
Other Income (Expense), Net
Other Income (Expense), Net
Other income (expense), net
The following table presents the detail of other income (expense), net, for the periods presented (in millions):
 
Year Ended December 31,
 
2012
 
2011
 
2010
Interest income
$
14

 
$
4

 
$
1

Foreign currency exchange losses, net
(9
)
 
(29
)
 
(1
)
Other
2

 
6

 
(2
)
Other income (expense), net
$
7

 
$
(19
)
 
$
(2
)
Income Taxes
Income Taxes
Income Taxes
The components of income before provision for income taxes for the years ended December 31, 2012, 2011, and 2010 are as follows (in millions):
 
Year Ended December 31, 
 
2012
 
2011
 
2010
Domestic
$
1,062

 
$
1,819

 
$
1,027

Foreign
(568
)
 
(124
)
 
(19
)
Income before provision for income taxes
$
494

 
$
1,695

 
$
1,008


The provision for income taxes consisted of the following (in millions):  
 
Year Ended December 31, 
 
2012
 
2011
 
2010
Current:
 
 
 
 
 
Federal
$
559

 
$
664

 
$
325

State
45

 
60

 
57

Foreign
22

 
8

 
1

Total current tax expense
626

 
732

 
383

Deferred:
 
 
 
 
 
Federal
(172
)
 
(34
)
 
13

State
(6
)
 
(3
)
 
6

Foreign
(7
)
 
—

 
—

Total deferred tax expense (benefit)
(185
)
 
(37
)
 
19

Provision for income taxes
$
441

 
$
695

 
$
402

 
A reconciliation of the U.S. federal statutory income tax rate of 35% to our effective tax rate is as follows (in percentages):  
 
Year Ended December 31, 
 
2012
 
2011
 
2010
U.S. federal statutory income tax rate
35.0
%
 
35.0
 %
 
35.0
 %
State income taxes, net of federal benefit
6.2

 
2.2

 
4.0

Research tax credits
—

 
(1.0
)
 
(0.8
)
Share-based compensation
19.2

 
1.5

 
0.3

Foreign losses not benefited
26.9

 
3.3

 
0.8

Other
2.0

 
—

 
0.6

Effective tax rate
89.3
%
 
41.0
 %
 
39.9
 %
 
Excess tax benefits associated with stock option exercises and other equity awards are credited to stockholders' equity. The income tax benefits resulting from stock awards that were credited to stockholders' equity were $1.03 billion, $433 million and $107 million for the years ended December 31, 2012, 2011, and 2010.
Our deferred tax assets (liabilities) are as follows (in millions):
 
December 31, 
 
2012
 
2011
Deferred tax assets:
 
 
 
Net operating loss carryforward
$
10

 
$
3

Tax credit carryforward
37

 
9

Share-based compensation
233

 
79

Accrued expenses and other liabilities
83

 
58

Other
16

 
—

Total deferred tax assets
379

 
149

Less: valuation allowance
(37
)
 
(9
)
Deferred tax assets, net of valuation allowance
342

 
140

 
 
 
 
Deferred tax liabilities:
 
 
 
Depreciation and amortization
(97
)
 
(69
)
Purchased intangible assets
(92
)
 
(10
)
Deferred foreign taxes
(15
)
 
(1
)
Total deferred tax liabilities
(204
)
 
(80
)
Net deferred tax assets
$
138

 
$
60


The valuation allowance was approximately $37 million and $9 million as of December 31, 2012 and 2011, respectively, related to state tax credits that we do not believe will ultimately be realized.
As of December 31, 2012, the U.S. federal and state net operating loss carryforwards were approximately $5.83 billion and $7.62 billion, which will expire in 2027 and 2021, respectively, if not utilized. If realized, $2.17 billion of net operating loss carryforwards will be recognized as a benefit through additional paid in capital. We also have state tax credit carryforwards of $181 million, which carry forward indefinitely.
Utilization of our net operating loss and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitations could result in the expiration of the net operating loss and tax credit carryforwards before their utilization. The events that may cause ownership changes include, but are not limited to, a cumulative stock ownership change of greater than 50% over a three-year period.
Our net foreign pretax losses include jurisdictions with both pretax earnings and pretax losses. Our consolidated financial statements provide taxes for all related tax liabilities that would arise upon repatriation of earnings in the foreign jurisdictions where we do not intend to indefinitely reinvest those earnings outside the United States, and the amount of taxes provided for has been insignificant.  
The following table reflects changes in the gross unrecognized tax benefits (in millions):  
 
Year Ended December 31, 
 
2012
 
2011
 
2010
Gross unrecognized tax benefits-beginning of period
$
63

 
$
18

 
$
9

Increase related to prior year tax positions
13

 
5

 
1

Decreases related to prior year tax positions
(16
)
 
(2
)
 
(2
)
Increases related to current year tax positions
104

 
42

 
10

Gross unrecognized tax benefits-end of period
$
164

 
$
63

 
$
18


During all years presented, we recognized interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of income. For the year ended December 31, 2012, we recognized interest of $3 million and penalties of $1 million. The amount of interest and penalties accrued as of December 31, 2012 and 2011 was $10 million and $6 million, respectively.
If the remaining balance of gross unrecognized tax benefits of $164 million as of December 31, 2012 was realized in a future period, this would result in a tax benefit of $70 million within our provision of income taxes at such time.
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 through 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 2012 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 material to our financial statements.
Although the timing of the resolution, settlement, and closure of any audits 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
Geographical Information
Geographical Information  
Revenue by geography is based on the billing address of the advertiser or Platform developer. The following table sets forth revenue and property and equipment, net by geographic area (in millions):  
 
Year Ended December 31, 
 
2012
 
2011
 
2010
Revenue:
 
 
 
 
 
United States
$
2,578

 
$
2,067

 
$
1,223

Rest of the world(1)
2,511

 
1,644

 
751

Total revenue
$
5,089

 
$
3,711

 
$
1,974

 
(1)
No individual country exceeded 10% of our total revenue for any period presented.
 
 
December 31,
 
2012
 
2011
Property and equipment, net:
 
 
 
United States
$
2,110

 
$
1,444

Rest of the world(1)
281

 
31

Total property and equipment, net
$
2,391

 
$
1,475

(1)
No individual country exceeded 10% of our total property and equipment, net for any period presented.
Summary of Significant Accounting Policies (Policies)
Basis of Presentation 
Basis of Presentation  
We prepared the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). The consolidated financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Use of Estimates 
Use of Estimates  
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the 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 share-based awards, 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.
Reclassifications 
Reclassifications
We have reclassified certain prior period amounts within our consolidated statements of income and cash flows to conform to our current year presentation. These reclassifications did not affect previously reported revenue, total costs and expenses, income from operations, net income in the consolidated statements of income, or net cash provided by operating activities in the consolidated statements of cash flows.
Revenue Recognition 
Revenue Recognition  
We generate substantially all of our revenue from advertising and payment processing fees. We recognize revenue once all of the following criteria have been met:  
•
persuasive evidence of an arrangement exists;
•
delivery of Facebook's obligations to our customer has occurred;
•
the price is fixed or determinable; and
•
collectability of the related receivable is reasonably assured.  
Revenue for the years ended December 31, 2012, 2011, and 2010 consists of the following (in millions):  
 
