FACEBOOK INC, 10-Q filed on 10/24/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2012
Oct. 22, 2012
Class A Common Stock
Oct. 22, 2012
Class B Common Stock
Document Information [Line Items]
 
 
 
Document Type
10-Q 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Sep. 30, 2012 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
Q3 
 
 
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
 
1,099,471,393 
1,066,955,915 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 2,478 
$ 1,512 
Marketable securities
7,974 
2,396 
Accounts receivable, net of allowances for doubtful accounts of $18 and $17 as of September 30, 2012 and December 31, 2011, respectively
635 
547 
Income tax refundable
567 
0 
Prepaid expenses and other current assets
631 
149 
Total current assets
12,285 
4,604 
Property and equipment, net
2,289 
1,475 
Goodwill and intangible assets, net
1,423 
162 
Other assets
41 
90 
Total assets
16,038 
6,331 
Current liabilities:
 
 
Accounts payable
59 
63 
Platform partners payable
155 
171 
Accrued expenses and other current liabilities
409 
296 
Deferred revenue and deposits
85 
90 
Current portion of capital lease obligations
372 
279 
Total current liabilities
1,080 
899 
Capital lease obligations, less current portion
530 
398 
Other liabilities
254 
135 
Total liabilities
1,864 
1,432 
Stockholders' equity:
 
 
Convertible preferred stock, $0.000006 par value, issuable in series; no shares and 569 million shares authorized as of September 30, 2012 and December 31, 2011, respectively, no shares and 543 million shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively
0 
615 
Common stock value
0 
0 
Additional paid-in capital
12,585 
2,684 
Accumulated other comprehensive loss
(6)
(6)
Retained earnings
1,595 
1,606 
Total stockholders' equity
14,174 
4,899 
Total liabilities and stockholders' equity
$ 16,038 
$ 6,331 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Per Share data, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Accounts receivable, allowances for doubtful accounts
$ 18 
$ 17 
Convertible preferred stock, par value
$ 0.000006 
$ 0.000006 
Convertible preferred stock, shares authorized
0 
569 
Convertible preferred stock, shares issued
0 
543 
Convertible preferred stock, shares outstanding
0 
543 
Common stock, par value
$ 0.000006 
$ 0.000006 
Class A Common Stock
 
 
Common stock, shares authorized
5,000 
4,141 
Common stock, shares, issued
949 
117 
Common stock, shares outstanding
949 
117 
Outstanding shares subject to repurchase
2 
1 
Class B Common Stock
 
 
Common stock, shares authorized
4,141 
4,141 
Common stock, shares, issued
1,217 
1,213 
Common stock, shares outstanding
1,217 
1,213 
Outstanding shares subject to repurchase
12 
2 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenue
$ 1,262 
$ 954 
$ 3,504 
$ 2,580 
Costs and expenses:
 
 
 
 
Cost of revenue
322 
236 
967 
613 
Research and development
244 
108 
1,102 
264 
Marketing and sales
168 
114 
703 
272 
General and administrative
151 
82 
717 
222 
Total costs and expenses
885 
540 
3,489 
1,371 
Income from operations
377 
414 
15 
1,209 
Interest and other income (expense), net:
 
 
 
 
Interest expense
(11)
(10)
(35)
(26)
Other income (expense), net
6 
(25)
9 
(7)
Income (loss) before provision for income taxes
372 
379 
(11)
1,176 
Provision for income taxes
431 
152 
0 
478 
Net (loss) income
(59)
227 
(11)
698 
Less: Net income attributable to participating securities
0 
77 
0 
235 
Net (loss) income attributable to Class A and Class B common stockholders
(59)
150 
(11)
463 
(Loss) earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
Basic
$ (0.02)
$ 0.11 
$ (0.01)
$ 0.36 
Diluted
$ (0.02)
$ 0.10 
$ (0.01)
$ 0.32 
Weighted average shares used to compute (loss) earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
Basic
2,420 
1,316 
1,884 
1,283 
Diluted
2,420 
1,520 
1,884 
1,507 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
179 
70 
1,388 
141 
Cost of revenue
 
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
8 
3 
79 
6 
Research and development
 
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
114 
33 
719 
72 
Marketing and sales
 
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
28 
13 
279 
24 
General and administrative
 
 
 
 
Share-based compensation expense included in costs and expenses:
 
 
 
 
Share-based compensation expense
$ 29 
$ 21 
$ 311 
$ 39 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Statement of Other Comprehensive Income [Abstract]
 
 
 
 
Net (loss) income
$ (59)
$ 227 
$ (11)
$ 698 
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustment
21 
(2)
(1)
(1)
Change in unrealized gain on available-for-sale investments, net of tax
2 
0 
1 
0 
Comprehensive (loss) income
$ (36)
$ 225 
$ (11)
$ 697 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash flows from operating activities
 
 
Net (loss) income
$ (11)
$ 698 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
Depreciation and amortization
425 
220 
Loss on write-off of equipment
8 
6 
Share-based compensation
1,388 
141 
Deferred income taxes
(434)
(29)
Tax benefit from share-based award activity
854 
405 
Excess tax benefit from share-based award activity
(854)
(405)
Changes in assets and liabilities
 
 
Accounts receivable
(90)
(72)
Income tax refundable
(567)
0 
Prepaid expenses and other current assets
24 
(113)
Other assets
0 
(25)
Accounts payable
20 
36 
Platform partners payable
(16)
91 
Accrued expenses and other current liabilities
162 
(9)
Deferred revenue and deposits
(5)
44 
Other liabilities
27 
51 
Net cash provided by operating activities
931 
1,039 
Cash flows from investing activities
 
 
Purchases of property and equipment
(1,037)
(421)
Purchases of marketable securities
(8,590)
(2,742)
Sales of marketable securities
571 
95 
Maturities of marketable securities
2,413 
90 
Investments in non-marketable equity securities
(3)
(2)
Acquisitions of businesses, net of cash acquired, and purchases of intangible and other assets
(911)
(5)
Change in restricted cash and deposits
(2)
5 
Net cash used in investing activities
(7,559)
(2,980)
Cash flows from financing activities
 
 
Net proceeds from issuance of common stock
6,760 
998 
Proceeds from exercise of stock options
9 
27 
Repayment of long term debt
0 
(250)
Proceeds from sale and lease-back transactions
205 
15 
Principal payments on capital lease obligations
(231)
(128)
Excess tax benefit from share-based award activity
854 
405 
Net cash provided by financing activities
7,597 
1,067 
Effect of exchange rate changes on cash and cash equivalents
(3)
(5)
Net increase (decrease) in cash and cash equivalents
966 
(879)
Cash and cash equivalents at beginning of period
1,512 
1,785 
Cash and cash equivalents at end of period
2,478 
906 
Cash paid during the period for:
 
 
Interest
30 
19 
Income taxes
184 
179 
Non-cash investing and financing activities:
 
 
Fair value of shares issued related to acquisitions of businesses and other assets
275 
46 
Accounts Payable Accrued Expenses And Other Current Liabilities
 
 
Non-cash investing and financing activities:
 
 
Property and equipment expenditures incurred but not yet paid
(80)
62 
Capital Lease Obligations
 
 
Non-cash investing and financing activities:
 
