FACEBOOK INC, 10-K filed on 1/30/2020
Annual Report
v3.19.3.a.u2
Cover page - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2019
Jan. 23, 2020
Jun. 28, 2019
Entity Information      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity File Number 001-35551    
Entity Registrant Name Facebook, Inc.    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 20-1665019    
Entity Address, Address Line One 1601 Willow Road    
Entity Address, City or Town Menlo Park    
Entity Address, State or Province CA    
Entity Address, Postal Zip Code 94025    
City Area Code 650    
Local Phone Number 543-4800    
Title of 12(b) Security Class A Common Stock, $0.000006 par value    
Trading Symbol FB    
Security Exchange Name NASDAQ    
Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 478
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended December 31, 2019.
   
Amendment Flag false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001326801    
Current Fiscal Year End Date --12-31    
Class A      
Entity Information      
Entity Common Stock, Shares Outstanding   2,405,745,740  
Class B Common Stock      
Entity Information      
Entity Common Stock, Shares Outstanding   444,704,919  
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 19,079 $ 10,019
Marketable securities 35,776 31,095
Accounts receivable, net of allowances of $206 and $229 as of December 31, 2019 and December 31, 2018, respectively 9,518 7,587
Prepaid expenses and other current assets 1,852 1,779
Total current assets 66,225 50,480
Property and equipment, net 35,323  
Property and equipment, net   24,683
Operating lease right-of-use assets, net 9,460  
Intangible assets, net 894 1,294
Goodwill 18,715 18,301
Other assets 2,759 2,576
Total assets 133,376 97,334
Current liabilities:    
Accounts payable 1,363 820
Partners payable 886 541
Operating lease liabilities, current 800  
Accrued expenses and other current liabilities 11,735 5,509
Deferred revenue and deposits 269 147
Total current liabilities 15,053 7,017
Operating lease liabilities, non-current 9,524 0
Other liabilities 7,745 6,190
Total liabilities 32,322 13,207
Commitments and contingencies
Stockholders' equity:    
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,407 million and 2,385 million shares issued and outstanding, as of December 31, 2019 and December 31, 2018, respectively; 4,141 million Class B shares authorized, 445 million and 469 million shares issued and outstanding, as of December 31, 2019 and December 31, 2018, respectively. 0 0
Additional paid-in capital 45,851 42,906
Accumulated other comprehensive loss (489) (760)
Retained earnings 55,692 41,981
Total stockholders' equity 101,054 84,127
Total liabilities and stockholders' equity $ 133,376 $ 97,334
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Accounts receivable, allowances for doubtful accounts $ (206) $ (229)
Stockholders' equity:    
Common stock, par value (in dollars per share) $ 0.000006 $ 0.000006
Class A    
Stockholders' equity:    
Common stock, par value (in dollars per share) $ 0.000006  
Common stock, shares authorized (in shares) 5,000,000,000 5,000,000,000
Common stock, shares, issued (in shares) 2,407,000,000 2,385,000,000
Common stock, shares, outstanding (in shares) 2,407,000,000 2,385,000,000
Class B Common Stock    
Stockholders' equity:    
Common stock, par value (in dollars per share) $ 0.000006  
Common stock, shares authorized (in shares) 4,141,000,000 4,141,000,000
Common stock, shares, issued (in shares) 445,000,000 469,000,000
Common stock, shares, outstanding (in shares) 445,000,000 469,000,000
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CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenue $ 70,697 $ 55,838 $ 40,653
Costs and expenses:      
Cost of revenue 12,770 9,355 5,454
Research and development 13,600 10,273 7,754
Marketing and sales 9,876 7,846 4,725
General and administrative 10,465 3,451 2,517
Total costs and expenses 46,711 30,925 20,450
Income from operations 23,986 24,913 20,203
Interest and other income, net 826 448 391
Income before provision for income taxes 24,812 25,361 20,594
Provision for income taxes 6,327 3,249 4,660
Net income 18,485 22,112 15,934
Less: Net income attributable to participating securities 0 (1) (14)
Net income attributable to Class A and Class B common stockholders $ 18,485 $ 22,111 $ 15,920
Earnings per share attributable to Class A and Class B common stockholders:      
Basic (in dollars per share) $ 6.48 $ 7.65 $ 5.49
Diluted (in dollars per share) $ 6.43 $ 7.57 $ 5.39
Weighted-average shares used to compute earnings per share attributable to Class A and Class B common stockholders:      
Basic (in shares) 2,854 2,890 2,901
Diluted (in shares) 2,876 2,921 2,956
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense $ 4,836 $ 4,152 $ 3,723
Cost of revenue      
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense 377 284 178
Research and development      
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense 3,488 3,022 2,820
Marketing and sales      
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense 569 511 436
General and administrative      
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense $ 402 $ 335 $ 289
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net income $ 18,485 $ 22,112 $ 15,934
Other comprehensive income (loss):      
Change in foreign currency translation adjustment, net of tax (151) (450) 566
Change in unrealized gain/loss on available-for-sale investments and other, net of tax 422 (52) (90)
Comprehensive income $ 18,756 $ 21,610 $ 16,410
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
shares in Millions, $ in Millions
Total
Class A and Class B Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Loss
Retained Earnings