Year Ended December 31,
 
2012
 
2011
 
2010
Advertising
$
4,279

 
$
3,154

 
$
1,868

Payments and other fees
810

 
557

 
106

Total revenue
$
5,089

 
$
3,711

 
$
1,974

 
Advertising  
Advertising revenue is generated by displaying ad products on the Facebook website or mobile app and third-party affiliated websites or mobile apps. The arrangements are evidenced by either online acceptance of terms and conditions or contracts that stipulate the types of advertising to be delivered, the timing and the pricing. Marketers pay for ad products either directly or through their relationships with advertising agencies, based on the number of impressions delivered or the number of clicks made by our users. The typical term of an advertising arrangement is approximately 30 days with billing generally occurring after the delivery of the advertisement.  
We recognize revenue from the delivery of click-based ads in the period in which a user clicks on the content. We recognize revenue from the display of impression-based ads in the contracted period in which the impressions are delivered. Impressions are considered delivered when an ad is displayed to users.
Payments and Other Fees  
We enable Payments from our users to our Platform developers. Our users can transact and make payments on the Facebook Platform by using credit cards, PayPal or other payment methods available on our website. The primary method for users to transact with the developers on the Facebook Platform is via the purchase of our virtual currency, which enables our users to purchase virtual and digital goods in games and apps. Upon the initial sale of our virtual currency, we record consideration received from a user as a deposit. 
When a user engages in a payment transaction utilizing our virtual currency for the purchase of a virtual or digital good from a Platform developer, we reduce the user's virtual currency balance by the price of the purchase, which is a price that is solely determined by the Platform developer. We remit to the Platform developer an amount that is based on the total amount of virtual currency redeemed less the processing fee that we charge the Platform developer for the transaction. Our revenue is the net amount of the transaction, representing our processing fee for the service performed. We record revenue on a net basis as we do not consider ourselves to be the principal in the sale of the virtual or digital good to the user.
Our Payments terms and conditions provide for a 30-day claim period subsequent to a Payments transaction during which the customer may dispute the virtual or digital goods transaction. Through the third quarter of 2012, we had deferred recognition of Payments revenue until the expiration of this period as we were unable to make reasonable and reliable estimates of future refunds or chargebacks arising during this claim period, due to lack of historical transactional information. Beginning in the fourth quarter of 2012, we had 24 months of historical transactional information which enabled us to estimate future refunds and chargebacks. Accordingly, in the fourth quarter of 2012, we recorded all Payments revenues at the time of the purchase of the related virtual or digital goods, net of estimated refunds or chargebacks. This change resulted in a one-time increase in Payments revenue in the fourth quarter of 2012 of approximately $66 million as we recognized revenue from four months of transactions.
Other fees, which includes user Promoted Posts and, to a lesser extent, Facebook Gifts, have not been material in all periods presented in our financial statements.  
Revenue is recognized net of applicable sales and other taxes.
Cost of Revenue 
Cost of Revenue  
Our cost of revenue consists primarily of expenses associated with the delivery and distribution of our products. These include expenses related to the operation of our data centers such as facility and server equipment depreciation, facility and server equipment rent expense, energy and bandwidth costs, support and maintenance costs, and salaries, benefits and share-based compensation for certain personnel on our operations teams. Cost of revenue also includes credit card and other transaction fees related to processing customer transactions.
Share-based Compensation 
Share-based Compensation  
We account for share-based employee compensation plans under the fair value recognition and measurement provisions of GAAP. Those provisions require all share-based payments to employees, including grants of stock options and RSUs, to be measured based on the grant-date fair value of the awards, with the resulting expense generally recognized in our consolidated statements of income over the period during which the employee is required to perform service in exchange for the award.
Prior to January 1, 2011, we granted RSUs (Pre-2011 RSUs) under our 2005 Stock Plan to our employees and members of our board of directors that vested upon the satisfaction of both a service condition and a liquidity condition. The service condition for the majority of these awards is satisfied over four years. The liquidity condition was satisfied six months after our initial public offering (IPO) in May 2012. The vesting condition that was satisfied six months following our IPO did not affect the expense attribution period for the RSUs for which the service condition has been met as of the date of our IPO. This six-month period was not a substantive service condition and, accordingly, beginning on the effectiveness of our IPO in May 2012, we recognized cumulative share-based compensation expense for the portion of the RSUs that had met the service condition, following the accelerated attribution method (net of estimated forfeitures). In the year ended December 31, 2012, we recognized $1.04 billion of share-based compensation expense related to our Pre-2011 RSUs. Refer to Note 11 Stockholders' Equity for disclosure with respect to the settlement of the Pre-2011 RSUs. 
RSUs granted on or after January 1, 2011 (Post-2011 RSUs) under our 2005 Stock Plan or 2012 Equity Incentive Plan (2012 Plan)are not subject to a liquidity condition in order to vest, and compensation expense related to these grants is based on the grant date fair value of the RSUs and is recognized on a straight-line basis over the applicable service period. The majority of Post-2011 RSUs are earned over a service period of four to five years, and vested shares will be settled beginning in 2013.
Share-based compensation expense is recorded net of estimated forfeitures in our consolidated statements of income and as such, only those share-based awards that we expect to vest are recorded. We estimate the forfeiture rate based on historical forfeitures of equity awards and adjust the rate to reflect changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates. 
We have historically issued unvested restricted shares to employee stockholders of certain acquired companies. As these awards are generally subject to continued post-acquisition employment, we have accounted for them as post-acquisition share-based compensation expense. We recognize compensation expense equal to the grant date fair value of the common stock on a straight-line basis over the employee's required service period.
During the years ended December 31, 2012, 2011, and 2010, we realized tax benefits from share-based award activity of $1.03 billion, $433 million and $115 million, respectively. These amounts reflect the extent that the total reduction to our income tax liability from share-based award activity was greater than the amount of the deferred tax assets that we had previously recorded in anticipation of these benefits. These amounts are the aggregate of the individual transactions in which the reduction to our income tax liability was greater than the deferred tax assets that we recorded, reduced by any individual transactions in which the reduction to our income tax liability was less than the deferred tax assets that were recorded. These net amounts were recorded as an adjustment to stockholders' equity in each period, as an increase to cash flows from operating activities, and were not recognized in our consolidated statements of income.  
The tax benefits realized from share-based award activity of $1.03 billion relate to both the reduction of current year income tax liabilities and the expected refund of $451 million from income tax loss carrybacks to 2010 and 2011.
In addition, we reported excess tax benefits that decreased our cash flows from operating activities and increased our cash flows from financing activities for the years ended December 31, 2012, 2011, and 2010, by $1.03 billion, $433 million, $115 million, respectively. The amounts of these excess tax benefits reflect the total of the individual transactions in which the reduction to our income tax liability was greater than the deferred tax assets that were recorded, but were not reduced by any of the individual transactions in which the reduction to our income tax liability was less than the deferred tax assets that were recorded.
Income Taxes 
Income Taxes  
We recognize income taxes under the asset and liability method. We recognize deferred income tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date.  
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.  
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. The provision for income taxes includes the effects of any reserves that are considered appropriate, as well as the related net interest and penalties.
Advertising Expense 
Advertising Expense  
Advertising costs are expensed when incurred and are included in marketing and sales expenses in the accompanying consolidated statements of income. We incurred advertising expenses of $67 million, $28 million, and $8 million for the years ended December 31, 2012, 2011, and 2010, respectively.
Cash and Cash Equivalents, and Marketable Securities 
Cash and Cash Equivalents, and Marketable Securities  
Cash and cash equivalents primarily consist of cash on deposit with banks and investments in money market funds, and U.S. government and U.S. government agency securities with maturities of 90 days or less from the date of purchase.
We hold investments in marketable securities, consisting of U.S. government and U.S. government agency securities. We classify our marketable securities as available-for-sale investments in our current assets because they represent investments of cash available for current operations. Our available-for-sale investments are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive income/(loss) in stockholders' equity. Unrealized losses are charged against other income (expense), net when a decline in fair value is determined to be other-than-temporary. We have not recorded any such impairment charge in the periods presented. We determine realized gains or losses on sale of marketable securities on a specific identification method, and record such gains or losses as other income (expense), net.  
We classify certain restricted cash balances within prepaid expenses and other current assets and other assets on the accompanying consolidated balance sheets based upon the term of the remaining restrictions.
Non-Marketable Securities 
Non-Marketable Securities  
We invest in certain investment funds that are not publicly traded. We carry these investments at cost because we do not have significant influence over the underlying investee. We assess for any other-than-temporary impairment at least on an annual basis. No impairment charge has been recorded to-date on our non-marketable securities. We classify these investments within other assets on the accompanying consolidated balance sheets.
Derivative Financial Instruments 
Derivative Financial Instruments
We account for derivative instruments as either assets or liabilities and carry them at fair value. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash-flow hedges, the effective portion of the gain or loss on the derivative instruments is initially reported as a separate component of accumulated other comprehensive income (AOCI) in shareholders' equity and is subsequently recognized in earnings when the hedge exposure is recognized in earnings. The ineffective portion of the gain or loss on the derivative instruments, if any, is recognized in earnings. To receive hedge accounting treatment, a cash flow hedge must be highly effective in offsetting changes to expected future cash flows on the hedged transaction.
In October 2012 we entered into an interest rate swap agreement to hedge our exposure to interest rate fluctuation with respect to our $1.5 billion floating rate three-year unsecured term loan facility. The critical terms of the interest rate swap agreement and the related debt agreement match and allow us to designate the interest rate swap as a highly effective cash flow hedge under GAAP. We periodically assess the effectiveness of our hedged transaction. The interest rate swap agreement is currently our only derivative instrument and is not used for trading purpose. Refer to Note 9 Long-term Debt for further disclosure on the interest rate swap agreement.
Fair Value of Financial Instruments 
Fair Value of Financial Instruments  
We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:  
Level 1-Quoted prices in active markets for identical assets or liabilities.  
Level 2-Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  
Level 3-Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability.  
Our valuation techniques used to measure the fair value of money market funds and marketable debt securities were derived from quoted prices in active markets for identical assets or liabilities and our valuation technique used to measure the fair value of our derivative instrument was based on a model-driven valuation using significant inputs derived from or corroborated by observable market data.
Accounts Receivable and Allowance for Doubtful Accounts 
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We make estimates for the allowance for doubtful accounts based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect customers' ability to pay.
Property and Equipment 
Property and Equipment  
Property and equipment, which includes amounts recorded under capital leases, are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the remaining lease term, in the case of a capital lease, whichever is shorter.  
The estimated useful lives of property and equipment are described below:  
Property and Equipment 
 
Useful Life 
Network equipment
 
Three to four years
Buildings
 
15 to 20 years
Computer software, office equipment and other
 
Two to five years
Leased equipment and leasehold improvements
 
Lesser of estimated useful life or remaining lease term
 
Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of property and equipment that have not yet been placed in service for their intended use.  
The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in income from operations.
Lease Obligations 
Lease Obligations  
We lease office space, data centers, and equipment under non-cancelable capital and operating leases with various expiration dates through 2027. Certain of the operating lease agreements contain rent holidays, rent escalation provisions, and purchase options. Rent holidays and rent escalation provisions are considered in determining the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease inception.
Loss Contingencies 
Loss Contingencies 
We are involved in various lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. We record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. We review these provisions at least quarterly and adjust these provisions accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
Business Combinations 
Business Combinations
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets 
Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets  
We evaluate the recoverability of property and equipment and amortizable intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any such impairment charge during the years presented.
We review goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of our single reporting operating unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment under the new authoritative guidance issued by the Financial Accounting Standards Board (FASB). If we determine that it is more likely than not that its fair value is less than its carrying amount, then the two-step goodwill impairment test is performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step would need to be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. As of December 31, 2012, no impairment of goodwill has been identified.  
Acquired amortizable intangible assets, which are included in goodwill and intangible assets, net, are amortized on a straight-line basis over the estimated useful lives of the assets. The estimated remaining useful lives for intangible assets range from less than one year to 17 years.  
In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of property and equipment and amortizable intangible assets. If we reduce the estimated useful life assumption for any asset, the remaining unamortized balance would be amortized or depreciated over the revised estimated useful life.
Deferred Revenue and Deposits 
Deferred Revenue and Deposits  
Deferred revenue consists of billings in advance of revenue recognition. Deposits relate to unused virtual currency held by our users. Once this virtual currency is utilized by a user, approximately 70% of this amount would then be payable to the Platform developer and the balance would be recognized as revenue.  
Deferred revenue and deposits consists of the following (in millions):  
 