 
Property and equipment expenditures incurred but not yet paid
$ 251 
$ 393 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on May 18, 2012 (Prospectus).
The condensed consolidated balance sheet as of December 31, 2011, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The condensed consolidated financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2012.
We have reclassified certain prior period expense amounts from marketing and sales to general and administrative within our condensed consolidated statements of operations to conform to our current period presentation. These reclassifications did not affect revenue, total costs and expenses, income from operations, or net (loss) income.
There have been no changes to our significant accounting policies described in the Prospectus that have had a material impact on our condensed consolidated financial statements and related notes.
Initial Public Offering and Share-based Compensation
In May 2012, we completed our initial public offering (IPO) in which we issued and sold 180 million shares of Class A common stock at a public offering price of $38.00 per share. We received net proceeds of $6.8 billion after deducting underwriting discounts and commissions of $75 million and other offering expenses of approximately $7 million. Upon the closing of the IPO, all shares of our then-outstanding convertible preferred stock automatically converted into an aggregate of 545 million shares of Class B common stock and an aggregate of 336 million shares of Class B common stock converted into Class A common stock.
Restricted stock units (RSUs) granted prior to January 1, 2011 (Pre-2011 RSUs) vest 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 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, which occurred in May 2012. The vesting condition that will be satisfied six months following our IPO does 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 is not a substantive service condition and, accordingly, beginning on the effectiveness of our IPO in May 2012, we recognized a cumulative share-based compensation expense for the portion of the RSUs that had met the service condition. In the three and nine months ended September 30, 2012, we recognized $28 million and $1,014 million, respectively, of share-based compensation expense related to our Pre-2011 RSUs. As of September 30, 2012, we had approximately $164 million of additional future period share-based compensation expense related to our Pre-2011 RSUs to be recognized over a weighted-average period of approximately two years.
RSUs granted on or after January 1, 2011 (Post-2011 RSUs) 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. In the three and nine months ended September 30, 2012, we recognized $138 million and $348 million, respectively, and in the three and nine months ended September 30, 2011, we recognized $59 million and $117 million, respectively, of share-based compensation expense related to the Post-2011 RSUs. As of September 30, 2012 we anticipate $1,871 million of future period expense related to such RSUs will be recognized over a weighted-average period of approximately three years.
As of September 30, 2012, there was $2,302 million of unrecognized share-based compensation expense, of which $2,035 million relates to RSUs, and $267 million relates to restricted shares and stock options. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years.

Under settlement procedures applicable to the Pre-2011 RSUs, we are permitted to deliver the underlying shares within 30 days before or after the date on which the liquidity condition is satisfied. We previously disclosed in our Current Report on Form 8-K filed with the SEC on September 4, 2012 that we will vest and settle outstanding Pre-2011 RSUs for which the service condition has been satisfied and that are held by employees who were employed by us through October 15, 2012 on October 25, 2012 and such shares will be eligible for sale in the public markets as of market open on October 29, 2012. We will vest and settle outstanding Pre-2011 RSUs held by our non-employee directors and former employees on November 14, 2012.
On the settlement dates, we plan to withhold and remit income taxes for RSU holders at applicable minimum statutory rates based on the closing price of our common stock on the trading day immediately preceding the applicable settlement date. We currently expect that the average of these withholding tax rates will be approximately 45%. If the price of our common stock on the trading day immediately preceding the applicable settlement date were equal to $21.66, the closing price of our Class A common stock on September 30, 2012, we estimate that this tax obligation would be approximately $2.6 billion in the aggregate. The amount of this obligation could be higher or lower, depending on the closing price of our shares on the trading day immediately preceding the applicable settlement date. To settle these RSUs, assuming an approximate 45% tax withholding rate, we estimate that we will net settle by delivering approximately 121 million shares of Class B common stock and withholding approximately 99 million shares of Class B common stock on October 25, 2012 and by delivering approximately 31 million shares of Class B common stock and withholding approximately 20 million shares of Class B common stock on November 14, 2012.
Use of Estimates
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of 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.
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.
During the nine months ended September 30, 2012, we also completed other business acquisitions for total consideration of $87 million. These acquisitions were not material to our condensed 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 nine months ended September 30, 2012 have not been presented because they are not material to our condensed consolidated statements of operations, either individually or in the aggregate.

The fair value of assets acquired and liabilities assumed for all acquisitions completed during the nine months ended September 30, 2012 was based upon a preliminary valuation and our estimates and assumptions are subject to change within the measurement period. The primary areas of the purchase price that are not yet finalized are related to income taxes and residual goodwill. Measurement period adjustments that we determine to be material will be applied retrospectively to the period of acquisition in our condensed consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could also be affected.
The following table summarizes the allocation of estimated fair values of the assets acquired and liabilities assumed, including those items that are still preliminary allocations, and 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
 
$
19

3 - 5
Tradename and other
63

2 - 7
 
8

2 - 3
Net liabilities assumed
(1
)
 
 
(4
)
 
Deferred tax liabilities
(50
)
 
 
(9
)
 
Net assets acquired
$
86

 
 
$
14

 
Goodwill
$
435

 
 
$
73

 
Total fair value considerations
$
521

 
 
$
87

 


Goodwill generated from all business acquisitions completed during the nine months ended September 30, 2012 is primarily attributable to expected synergies from future growth and potential monetization opportunities and is not deductible for tax purposes.
During the nine months ended September 30, 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 the nine months ended September 30, 2012 have estimated useful lives ranging from three to 17 years from the dates of acquisition.
(Loss) Earnings per Share
(Loss) Earnings per Share
(Loss) Earnings per Share
We compute (loss) 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 are not allocated to these participating securities. Basic EPS is computed by dividing net (loss) 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 three and nine months ended September 30, 2011 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. For the three and nine months ended September 30, 2012 in which we reported a net loss, we did not allocate any loss to participating securities in the basic and diluted EPS computation. Additionally, we did not include employee stock options, unvested RSUs, and shares subject to repurchase in our calculation of diluted EPS, as the impact of these awards is 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): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(19
)
 
$
(40
)
 
$
19

 
$
208

 
$
(3
)
 
$
(8
)
 
$
58

 
$
640

Less: Net income attributable to participating securities
—

 
—

 
7

 
70

 
—

 
—

 
20

 
215

Net (loss) income attributable to common stockholders
$
(19
)
 
$
(40
)
 
$
12

 
$
138

 
$
(3
)
 
$
(8
)
 
$
38

 
$
425

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
794

 
1,632

 
113

 
1,208

 
431

 
1,457

 
107

 
1,181

Less: Shares subject to repurchase
1

 
5

 
1

 
4

 
1

 
3

 
—

 
5

Number of shares used for basic EPS computation
793

 
1,627

 
112

 
1,204

 
430

 
1,454

 
107

 
1,176

Basic EPS
$
(0.02
)
 
$
(0.02
)
 
$
0.11

 
$
0.11

 
$
(0.01
)
 
$
(0.01
)
 
$
0.36

 
$
0.36

Diluted EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to common stockholders
$
(19
)
 
$
(40
)
 
$
12

 
$
138

 
$
(3
)
 
$
(8
)
 
$
38

 
$
425

Reallocation of net income attributable to participating securities
—

 
—

 
6

 
—

 
—

 
—

 
22

 
—

Reallocation of net (loss) income as a result of conversion of Class B to Class A common stock
(40
)
 
—

 
138

 
—

 
(8
)
 
—

 
425

 
—

Reallocation of net income to Class B common stock
—

 
—

 
—

 
8

 
—

 
—

 
—

 
26

Net (loss) income attributable to common stockholders for diluted EPS
$
(59
)
 
$
(40
)
 
$
156

 
$
146

 
$
(11
)
 
$
(8
)
 
$
485

 
$
451

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares used for basic EPS computation
793

 
1,627

 
112

 
1,204

 
430

 
1,454

 
107

 
1,176

Conversion of Class B to Class A common stock
1,627

 
—

 
1,204

 
—

 
1,454

 
—

 
1,176

 
—

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee stock options
—

 
—

 
188

 
188

 
—

 
—

 
212

 
212

RSUs
—

 
—

 
10

 
10

 
—

 
—

 
5

 
5

Shares subject to repurchase
—

 
—

 
4

 
4

 
—

 
—

 
4

 
4

Warrants
—

 
—

 
2

 
2

 
—

 
—

 
3

 
3

Number of shares used for diluted EPS computation
2,420

 
1,627

 
1,520

 
1,408

 
1,884

 
1,454

 
1,507

 
1,400

Diluted EPS
$
(0.02
)
 