Common stock, shares outstanding beginning (in shares) at Dec. 31, 2016   2,892      
Total stockholders' equity, beginning at Dec. 31, 2016 $ 59,194 $ 0 $ 38,227 $ (703) $ 21,670
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Issuance of common stock related to acquisitions, shares   2      
Issuance of common stock related to acquisitions, value 323   323    
Issuance of common stock for cash upon exercise of stock options, shares   3      
Issuance of common stock for cash upon exercise of stock options, value 13   13    
Issuance of common stock for settlement of RSUs, shares   43      
Issuance of common stock for settlement of RSUs. value 0        
Shares withheld related to net share settlement, shares   (21)      
Shares withheld related to net share settlement, value (3,246)   (1,702)   (1,544)
Share-based compensation, related to employee share-based awards 3,723   3,723    
Share repurchases, shares   (13)      
Share repurchases, value (2,070)       (2,070)
Other comprehensive income (loss) 476     476  
Net income 15,934       15,934
Common stock, shares outstanding ending (in shares) at Dec. 31, 2017   2,906      
Total stockholders' equity, ending at Dec. 31, 2017 74,347 $ 0 40,584 (227) 33,990
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Impact of the adoption of new accounting pronouncements 141     (31) 172
Issuance of common stock for cash upon exercise of stock options, shares   2      
Issuance of common stock for cash upon exercise of stock options, value 15   15    
Issuance of common stock for settlement of RSUs, shares   44      
Issuance of common stock for settlement of RSUs. value 0        
Shares withheld related to net share settlement, shares   (19)      
Shares withheld related to net share settlement, value (3,208)   (1,845)   (1,363)
Share-based compensation, related to employee share-based awards 4,152   4,152    
Share repurchases, shares   (79)      
Share repurchases, value (12,930)       (12,930)
Other comprehensive income (loss) (502)     (502)  
Net income 22,112       22,112
Common stock, shares outstanding ending (in shares) at Dec. 31, 2018   2,854      
Total stockholders' equity, ending at Dec. 31, 2018 84,127 $ 0 42,906 (760) 41,981
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Issuance of common stock for cash upon exercise of stock options, shares   1      
Issuance of common stock for cash upon exercise of stock options, value 15   15    
Issuance of common stock for settlement of RSUs, shares   32      
Issuance of common stock for settlement of RSUs. value 0        
Shares withheld related to net share settlement, shares   (13)      
Shares withheld related to net share settlement, value (2,581)   (1,906)   (675)
Share-based compensation, related to employee share-based awards 4,836   4,836    
Share repurchases, shares   (22)      
Share repurchases, value (4,099)       (4,099)
Other comprehensive income (loss) 271     271  
Net income 18,485       18,485
Common stock, shares outstanding ending (in shares) at Dec. 31, 2019   2,852      
Total stockholders' equity, ending at Dec. 31, 2019 $ 101,054 $ 0 $ 45,851 $ (489) $ 55,692
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities      
Net income $ 18,485 $ 22,112 $ 15,934
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 5,741 4,315 3,025
Share-based compensation 4,836 4,152 3,723
Deferred income taxes (37) 286 (377)
Other 39 (64) 24
Changes in assets and liabilities:      
Accounts receivable (1,961) (1,892) (1,609)
Prepaid expenses and other current assets 47 (690) (192)
Other assets 41 (159) 154
Accounts payable 113 221 43
Partners payable 348 157 95
Accrued expenses and other current liabilities 7,300 1,417 309
Deferred revenue and deposits 123 53 4
Other liabilities 1,239 (634) 3,083
Net cash provided by operating activities 36,314 29,274 24,216
Cash flows from investing activities      
Purchases of property and equipment, net (15,102) (13,915) (6,733)
Purchases of marketable securities (23,910) (14,656) (25,682)
Sales of marketable securities 9,565 12,358 9,444
Maturities of marketable securities 10,152 4,772 2,988
Acquisitions of businesses, net of cash acquired, and purchases of intangible assets (508) (137) (122)
Other investing activities, net (61) (25) (13)
Net cash used in investing activities (19,864) (11,603) (20,118)
Cash flows from financing activities      
Taxes paid related to net share settlement of equity awards (2,337) (3,208) (3,246)
Repurchases of Class A common stock (4,202) (12,879) (1,976)
Principal payments on finance leases (552) 0 0
Net change in overdraft in cash pooling entities (223) 500 0
Other financing activities, net 15 15 (13)
Net cash used in financing activities (7,299) (15,572) (5,235)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 4 (179) 232
Net increase (decrease) in cash, cash equivalents, and restricted cash 9,155 1,920 (905)
Cash, cash equivalents, and restricted cash at beginning of the period 10,124 8,204 9,109
Cash, cash equivalents, and restricted cash at end of the period 19,279 10,124 8,204
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets      
Total cash, cash equivalents, and restricted cash 19,279 8,204 9,109
Supplemental cash flow data      
Cash paid for income taxes, net 5,182 3,762 2,117
Non-cash investing activities:      
Net change in prepaids and liabilities related to property and equipment (153) 918 495
Property and equipment in accounts payable and accrued liabilities $ 1,887 $ 1,955 $ 882
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Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
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 give people the power to build community and bring the world closer together. We generate substantially all of our revenue from advertising.