December 31,
 
2012
 
2011
Deferred revenue
$
8

 
$
75

Deposits
22

 
15

Total deferred revenue and deposits
$
30

 
$
90

Foreign Currency 
Foreign Currency  
Generally the functional currency of our international subsidiaries is the local currency. We translate the financial statements of these subsidiaries to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenue, costs, and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity. Net losses resulting from foreign exchange transactions were $9 million, $29 million and $1 million for the years ended December 31, 2012, 2011 and 2010, respectively. These losses were recorded as other income (expense), net on our consolidated statements of income.
Credit Risk and Concentration 
Credit Risk and Concentration  
Financial instruments owned by the company that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, marketable securities, accounts receivable, and derivative instruments. Cash equivalents consist of short-term money market funds and U.S. government and U.S. government agency securities, which are deposited with reputable financial institutions. Marketable securities consist of investments in U.S. government and U.S. government agency securities. Our investment policy limits investment instruments to U.S. government and U.S. government agency securities with the main objective of preserving capital and maintaining liquidity.  
Accounts receivable are typically unsecured and are derived from revenue earned from customers across different industries and countries. We generated 51%, 56%, and 62% of our revenue for the years ended December 31, 2012, 2011, and 2010, respectively, from marketers and Platform developers based in the United States, with the majority of revenue outside of the United States coming from customers located in western Europe, Canada, Australia, and Brazil.  
We perform ongoing credit evaluations of our customers, and generally do not require collateral. We maintain an allowance for estimated credit losses. During the years ended December 31, 2012, 2011, and 2010, our bad debt expenses were $9 million, $8 million, and $9 million, respectively. In the event that accounts receivable collection cycles deteriorate, our operating results and financial position could be adversely affected.  
Revenue from one customer, Zynga, represented 12% of total revenue for the year ended December 31, 2011. Revenue from Zynga consisted of payments processing fees related to their sale of virtual goods and from direct advertising purchased by Zynga. No customer represented 10% or more of total revenue during the years ended December 31, 2012 and 2010.  
Segments 
evenue from one customer, Zynga, represented 12% of total revenue for the year ended December 31, 2011. Revenue from Zynga consisted of payments processing fees related to their sale of virtual goods and from direct advertising purchased by Zynga. No customer represented 10% or more of total revenue during the years ended December 31, 2012 and 2010.  
 Segments  
Our chief operating decision-maker is our Chief Executive Officer who reviews financial information presented on a consolidated basis. There are no segment managers who are held accountable by the chief operating decision-maker, or anyone else, for operations, operating results, and planning for levels or components below the consolidated unit level. Accordingly, we have determined that we have a single reporting segment and operating unit structure.  
Recently Issued and Adopted Accounting Pronouncement 
Recently Issued and Adopted Accounting Pronouncement  
Comprehensive Income
In May 2011, the FASB issued guidance that changed the requirement for presenting "Comprehensive Income" in the consolidated financial statements. The update requires an entity to present the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. We adopted this new guidance on January 1, 2012.
Goodwill Impairment Testing
In September 2011, the FASB issued an amendment to an existing accounting standard which provides entities an option to perform a qualitative assessment to determine whether further impairment testing on goodwill is necessary. An entity now has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this new standard on January 1, 2012 and the adoption did not have a material impact on our financial statements.
Summary of Significant Accounting Policies (Tables)
Revenue by type 
Revenue for the years ended December 31, 2012, 2011, and 2010 consists of the following (in millions):  
 
Year Ended December 31,
 
2012
 
2011
 
2010
Advertising
$
4,279

 
$
3,154

 
$
1,868

Payments and other fees
810

 
557

 
106

Total revenue
$
5,089

 
$
3,711

 
$
1,974

Estimated useful lives of property and equipment 
The estimated useful lives of property and equipment are described below:  
Property and Equipment 
 
Useful Life 
Network equipment
 
Three to four years
Buildings
 
15 to 20 years
Computer software, office equipment and other
 
Two to five years
Leased equipment and leasehold improvements
 
Lesser of estimated useful life or remaining lease term
Deferred revenue and deposits 
Deferred Revenue and Deposits  
Deferred revenue consists of billings in advance of revenue recognition. Deposits relate to unused virtual currency held by our users. Once this virtual currency is utilized by a user, approximately 70% of this amount would then be payable to the Platform developer and the balance would be recognized as revenue.  
Deferred revenue and deposits consists of the following (in millions):  
 
December 31,
 
2012
 
2011
Deferred revenue
$
8

 
$
75

Deposits
22

 
15

Total deferred revenue and deposits
$
30

 
$
90

Acquisitions (Tables)
Allocation of Estimated Fair Value of Assets Acquired and Liabilities Assumed
The following table summarizes the allocation of the fair values of the assets acquired and liabilities assumed and the related useful lives, where applicable:
 
Instagram, Inc.
 
Other
 
(in millions)
 
Useful lives (in years)
 
(in millions)
 
Useful lives (in years)
Amortizable intangible assets:
 
 
 
 
 
 
 
Acquired technology
$
74

 
5
 
$
20

 
3 - 5
Tradename and other
64

 
2 - 7
 
8

 
2 - 3
Net liabilities assumed
(1
)
 
 
 
(4
)
 
 
Deferred tax liabilities
(49
)
 
 
 
(9
)
 
 
Net assets acquired
$
88

 
 
 
$
15

 
 
Goodwill
433

 
 
 
72

 
 
Total fair value considerations
$
521

 
 
 
$
87

 
 
Earnings per Share (Tables)
Numerators and Denominators of Basic and Diluted EPS Computations for Common Stock
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 denomina
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 for the periods presented (in millions):
 
December 31,
 
2012
 
2011
Cash and cash equivalents:
 
 
 
Cash
$
1,513

 
$
510

Cash equivalents:
 
 
 
Money market funds
871

 
892

U.S. government securities
—

 
60

U.S. government agency securities
—

 
50

Total cash and cash equivalents
2,384

 
1,512

Marketable securities:
 
 
 
U.S. government securities
5,165

 
1,415

U.S. government agency securities
2,077

 
981

Total marketable securities
7,242

 
2,396

Total cash, cash equivalents and marketable securities
$
9,626

 
$
3,908

Marketable Securities by Contractual Maturities 
The following table classifies our marketable securities by contractual maturities: (in millions):  
 
December 31,
 
2012
 
2011
Due in one year
$
4,815

 
$
1,964

Due in one to two years
2,427

 
432

Total
$
7,242

 
$
2,396

Fair Value Measurements (Tables)
Fair Value Measurements, Recurring and Nonrecurring
The following table summarizes, for assets or liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy (in millions):  
 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description 
 
December 31,
2012
 
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
 
$
871

 
$
871

 
$
—

 
$
—

Marketable securities:
 
 
 
 
 
 
 
 
U.S. government securities
 
5,165

 
5,165

 
—

 
—

U.S. government agency securities
 
2,077

 
2,077

 
—

 
—

Total cash equivalents and marketable securities
 
$
8,113

 
$
8,113

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Other current liabilities:
 
 
 
 
 
 
 
 
Contingent consideration liability
 
$
4

 
$
—

 
$
—

 
$
4

 
 
 
 
 
 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
Derivative financial instrument
 
$
4

 
$
—

 
$
4

 
$
—

 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description
 
December 31,
2011
 
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
 
$
892

 
$
892

 
—

 
—

U.S. government securities
 
60

 
60

 
—

 
—

U.S. government agency securities
 
50

 
50

 
—

 
—

Total cash equivalents
 
1,002

 
1,002

 
—

 
—

Marketable securities:
 
 
 
 
 
 
 
 
U.S. government securities
 
1,415

 
1,415

 
—

 
—

U.S. government agency securities
 
981

 
981

 
—

 
—

Total cash equivalents and marketable securities
 
$
3,398

 
$
3,398

 
$
—

 
$
—

Property and Equipment (Tables)
Property and equipment
Property and equipment consists of the following (in millions):
 
December 31,
 
2012
 
2011
Network equipment
$
1,912

 
$
1,016

Land
36

 
34

Buildings
594

 
355

Leasehold improvements
194

 
120

Computer software, office equipment and other
93

 
73

Construction in progress
444

 
327

Total
3,273

 
1,925

Less: accumulated depreciation
(882
)
 
(450
)
Property and equipment, net
$
2,391

 
$
1,475

Goodwill and Intangible Assets (Tables)
Changes in Carrying Amount of Goodwill 
The changes in carrying amount of goodwill for the years ended December 31, 2012 and 2011 are as follows (in millions):
Balance as of December 31, 2010
$
37

Goodwill acquired
48

Effect of currency translation adjustment
(3
)
Balance as of December 31, 2011
82

Goodwill acquired
505

Balance as of December 31, 2012
$
587

Intangible Assets 
Intangible assets consist of the following (in millions):
 
 
 
December 31, 2012
 
December 31, 2011
 
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
3 - 18
 
$
684

 
$
(53
)
 
$
631

 
$
51

 
$
(4
)
 
$
47

Acquired technology
2 - 10
 
133

 
(32
)
 
101

 
38

 
(15
)
 
23

Tradename and other
2 - 7
 
94

 
(25
)
 
69

 
23

 
(13
)
 
10

Total
 
 
$
911

 
$
(110
)
 
$
801

 
$
112

 
$
(32
)
 
$
80

Estimated Amortization Expense for Unamortized Acquired Intangible Assets 
As of December 31, 2012, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):  
2013
$
126

2014
120

2015
112

2016
102

2017
86

Thereafter
255

Total
$
801

Accrued Expenses and Other Current Liabilities (Tables)
Schedule of Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities were as follows (in millions):
 
December 31,
 
2012
 
2011
Accrued compensation and benefits
$
146

 
$
57

Other current liabilities
277

 
239

Total accrued expenses and other current liabilities
$
423

 
$
296

Commitments and Contingencies Commitments and Contingencies (Tables)
Schedule of Future Minimum Lease Payments for Capital and Operating Leases
The following is a schedule, by years, of the future minimum lease payments required under non-cancelable capital and operating leases as of December 31, 2012 (in millions):  
 
Capital
Leases
 
Operating
Leases
2013
$
398

 
$
142

2014
278

 
128

2015
125

 
117

2016
20

 
110

2017
15

 
102

Thereafter
143

 
252

Total minimum lease payments
$
979

 
$
851

Less: amount representing interest and taxes
(123
)
 
 
Less: current portion of the present value of minimum lease payments
(365
)
 
 
Capital lease obligations, net of current portion
$
491

 
 
Stockholders' Equity (Tables)
Schedule of Convertible Preferred Stock Immediately Prior to Conversion 
Upon the closing of our IPO, all shares of our then-outstanding convertible preferred stock, as shown on the table below, automatically converted into an aggregate of 545,401,443 shares of our Class B common stock.
The following table summarizes the convertible preferred stock o
Stock Option and RSU Award Activity under Stock Plans 
The following table summarizes the stock option and RSU award activities under the Stock Plans for the year ended December 31, 2012:  
 