$
(0.02
)
 
$
0.10

 
$
0.10

 
$
(0.01
)
 
$
(0.01
)
 
$
0.32

 
$
0.32

Property and Equipment
Property and Equipment
Property and Equipment
Property and equipment consisted of the following (in millions):
 
 
September 30,
2012
 
December 31,
2011
Network equipment
$
1,628

 
$
1,016

Land
35

 
34

Buildings
454

 
355

Leasehold improvements
163

 
120

Computer software, office equipment and other
88

 
73

Construction in progress
655

 
327

Total
3,023

 
1,925

Accumulated depreciation and amortization
(734
)
 
(450
)
Property and equipment, net
$
2,289

 
$
1,475


Construction in progress includes costs primarily related to the construction of data centers and equipment located in our new data centers in Oregon, North Carolina and Sweden.
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill and other intangible assets, and related useful lives, where applicable, consisted of the following (in millions, except indicated otherwise):
 
 
Useful lives from date of acquisitions (in years)
September 30,
2012
 
December 31,
2011
Amortizable intangible assets:
 
 
 
 
Acquired patents
3 - 18
$
684

 
$
51

Acquired technology
2 - 10
131

 
38

Tradename and other
2 - 7
94

 
23

Accumulated amortization
 
(76
)
 
(32
)
Net acquired intangible assets
 
833

 
80

Goodwill
 
590

 
82

Goodwill and intangible assets
 
$
1,423

 
$
162


Amortization expense of intangible assets for the three and nine months ended September 30, 2012 was $31 million and $44 million, respectively, and for the three and nine months ended September 30, 2011 was $5 million and $15 million, respectively.
Estimated amortization expense for the unamortized acquired intangible assets as of September 30, 2012 for the next five years and thereafter is as follows (in millions):
 
The remainder of 2012
$
34

2013
126

2014
120

2015
112

2016
101

2017
85

Thereafter
255

 
$
833

Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
Assets measured at fair value on a recurring basis are summarized below (in millions):
 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description
September 30, 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
$
730

 
$
730

 
$
—

 
$
—

U.S. government securities
234

 
234

 
—

 
—

U.S. government agency securities
208

 
208

 
—

 
—

Marketable securities:
 
 
 
 
 
 
 
U.S. government securities
5,644

 
5,644

 
—

 
—

U.S. government agency securities
2,330

 
2,330

 
—

 
—

Total cash equivalents and marketable securities
$
9,146

 
$
9,146

 
$
—

 
$
—


 
 
 
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

 
—

 
—

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

 
$
—

 
$
—


Gross unrealized gains or losses for cash equivalents and marketable securities as of September 30, 2012 and December 31, 2011 were not material.
The following table classifies our marketable securities by contractual maturities as of September 30, 2012 (in millions):
 
 
Fair Value
Due in one year
$
5,658

Due in one to two years
2,316

 
$
7,974

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
Leases
We have 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 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 2012 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 and/or escalating rent payment provisions, and we recognize rent expense under such arrangements on a straight-line basis.
Operating lease expense totaled $50 million and $151 million for the three and nine months ended September 30, 2012, and $52 million and $171 million for the three and nine months ended September 30, 2011.

Contingencies
Legal Matters

On March 12, 2012, Yahoo filed a lawsuit against us in the U.S. District Court for the Northern District of California, claiming that we infringe ten of Yahoo’s patents that Yahoo claimed relate to “advertising,” “social networking,” “privacy,” “customization,” and “messaging,” and on April 27, 2012 Yahoo added two patents to the lawsuit that Yahoo claims relate to “advertising.” Yahoo sought unspecified damages, a damage multiplier for alleged willful infringement, and an injunction. On April 3, 2012, we filed our answer with respect to this complaint and asserted counterclaims that Yahoo’s products infringe ten of our patents. On July 6, 2012, the parties entered into a settlement agreement resolving all claims made in the litigation. On July 9, 2012, the parties filed a stipulated dismissal of the litigation with the U.S. District Court for the Northern District of California and this litigation was dismissed on July 10, 2012. We have no payment obligations under this settlement agreement.

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.
We are also party to various legal proceedings and claims which arise in the ordinary course of business.
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 condensed consolidated financial statements of a particular reporting period could be materially adversely affected.
Credit Facilities
In February 2012, we entered into an agreement for an unsecured five-year revolving credit facility that allows us to borrow up to $5,000 million for general corporate purposes, with interest payable on the borrowed amounts set at London Interbank Offered Rate (LIBOR) plus 1.0%. Under the terms of the agreement, we are obligated to pay a commitment fee of 0.10% per annum on the daily undrawn balance. No amounts were drawn down under this credit facility as of September 30, 2012.
Concurrent with our entering into the revolving credit facility, we also entered into a bridge credit facility agreement that allows us to borrow up to $3,000 million 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. Any amounts outstanding under this facility will be due one year after the date we draw on the facility but no later than June 30, 2014. 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 existing bridge credit facility (the Amended and Restated Term Loan) and converted it into a three-year unsecured term loan facility that allows us to borrow up to $1,500 million. See Note 11 Subsequent Event for information on the Amended and Restated Term Loan.
No amounts were drawn down under the bridge credit facility agreement as of September 30, 2012.
Stockholders' Equity
Stockholders' Equity
Stockholders’ Equity
Share-based Compensation Plans
We maintain three share-based employee compensation plans: the 2012 Equity Incentive Plan, the 2005 Stock Plan and the 2005 Officers’ Stock Plan (Stock Plans). In January 2012, our board of directors approved our 2012 Equity Incentive Plan (2012 Plan), and in April 2012 our stockholders adopted the 2012 Plan, effective on May 17, 2012, which 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 (i) the lesser of 2.5% of the total outstanding shares 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 the issuance of 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 September 30, 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 activity under the Stock Plans during the nine months ended September 30, 2012:
 
 
 
 
Shares Subject to Options Outstanding
 
Outstanding RSUs
 
Shares
Available
for Grant
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value(1)
 
Outstanding
RSUs
 
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

RSUs granted
(33,865
)
 
—

 
 
 
 
 
 
 
33,865

 
34.69

Stock options exercised
—

 
(84,568
)
 
0.11

 
 
 
 
 
—

 
 
Stock options forfeited/cancelled
584

 
(584
)
 
0.62

 
 
 
 
 
—

 
 
RSUs forfeited and cancelled
9,089

 
—

 
 
 
 
 
 
 
(9,089
)
 
19.32

2012 Equity Incentive Plan shares authorized
25,000

 
 