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., subsidiaries where we have controlling financial interests, and any variable interest entities for which we are deemed to be the primary beneficiary. 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 income taxes, loss contingencies, fair value of acquired intangible assets and goodwill, collectability of accounts receivable, fair value of financial instruments, leases, useful lives of intangible assets and property and equipment, and revenue recognition. 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.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

We determine revenue recognition through the following steps:

identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.

Revenue excludes sales and usage‑based taxes where it has been determined that we are acting as a pass‑through agent.

Advertising

Advertising revenue is generated by displaying ad products on Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications. Marketers pay for ad products either directly or through their relationships with advertising agencies or resellers, based on the number of impressions delivered or the number of actions, such as clicks, taken by our users.

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. We recognize revenue from the delivery of action-based ads in the period in which a user takes the action the marketer contracted for. For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis.

We may accept lower consideration than the amount promised per the contract for certain revenue transactions and certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration when estimating the amount of revenue to recognize. We believe that there will not be significant changes to our estimates of variable consideration.

Other Revenue

Other revenue consists of revenue from the delivery of consumer hardware devices, net fees we receive from developers using our Payments infrastructure, as well as revenue from various other sources.

Deferred Revenue and Deposits

Deferred revenue mostly consists of billings and payments we receive from marketers in advance of revenue recognition. Deposits relate to unused balances held on behalf of our users who primarily use these balances to make purchases in games on our platform. Once this balance is utilized by a user, the majority of this amount would then be payable to the developer and the balance would be recognized as revenue. The increase in the deferred revenue balance for the year ended December 31, 2019 was driven by cash payments from customers in advance of satisfying our performance obligations, offset by revenue recognized that was included in the deferred revenue balance at the beginning of the period.

Our payment terms vary by the products or services offered. The term between billings and when payment is due is not significant. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within marketing and sales on our consolidated statements of income.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

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 and technical infrastructure, such as facility and server equipment depreciation, salaries, benefits, and share-based compensation for employees on our operations teams, and energy and bandwidth costs. Cost of revenue also includes costs associated with partner arrangements, including traffic acquisition and content acquisition costs, credit card and other transaction fees related to processing customer transactions, and cost of consumer hardware devices sold.

Content acquisition costs

We license and pay to produce content in order to increase engagement on the platform. For licensed content, the capitalized amounts are limited to the greater of estimated net realizable value or cost on a per title basis. We expense the cost per title in cost of revenue on the consolidated statements of income when the title is accepted and available for viewing, and before the capitalization criteria are met. For original content, we expense costs associated with the production, including development costs and direct costs as incurred, unless those amounts are determined to be recoverable. Expensed original content costs are included in cost of revenue on the consolidated statements of income.

Content acquisition costs that meet the criteria for capitalization were not material to date.

Software Development Costs

Software development costs, including costs to develop software products or the software component of products to be sold, leased, or marketed to external users, are expensed before the software or technology reach technological feasibility, which is typically reached shortly before the release of such products.

Software development costs also include costs to develop software to be used solely to meet internal needs and applications used to deliver our services. These software development costs meet the criteria for capitalization once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended.

Development costs that meet the criteria for capitalization were not material to date.

Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this 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, as well as for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We recognize the deferred income tax effects of a change in tax rates in the period of the enactment.

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. These uncertain tax positions include our estimates for transfer pricing that have been developed based upon analyses of appropriate arms-length prices. Similarly, our estimates related to uncertain tax positions concerning research tax credits are based on an assessment of whether our available documentation corroborating the nature of our activities supporting the tax credits will be sufficient. Although we believe that we have adequately reserved for our uncertain tax positions (including net interest and penalties), we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves in accordance with the income tax guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results.

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 $1.57 billion, $1.10 billion, and $324 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Cash and Cash Equivalents, Marketable Securities, and Restricted Cash

Cash and cash equivalents consist of cash on deposit with banks and highly liquid investments with maturities of 90 days or less from the date of purchase.

We hold investments in marketable securities, consisting of U.S. government securities, U.S. government agency securities, and investment grade corporate debt 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 interest and other income, 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 interest and other income, net.

We also maintain a multi-currency notional cash pool for our participating entities with a third-party bank provider. Actual cash balances are not physically converted and are not commingled between participating legal entities. We classify the overdraft balances within accrued expenses and other current liabilities on the accompanying consolidated balance sheets.

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.

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 cash equivalents and marketable debt securities were derived from quoted market prices or alternative pricing sources and models utilizing observable market inputs.

Accounts Receivable and Allowances

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 and allowance for unbilled receivables 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 our ability to collect from customers.

Property and Equipment

Property and equipment, which includes amounts recorded under finance leases, are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the remaining lease term, whichever is shorter.

The estimated useful lives of property and equipment are described below:
Property and Equipment 
 
Useful Life 
Network equipment
 
Three to 20 years
Buildings
 
Three to 30 years
Computer software, office equipment and other
 
Two to five years
Finance lease right-of-use assets
 
Three to 20 years
Leasehold improvements
 
Lesser of estimated useful life or remaining lease term
 

The useful lives of our property and equipment are determined by management when those assets are initially recognized and are routinely reviewed for the remaining estimated useful lives. Our current estimate of useful lives represents the best estimate of the useful lives based on current facts and circumstances, but may differ from the actual useful lives due to changes in future circumstances such as changes to our business operations, changes in the planned use of assets, and technological advancements. When we change the estimated useful life assumption for any asset, the remaining carrying amount of the asset is accounted for prospectively and depreciated or amortized over the revised estimated useful life. Historically changes in useful lives have not resulted in material changes to our depreciation and amortization expense.

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

On January 1, 2019, we adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02) using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.

We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract was or contains a lease, and our initial direct costs for any leases that existed prior to January 1, 2019. We also elected to combine our lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease right-of-use (ROU) assets and lease liabilities.

Upon adoption, we recognized total ROU assets of $6.63 billion, with corresponding lease liabilities of $6.35 billion on the consolidated balance sheets. This included $761 million of pre-existing finance lease ROU assets previously reported in the network equipment within property and equipment, net. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact our beginning retained earnings, or our prior year consolidated statements of income and statements of cash flows.

Under Topic 842, we determine if an arrangement is a lease at inception. ROU assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, we consider only payments that are fixed and determinable at the time of commencement. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our incremental borrowing rate is a hypothetical rate based on our understanding of what our credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. When determining the probability of exercising such options, we consider contract-based, asset-based, entity-based, and market-based factors. Our lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the consolidated statements of income. Our lease agreements generally do not contain any residual value guarantees or restrictive covenants.

Operating leases are included in operating lease ROU assets, operating lease liabilities, current and operating lease liabilities, non-current on our consolidated balance sheets. Finance leases are included in property and equipment, accrued expenses and other current liabilities, and other liabilities on our consolidated balance sheets.

Loss Contingencies

We are involved in legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We evaluate the developments on a regular basis and accrue a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine there is a reasonable possibility that we may incur a loss and the loss or range of loss can be estimated, we disclose the possible loss in the notes to the consolidated financial statements to the extent material.

We review the developments in our contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and related possible losses disclosed. We make adjustments to our provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability of loss and the estimated amount of loss.