 
 
Shares Subject to Options Outstanding 
 
Outstanding RSUs 
 
Shares
Available
for Grant(1)
 
Number of
Shares
 
Weighted
Average
Exercise
Price 
 
Weighted-
Average
Remaining
Contractual
Term 
 
Aggregate
Intrinsic
Value(2)
 
Outstanding
RSUs(3)
 
Weighted
Average
Grant
Date Fair
Value 
 
(in thousands)
 
(in thousands)
 
 
 
(in years)
 
(in millions)
 
(in thousands)
 
 
Balance as of December 31, 2011
52,318

 
258,539

 
$
0.47

 
4.38
 
$
7,360

 
378,772

 
$
6.83

Stock options exercised
—

 
(135,505
)
 
0.12

 
 
 
 
 
—

 
 
Stock options forfeited/cancelled
213

 
(213
)
 
1.41

 
 
 
 
 
—

 
 
RSUs granted
(41,252
)
 
—

 
 
 
 
 
 
 
41,252

 
32.60

RSUs settled
—

 
—

 
 
 
 
 
 
 
(278,846
)
 
3.02

Shares withheld related to net share settlement of RSUs
122,757

 
—

 
 
 
 
 
 
 
—

 
 
RSUs forfeited and cancelled
12,955

 
—

 
 
 
 
 
 
 
(12,955
)
 
20.00

2012 Equity Incentive Plan shares authorized
25,000

 
—

 
 
 
 
 
 
 
—

 
 
Balance as of December 31, 2012
171,991

 
122,821

 
$
0.85

 
3.79
 
$
3,166

 
128,223

 
$
22.08

Stock options vested and expected to vest as of December 31, 2012
 
 
122,791

 
$
0.85

 
3.79
 
$
3,166

 
 
 
 
Stock options exercisable as of December 31, 2012
 
 
113,688

 
$
0.34

 
3.53
 
$
2,989

 
 
 
 
 
(1)
After excluding 195 thousand restricted stock awards included in the table above, 171,796 thousand shares are available for grant under the Stock Plans as of December 31, 2012.
(2)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the assessed fair value of our common stock as of December 31, 2011 and the closing market price of our common stock as of December 31, 2012.
(3)
During the year ended December 31, 2012 69,196 thousand RSUs were vested and the total grant date fair value of these RSUs vested is $9.14. As of December 31, 2012 and 2011, we have 113,044 thousand and 153,943 thousand of unvested RSUs.
Fair Value of Employee Options Granted, Weighted-Average Assumptions 
The fair values of employee options granted during 2010 have been estimated as of the date of grant using the following weighted-average assumptions.  
 
December 31,
2010
Expected term from grant date (in years)
7.15
Risk-free interest rate
1.69%
Expected volatility
0.46
Dividend yield
—
Outstanding and Exercisable Options Under Stock Plans 
The following table summarizes additional information regarding outstanding and exercisable options under the Stock Plans at
December 31, 2012:
 
 
Options Outstanding 
 
Options Exercisable 
Exercise
Price (Range) 
 
Number of
Shares
 
Weighted-
Average
Remaining
Life
 
Weighted-
Average
Exercise
Price 
 
Number of
Shares 
 
Weighted-
Average
Exercise
Price 
 
 
(in thousands)
 
(in years)
 
 
 
(in thousands)
 
 
$0.00 - 0.04
 
5,381
 
2.65
 
$
0.04

 
5,381

 
$
0.04

0.06
 
63,379
 
2.86
 
0.06

 
63,379

 
0.06

0.10 - 0.18
 
18,096
 
3.66
 
0.15

 
18,096

 
0.15

0.29 - 0.33
 
14,701
 
4.40
 
0.31

 
14,701

 
0.31

1.78
 
4,693
 
5.59
 
1.78

 
3,701

 
1.78

1.85
 
4,865
 
6.04
 
1.85

 
3,938

 
1.85

2.95
 
2,506
 
6.64
 
2.95

 
1,567

 
2.95

3.23
 
4,500
 
6.82
 
3.23

 
2,925

 
3.23

10.39
 
3,500
 
7.56
 
10.39

 
—

 
—

15.00
 
1,200
 
7.81
 
15.00

 
—

 
—

 
 
122,821
 
3.79
 
$
0.85

 
113,688

 
$
0.34

Other Income (Expense), Net (Tables)
Schedule of Other Income (Expense), Net
The following table presents the detail of other income (expense), net, for the periods presented (in millions):
 
Year Ended December 31,
 
2012
 
2011
 
2010
Interest income
$
14

 
$
4

 
$
1

Foreign currency exchange losses, net
(9
)
 
(29
)
 
(1
)
Other
2

 
6

 
(2
)
Other income (expense), net
$
7

 
$
(19
)
 
$
(2
)
Income Taxes (Tables)
Components of Income Before Provision for Income Taxes 
The components of income before provision for income taxes for the years ended December 31, 2012, 2011, and 2010 are as follows (in millions):
 
Year Ended December 31, 
 
2012
 
2011
 
2010
Domestic
$
1,062

 
$
1,819

 
$
1,027

Foreign
(568
)
 
(124
)
 
(19
)
Income before provision for income taxes
$
494

 
$
1,695

 
$
1,008

Schedule of Provision for Income Taxes 
The provision for income taxes consisted of the following (in millions):  
 
Year Ended December 31, 
 
2012
 
2011
 
2010
Current:
 
 
 
 
 
Federal
$
559

 
$
664

 
$
325

State
45

 
60

 
57

Foreign
22

 
8

 
1

Total current tax expense
626

 
732

 
383

Deferred:
 
 
 
 
 
Federal
(172
)
 
(34
)
 
13

State
(6
)
 
(3
)
 
6

Foreign
(7
)
 
—

 
—

Total deferred tax expense (benefit)
(185
)
 
(37
)
 
19

Provision for income taxes
$
441

 
$
695

 
$
402

Reconciliation of U.S. Federal Statutory Income Tax Rate to Effective Tax Rate 
A reconciliation of the U.S. federal statutory income tax rate of 35% to our effective tax rate is as follows (in percentages):  
 
Year Ended December 31, 
 
2012
 
2011
 
2010
U.S. federal statutory income tax rate
35.0
%
 
35.0
 %
 
35.0
 %
State income taxes, net of federal benefit
6.2

 
2.2

 
4.0

Research tax credits
—

 
(1.0
)
 
(0.8
)
Share-based compensation
19.2

 
1.5

 
0.3

Foreign losses not benefited
26.9

 
3.3

 
0.8

Other
2.0

 
—

 
0.6

Effective tax rate
89.3
%
 
41.0
 %
 
39.9
 %
Schedule of Deferred Tax Assets and Liabilities 
Our deferred tax assets (liabilities) are as follows (in millions):
 
December 31, 
 
2012
 
2011
Deferred tax assets:
 
 
 
Net operating loss carryforward
$
10

 
$
3

Tax credit carryforward
37

 
9

Share-based compensation
233

 
79

Accrued expenses and other liabilities
83

 
58

Other
16

 
—

Total deferred tax assets
379

 
149

Less: valuation allowance
(37
)
 
(9
)
Deferred tax assets, net of valuation allowance
342

 
140

 
 
 
 
Deferred tax liabilities:
 
 
 
Depreciation and amortization
(97
)
 
(69
)
Purchased intangible assets
(92
)
 
(10
)
Deferred foreign taxes
(15
)
 
(1
)
Total deferred tax liabilities
(204
)
 
(80
)
Net deferred tax assets
$
138

 
$
60

Schedule of Gross Unrecognized Tax Benefits Roll Forward 
The following table reflects changes in the gross unrecognized tax benefits (in millions):  
 
Year Ended December 31, 
 
2012
 
2011
 
2010
Gross unrecognized tax benefits-beginning of period
$
63

 
$
18

 
$
9

Increase related to prior year tax positions
13

 
5

 
1

Decreases related to prior year tax positions
(16
)
 
(2
)
 
(2
)
Increases related to current year tax positions
104

 
42

 
10

Gross unrecognized tax benefits-end of period
$
164

 
$
63

 
$
18

Geographical Information (Tables)
Revenue by Geographic Area 
The following table sets forth revenue and property and equipment, net by geographic area (in millions):  
 
Year Ended December 31, 
 
2012
 
2011
 
2010
Revenue:
 
 
 
 
 
United States
$
2,578

 
$
2,067

 
$
1,223

Rest of the world(1)
2,511

 
1,644

 
751

Total revenue
$
5,089

 
$
3,711

 
$
1,974

 
(1)
No individual country exceeded 10% of our total revenue for any period presented.
Property and Equipment, Net by Geographic Area 
1)
No individual country exceeded 10% of our total revenue for any period presented.
 