 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2012
53,126

 
173,387

 
$
0.65

 
3.83
 
$
3,643

 
403,548

 
$
8.89

 
(1)
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 price of our common stock on September 30, 2012.
Income Taxes
Income Taxes
Income Taxes
Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter we update our estimate of the annual effective tax rate, and if our estimated annual tax rate changes, we make a cumulative adjustment in that quarter. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, are subject to significant volatility due to several factors, including our ability to accurately predict our income (loss) before provision for income taxes in multiple jurisdictions, including the portions of our share-based compensation that will not generate tax benefits, and the effects of acquisitions and the integration of those acquisitions. In addition, our effective tax rate can be more or less volatile based on the amount of income (loss) before provision for income taxes. For example, the impact of non-deductible share based compensation expenses on our effective tax rate is significantly greater when our income (loss) before provision for income taxes is lower.
Our effective tax rate has exceeded the U.S. statutory rate primarily because of the impact of non-deductible share-based compensation and losses arising outside the United States in jurisdictions where we do not receive a tax benefit. These losses were primarily due to the initial start-up costs incurred by our foreign subsidiaries to operate in certain foreign markets, including the costs incurred by those subsidiaries to license, develop, and use our intellectual property. Our effective tax rate in the future will depend on the portion of our profits earned within and outside the United States, which will also be affected by our methodologies for valuing our intellectual property and intercompany transactions.
Our effective tax rate in the three months ended September 30, 2012 exceeded our effective tax rate in the three months ended September 30, 2011 because the impact of non-deductible share-based compensation and the losses arising outside the United States in jurisdictions where we do not receive a tax benefit are proportionately larger relative to income (loss) before provision for income taxes in 2012 than in 2011. Our effective tax rate in the three months ended September 30, 2012 was also higher due to the expiration of the federal tax credit for research and development activities.
Our effective tax rate in the nine months ended September 30, 2012 was zero. This occurred because the discrete tax items that arose during the nine months ended September 30, 2012 offset the tax benefit as determined based on an estimate of our annual effective tax rate as applied to our loss before provision for income taxes for the nine months ended September 30, 2012. Our effective tax rate in the nine months ended September 30, 2012 was lower than our effective tax rate in the nine months ended September 30, 2011 due to this effect.
Our income tax refundable was $567 million as of September 30, 2012, which reflects the expected refund of estimated income tax payments made in 2012 and the expected refund from income tax loss carrybacks to 2010 and 2011. Our net deferred tax assets were $399 million as of September 30, 2012, which is an increase of $339 million from December 31, 2011. This increase is primarily due to the recognition of tax benefits related to share-based compensation, offset by deferred tax liabilities established as part of our purchase accounting related to our acquisitions in the nine months ended September 30, 2012.
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 and 2009 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 2010 and subsequent tax years remain subject to examination by the IRS and all tax years starting in 2008 remain subject to examination in Ireland. We remain subject to possible examinations or are undergoing audits in various other jurisdictions that are not 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 tables set forth revenue and long-lived assets by geographic area (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
United States
$
665

 
$
543

 
$
1,789

 
$
1,485

Rest of the world (1)
597

 
411

 
1,715

 
1,095

Total revenue
$
1,262

 
$
954

 
$
3,504

 
$
2,580

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

 
September 30,
2012
 
December 31,
2011
Long-lived assets:
 
 
 
United States
$
2,113

 
$
1,444

Rest of the world(1)
176

 
31

Total long-lived assets
$
2,289

 
$
1,475

 
(1)
No individual country exceeded 10% of our total long-lived assets for any period presented
Subsequent Events
Subsequent Events
Subsequent Events

In October 2012, we amended and restated our existing bridge credit facility, converting it into the Amended and Restated Term Loan, an unsecured term loan facility that allows us to borrow up to $1,500 million 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%. We paid origination fees at closing of the Amended and Restated Term Loan, which fees are being amortized over the term of the facility. We are also obligated to pay an additional upfront fee of 0.15% of the aggregate amount of the borrowings requested on any applicable funding date, which would be amortized over the remaining term of the facility, as well as an annual commitment fee of 0.10% on the daily undrawn balance of the facility. We may make up to two borrowings under the Amended and Restated Term Loan prior to November 20, 2012. Any amounts outstanding under this facility will become due and payable upon the third anniversary date of the initial borrowing. As we previously disclosed in our Current Report on Form 8-K filed with the SEC on October 15, 2012, we currently expect to use borrowings under the Amended and Restated Term Loan to cover approximately half of the withholding tax liability that will arise when approximately 271 million RSUs vest and settle in October and November 2012, and that the average of the withholding tax rates will be approximately 45%.
Summary of Significant Accounting Policies (Policies)
Basis of Presentation 
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on May 18, 2012 (Prospectus).
The condensed consolidated balance sheet as of December 31, 2011, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The condensed consolidated financial statements include the accounts of Facebook, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2012.
We have reclassified certain prior period expense amounts from marketing and sales to general and administrative within our condensed consolidated statements of operations to conform to our current period presentation. These reclassifications did not affect revenue, total costs and expenses, income from operations, or net (loss) income.
There have been no changes to our significant accounting policies described in the Prospectus that have had a material impact on our condensed consolidated financial statements and related notes.
Initial Public Offering and Share-based Compensation 
In May 2012, we completed our initial public offering (IPO) in which we issued and sold 180 million shares of Class A common stock at a public offering price of $38.00 per share. We received net proceeds of $6.8 billion after deducting underwriting discounts and commissions of $75 million and other offering expenses of approximately $7 million. Upon the closing of the IPO, all shares of our then-outstanding convertible preferred stock automatically converted into an aggregate of 545 million shares of Class B common stock and an aggregate of 336 million shares of Class B common stock converted into Class A common stock.
Restricted stock units (RSUs) granted prior to January 1, 2011 (Pre-2011 RSUs) vest 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 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, which occurred in May 2012. The vesting condition that will be satisfied six months following our IPO does 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 is not a substantive service condition and, accordingly, beginning on the effectiveness of our IPO in May 2012, we recognized a cumulative share-based compensation expense for the portion of the RSUs that had met the service condition. In the three and nine months ended September 30, 2012, we recognized $28 million and $1,014 million, respectively, of share-based compensation expense related to our Pre-2011 RSUs. As of September 30, 2012, we had approximately $164 million of additional future period share-based compensation expense related to our Pre-2011 RSUs to be recognized over a weighted-average period of approximately two years.
RSUs granted on or after January 1, 2011 (Post-2011 RSUs) 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. In the three and nine months ended September 30, 2012, we recognized $138 million and $348 million, respectively, and in the three and nine months ended September 30, 2011, we recognized $59 million and $117 million, respectively, of share-based compensation expense related to the Post-2011 RSUs. As of September 30, 2012 we anticipate $1,871 million of future period expense related to such RSUs will be recognized over a weighted-average period of approximately three years.
As of September 30, 2012, there was $2,302 million of unrecognized share-based compensation expense, of which $2,035 million relates to RSUs, and $267 million relates to restricted shares and stock options. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years.

Under settlement procedures applicable to the Pre-2011 RSUs, we are permitted to deliver the underlying shares within 30 days before or after the date on which the liquidity condition is satisfied. We previously disclosed in our Current Report on Form 8-K filed with the SEC on September 4, 2012 that we will vest and settle outstanding Pre-2011 RSUs for which the service condition has been satisfied and that are held by employees who were employed by us through October 15, 2012 on October 25, 2012 and such shares will be eligible for sale in the public markets as of market open on October 29, 2012. We will vest and settle outstanding Pre-2011 RSUs held by our non-employee directors and former employees on November 14, 2012.
On the settlement dates, we plan to withhold and remit income taxes for RSU holders at applicable minimum statutory rates based on the closing price of our common stock on the trading day immediately preceding the applicable settlement date. We currently expect that the average of these withholding tax rates will be approximately 45%. If the price of our common stock on the trading day immediately preceding the applicable settlement date were equal to $21.66, the closing price of our Class A common stock on September 30, 2012, we estimate that this tax obligation would be approximately $2.6 billion in the aggregate. The amount of this obligation could be higher or lower, depending on the closing price of our shares on the trading day immediately preceding the applicable settlement date. To settle these RSUs, assuming an approximate 45% tax withholding rate, we estimate that we will net settle by delivering approximately 121 million shares of Class B common stock and withholding approximately 99 million shares of Class B common stock on October 25, 2012 and by delivering approximately 31 million shares of Class B common stock and withholding approximately 20 million shares of Class B common stock on November 14, 2012.
Use of Estimates 
Use of Estimates
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of 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.
Acquisitions (Tables)
Allocation of Estimated Fair Value of Assets Acquired and Liabilities Assumed
The following table summarizes the allocation of estimated fair values of the assets acquired and liabilities assumed, including those items that are still preliminary allocations, and 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
 