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. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects Company amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed 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 Intangibles Assets
We evaluate the recoverability of property and equipment and acquired finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. 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 from the use and eventual disposition. 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 significant impairment charges during the years presented.
We review goodwill for impairment at least annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of our single reporting unit below its carrying value. As of December 31, 2019, no impairment of goodwill has been identified.
Acquired finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. We routinely review the remaining estimated useful lives of property and equipment and finite-lived intangible assets. If we change the estimated useful life assumption for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life.

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 loss as a component of stockholders' equity. As of December 31, 2019 and 2018, we had a cumulative translation loss, net of tax of $617 million and $466 million, respectively. Net losses resulting from foreign exchange transactions were $105 million, $213 million, and $6 million for the years ended December 31, 2019, 2018, and 2017, respectively. These losses were recorded as interest and other income, net in our consolidated statements of income.

Credit Risk and Concentration

Our financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, marketable securities, and accounts receivable. The majority of cash equivalents consists of money market funds, that primarily invest in U.S. government and agency securities. Marketable securities consist of investments in U.S. government securities, U.S. government agency securities, and investment grade corporate debt securities. Our investment portfolio in corporate debt securities is highly liquid and diversified among individual issuers.

Accounts receivable are typically unsecured and are derived from revenue earned from customers across different industries and countries. We generated 43% of our revenue for the years ended December 31, 2019 and 2018 and 44% of our revenue for the year ended December 31, 2017 from marketers and developers based in the United States, with the majority of revenue outside of the United States coming from customers located in western Europe, China, Canada, Brazil, and Australia.

We perform ongoing credit evaluations of our customers and generally do not require collateral. We maintain an allowance for estimated credit losses. Bad debt expense was not material during the years ended December 31, 2019, 2018, or 2017. In the event that accounts receivable collection cycles deteriorate, our operating results and financial position could be adversely affected.

No customer represented 10% or more of total revenue during the years ended December 31, 2019, 2018, and 2017.

Segments

Our chief operating decision-maker is our Chief Executive Officer who makes resource allocation decisions and assesses performance based on 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 reportable segment and operating segment structure.

Recently Adopted Accounting Pronouncements

On January 1, 2019, we adopted Topic 842, as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding ROU assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies - Leases above and Note 7 - Leases.

On October 1, 2019, we early adopted Accounting Standards Update No. 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04) using the prospective approach, which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. This guidance was effective beginning January 1, 2020, with early adoption permitted. The adoption of this new standard did not have a material impact on our consolidated financial statements.

On October 1, 2019, we early adopted Accounting Standards Update No. 2019-02, Entertainment-Films-Other Assets-Film Costs (Subtopic 926-20) and Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials (ASU 2019-02) using the prospective approach, which eliminates certain revenue-related constraints on capitalization of inventory costs for episodic television that existed under prior guidance. In addition, the balance sheet classification requirements that existed in prior guidance for film production costs and programming inventory were eliminated. This guidance was effective beginning January 1, 2020, with early adoption permitted. The adoption of this new standard did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. We will adopt the new standard effective January 1, 2020 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued Accounting Standard Update No. 2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820) (ASU 2018-13), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements. We will adopt the new standard effective January 1, 2020 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
v3.19.3.a.u2
Revenue
12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Revenue

Revenue disaggregated by revenue source consists of the following (in millions):
 
Year Ended December 31, 
 
2019
 
2018
 
2017 (1)
Advertising
$
69,655

 
$
55,013

 
$
39,942

Other revenue
1,042

 
825

 
711

Total revenue
$
70,697

 
$
55,838

 
$
40,653

_________________________
(1) Prior period amounts have not been adjusted under the modified retrospective method of the adoption of Topic 606.  

Revenue disaggregated by geography, based on the billing address of our customers, consists of the following (in millions):
 
Year Ended December 31, 
 
2019
 
2018
 
2017 (1)
Revenue:
 
 
 
 
 
United States and Canada(2)
$
32,206

 
$
25,727

 
$
19,065

Europe(3)
16,826

 
13,631

 
10,126

Asia-Pacific
15,406

 
11,733

 
7,921

Rest of World(3)
6,259

 
4,747

 
3,541

Total revenue
$
70,697

 
$
55,838

 
$
40,653

_________________________
(1) Prior period amounts have not been adjusted under the modified retrospective method of the adoption of Topic 606.  
(2) United States revenue was $30.23 billion, $24.10 billion, and $17.73 billion for the years ended December 31, 2019, 2018, and 2017.
(3) Europe includes Russia and Turkey, and Rest of World includes Africa, Latin America, and the Middle East.

Deferred revenue and deposits consists of the following (in millions):
 
December 31,
 
2019
 
2018
Deferred revenue
$
234

 
$
117

Deposits
35

 
30

    Total deferred revenue and deposits
$
269

 
$
147


v3.19.3.a.u2
Earnings per Share
12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
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. We consider restricted stock awards to be participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares.

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

For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities, including awards under our equity compensation plans. In 2018 and 2017, the calculation of diluted EPS also included the effect of inducement awards under separate non-plan restricted stock unit (RSU) award agreements.
 
In addition, the computation of the diluted EPS of Class A common stock assumes the conversion of our Class B common stock to Class A common stock, while the diluted EPS of Class B common stock does not assume the conversion of those shares to Class A common stock. Diluted EPS attributable to common stockholders is computed by dividing the resulting net income attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding.

RSUs with anti-dilutive effect were excluded from the EPS calculation and they were not material for the years ended December 31, 2019, 2018, and 2017, respectively.