 
December 31,
 
2012
 
2011
Property and equipment, net:
 
 
 
United States
$
2,110

 
$
1,444

Rest of the world(1)
281

 
31

Total property and equipment, net
$
2,391

 
$
1,475

(1)
No individual c
Summary of Significant Accounting Policies - Revenue Recognition (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended 3 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2012
Change in Recognition of Refund or Chargeback Reserve
Accounting Policies [Abstract]
 
 
 
 
Advertising
$ 4,279 
$ 3,154 
$ 1,868 
 
Payments and other fees
810 
557 
106 
 
Total revenue
$ 5,089 
$ 3,711 
$ 1,974 
 
Payment transaction claim, term
30 days 
 
 
 
Change in Accounting Estimate
 
 
 
 
Change in accounting estimate, financial effect
 
 
 
66 
Summary of Significant Accounting Policies - Share-based Compensation (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award
 
 
 
Share-based compensation
$ 1,572 
$ 217 
$ 20 
Tax benefit from share-based award activity
1,033 
433 
115 
Income tax refundable
451 
0 
 
Excess tax benefit from share-based award activity
1,033 
433 
115 
Restricted Stock Units (RSUs) |
Pre-2011 RSUs
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period
4 years 
 
 
Share-based compensation
$ 1,040 
 
 
Min |
Restricted Stock Units (RSUs) |
Post-2011 RSUs
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period
4 years 
 
 
Max |
Restricted Stock Units (RSUs) |
Post-2011 RSUs
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period
5 years 
 
 
Summary of Significant Accounting Policies - Property & Equipment (Details)
12 Months Ended
Dec. 31, 2012
Network equipment |
Min
 
Property, Plant and Equipment
 
Useful life of property and equipment
3 years 
Network equipment |
Max
 
Property, Plant and Equipment
 
Useful life of property and equipment
4 years 
Buildings |
Min
 
Property, Plant and Equipment
 
Useful life of property and equipment
15 years 
Buildings |
Max
 
Property, Plant and Equipment
 
Useful life of property and equipment
20 years 
Computer software, office equipment and other |
Min
 
Property, Plant and Equipment
 
Useful life of property and equipment
2 years 
Computer software, office equipment and other |
Max
 
Property, Plant and Equipment
 
Useful life of property and equipment
5 years 
Summary of Significant Accounting Policies - Intangible Assets (Details)
12 Months Ended
Dec. 31, 2012
Less than
 
Intangible Assets
 
Useful lives from date of acquisitions
1 year 
Max
 
Intangible Assets
 
Useful lives from date of acquisitions
17 years 
Summary of Significant Accounting Policies - Credit Risk and Concentration (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Concentration Risk
 
 
 
Bad debt expense
$ 9 
$ 8 
$ 9 
Major customer percentage
10.00% 
10.00% 
10.00% 
Customer concentration risk
 
 
 
Concentration Risk
 
 
 
Number of major customer
0 
1 
0 
Customer concentration risk |
Sales revenue
 
 
 
Concentration Risk
 
 
 
Entity-Wide Revenue, Major Customer, Percentage
 
12.00% 
 
Geographic concentration risk |
Sales revenue |
U.S.
 
 
 
Concentration Risk
 
 
 
Concentration risk percentage
51.00% 
56.00% 
62.00% 
Summary of Significant Accounting Policies - Other Policies (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended 1 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Oct. 25, 2012
Amended and Restated Term Loan
Unsecured debt
Accounting Policies [Abstract]
 
 
 
 
Long-term debt
$ 1,500 
$ 0 
 
$ 1,500 
Advertising expense
67 
28 
8 
 
Foreign currency exchange losses, net
9 
29 
1 
 
Debt Instrument
 
 
 
 
Term loan facility, term period
 
 
 
3 years 
Deferred Revenue & Deposits [Abstract]
 
 
 
 
Deferred Revenue, rate payable to platform developer upon utilization of virtual currency
70.00% 
 
 
 
Deferred Revenue
8 
75 
 
 
Deposits
22 
15 
 
 
Deferred Revenue and Deposits
$ 30 
$ 90 
 
 
Acquisitions (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2012
Instagram Inc.
Dec. 31, 2012
Series of Individually Immaterial Business Acquisitions
Dec. 31, 2012
Acquired technology
Instagram Inc.
Dec. 31, 2012
Acquired technology
Series of Individually Immaterial Business Acquisitions
Dec. 31, 2012
Acquired technology
Min
Dec. 31, 2012
Acquired technology
Min
Series of Individually Immaterial Business Acquisitions
Dec. 31, 2012
Acquired technology
Max
Dec. 31, 2012
Acquired technology
Max
Series of Individually Immaterial Business Acquisitions
Dec. 31, 2012
Tradename and other
Instagram Inc.
Dec. 31, 2012
Tradename and other
Series of Individually Immaterial Business Acquisitions
Dec. 31, 2012
Tradename and other
Min
Dec. 31, 2012
Tradename and other
Min
Instagram Inc.
Dec. 31, 2012
Tradename and other
Min
Series of Individually Immaterial Business Acquisitions
Dec. 31, 2012
Tradename and other
Max
Dec. 31, 2012
Tradename and other
Max
Instagram Inc.
Dec. 31, 2012
Tradename and other
Max
Series of Individually Immaterial Business Acquisitions
Dec. 31, 2012
Patents
Dec. 31, 2012
Patents
Microsoft Corporation
Dec. 31, 2012
Patents
Min
Dec. 31, 2012
Patents
Max
Dec. 31, 2012
Patents
Current period acquisition
Min
Dec. 31, 2012
Patents
Current period acquisition
Max
Dec. 31, 2012
Patents
U.S.
Microsoft Corporation
Patent
Dec. 31, 2012
Patents
Foreign
Microsoft Corporation
Patent
Dec. 31, 2012
Vested Shares Common Class B
Instagram Inc.
Dec. 31, 2012
Unvested Shares Common Class B
Instagram Inc.
Business Acquisition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase price of acquisition
 
 
$ 521 
$ 87 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12 
 
Cash paid for business acquisition
 
 
300 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock issued, unvested shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11 
Aggregate fair value of stock issued
 
 
194 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock issued, share based compensation expense vesting period
 
 
3 years 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of estimated fair value of assets acquired and liabilities assumed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortizable intangible assets
 
 
 
 
74 
20 
 
 
 
 
64 
8 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net liabilities assumed
 
 
(1)
(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred tax liabilities
 
 
(49)
(9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net assets acquired
 
 
88 
15 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
433 
72 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total fair value considerations
 
 
521 
87 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of acquired finite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
633 
 
 
 
 
 
 
 
 
 
Number of patents acquired
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
615 
170 
 
 
Payments to acquire intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
550 
 
 
 
 
 
 
 
 
Purchased intangible assets
$ 92 
$ 10 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 49 
 
 
 
 
 
 
 
 
Useful lives from date of acquisitions
 
 
 
 
5 years 
 
2 years 
3 years 
10 years 
5 years 
 
 
2 years 
2 years 
2 years 
7 years 
7 years 
3 years 
 
 
3 years 
18 years 
3 years 
17 years 
 
 
 
 
Earnings per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Numerator
 
 
 
Net income
$ 53 
$ 1,000 
$ 606 
Less: Net income attributable to participating securities
21 
332 
234 
Net income attributable to Class A and Class B common stockholders
32 
668 
372 
Denominator
 
 
 
Number of shares used for basic EPS computation
2,006 
1,294 
1,107 
Basic EPS
$ 0.02 
$ 0.52 
$ 0.34 
Numerator
 
 
 
Net income attributable to Class A and Class B common stockholders
32 
668 
372 
Denominator
 
 
 
Number of shares used for basic EPS computation
2,006 
1,294 
1,107 
Number of shares used for diluted EPS computation
2,166 
1,508 
1,414 
Diluted EPS
$ 0.01 
$ 0.46 
$ 0.28 
Class A Common Stock
 
 
 
Numerator
 
 
 
Net income
18 
85 
18 
Less: Net income attributable to participating securities
7 
28 
7 
Net income attributable to Class A and Class B common stockholders
11 
57 
11 
Denominator
 
 
 
Weighted average shares outstanding
668 
110 
32 
Less: Shares subject to repurchase
1 
0 
0 
Number of shares used for basic EPS computation
667 
110 
32 
Basic EPS
$ 0.02 
$ 0.52 
$ 0.34 
Numerator
 
 
 
Net income attributable to Class A and Class B common stockholders
11 
57 
11 
Reallocation of net income attributable to participating securities
0 
31 
30 
Reallocation of net income as a result of conversion of Class B to Class A common stock
21 
611 
361 
Reallocation of net income to Class B common stock
0 
0 
0 
Net income attributable to common stockholders for diluted EPS
32 
699 
402 
Denominator
 
 
 
Number of shares used for basic EPS computation
667 
110 
32 
Conversion of Class B to Class A common stock
1,339 
1,184 
1,075 
Shares subject to repurchase
3 
3 
4 
Warrants
0 
2 
8 
Number of shares used for diluted EPS computation
2,166 
1,508 
1,414 
Diluted EPS
$ 0.01 
$ 0.46 
$ 0.28 
Class A Common Stock |
Employee Stock Option
 
 
 
Denominator
 
 
 
Share based payment arrangements
134 
204 
295 
Class A Common Stock |
Restricted Stock Units (RSUs)
 
 
 
Denominator
 
 
 
Share based payment arrangements
23 
5 
0 
Class B Common Stock
 
 
 
Numerator
 
 
 
Net income
35 
915 
588 
Less: Net income attributable to participating securities
14 
304 
227 
Net income attributable to Class A and Class B common stockholders
21 
611 
361 
Denominator
 
 
 
Weighted average shares outstanding
1,344 
1,189 
1,081 
Less: Shares subject to repurchase
5 
5 
6 
Number of shares used for basic EPS computation
1,339 
1,184 
1,075 
Basic EPS
$ 0.02 
$ 0.52 
$ 0.34 
Numerator
 
 
 
Net income attributable to Class A and Class B common stockholders
21 
611 
361 
Reallocation of net income attributable to participating securities
0 
0 
0 
Reallocation of net income as a result of conversion of Class B to Class A common stock
0 
0 
0 
Reallocation of net income to Class B common stock
1 
37 
32 
Net income attributable to common stockholders for diluted EPS
$ 22 
$ 648 
$ 393 
Denominator
 
 
 
Number of shares used for basic EPS computation
1,339 
1,184 
1,075 
Conversion of Class B to Class A common stock
0 
0 
0 
Shares subject to repurchase
3 
3 
4 
Warrants
0 
2 
8 
Number of shares used for diluted EPS computation
1,499 
1,398 
1,382 
Diluted EPS
$ 0.01 
$ 0.46 
$ 0.28 
Class B Common Stock |
Employee Stock Option
 
 
 
Denominator
 
 
 
Share based payment arrangements
134 
204 
295 
Class B Common Stock |
Restricted Stock Units (RSUs)
 
 
 
Denominator
 
 
 
Share based payment arrangements
23 
5 
0 
Restricted Stock Units (RSUs)
 
 
 
Earnings Per Share, Basic, by Common Class, Including Two Class Method
 
 
 
Antidilutive securities excluded from computation of earnings per share
15 
3 
 
Employee Stock Option
 
 
 
Earnings Per Share, Basic, by Common Class, Including Two Class Method
 
 
 
Antidilutive securities excluded from computation of earnings per share
 
 
2 
Cash, Cash Equivalents and Marketable Securities (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash, Cash Equivalents and Marketable Securities
 
 
 