$
19

3 - 5
Tradename and other
63

2 - 7
 
8

2 - 3
Net liabilities assumed
(1
)
 
 
(4
)
 
Deferred tax liabilities
(50
)
 
 
(9
)
 
Net assets acquired
$
86

 
 
$
14

 
Goodwill
$
435

 
 
$
73

 
Total fair value considerations
$
521

 
 
$
87

 
(Loss) Earnings per Share (Tables)
Numerators and Denominators of Basic and Diluted EPS Computations for Common Stock
The numerators and denominators of the basic and diluted EPS computations for our common stock are calculated as follows (in millions, except per share amounts): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(19
)
 
$
(40
)
 
$
19

 
$
208

 
$
(3
)
 
$
(8
)
 
$
58

 
$
640

Less: Net income attributable to participating securities
—

 
—

 
7

 
70

 
—

 
—

 
20

 
215

Net (loss) income attributable to common stockholders
$
(19
)
 
$
(40
)
 
$
12

 
$
138

 
$
(3
)
 
$
(8
)
 
$
38

 
$
425

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
794

 
1,632

 
113

 
1,208

 
431

 
1,457

 
107

 
1,181

Less: Shares subject to repurchase
1

 
5

 
1

 
4

 
1

 
3

 
—

 
5

Number of shares used for basic EPS computation
793

 
1,627

 
112

 
1,204

 
430

 
1,454

 
107

 
1,176

Basic EPS
$
(0.02
)
 
$
(0.02
)
 
$
0.11

 
$
0.11

 
$
(0.01
)
 
$
(0.01
)
 
$
0.36

 
$
0.36

Diluted EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to common stockholders
$
(19
)
 
$
(40
)
 
$
12

 
$
138

 
$
(3
)
 
$
(8
)
 
$
38

 
$
425

Reallocation of net income attributable to participating securities
—

 
—

 
6

 
—

 
—

 
—

 
22

 
—

Reallocation of net (loss) income as a result of conversion of Class B to Class A common stock
(40
)
 
—

 
138

 
—

 
(8
)
 
—

 
425

 
—

Reallocation of net income to Class B common stock
—

 
—

 
—

 
8

 
—

 
—

 
—

 
26

Net (loss) income attributable to common stockholders for diluted EPS
$
(59
)
 
$
(40
)
 
$
156

 
$
146

 
$
(11
)
 
$
(8
)
 
$
485

 
$
451

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of shares used for basic EPS computation
793

 
1,627

 
112

 
1,204

 
430

 
1,454

 
107

 
1,176

Conversion of Class B to Class A common stock
1,627

 
—

 
1,204

 
—

 
1,454

 
—

 
1,176

 
—

Weighted average effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee stock options
—

 
—

 
188

 
188

 
—

 
—

 
212

 
212

RSUs
—

 
—

 
10

 
10

 
—

 
—

 
5

 
5

Shares subject to repurchase
—

 
—

 
4

 
4

 
—

 
—

 
4

 
4

Warrants
—

 
—

 
2

 
2

 
—

 
—

 
3

 
3

Number of shares used for diluted EPS computation
2,420

 
1,627

 
1,520

 
1,408

 
1,884

 
1,454

 
1,507

 
1,400

Diluted EPS
$
(0.02
)
 
$
(0.02
)
 
$
0.10

 
$
0.10

 
$
(0.01
)
 
$
(0.01
)
 
$
0.32

 
$
0.32

Property and Equipment (Tables)
Property and equipment
Property and equipment consisted of the following (in millions):
 
 
September 30,
2012
 
December 31,
2011
Network equipment
$
1,628

 
$
1,016

Land
35

 
34

Buildings
454

 
355

Leasehold improvements
163

 
120

Computer software, office equipment and other
88

 
73

Construction in progress
655

 
327

Total
3,023

 
1,925

Accumulated depreciation and amortization
(734
)
 
(450
)
Property and equipment, net
$
2,289

 
$
1,475

Goodwill and Other Intangible Assets (Tables)
Goodwill and Intangible Assets 
Goodwill and other intangible assets, and related useful lives, where applicable, consisted of the following (in millions, except indicated otherwise):
 
 
Useful lives from date of acquisitions (in years)
September 30,
2012
 
December 31,
2011
Amortizable intangible assets:
 
 
 
 
Acquired patents
3 - 18
$
684

 
$
51

Acquired technology
2 - 10
131

 
38

Tradename and other
2 - 7
94

 
23

Accumulated amortization
 
(76
)
 
(32
)
Net acquired intangible assets
 
833

 
80

Goodwill
 
590

 
82

Goodwill and intangible assets
 
$
1,423

 
$
162

Estimated Amortization Expense for Unamortized Acquired Intangible Assets 
Estimated amortization expense for the unamortized acquired intangible assets as of September 30, 2012 for the next five years and thereafter is as follows (in millions):
 
The remainder of 2012
$
34

2013
126

2014
120

2015
112

2016
101

2017
85

Thereafter
255

 
$
833

Fair Value Measurements (Tables)
Assets Measured at Fair Value on a Recurring Basis 
Assets measured at fair value on a recurring basis are summarized below (in millions):
 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description
September 30, 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
$
730

 
$
730

 
$
—

 
$
—

U.S. government securities
234

 
234

 
—

 
—

U.S. government agency securities
208

 
208

 
—

 
—

Marketable securities:
 
 
 
 
 
 
 
U.S. government securities
5,644

 
5,644

 
—

 
—

U.S. government agency securities
2,330

 
2,330

 
—

 
—

Total cash equivalents and marketable securities
$
9,146

 
$
9,146

 
$
—

 
$
—


 
 
 
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

 
—

 
—

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

 
$
—

 
$
—

Available-for-sale Securities 
The following table classifies our marketable securities by contractual maturities as of September 30, 2012 (in millions):
 
 
Fair Value
Due in one year
$
5,658

Due in one to two years
2,316

 
$
7,974

Stockholders' Equity (Tables)
Stock Option and RSU Award Activity under Stock Plans
The following table summarizes the stock option and RSU award activity under the Stock Plans during the nine months ended September 30, 2012:
 
 
 
 
Shares Subject to Options Outstanding
 
Outstanding RSUs
 
Shares
Available
for Grant
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value(1)
 
Outstanding
RSUs
 
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

RSUs granted
(33,865
)
 
—

 
 
 
 
 
 
 
33,865

 
34.69

Stock options exercised
—

 
(84,568
)
 
0.11

 
 
 
 
 
—

 
 
Stock options forfeited/cancelled
584

 
(584
)
 
0.62

 
 
 
 
 
—

 
 
RSUs forfeited and cancelled
9,089

 
—

 
 
 
 
 
 
 
(9,089
)
 
19.32

2012 Equity Incentive Plan shares authorized
25,000

 
 
 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2012
53,126

 
173,387

 
$
0.65

 
3.83
 
$
3,643

 
403,548

 
$
8.89

 
(1)
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 price of our common stock on September 30, 2012.
Geographical Information (Tables)
Revenue by Geographic Area 
Revenue by geography is based on the billing address of the advertiser or Platform developer. The following tables set forth revenue and long-lived assets by geographic area (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
United States
$
665

 
$
543

 
$
1,789

 
$
1,485

Rest of the world (1)
597

 
411

 
1,715

 
1,095

Total revenue
$
1,262

 
$
954

 
$
3,504

 
$
2,580

 
(1)
No individual country exceeded 10% of our total revenue for any period presented
Long-Lived Assets by Geographic Area 
 
September 30,
2012
 
December 31,
2011
Long-lived assets:
 
 
 