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,
 
2019
 
2018
 
2017
 
Class
A
 
Class
B
 
Class
A
 
Class
B
 
Class
A
 
Class
B 
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
Net income
$
15,569

 
$
2,916

 
$
18,411

 
$
3,701

 
$
13,034

 
$
2,900

Less: Net income attributable to participating securities

 

 
(1
)
 

 
(12
)
 
(2
)
Net income attributable to common stockholders
$
15,569

 
$
2,916

 
$
18,410

 
$
3,701

 
$
13,022

 
$
2,898

Denominator
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
2,404

 
450

 
2,406

 
484

 
2,375

 
528

Less: Shares subject to repurchase

 

 

 

 
(2
)
 

Number of shares used for basic EPS computation
2,404

 
450

 
2,406

 
484

 
2,373

 
528

Basic EPS
$
6.48

 
$
6.48

 
$
7.65

 
$
7.65

 
$
5.49

 
$
5.49

Diluted EPS:
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
15,569

 
$
2,916

 
$
18,410

 
$
3,701

 
$
13,022

 
$
2,898

Reallocation of net income attributable to participating securities

 

 
1

 

 
14

 

Reallocation of net income as a result of conversion of Class B to Class A common stock
2,916

 

 
3,701

 

 
2,898

 

Reallocation of net income to Class B common stock

 
(18
)
 

 
(16
)
 

 
(13
)
Net income attributable to common stockholders for diluted EPS
$
18,485

 
$
2,898

 
$
22,112

 
$
3,685

 
$
15,934

 
$
2,885

Denominator
 
 
 
 
 
 
 
 
 
 
 
Number of shares used for basic EPS computation
2,404

 
450

 
2,406

 
484

 
2,373

 
528

Conversion of Class B to Class A common stock
450

 

 
484

 

 
528

 

Weighted-average effect of dilutive RSUs and employee stock options
22

 
1

 
31

 
3

 
53

 
7

Shares subject to repurchase

 

 

 

 
2

 

Number of shares used for diluted EPS computation
2,876

 
451

 
2,921

 
487

 
2,956

 
535

Diluted EPS
$
6.43

 
$
6.43

 
$
7.57

 
$
7.57

 
$
5.39

 
$
5.39


v3.19.3.a.u2
Cash and Cash Equivalents and Marketable Securities
12 Months Ended
Dec. 31, 2019
Cash and Cash Equivalents and Marketable Securities [Abstract]  
Cash and Cash Equivalents and Marketable Securities Cash and Cash Equivalents and Marketable Securities

The following table sets forth the cash and cash equivalents and marketable securities (in millions):
 
December 31,
 
2019
 
2018
Cash and cash equivalents:
 
 
 
Cash
$
4,735

 
$
2,713

Money market funds
12,787

 
6,792

U.S. government securities
815

 
90

U.S. government agency securities
444

 
54

Certificate of deposits and time deposits
217

 
369

Corporate debt securities
81

 
1

Total cash and cash equivalents
19,079

 
10,019

Marketable securities:
 
 
 
U.S. government securities
18,679

 
13,836

U.S. government agency securities
6,712

 
8,333

Corporate debt securities
10,385

 
8,926

Total marketable securities
35,776

 
31,095

Total cash and cash equivalents and marketable securities
$
54,855

 
$
41,114



The gross unrealized gains on our marketable securities were $205 million and $24 million as of December 31, 2019 and 2018, respectively. The gross unrealized losses on our marketable securities were $24 million and $357 million as of December 31, 2019 and 2018, respectively. In addition, gross unrealized losses that had been in a continuous loss position for 12 months or longer were $17 million and $332 million as of December 31, 2019 and 2018, respectively. As of December 31, 2019, we considered the unrealized losses on our marketable securities to be temporary in nature and did not consider any of our investments to be other-than-temporarily impaired.

The following table classifies our marketable securities by contractual maturities (in millions):
 
December 31,
 
2019
 
2018
Due in one year
$
12,803

 
$
9,746

Due after one year to five years
22,973

 
21,349

Total
$
35,776

 
$
31,095


v3.19.3.a.u2
Fair Value Measurement
12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurement Fair Value Measurement

The following table summarizes our assets measured at 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,
2019
 
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
 
$
12,787

 
$
12,787

 
$

 
$

U.S. government securities
 
815

 
815

 

 

U.S. government agency securities
 
444

 
444

 

 

Certificate of deposits and time deposits
 
217

 

 
217

 

Corporate debt securities
 
81

 

 
81

 

Marketable securities:
 
 
 
 
 
 
 
 
U.S. government securities
 
18,679

 
18,679

 

 

U.S. government agency securities
 
6,712

 
6,712

 

 

Corporate debt securities
 
10,385

 

 
10,385

 

Total cash equivalents and marketable securities
 
$
50,120

 
$
39,437

 
$
10,683

 
$

 
 
 
 
Fair Value Measurement at Reporting Date Using
Description
 
December 31,
2018
 
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
 
$
6,792

 
$
6,792

 
$

 
$

U.S. government securities
 
90

 
90

 

 

U.S. government agency securities
 
54

 
54

 

 

Certificate of deposits and time deposits
 
369

 

 
369

 

Corporate debt securities
 
1

 

 
1

 

Marketable securities:
 

 
 
 
 
 
 
U.S. government securities
 
13,836

 
13,836

 

 

U.S. government agency securities
 
8,333

 
8,333

 

 

Corporate debt securities
 
8,926

 

 
8,926

 

Total cash equivalents and marketable securities
 
$
38,401

 
$
29,105

 
$
9,296

 
$



We classify our cash equivalents and marketable securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value.
v3.19.3.a.u2
Property and Equipment
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment Property and Equipment

Property and equipment, net consists of the following (in millions):
 
December 31,
 
2019
 
2018
Land
$
1,097

 
$
899

Buildings
11,226

 
7,401

Leasehold improvements
3,112

 
1,841

Network equipment
17,004

 
13,017

Computer software, office equipment and other
1,813

 
1,187

Finance lease right-of-use assets
1,635

 

Construction in progress
10,099

 
7,228

    Total
45,986

 
31,573

Less: Accumulated depreciation
(10,663
)
 