 
Cash
$ 1,513 
$ 510 
 
 
Marketable securities
7,242 
2,396 
 
 
Total cash and cash equivalents
2,384 
1,512 
1,785 
633 
Total cash, cash equivalents and marketable securities
9,626 
3,908 
 
 
Marketable Securities
 
 
 
 
Cash, Cash Equivalents and Marketable Securities
 
 
 
 
U.S. government securities
5,165 
1,415 
 
 
U.S. government agency securities
2,077 
981 
 
 
Cash Equivalents
 
 
 
 
Cash, Cash Equivalents and Marketable Securities
 
 
 
 
Money market funds
871 
892 
 
 
U.S. government securities
0 
60 
 
 
U.S. government agency securities
$ 0 
$ 50 
 
 
Cash and Cash Equivalents, and Marketable Securities - Contractual Maturities of Debt Securities (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Cash and Cash Equivalents, and Marketable Securities [Abstract]
 
 
Marketable securities
$ 7,242 
$ 2,396 
Due in one year
4,815 
1,964 
Due in one to two years
$ 2,427 
$ 432 
Fair Value Measurements (Details) (Fair Value, Measurements, Recurring, USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
May 31, 2012
Dec. 31, 2011
Total
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
$ 1,002 
Total cash equivalents and marketable securities
8,113 
 
3,398 
Contingent consideration liability
4 
 
 
Derivative financial instruments
4 
 
 
Total |
Money market funds
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
871 
 
892 
Total |
US government securities
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
60 
Marketable securities
5,165 
 
1,415 
Total |
US government agency securities
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
50 
Marketable securities
2,077 
 
981 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
1,002 
Total cash equivalents and marketable securities
8,113 
 
3,398 
Contingent consideration liability
0 
 
 
Derivative financial instruments
0 
 
 
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Money market funds
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
871 
 
892 
Quoted Prices in Active Markets for Identical Assets (Level 1) |
US government securities
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
60 
Marketable securities
5,165 
 
1,415 
Quoted Prices in Active Markets for Identical Assets (Level 1) |
US government agency securities
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
50 
Marketable securities
2,077 
 
981 
Significant Other Observable Inputs (Level 2)
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
0 
Total cash equivalents and marketable securities
0 
 
0 
Contingent consideration liability
0 
 
 
Derivative financial instruments
4 
 
 
Significant Other Observable Inputs (Level 2) |
Money market funds
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
0 
 
0 
Significant Other Observable Inputs (Level 2) |
US government securities
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
0 
Marketable securities
0 
 
0 
Significant Other Observable Inputs (Level 2) |
US government agency securities
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
0 
Marketable securities
0 
 
0 
Significant Unobservable Inputs (Level 3)
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
0 
Total cash equivalents and marketable securities
0 
 
0 
Contingent consideration liability
4 
6 
 
Derivative financial instruments
0 
 
 
Significant Unobservable Inputs (Level 3) |
Money market funds
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
0 
 
0 
Significant Unobservable Inputs (Level 3) |
US government securities
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
0 
Marketable securities
0 
 
0 
Significant Unobservable Inputs (Level 3) |
US government agency securities
 
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
 
Cash equivalents
 
 
0 
Marketable securities
$ 0 
 
$ 0 
Property and Equipment (Detail) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Property, Plant and Equipment
 
 
 
Property and equipment, gross
$ 3,273 
$ 1,925 
 
Accumulated depreciation
(882)
(450)
 
Property and equipment, net
2,391 
1,475 
 
Depreciation expense
566 
303 
129 
Assets acquired under capital lease agreements
1,280 
881 
 
Accumulated depreciation of property and equipment acquired under capital leases
437 
210 
 
Network Equipment
 
 
 
Property, Plant and Equipment
 
 
 
Property and equipment, gross
1,912 
1,016 
 
Land
 
 
 
Property, Plant and Equipment
 
 
 
Property and equipment, gross
36 
34 
 
Buildings
 
 
 
Property, Plant and Equipment
 
 
 
Property and equipment, gross
594 
355 
 
Leasehold Improvements
 
 
 
Property, Plant and Equipment
 
 
 
Property and equipment, gross
194 
120 
 
Computer software, office equipment and other
 
 
 
Property, Plant and Equipment
 
 
 
Property and equipment, gross
93 
73 
 
Construction in progress
 
 
 
Property, Plant and Equipment
 
 
 
Property and equipment, gross
$ 444 
$ 327 
 
Goodwill and Intangible Assets (Detail) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Goodwill and Intangible Assets Disclosure
 
 
 
Gross Carrying Amount
$ 911 
$ 112 
 
Accumulated Amortization
(110)
(32)
 
Net Carrying Amount
801 
80 
 
Amortization expense
78 
20 
9 
Goodwill
 
 
 
Goodwill beginning
82 
37 
 
Goodwill acquired
505 
48 
 
Effect of currency translation adjustment
 
(3)
 
Goodwill ending
587 
82 
37 
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract]
 
 
 
2013
126 
 
 
2014
120 
 
 
2015
112 
 
 
2016
102 
 
 
2017
86 
 
 
Thereafter
255 
 
 
Net Carrying Amount
801 
80 
 
Acquired patents
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Gross Carrying Amount
684 
51 
 
Accumulated Amortization
(53)
(4)
 
Net Carrying Amount
631 
47 
 
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract]
 
 
 
Net Carrying Amount
631 
47 
 
Acquired technology
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Gross Carrying Amount
133 
38 
 
Accumulated Amortization
(32)
(15)
 
Net Carrying Amount
101 
23 
 
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract]
 
 
 
Net Carrying Amount
101 
23 
 
Tradename and other
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Gross Carrying Amount
94 
23 
 
Accumulated Amortization
(25)
(13)
 
Net Carrying Amount
69 
10 
 
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract]
 
 
 
Net Carrying Amount
$ 69 
$ 10 
 
Min |
Acquired patents
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Useful lives from date of acquisitions
3 years 
 
 
Min |
Acquired technology
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Useful lives from date of acquisitions
2 years 
 
 
Min |
Tradename and other
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Useful lives from date of acquisitions
2 years 
 
 
Max |
Acquired patents
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Useful lives from date of acquisitions
18 years 
 
 
Max |
Acquired technology
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Useful lives from date of acquisitions
10 years 
 
 
Max |
Tradename and other
 
 
 
Goodwill and Intangible Assets Disclosure
 
 
 
Useful lives from date of acquisitions
7 years 
 
 
Accrued Expenses and Other Current Liabilities (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Accrued Liabilities, Current [Abstract]
 
 
Accrued compensation and benefits
$ 146 
$ 57 
Other current liabilities
277 
239 
Accrued expenses and other current liabilities
$ 423 
$ 296 
Long-term Debt - Borrowings (Details) (USD $)
12 Months Ended 1 Months Ended 1 Months Ended 1 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2011
Revolving Credit Facility
Unsecured Five Year Revolving Credit Facility 2011
Feb. 29, 2012
Revolving Credit Facility
Unsecured Five Year Revolving Credit Facility 2012
Dec. 31, 2012
Revolving Credit Facility
Unsecured Five Year Revolving Credit Facility 2012
Feb. 29, 2012
Bridge Loan
Bridge Credit Facility, Settlement of RSU's from IPO
Feb. 29, 2012
Bridge Loan
Bridge Credit Facility, Settlement of RSU's from IPO
180 days after borrowing
Feb. 29, 2012
Bridge Loan
Bridge Credit Facility, Settlement of RSU's from IPO
90 after borrowing
Oct. 25, 2012
Unsecured debt
Amended and Restated Term Loan
Oct. 25, 2012
Unsecured debt
Unsecured Term Loan
Debt Instrument
 
 
 
 
 
 
 
 
 
 
Line Of Credit Maturity Period
 
 
5 years 
5 years 
 
 
 
 
 
 
Term loan facility, term period
 
 
 
 
 
 
 
 
3 years 
 
Line of credit facility, maximum borrowing capacity
 
 
$ 2,500,000,000 
$ 5,000,000,000 
 
$ 3,000,000,000 
 
 
 
 
Debt instrument, interest rate during period
 
 
LIBOR 
LIBOR 
 
LIBOR 
 
 
LIBOR 
 
Basis spread on variable rate
 
 
1.00% 
1.00% 
 
1.00% 
 
 
1.00% 
 
Debt Instrument, Unused Capacity, Commitment Fee Percentage
 
 
 
 
 
 
 
 
0.10% 
 
Long-term debt
1,500,000,000 
0 
 
 
 
 
 
 
1,500,000,000 
 
Line of credit facility, amount outstanding
 
 
0 
 
0 
 
 
 
 
 
Line of credit facility, unused capacity, commitment fee percentage
 
 
 
0.10% 
 
 
 
0.10% 
 
 
Debt Instrument, Face Amount
 
 
 
 
 
 
 
 
 
$ 1,500,000,000 
Line of credit facility, used capactiy, additional fee percentage
 
 
 
 
 
 
0.25% 
 
 
 
Term loan facility upfront fee percentage
 
 
 
 
 
 
 
 
0.15% 
 
Long-term Debt - Derivative (Details) (USD $)
12 Months Ended 1 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Oct. 25, 2012
Interest Rate Swap
Oct. 25, 2012
Amended and Restated Term Loan
Interest Rate Swap
Cash Flow Hedging
Dec. 31, 2012
Significant Other Observable Inputs (Level 2)
Fair Value, Measurements, Recurring
Derivative
 
 
 
 
 
 
Notional amount of interest rate derivatives
 
 
 
 
$ 1,500,000,000 
 
Derivative, Description of Variable Rate Basis
 
 
 
one-month LIBOR 
 
 
Derivative, fixed interest rate
 
 
 
 
1.46% 
 
Derivative Instruments, Gain (Loss) Reclassification from Accumulated OCI to Income, Estimated Net Amount to be Transferred
3,000,000 
 
 
 
 
 
Unrealized loss on derivatives arising during period, net of tax
2,000,000 
0 
0 
 
 
 
Derivative financial instruments
 
 
 
 
 
$ 4,000,000 
Commitments and Contingencies (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Leases [Abstract]
 
 
 
Capital lease agreement period
3 years 
 
 
Capital Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
 
 
 