United States
$
2,113

 
$
1,444

Rest of the world(1)
176

 
31

Total long-lived assets
$
2,289

 
$
1,475

 
(1)
No individual country exceeded 10% of our total long-lived assets for any period presented
Summary of Significant Accounting Policies (Details) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Pre Twenty Eleven Restricted Stock Units
Sep. 30, 2012
Pre Twenty Eleven Restricted Stock Units
Sep. 30, 2012
Pre Twenty Eleven Restricted Stock Units
Minimum
Sep. 30, 2012
Post-2011 RSUs
Sep. 30, 2011
Post-2011 RSUs
Sep. 30, 2012
Post-2011 RSUs
Sep. 30, 2011
Post-2011 RSUs
Sep. 30, 2012
Post-2011 RSUs
Minimum
Sep. 30, 2012
Post-2011 RSUs
Maximum
Sep. 30, 2012
Restricted Stock Units (RSUs)
Sep. 30, 2012
Restricted shares and stock options
Sep. 30, 2012
Class A Common Stock
Dec. 31, 2011
Class A Common Stock
Sep. 30, 2012
IPO
Class A Common Stock
May 17, 2012
IPO
Class A Common Stock
Sep. 30, 2012
IPO
Convertible Preferred Stock Converted into Class B Common Stock
Sep. 30, 2012
IPO
Class B Common Stock Converted into Class A Common Stock
Sep. 30, 2012
October Twenty Fifth Twenty Twelve
Pre Twenty Eleven Restricted Stock Units
Sep. 30, 2012
November Fourteen Twenty Twelve
Pre Twenty Eleven Restricted Stock Units
Summary Of Significant Accounting Policies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock, Shares, Issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
949 
117 
 
180 
 
 
 
 
Price per share
$ 21.66 
 
$ 21.66 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 38 
 
 
 
 
Proceeds from initial public offering, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 6,800,000,000 
 
 
 
 
 
Underwriting discounts and commissions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75,000,000 
 
 
 
 
 
Other offering expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,000,000 
 
 
 
 
 
Conversion of stock into common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
545 
336 
 
 
Restricted stock units, service period
 
 
 
 
 
 
4 years 
 
 
 
 
4 years 
5 years 
 
 
 
 
 
 
 
 
 
 
Share based compensation expense
179,000,000 
70,000,000 
1,388,000,000 
141,000,000 
28,000,000 
1,014,000,000 
 
138,000,000 
59,000,000 
348,000,000 
117,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Future period share-based compensation expense
2,302,000,000 
 
2,302,000,000 
 
164,000,000 
164,000,000 
 
1,871,000,000 
 
1,871,000,000 
 
 
 
2,035,000,000 
267,000,000 
 
 
 
 
 
 
 
 
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition
 
 
3 years 
 
 
2 years 
 
 
 
3 years 
 
 
 
 
 
 
 
 
 
 
 
 
 
Withholding tax rate
 
 
 
 
 
45.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expected Payments Related to Tax Withholding For Share Based Compensation
 
 
 
 
$ 2,600,000,000 
$ 2,600,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share Based Compensation Arrangement By Share Based Payment Award Other Than Options Expected To Vest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
121 
31 
Expected Tax Withholding For Share Based Compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
99 
20 
Acquisitions (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
Sep. 30, 2012
Instagram Inc.
Sep. 30, 2012
Series of Individually Immaterial Business Acquisitions
Sep. 30, 2012
Acquired technology
Instagram Inc.
Sep. 30, 2012
Acquired technology
Series of Individually Immaterial Business Acquisitions
Sep. 30, 2012
Acquired technology
Minimum
Sep. 30, 2012
Acquired technology
Minimum
Instagram Inc.
Sep. 30, 2012
Acquired technology
Minimum
Series of Individually Immaterial Business Acquisitions
Sep. 30, 2012
Acquired technology
Maximum
Sep. 30, 2012
Acquired technology
Maximum
Instagram Inc.
Sep. 30, 2012
Acquired technology
Maximum
Series of Individually Immaterial Business Acquisitions
Sep. 30, 2012
Tradename and other
Instagram Inc.
Sep. 30, 2012
Tradename and other
Series of Individually Immaterial Business Acquisitions
Sep. 30, 2012
Tradename and other
Minimum
Sep. 30, 2012
Tradename and other
Minimum
Instagram Inc.
Sep. 30, 2012
Tradename and other
Minimum
Series of Individually Immaterial Business Acquisitions
Sep. 30, 2012
Tradename and other
Maximum
Sep. 30, 2012
Tradename and other
Maximum
Instagram Inc.
Sep. 30, 2012
Tradename and other
Maximum
Series of Individually Immaterial Business Acquisitions
Sep. 30, 2012
Patents
Sep. 30, 2012
Patents
Microsoft Corporation
Sep. 30, 2012
Patents
Minimum
Sep. 30, 2012
Patents
Maximum
Sep. 30, 2012
Patents
Current Period Acquisition
Minimum
Sep. 30, 2012
Patents
Current Period Acquisition
Maximum
Sep. 30, 2012
Patents
Foreign
Microsoft Corporation
Patent
Sep. 30, 2012
Patents
U.S.
Microsoft Corporation
Patent
Sep. 30, 2012
Vested Shares Common Class B
Instagram Inc.
Sep. 30, 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 During Period, Shares, Share-based Compensation, Gross
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11 
Stock Issued During Period, Value, Share-based Compensation, Gross
194 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock Issued During Period, Value, Share-based Compensation, Period of Recognition
3 years 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocation of estimated fair value of assets acquired and liabilities assumed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortizable intangible assets
 
 
74 
19 
 
 
 
 
 
 
63 
8 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net liabilities assumed
(1)
(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred tax liabilities
(50)
(9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net assets acquired
86 
14 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
435 
73 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total fair value considerations
521 
87 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Useful lives (in years)
 
 
 
 
 
5 years 
3 years 
 
5 years 
5 years 
 
 
 
2 years 
2 years 
 
7 years 
3 years 
 
 
 
 
 
 
 
 
 
 
Amount of acquired finite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
633 
 
 
 
 
 
 
 
 
 
Number of patents acquired
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
170 
615 
 
 
Payments to acquire intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
550 
 
 
 
 
 
 
 
 
Deferred tax liabilities resulting from acquisition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 49 
 
 
 
 
 
 
 
 
Useful lives from date of acquisitions (in years)
 
 
 
 
2 years 
 
 
10 years 
 
 
 
 
2 years 
 
 
7 years 
 
 
 
 
3 years 
18 years 
3 years 
17 years 
 
 
 
 
(Loss) Earnings per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Numerator
 
 
 
 
Net (loss) income
$ (59)
$ 227 
$ (11)
$ 698 
Less: Net income attributable to participating securities
0 
77 
0 
235 
Net (loss) income attributable to common stockholders
(59)
150 
(11)
463 
Denominator
 
 
 
 
Number of shares used for basic EPS computation
2,420 
1,316 
1,884 
1,283 
Basic EPS
$ 0.02 
$ (0.11)
$ 0.01 
$ (0.36)
Numerator
 
 
 
 
Net (loss) income attributable to common stockholders
(59)
150 
(11)
463 
Denominator
 
 
 
 
Number of shares used for basic EPS computation
2,420 
1,316 
1,884 
1,283 
Number of shares used for diluted EPS computation
2,420 
1,520 
1,884 
1,507 
Diluted EPS
$ 0.02 
$ (0.10)
$ 0.01 
$ (0.32)
Class A Common Stock
 
 
 
 
Numerator
 
 
 
 
Net (loss) income
(19)
19 
(3)
58 
Less: Net income attributable to participating securities
0 
7 
0 
20 
Net (loss) income attributable to common stockholders
(19)
12 
(3)
38 
Denominator
 
 
 