(6,890
)
Property and equipment, net
$
35,323

 
$
24,683

 

Depreciation expense on property and equipment were $5.18 billion, $3.68 billion, and $2.33 billion for the years ended December 31, 2019, 2018, and 2017, respectively. The majority of the property and equipment depreciation expense was from network equipment depreciation of $3.83 billion, $2.94 billion, and $1.84 billion for the years ended December 31, 2019, 2018, and 2017, respectively. Construction in progress includes costs mostly related to construction of data centers, network equipment infrastructure to support our data centers around the world, and office buildings. No interest was capitalized for any period presented.
v3.19.3.a.u2
Leases
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases Leases

We have entered into various non-cancelable operating lease agreements for certain of our offices, data center, land, colocations, and equipment. We have also entered into various non-cancelable finance lease agreements for certain network equipment. Our leases have original lease periods expiring between 2020 and 2093. Many leases include one or more options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
The components of lease costs, lease term and discount rate for the year ended December 31, 2019 are as follows (in millions):
Finance lease cost
 
     Amortization of right-of-use assets
$
195

     Interest
12

Operating lease cost
1,139

Variable lease cost and other, net
160

       Total lease cost
$
1,506

 
 
Weighted-average remaining lease term
 
     Operating leases
13.0 years

     Finance leases
15.3 years

 
 
Weighted-average discount rate
 
     Operating leases
3.2
%
     Finance leases
3.1
%


Operating lease expense was $629 million and $363 million for the years ended December 31, 2018 and 2017, respectively, under Topic 840.
The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2019 (in millions):
 
Operating Leases
 
Finance Leases
2020
$
1,060

 
$
69

2021
1,244

 
48

2022
1,141

 
35

2023
1,116

 
35

2024
1,039

 
35

Thereafter
7,572

 
371

Total undiscounted cash flows
13,172

 
593

Less: Imputed interest
(2,848
)
 
(120
)
Present value of lease liabilities
$
10,324

 
$
473

 
 
 
 
Lease liabilities, current
$
800

 
$
55

Lease liabilities, non-current
9,524

 
418

Present value of lease liabilities
$
10,324

 
$
473



As of December 31, 2019, we have additional operating and finance leases for facilities and network equipment that have not yet commenced with lease obligations of approximately $5.04 billion and $317 million, respectively. These operating and finance leases will commence between 2020 and 2023 with lease terms of greater than one year to 25 years. The table above does not include lease payments that were not fixed at commencement or lease modification.

Supplemental cash flow information related to leases for the year ended December 31, 2019 are as follows (in millions):
Cash paid for amounts included in the measurement of lease liabilities:
 
     Operating cash flows from operating leases
$
902

     Operating cash flows from finance leases
$
12

     Financing cash flows from finance leases
$
552

Lease liabilities arising from obtaining right-of-use assets:
 
     Operating leases
$
5,081

     Finance leases
$
193

Leases Leases

We have entered into various non-cancelable operating lease agreements for certain of our offices, data center, land, colocations, and equipment. We have also entered into various non-cancelable finance lease agreements for certain network equipment. Our leases have original lease periods expiring between 2020 and 2093. Many leases include one or more options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
The components of lease costs, lease term and discount rate for the year ended December 31, 2019 are as follows (in millions):
Finance lease cost
 
     Amortization of right-of-use assets
$
195

     Interest
12

Operating lease cost
1,139

Variable lease cost and other, net
160

       Total lease cost
$
1,506

 
 
Weighted-average remaining lease term
 
     Operating leases
13.0 years

     Finance leases
15.3 years

 
 
Weighted-average discount rate
 
     Operating leases
3.2
%
     Finance leases
3.1
%


Operating lease expense was $629 million and $363 million for the years ended December 31, 2018 and 2017, respectively, under Topic 840.
The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2019 (in millions):
 
Operating Leases
 
Finance Leases
2020
$
1,060

 
$
69

2021
1,244

 
48

2022
1,141

 
35

2023
1,116

 
35

2024
1,039

 
35

Thereafter
7,572

 
371

Total undiscounted cash flows
13,172

 
593

Less: Imputed interest
(2,848
)
 
(120
)
Present value of lease liabilities
$
10,324

 
$
473

 
 
 
 
Lease liabilities, current
$
800

 
$
55

Lease liabilities, non-current
9,524

 
418

Present value of lease liabilities
$
10,324

 
$
473



As of December 31, 2019, we have additional operating and finance leases for facilities and network equipment that have not yet commenced with lease obligations of approximately $5.04 billion and $317 million, respectively. These operating and finance leases will commence between 2020 and 2023 with lease terms of greater than one year to 25 years. The table above does not include lease payments that were not fixed at commencement or lease modification.

Supplemental cash flow information related to leases for the year ended December 31, 2019 are as follows (in millions):
Cash paid for amounts included in the measurement of lease liabilities:
 
     Operating cash flows from operating leases
$
902

     Operating cash flows from finance leases
$
12

     Financing cash flows from finance leases
$
552

Lease liabilities arising from obtaining right-of-use assets:
 
     Operating leases
$
5,081

     Finance leases
$
193

v3.19.3.a.u2
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets

During the year ended December 31, 2019, we purchased certain intangible assets and completed several business acquisitions that were not material to our consolidated financial statements, either individually or in the aggregate. Accordingly, pro forma historical results of operations related to these business acquisitions during the year ended December 31, 2019 have not been presented. We have included the financial results of these business acquisitions in our consolidated financial statements from their respective dates of acquisition.

Goodwill generated from all business acquisitions completed was primarily attributable to expected synergies from future growth and potential monetization opportunities. The amount of goodwill generated that was deductible for tax purposes was not material.

The changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2018 are as follows (in millions):
Balance as of December 31, 2017
$
18,221

Goodwill acquired
88

Effect of currency translation adjustment
(8
)
Balance as of December 31, 2018
18,301

Goodwill acquired
408

Effect of currency translation adjustment
6

Balance as of December 31, 2019
$
18,715



The following table sets forth the major categories of the intangible assets and the weighted-average remaining useful lives for those assets that are not already fully amortized (in millions):
 
 
 
December 31, 2019
 
December 31, 2018
 
Weighted-Average Remaining Useful Lives (in years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Acquired users
1.8
 
$
2,056

 
$
(1,550
)
 
$
506

 
$
2,056

 
$
(1,260
)
 
$
796

Acquired technology
2.6
 
1,158

 
(986
)
 
172

 
1,002

 
(871
)
 
131

Acquired patents
4.6
 
805

 
(625
)
 
180

 
805

 
(565
)
 
240

Trade names
2.0
 
635

 
(604
)
 
31

 
629

 
(517
)
 
112

Other
3.3
 
162

 
(157
)
 
5

 
162

 
(147
)
 
15

    Total intangible assets
 
 
$
4,816

 
$
(3,922
)
 
$
894

 
$
4,654

 
$
(3,360
)
 
$
1,294

 

Amortization expense of intangible assets for the years ended December 31, 2019, 2018, and 2017 was $562 million, $640 million, and $692 million, respectively.

As of December 31, 2019, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):
2020
$
431

2021
326

2022
78

2023
27

2024
17

Thereafter
15

Total
$
894


v3.19.3.a.u2
Liabilities
12 Months Ended
Dec. 31, 2019
Accounts Payable and Accrued Liabilities [Abstract]  
Liabilities Liabilities

The components of accrued expenses and other current liabilities are as follows (in millions):
 
December 31,
 
2019
 
2018
Accrued legal settlements for FTC and BIPA (1)
$
5,550

 
$

Accrued compensation and benefits
1,704

 
1,203

Accrued property and equipment
1,082

 
1,531

Accrued taxes
624

 
491

Overdraft in cash pooling entities
277

 
500

Other current liabilities
2,498

 
1,784

    Accrued expenses and other current liabilities
$
11,735

 
$
5,509


_________________________
(1)
Includes accrued legal settlements for U.S. Federal Trade Commission (FTC) of $5.0 billion and Illinois Biometric Information Privacy Act (BIPA) of $550 million. For further information, see Legal Matters in Note. 11—Commitments and Contingencies.

The components of other liabilities are as follows (in millions):
 
December 31,
 
2019
 
2018
Income tax payable
$
5,651

 
$
4,655

Deferred tax liabilities
1,039

 
673

Other liabilities
1,055

 
862

Other liabilities
$
7,745

 
$
6,190


v3.19.3.a.u2
Long-term Debt
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Long-term Debt Long-term Debt

In May 2016, we entered into a $2.0 billion senior unsecured revolving credit facility, and any amounts outstanding under this facility will be due and payable on May 20, 2021. As of December 31, 2019, no amounts had been drawn down and we were in compliance with the covenants under this facility.
v3.19.3.a.u2
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies

Guarantee

In 2018, we established a multi-currency notional cash pool for certain of our entities with a third-party bank provider. Actual cash balances are not physically converted and are not commingled between participating legal entities. As part of the notional cash pool agreement, the bank extends overdraft credit to our participating entities as needed, provided that the overall notionally pooled balance of all accounts in the pool at the end of each day is at least zero. In the unlikely event of a default by our collective entities participating in the pool, any overdraft balances incurred would be guaranteed by Facebook, Inc.

Other contractual commitments

We also have $4.54 billion of non-cancelable contractual commitments as of December 31, 2019, which is primarily related to network infrastructure and our data center operations. These commitments are primarily due within five years.

Legal Matters

Beginning on March 20, 2018, multiple putative class actions and derivative actions were filed in state and federal courts in the United States and elsewhere against us and certain of our directors and officers alleging violations of securities laws, breach of fiduciary duties, and other causes of action in connection with our platform and user data practices as well as the misuse of certain data by a developer that shared such data with third parties in violation of our terms and policies, and seeking
unspecified damages and injunctive relief. Beginning on July 27, 2018, two putative class actions were filed in federal court in the United States against us and certain of our directors and officers alleging violations of securities laws in connection with the disclosure of our earnings results for the second quarter of 2018 and seeking unspecified damages. These two actions subsequently were transferred and consolidated in the U.S. District Court for the Northern District of California with the putative securities class action described above relating to our platform and user data practices. On September 25, 2019, the district court granted our motion to dismiss the consolidated putative securities class action, with leave to amend. On November 15, 2019, an amended complaint was filed in the consolidated putative securities class action. We believe these lawsuits are without merit, and we are vigorously defending them. In addition, our platform and user data practices, as well as the events surrounding the misuse of certain data by a developer, became the subject of U.S. Federal Trade Commission (FTC), state attorneys general, and other government inquiries in the United States, Europe, and other jurisdictions. In July 2019, we entered into a settlement and modified consent order to resolve the FTC inquiry, which is pending federal court approval. Among other matters, our settlement with the FTC requires us to pay a penalty of $5.0 billion and to significantly enhance our practices and processes for privacy compliance and oversight. We have recognized the penalty in accrued expenses and other current liabilities on our consolidated balance sheet as of December 31, 2019.

On April 1, 2015, a putative class action was filed against us in the U.S. District Court for the Northern District of California by Facebook users alleging that the "tag suggestions" facial recognition feature violates the Illinois Biometric Information Privacy Act, and seeking statutory damages and injunctive relief. On April 16, 2018, the district court certified a class of Illinois residents, and on May 14, 2018, the district court denied both parties' motions for summary judgment. On May 29, 2018, the U.S. Court of Appeals for the Ninth Circuit granted our petition for review of the class certification order and stayed the proceeding. On August 8, 2019, the Ninth Circuit affirmed the class certification order. On December 2, 2019, we filed a petition with the U.S. Supreme Court seeking review of the decision of the Ninth Circuit, which was denied. On January 15, 2020, the parties agreed to a settlement in principle to resolve the lawsuit, which will require a payment of $550 million by us and is subject to approval by the court.