2013
$ 398 
 
 
2014
278 
 
 
2015
125 
 
 
2016
20 
 
 
2017
15 
 
 
Thereafter
143 
 
 
Total minimum lease payments
979 
 
 
Less: amount representing interest and taxes
(123)
 
 
Less: current portion of the present value of minimum lease payments
(365)
(279)
 
Capital lease obligations, less current portion
491 
398 
 
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
 
 
 
2013
142 
 
 
2014
128 
 
 
2015
117 
 
 
2016
110 
 
 
2017
102 
 
 
Thereafter
252 
 
 
Total minimum lease payments
851 
 
 
Operating lease expense
196 
219 
178 
Other contractual commitments
 
 
 
Other contractual commitments
$ 749 
 
 
Min
 
 
 
Leases [Abstract]
 
 
 
Interest rate
1.00% 
 
 
Max
 
 
 
Leases [Abstract]
 
 
 
Interest rate
13.00% 
 
 
Expiration date of lease
2027 
 
 
Buildings
 
 
 
Leases [Abstract]
 
 
 
Capital lease agreement period
15 years 
 
 
Stockholders' Equity - Initial Public Offering (Details) (USD $)
1 Months Ended
May 31, 2012
May 17, 2012
Class of Stock
 
 
Selling stockholders shares sold
 
241,233,615 
Net proceeds received from public offering
$ 6,800,000,000 
 
Underwriting discounts and commissions
75,000,000 
 
Offering expenses
$ 7,000,000 
 
Class A Common Stock
 
 
Class of Stock
 
 
Number of shares issued
180,000,000 
 
Common stock at a public offering price
 
 38.00 
Stockholders' Equity - Preferred and Common Stock (Details) (USD $)
In Millions, except Share data, unless otherwise specified
1 Months Ended 1 Months Ended 12 Months Ended 1 Months Ended 12 Months Ended 1 Months Ended 12 Months Ended 1 Months Ended 12 Months Ended 1 Months Ended 12 Months Ended 1 Months Ended
May 31, 2012
Dec. 31, 2012
May 17, 2012
Dec. 31, 2011
May 31, 2012
Series A Preferred Stock
Dec. 31, 2011
Series A Preferred Stock
May 17, 2012
Series A Preferred Stock
May 31, 2012
Series B Preferred Stock
Dec. 31, 2011
Series B Preferred Stock
May 17, 2012
Series B Preferred Stock
May 31, 2012
Series C Preferred Stock
Dec. 31, 2011
Series C Preferred Stock
May 17, 2012
Series C Preferred Stock
May 31, 2012
Series D Preferred Stock
Dec. 31, 2011
Series D Preferred Stock
May 17, 2012
Series D Preferred Stock
May 31, 2012
Series E Preferred Stock
Dec. 31, 2011
Series E Preferred Stock
May 17, 2012
Series E Preferred Stock
Dec. 31, 2012
Class A Common Stock
votes
Dec. 31, 2011
Class A Common Stock
Dec. 31, 2012
Class B Common Stock
votes
Dec. 31, 2011
Class B Common Stock
May 30, 2012
Common Class B to Class A
Class of Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of stock into common stock
545,401,443 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
335,943,024 
Shares Authorized
 
 
569,001,000 
 
 
 
134,747,000 
 
 
226,032,000 
 
 
95,768,000 
 
 
67,454,000 
 
 
45,000,000 
 
 
 
 
 
Shares Issued and Outstanding
 
 
543,217,000 
 
 
 
133,055,000 
 
 
224,123,000 
 
 
91,410,000 
 
 
50,591,000 
 
 
44,038,000 
 
 
 
 
 
Aggregate Liquidation Preference
 
 
$ 615 
$ 615 
 
$ 1 
$ 1 
 
$ 13 
$ 13 
 
$ 26 
$ 26 
 
$ 375 
$ 375 
 
$ 200 
$ 200 
 
 
 
 
 
Dividends Per Share Per Annum
 
 
 
 
$ 0.00036875 
$ 0.00036875 
 
$ 0.00456000 
$ 0.00456000 
 
$ 0.02297335 
$ 0.02297335 
 
$ 0.59300000 
$ 0.59300000 
 
$ 0.36332640 
$ 0.36332640 
 
 
 
 
 
 
Conversion Ratio Per Share
 
 
 
 
 
1.000000 
1.000000 
 
1.004910 
1.004910 
 
1.004909 
1.004909 
 
1.012561 
1.012561 
 
1.000000 
1.000000 
 
 
 
 
 
Common stock, shares authorized
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,000,000,000 
4,141,000,000 
4,141,000,000 
4,141,000,000 
 
Common stock, par value
 
$ 0.000006 
 
$ 0.000006 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 0.000006 
 
$ 0.000006 
 
 
Common stock, number of votes by class
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 
 
10 
 
 
Common stock, shares, issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,671,277,621 
117,000,000 
701,427,574 
1,213,000,000 
 
Common stock, shares outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,671,277,621 
117,000,000 
701,427,574 
1,213,000,000 
 
Stockholders' Equity - Share-based Compensation Plans (Detail) (USD $)
12 Months Ended 1 Months Ended
Dec. 31, 2012
plans
Dec. 31, 2012
Employee Stock Option
Dec. 31, 2011
Employee Stock Option
Dec. 31, 2010
Employee Stock Option
Dec. 31, 2012
2012 Plan
Dec. 31, 2012
2012 Plan
Min
Dec. 31, 2012
2012 Plan
Max
Dec. 31, 2012
2005 Officer's Stock Plan
Nov. 30, 2005
2005 Officer's Stock Plan
Class B Common Stock
Share-based Compensation Arrangement by Share-based Payment Award
 
 
 
 
 
 
 
 
 
Share-based employee compensation plans, number
3 
 
 
 
 
 
 
 
 
2012 Equity Incentive Plan shares authorized
25,000,000 1
 
 
 
25,000,000 
 
 
 
 
Shares reserved for issuance increase date range
 
 
 
 
 
Jan. 01, 2013 
Jan. 01, 2022 
 
 
Shares reserved for issuance increase percentage
 
 
 
 
2.50% 
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period
 
 
 
 
10 years 
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period for Plan
 
 
 
 
10 years 
 
 
10 years 
 
Shares of incentive and nonstatutory stock options provided for issuance
 
 
 
 
 
 
 
120,000,000 
 
Non statutory stock option issued to CEO to purchase shares of Class B common stock
 
 
 
 
 
 
 
 
120,000,000 
Options partially exercised and fully vested
 
 
 
 
 
 
 
60,000,000 
 
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
 
 
 
 
 
 
 
 
 
Expected term from grant date (in years)
 
 
 
7 years 1 month 24 days 
 
 
 
 
 
Risk-free interest rate
 
 
 
1.69% 
 
 
 
 
 
Expected volatility
 
 
 
46.00% 
 
 
 
 
 
Dividend yield
 
 
 
0.00% 
 
 
 
 
 
Weighted-average fair value of employee options granted
 
$ 0.00 
$ 0.00 
$ 5.26 
 
 
 
 
 
Stockholders' Equity - Stock Option and RSU Award Activity (Details) (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Shares Available for Grant(1)
 
 
Balance as of December 31, 2011
52,318,000 1
 
RSUs settled
0 1
 
Stock options forfeited/cancelled
213,000 1
 
RSUs granted
(41,252,000)1
 
Shares withheld related to net share settlement of RSUs
122,757,000 1
 
RSUs forfeited and cancelled
12,955,000 1
 
2012 Equity Incentive Plan shares authorized
25,000,000 1
 
Balance as of December 31, 2012
171,991,000 1
52,318,000 1
Number of Shares
 
 
Balance as of December 31, 2011
258,539,000 
 
RSUs settled
(135,505,000)
 
Stock options forfeited/cancelled
(213,000)
 
Balance as of December 31, 2012
122,821,000 
258,539,000 
Stock options vested and expected to vest as of December 31, 2012
122,791,000 
 
Stock options exercisable as of December 31, 2012
113,688,000 
 
Weighted Average Exercise Price
 
 
Balance as of December 31, 2011
$ 0.47 
 
RSUs settled
$ 0.12 
 
Stock options forfeited/cancelled
$ 1.41 
 
Balance as of December 31, 2012
$ 0.85 
$ 0.47 
Stock options vested and expected to vest as of December 31, 2012
$ 0.85 
 
Stock options exercisable as of December 31, 2012
$ 0.34 
 
Weighted- Average Remaining Contractual Term
 
 
Weighted- Average Remaining Contractual Term
3 years 9 months 15 days 
4 years 4 months 17 days 
Stock options vested and expected to vest as of December 31, 2012
3 years 9 months 15 days 
 
Stock options exercisable as of December 31, 2012
3 years 6 months 11 days 
 
Aggregate Intrinsic Value(2)
 
 
Balance as of December 31, 2011
$ 7,360 2
 
Balance as of December 31, 2012
3,166 2
7,360 2
Stock options vested and expected to vest as of December 31, 2012
3,166 2
 
Stock options exercisable as of December 31, 2012
2,989 2
 
Outstanding RSUs(3)
 
 
Balance as of December 31, 2011
378,772,000 3
 
RSUs granted
41,252,000 3
 
RSUs settled
(278,846,000)3
 
RSUs forfeited and cancelled
(12,955,000)3
 
Balance as of December 31, 2012
128,223,000 3
378,772,000 3
Weighted Average Grant Date Fair Value
 
 
Balance as of December 31, 2011
$ 6.83 
 
RSUs granted
$ 32.60 
 
RSUs settled
$ 3.02 
 
RSUs forfeited and cancelled
$ 20.00 
 
Balance as of December 31, 2012
$ 22.08 
$ 6.83 
RSUs vested
69,196,000 
 
RSUs grant date fair value
$ 9.14 
 
Unvested RSUs
113,044,000 
153,943,000 
Issuance of common stock settlement of restricted stock units (RSUs)
279,000,000 
 
RSUs net settled
273,000,000 
 
Shares held for tax witholdings
123,000,000 
 
Value of shares remitted for tax withholdings
$ (2,862)
 
Restricted Stock Award
 
 
Shares Available for Grant(1)
 
 
Balance as of December 31, 2012
195,000 1
 
Employee Stock Options and Restricted Stock Units (RSUs)
 