 
Weighted average shares outstanding
794 
113 
431 
107 
Less: Shares subject to repurchase
1 
1 
1 
0 
Number of shares used for basic EPS computation
793 
112 
430 
107 
Basic EPS
$ (0.02)
$ 0.11 
$ (0.01)
$ 0.36 
Numerator
 
 
 
 
Net (loss) income attributable to common stockholders
(19)
12 
(3)
38 
Reallocation of net income attributable to participating securities
0 
6 
0 
22 
Reallocation of net (loss) income as a result of conversion of Class B to Class A common stock
(40)
138 
(8)
425 
Reallocation of net income to Class B common stock
0 
0 
0 
0 
Net (loss) income attributable to common stockholders for diluted EPS
(59)
156 
(11)
485 
Denominator
 
 
 
 
Number of shares used for basic EPS computation
793 
112 
430 
107 
Conversion of Class B to Class A common stock
1,627 
1,204 
1,454 
1,176 
Shares subject to repurchase
0 
4 
0 
4 
Warrants
0 
2 
0 
3 
Number of shares used for diluted EPS computation
2,420 
1,520 
1,884 
1,507 
Diluted EPS
$ (0.02)
$ 0.10 
$ (0.01)
$ 0.32 
Class A Common Stock |
Employee Stock Option
 
 
 
 
Denominator
 
 
 
 
Share based payment arrangements
0 
188 
0 
212 
Class A Common Stock |
Restricted Stock
 
 
 
 
Denominator
 
 
 
 
Share based payment arrangements
0 
10 
0 
5 
Class B Common Stock
 
 
 
 
Numerator
 
 
 
 
Net (loss) income
(40)
208 
(8)
640 
Less: Net income attributable to participating securities
0 
70 
0 
215 
Net (loss) income attributable to common stockholders
(40)
138 
(8)
425 
Denominator
 
 
 
 
Weighted average shares outstanding
1,632 
1,208 
1,457 
1,181 
Less: Shares subject to repurchase
5 
4 
3 
5 
Number of shares used for basic EPS computation
1,627 
1,204 
1,454 
1,176 
Basic EPS
$ (0.02)
$ 0.11 
$ (0.01)
$ 0.36 
Numerator
 
 
 
 
Net (loss) income attributable to common stockholders
(40)
138 
(8)
425 
Reallocation of net income attributable to participating securities
0 
0 
0 
0 
Reallocation of net (loss) income as a result of conversion of Class B to Class A common stock
0 
0 
0 
0 
Reallocation of net income to Class B common stock
0 
8 
0 
26 
Net (loss) income attributable to common stockholders for diluted EPS
$ (40)
$ 146 
$ (8)
$ 451 
Denominator
 
 
 
 
Number of shares used for basic EPS computation
1,627 
1,204 
1,454 
1,176 
Conversion of Class B to Class A common stock
0 
0 
0 
0 
Shares subject to repurchase
0 
4 
0 
4 
Warrants
0 
2 
0 
3 
Number of shares used for diluted EPS computation
1,627 
1,408 
1,454 
1,400 
Diluted EPS
$ (0.02)
$ 0.10 
$ (0.01)
$ 0.32 
Class B Common Stock |
Employee Stock Option
 
 
 
 
Denominator
 
 
 
 
Share based payment arrangements
0 
188 
0 
212 
Class B Common Stock |
Restricted Stock
 
 
 
 
Denominator
 
 
 
 
Share based payment arrangements
0 
10 
0 
5 
Property and Equipment (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Property, Plant and Equipment
 
 
Property and equipment, gross
$ 3,023 
$ 1,925 
Accumulated depreciation and amortization
(734)
(450)
Property and equipment, net
2,289 
1,475 
Network Equipment
 
 
Property, Plant and Equipment
 
 
Property and equipment, gross
1,628 
1,016 
Land
 
 
Property, Plant and Equipment
 
 
Property and equipment, gross
35 
34 
Buildings
 
 
Property, Plant and Equipment
 
 
Property and equipment, gross
454 
355 
Leasehold Improvements
 
 
Property, Plant and Equipment
 
 
Property and equipment, gross
163 
120 
Computer software, office equipment and other
 
 
Property, Plant and Equipment
 
 
Property and equipment, gross
88 
73 
Construction in Progress
 
 
Property, Plant and Equipment
 
 
Property and equipment, gross
$ 655 
$ 327 
Goodwill and Other Intangible Assets (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Dec. 31, 2011
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Acquired patents
$ 684 
 
$ 684 
 
$ 51 
Accumulated amortization
(76)
 
(76)
 
(32)
Net acquired intangible assets
833 
 
833 
 
80 
Goodwill
590 
 
590 
 
82 
Goodwill and other intangible assets
1,423 
 
1,423 
 
162 
Amortization expense
31 
5 
44 
15 
 
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract]
 
 
 
 
 
The remainder of 2012
34 
 
34 
 
 
2013
126 
 
126 
 
 
2014
120 
 
120 
 
 
2015
112 
 
112 
 
 
2016
101 
 
101 
 
 
2017
85 
 
85 
 
 
Thereafter
255 
 
255 
 
 
Net acquired intangible assets
833 
 
833 
 
80 
Acquired technology
 
 
 
 
 
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Other Finite-Lived Intangible Assets, Gross
131 
 
131 
 
38 
Tradename and other
 
 
 
 
 
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Other Finite-Lived Intangible Assets, Gross
$ 94 
 
$ 94 
 
$ 23 
Minimum |
Acquired Patents
 
 
 
 
 
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Useful lives from date of acquisitions (in years)
 
 
3 years 
 
 
Minimum |
Acquired technology
 
 
 
 
 
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Useful lives from date of acquisitions (in years)
 
 
2 years 
 
 
Minimum |
Tradename and other
 
 
 
 
 
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Useful lives from date of acquisitions (in years)
 
 
2 years 
 
 
Maximum |
Acquired Patents
 
 
 
 
 
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Useful lives from date of acquisitions (in years)
 
 
18 years 
 
 
Maximum |
Acquired technology
 
 
 
 
 
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Useful lives from date of acquisitions (in years)
 
 
10 years 
 
 
Maximum |
Tradename and other
 
 
 
 
 
Goodwill and Intangible Assets Disclosure [Line Items]
 
 
 
 
 
Useful lives from date of acquisitions (in years)
 
 
7 years 
 
 
Fair Value Measurements (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Available-for-sale Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract]
 
 
Available-for-sale Securities, Debt Maturities, Due in Twelve Months, Fair Value
$ 5,658 
 
Available-for-sale Securities, Debt Maturities, Due in One to Two Years, Fair Value
2,316 
 
Marketable Securities
7,974 
 
Fair Value, Measurements, Recurring
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Total cash equivalents and marketable securities
9,146 
3,398 
Fair Value, Measurements, Recurring |
Money Market Funds
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
730 
892 
Fair Value, Measurements, Recurring |
US Government Securities
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
234 
60 
Marketable Securities
5,644 
1,415 
Fair Value, Measurements, Recurring |
US Government Agency Securities
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
208 
50 
Marketable Securities
2,330 
981 
Fair Value, Measurements, Recurring |
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Total cash equivalents and marketable securities
9,146 
3,398 
Fair Value, Measurements, Recurring |
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
730 
892 
Fair Value, Measurements, Recurring |
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
234 
60 
Marketable Securities
5,644 
1,415 
Fair Value, Measurements, Recurring |
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
208 
50 
Marketable Securities
2,330 
981 
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Total cash equivalents and marketable securities
0 
0 
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2) |
Money Market Funds
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
0 
0 
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2) |
US Government Securities
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
0 
0 
Marketable Securities
0 
0 
Fair Value, Measurements, Recurring |
Significant Other Observable Inputs (Level 2) |
US Government Agency Securities
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
0 
0 
Marketable Securities
0 
0 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Total cash equivalents and marketable securities
0 
0 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3) |
Money Market Funds
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
0 
0 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3) |
US Government Securities
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
0 
0 
Marketable Securities
0 
0 
Fair Value, Measurements, Recurring |
Significant Unobservable Inputs (Level 3) |
US Government Agency Securities
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
 
 
Cash equivalents
0 
0 
Marketable Securities
$ 0 
$ 0 
Commitments and Contingencies (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended 1 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Feb. 29, 2012
Revolving Credit Facility
Feb. 29, 2012
Bridge Loan
Sep. 30, 2012
Minimum
Feb. 29, 2012
Minimum
Bridge Loan
Sep. 30, 2012
Maximum
Feb. 29, 2012
Maximum
Bridge Loan
Sep. 30, 2012
Buildings
Oct. 24, 2012
Subsequent Event
Unsecured Term Loan
Leases [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
Capital lease agreement period
 
 
3 years 
 
 
 
 
 
 
 
15 years 
 
Interest rate
 
 
 
 
 
 
1.00% 
 
13.00% 
 
 
 
Expiration date of lease
 
 
 
 
 
 
2012 
 
2027 
 
 
 
Operating lease expense
$ 50 
$ 52 
$ 151 
$ 171 
 
 
 
 
 
 
 
 
Credit Facilities [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
Credit facility, maturity period
 
 
 
 
5 years 
 
 
 
 
 
 
3 years 
Line of credit facility, maximum borrowing capacity
 
 
 
 
$ 5,000 
$ 3,000 
 
 
 
 
 
$ 1,500 
Interest payable on borrowed amounts
 
 
 
 
1.00% 
1.00% 
 
 
 
 
 
1.00% 
Commitment fee payable per annum on daily undrawn balance
 
 
 
 
0.10% 
0.10% 
 
 
 
 
 
0.10% 
Interest payable on undrawn outstanding balances
 
 
 
 
 
0.25% 
 
 
 
 
 
 
Expiration period
 
 
 
 
 
 
 
1 year 
 
 
 
 
Expiration date
 
 
 
 
 
 
 
 
 
2014-06-30 
 
 
Minimum number of days after borrowing to pay additional interest on drawn balances outstanding
 
 
 
 
 
180 days 
 
 
 
 
 
 
Minimum number of days after entering bridge facility to pay commitment fee on daily undrawn balance
 
 
 
 
 
90 days 
 
 
 
 
 
 
Stockholders' Equity (Detail) (USD $)
In Millions, except Share data, unless otherwise specified
9 Months Ended 12 Months Ended 9 Months Ended 1 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Sep. 30, 2012
2012 Plan
Sep. 30, 2012
2012 Plan
Minimum
Sep. 30, 2012
2012 Plan
Maximum
Sep. 30, 2012
2005 Officer's Stock Plan
Nov. 30, 2005
2005 Officer's Stock Plan
Class B Common Stock
Stockholders Equity Note
 
 
 
 
 
 
 
Shares reserved for issuance increase date
 
 
 
Jan. 01, 2013 
Jan. 01, 2022 
 
 
Shares Reserved For Issuance Increase Percentage
 
 
2.50% 
 
 
 
 
Maximum term for stock options granted
 
 
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 
 
Number of Shares
 
 
 
 
 
 
 
Beginning Balance
258,539,000 
 
 
 
 
 
 
Stock options exercised
(84,568,000)
 
 
 
 
 
 
Stock options forfeited/cancelled
(584,000)
 
 
 
 
 
 
Ending Balance
173,387,000 
258,539,000 
 
 
 
 
 
Shares Available for Grant
 
 
 
 
 
 
 
Beginning Balance
52,318,000 
 
 
 
 
 
 
RSUs granted
(33,865,000)
 
 
 
 
 
 
Stock options exercised
0 
 
 
 
 
 
 
Stock options forfeited/cancelled
584,000 
 
 
 
 
 
 
RSUs forfeited and cancelled
9,089,000 
 
 
 
 
 
 
2012 Equity Incentive Plan shares authorized
25,000,000 
 
 
 
 
 
 
Ending Balance
53,126,000 
52,318,000 
 
 
 
 
 
Weighted Average Exercise Price
 
 
 
 
 
 
 
Beginning Balance
$ 0.47 
 
 
 
 
 
 
Stock options exercised
$ 0.11 
 
 
 
 
 
 
Stock options forfeited/cancelled
$ 0.62 
 
 
 
 
 
 
Ending Balance
$ 0.65 
$ 0.47 
 
 
 
 
 
Weighted-Average Remaining Contractual Term
 
 
 
 
 
 
 
Beginning Balance
3 years 10 months 
4 years 4 months 17 days 
 
 
 
 
 
Aggregate Intrinsic Value
 
 
 
 
 
 
 
Beginning Balance
$ 7,360 1
 
 
 
 
 
 
Ending Balance
$ 3,643 1
$ 7,360 1
 
 
 
 
 
Outstanding RSUs
 
 
 
 
 
 
 
Beginning Balance
378,772,000 
 
 
 
 
 
 
RSUs granted
33,865,000 
 
 
 
 
 
 
RSUs forfeited and cancelled
(9,089,000)
 
 
 
 
 
 
Ending Balance
403,548,000 
378,772,000 
 
 
 
 
 
Weighted Average Grant Date Fair Value
 
 
 
 
 
 
 
Beginning Balance
$ 6.83 
 
 
 
 
 
 
RSUs granted
$ 34.69 
 
 
 
 
 
 
RSUs forfeited and cancelled
$ 19.32 
 
 
 
 
 
 
Ending Balance
$ 8.89 
$ 6.83 
 
 
 
 
 
Income Taxes (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2012
Dec. 31, 2011
Income Tax Disclosure [Abstract]
 
 
Effective Income Tax Rate, Continuing Operations
0.00% 
 
Income tax refundable
$ 567 
$ 0 
Net deferred tax assets
399 
 
Increase in net deferred tax assets
$ 339 
 
Geographical Information - Revenue (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Revenue by Geographical Area
 
 
 
 
Revenue
$ 1,262 
$ 954 
$ 3,504 
$ 2,580 
United States
 
 
 
 
Revenue by Geographical Area
 
 
 
 
Revenue
665 
543 
1,789 
1,485 
Rest of World
 
 
 
 
Revenue by Geographical Area
 
 
 
 
Revenue
$ 597 1
$ 411 1
$ 1,715 1
$ 1,095 1
Geographical Information - Long-Lived Assets (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2012
Dec. 31, 2011
Long-Lived Assets by Geographical Area
 
 
Property and equipment, net
$ 2,289 
$ 1,475 
United States
 
 
Long-Lived Assets by Geographical Area
 
 
Property and equipment, net
2,113 
1,444 
Rest of World
 
 
Long-Lived Assets by Geographical Area
 
 
Property and equipment, net
$ 176 1
$ 31 1
Subsequent Events (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 1 Months Ended
Sep. 30, 2012
Pre Twenty Eleven Restricted Stock Units
Oct. 24, 2012
Subsequent Event
Unsecured Term Loan
Sep. 30, 2012
October and November Twenty Twelve
Pre Twenty Eleven Restricted Stock Units
Subsequent Event
 
 
 
Line of credit facility, maximum borrowing capacity
 
$ 1,500 
 
Interest payable on borrowed amounts
 
1.00% 
 
Letter of credit facility upfront fee percentage
 
0.15% 
 
Commitment fee payable per annum on daily undrawn balance
 
0.10% 
 
Number of Borrowings Under Term Loan
 
2 
 
Share based compensation arrangement by share based payment award other than options expected to vest
 
 
271 
Withholding tax rate
45.00%