 
Shares Available for Grant(1)
 
 
Balance as of December 31, 2012
171,796,000 1
 
Stockholders' Equity - Stock Options Additional Disclosures (Details) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Number of shares
122,821 
258,539 
 
Options Outstanding, Weighted-Average Remaining Life
3 years 9 months 15 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 0.85 
 
 
Options Exercisable, Number of Shares
113,688 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 0.34 
 
 
Aggregate intrinsic value of the options exercised
$ 4,230 
$ 2,380 
$ 492 
Total grant date fair value of stock options vested
$ 5 
$ 6 
$ 16 
Exercise Price Range 0.00 - 0.04
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 0.00 
 
 
Exercise Price, minimum
$ 0.04 
 
 
Number of shares
5,381 
 
 
Options Outstanding, Weighted-Average Remaining Life
2 years 7 months 24 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 0.04 
 
 
Options Exercisable, Number of Shares
5,381 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 0.04 
 
 
Exercise Price Range 0.06
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 0.06 
 
 
Exercise Price, minimum
$ 0.06 
 
 
Number of shares
63,379 
 
 
Options Outstanding, Weighted-Average Remaining Life
2 years 10 months 10 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 0.06 
 
 
Options Exercisable, Number of Shares
63,379 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 0.06 
 
 
Exercise Price Range 0.10 - 0.18
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 0.10 
 
 
Exercise Price, minimum
$ 0.18 
 
 
Number of shares
18,096 
 
 
Options Outstanding, Weighted-Average Remaining Life
3 years 7 months 28 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 0.15 
 
 
Options Exercisable, Number of Shares
18,096 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 0.15 
 
 
Exercise Price Range 0.29 - 0.33
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 0.29 
 
 
Exercise Price, minimum
$ 0.33 
 
 
Number of shares
14,701 
 
 
Options Outstanding, Weighted-Average Remaining Life
4 years 4 months 24 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 0.31 
 
 
Options Exercisable, Number of Shares
14,701 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 0.31 
 
 
Exercise Price Range 1.78
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 1.78 
 
 
Exercise Price, minimum
$ 1.78 
 
 
Number of shares
4,693 
 
 
Options Outstanding, Weighted-Average Remaining Life
5 years 7 months 2 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 1.78 
 
 
Options Exercisable, Number of Shares
3,701 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 1.78 
 
 
Exercise Price Range 1.85
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 1.85 
 
 
Exercise Price, minimum
$ 1.85 
 
 
Number of shares
4,865 
 
 
Options Outstanding, Weighted-Average Remaining Life
6 years 0 months 15 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 1.85 
 
 
Options Exercisable, Number of Shares
3,938 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 1.85 
 
 
Exercise Price Range 2.95
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 2.95 
 
 
Exercise Price, minimum
$ 2.95 
 
 
Number of shares
2,506 
 
 
Options Outstanding, Weighted-Average Remaining Life
6 years 7 months 21 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 2.95 
 
 
Options Exercisable, Number of Shares
1,567 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 2.95 
 
 
Exercise Price Range 3.23
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 3.23 
 
 
Exercise Price, minimum
$ 3.23 
 
 
Number of shares
4,500 
 
 
Options Outstanding, Weighted-Average Remaining Life
6 years 9 months 26 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 3.23 
 
 
Options Exercisable, Number of Shares
2,925 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 3.23 
 
 
Exercise Price Range 10.39
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 10.39 
 
 
Exercise Price, minimum
$ 10.39 
 
 
Number of shares
3,500 
 
 
Options Outstanding, Weighted-Average Remaining Life
7 years 6 months 22 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 10.39 
 
 
Options Exercisable, Number of Shares
0 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 0.00 
 
 
Exercise Price Range 15.00
 
 
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
 
 
 
Exercise Price, maximum
$ 15.00 
 
 
Exercise Price, minimum
$ 15.00 
 
 
Number of shares
1,200 
 
 
Options Outstanding, Weighted-Average Remaining Life
7 years 9 months 22 days 
 
 
Options Outstanding, Weighted-Average Exercise Price
$ 15.00 
 
 
Options Exercisable, Number of Shares
0 
 
 
Options Exercisable, Weighted-Average Exercisable Price
$ 0.00 
 
 
Stockholders' Equity - Additional Award Disclosures (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award
 
Future period share-based compensation expense
$ 2,210 
Future period share-based compensation expense period of recognition
3 years 
Restricted shares and stock options
 
Share-based Compensation Arrangement by Share-based Payment Award
 
Future period share-based compensation expense
244 
Restricted Stock Units (RSUs)
 
Share-based Compensation Arrangement by Share-based Payment Award
 
Future period share-based compensation expense
$ 1,960 
Other Income (Expense), Net (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Other Income and Expenses [Abstract]
 
 
 
Interest income
$ 14 
$ 4 
$ 1 
Foreign currency exchange losses, net
(9)
(29)
(1)
Other
2 
6 
(2)
Other income (expense), net
$ 7 
$ (19)
$ (2)
Income Taxes - Schedule for Income Before Income Tax (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Income Tax Disclosure [Abstract]
 
 
 
Domestic
$ 1,062 
$ 1,819 
$ 1,027 
Foreign
(568)
(124)
(19)
Income before provision for income taxes
$ 494 
$ 1,695 
$ 1,008 
Income Taxes - Provision for Income Taxes (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Current:
 
 
 
Federal
$ 559 
$ 664 
$ 325 
State
45 
60 
57 
Foreign
22 
8 
1 
Total current tax expense
626 
732 
383 
Deferred:
 
 
 
Federal
(172)
(34)
13 
State
(6)
(3)
6 
Deferred Foreign Income Tax Expense (Benefit)
(7)
0 
0 
Total deferred tax expense (benefit)
(185)
(37)
19 
Provision for income taxes
$ 441 
$ 695 
$ 402 
Income Taxes - Effective Income Tax Rate Reconciliation (Details)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Effective Income Tax Rate, Continuing Operations, Tax Rate Reconciliation [Abstract]
 
 
 
U.S. federal statutory income tax rate
35.00% 
35.00% 
35.00% 
State income taxes, net of federal benefit
6.20% 
2.20% 
4.00% 
Research tax credits
0.00% 
(1.00%)
(0.80%)
Share-based compensation
19.20% 
1.50% 
0.30% 
Foreign losses not benefited
26.90% 
3.30% 
0.80% 
Other
2.00% 
0.00% 
0.60% 
Effective tax rate
89.30% 
41.00% 
39.90% 
Income Taxes - Deferred Tax Assets and Liabilities (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Deferred tax assets:
 
 
Net operating loss carryforward
$ 10 
$ 3 
Tax credit carryforward
37 
9 
Share-based compensation
233 
79 
Accrued expenses and other liabilities
83 
58 
Other
16 
0 
Total deferred tax assets
379 
149 
Less: valuation allowance
(37)
(9)
Deferred tax assets, net of valuation allowance
342 
140 
Deferred tax liabilities:
 
 
Depreciation and amortization
(97)
(69)
Purchased intangible assets
(92)
(10)
Deferred foreign taxes
(15)
(1)
Total deferred tax liabilities
(204)
(80)
Net deferred tax assets
$ 138 
$ 60 
Income Taxes - Unrecognized Tax Benefits (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Reconciliation of Unrecognized Tax Benefits
 
 
 
Gross unrecognized tax benefits-beginning of period
$ 63 
$ 18 
$ 9 
Increase related to prior year tax positions
13 
5 
1 
Decreases related to prior year tax positions
(16)
(2)
(2)
Increases related to current year tax positions
104 
42 
10 
Gross unrecognized tax benefits-end of period
$ 164 
$ 63 
$ 18 
Income Taxes - Narrative (Detail) (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Income Tax Disclosure
 
 
 
 
Tax effect of share-based compensation
$ 1,033,000,000 
$ 433,000,000 
$ 107,000,000 
 
Valuation allowance, deferred tax assets
37,000,000 
9,000,000 
 
 
Tax-effected benefit to be recognized in additional paid in capital if net operating loss carryforward is utilized
2,170,000,000 
 
 
 
Event Causing Ownership Change and Loss in Net Operating Loss and Tax Credit Carryforward, Cumulative Stock Ownership Change Threshhold
50.00% 
 
 
 
Event Causing Ownership Change and Loss in Net Operating Loss and Tax Credit Carryforward, Change in Ownership Percentage Over Period
3 years 
 
 
 
Unrecognized tax benefits, interest on income taxes expense
3,000,000 
 
 
 
Unrecognized tax benefits, income tax penalties expense
1,000,000 
 
 
 
Unrecognized tax benefits, income tax penalties and interest accrued
10,000,000 
6,000,000 
 
 
Unrecognized tax benefits
164,000,000 
63,000,000 
18,000,000 
9,000,000 
Unrecognized tax benefits that would impact effective tax rate
70,000,000 
 
 
 
Income tax refundable
451,000,000 
0 
 
 
Increase in income tax refundable
451,000,000 
0 
0 
 
Deferred income taxes
186,000,000 
30,000,000 
(23,000,000)
 
Internal Revenue Service (IRS)
 
 
 
 
Income Tax Disclosure
 
 
 
 
Operating loss carryforwards
5,830,000,000 
 
 
 
State and Local Jurisdiction
 
 
 
 
Income Tax Disclosure
 
 
 
 
Operating loss carryforwards
7,620,000,000 
 
 
 
Tax credit carryforward
$ 181,000,000 
 
 
 
Geographical Information - Revenue (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Revenue by Geographical Area
 
 
 
Revenue
$ 5,089 
$ 3,711 
$ 1,974 
United States
 
 
 
Revenue by Geographical Area
 
 
 
Revenue
2,578 
2,067 
1,223 
Rest of world
 
 
 
Revenue by Geographical Area
 
 
 
Revenue
$ 2,511 1
$ 1,644 1
$ 751 1
Geographical Information - Property and Equipment (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Long-Lived Assets, by Geographical Area
 
 
Property and equipment, net
$ 2,391 
$ 1,475 
United States
 
 
Long-Lived Assets, by Geographical Area
 
 
Property and equipment, net
2,110 
1,444 
Rest of world
 
 
Long-Lived Assets, by Geographical Area
 
 
Property and equipment, net
$ 281 1
$ 31 1