Beginning on September 28, 2018, multiple putative class actions were filed in state and federal courts in the United States and elsewhere against us alleging violations of consumer protection laws and other causes of action in connection with a third-party cyber-attack that exploited a vulnerability in Facebook's code to steal user access tokens and access certain profile information from user accounts on Facebook, and seeking unspecified damages and injunctive relief. The actions filed in the United States were consolidated in the U.S. District Court for the Northern District of California. On November 26, 2019, the district court certified a class for injunctive relief purposes, but denied certification of a class for purposes of pursuing damages. On January 16, 2020, the parties agreed to a settlement in principle to resolve the lawsuit. We believe the remaining lawsuits are without merit, and we are vigorously defending them. In addition, the events surrounding this cyber-attack became the subject of Irish Data Protection Commission (IDPC) and other government inquiries.

From time to time we also notify the IDPC, our designated European privacy regulator under the General Data Protection Regulation, of certain other personal data breaches and privacy issues, and are subject to inquiries and investigations regarding various aspects of our regulatory compliance. Although we are vigorously defending our regulatory compliance, we believe there is a reasonable possibility that the ultimate potential loss related to the inquiries and investigations by the IDPC could be material in the aggregate.

In addition, from time to time, we are subject to litigation and other proceedings involving law enforcement and other regulatory agencies, including in particular in Brazil and Europe, in order to ascertain the precise scope of our legal obligations to comply with the requests of those agencies, including our obligation to disclose user information in particular circumstances. A number of such instances have resulted in the assessment of fines and penalties against us. We believe we have multiple legal grounds to satisfy these requests or prevail against associated fines and penalties, and we intend to vigorously defend such fines and penalties.

With respect to the cases, actions, and inquiries described above, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. In addition, we believe there is a reasonable possibility that we may incur a loss in some of these matters. With respect to the matters described above that do not include an estimate of the amount of loss or range of possible loss, such losses or range of possible losses either cannot be estimated or are not individually material, but we believe there is a reasonable possibility that they may be material in the aggregate.

We are also party to various other legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these other matters, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. In addition, we believe there is a reasonable possibility that we may incur a loss in some of these other matters. We believe that the amount of losses or any estimable range of possible losses with respect to these other matters will not, either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements.

However, the outcome of the legal matters described in this section is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.

For information regarding income tax contingencies, see Note 14—Income Taxes.

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 statements. In our opinion, as of December 31, 2019, 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, 2019.
v3.19.3.a.u2
Stockholders' Equity
12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
Stockholders' Equity Stockholders' Equity

Common Stock

Our certificate of incorporation authorizes the issuance of Class A common stock and Class B common stock. As of December 31, 2019, we are authorized to issue 5,000 million shares of Class A common stock and 4,141 million 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, 2019, we have not declared any dividends and our credit facility contains 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.

As of December 31, 2019, there were 2,407 million shares and 445 million shares of Class A common stock and Class B common stock, respectively, issued and outstanding.

Share Repurchase Program

Our board of directors has authorized a share repurchase program of our Class A common stock, which commenced in January 2017 and does not have an expiration date. As of December 31, 2018, $9.0 billion remained available and authorized for repurchases under this program. In 2019, we repurchased and subsequently retired 22 million shares of our Class A common stock for $4.10 billion. As of December 31, 2019, $4.90 billion remained available and authorized for repurchases. In January 2020, an additional $10.0 billion of repurchases was authorized under this program.

The timing and actual number of shares repurchased under the repurchase program depend on a variety of factors, including price, general business and market conditions, and other investment opportunities, and shares may be repurchased through open market purchases or privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

Share-based Compensation Plans

We maintain two share-based employee compensation plans: the 2012 Equity Incentive Plan, which was amended in each of June 2016 and February 2018 (Amended 2012 Plan), and the 2005 Stock Plan (collectively, Stock Plans). Our Amended 2012 Plan serves as the successor to our 2005 Stock Plan and provides for the issuance of incentive and nonstatutory stock options, restricted stock awards, stock appreciation rights, RSUs, performance shares, and stock bonuses to qualified employees, directors and consultants. Outstanding awards under the 2005 Stock Plan continue to be subject to the terms and conditions of the 2005 Stock Plan. Shares that are withheld in connection with the net settlement of RSUs or forfeited under our Stock Plans are added to the reserves of the Amended 2012 Plan. We account for forfeitures as they occur.
Share-based compensation expense mostly consists of the Company's restricted stock units (RSUs) expense. RSUs granted to employees are measured based on the grant-date fair value. In general, our RSUs vest over a service period of four years. Share-based compensation expense is generally recognized based on the straight-line basis over the requisite service period.

As of December 31, 2019, there were 111 million shares of our Class A common stock reserved for future issuance under our Amended 2012 Plan. The number of shares reserved for issuance under our Amended 2012 Plan increases automatically on January 1 of each of the calendar years during the term of the Amended 2012 Plan, which will continue through April 2026 , by a number of shares of Class A common stock equal to the lesser of (i) 2.5% of the total issued and outstanding shares of our Class A common stock as of the immediately preceding December 31st or (ii) a number of shares determined by our board of directors. Pursuant to this automatic increase provision, our board of directors approved an increase of 60 million shares reserved for issuance effective January 1, 2020.

The following table summarizes the activities of stock option awards under the Stock Plans for the year ended December 31, 2019:
 
Number of Shares
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term
 
Aggregate Intrinsic Value
 
(in thousands)
 
 
 
(in years)
 
(in millions)
Balance as of December 31, 2018
1,137

 
$
13.74

 
 
 
 
Stock options exercised
(1,137
)
 
$
13.74

 
 
 
 
Balances at December 31, 2019

 
$

 

 
$



There were no options granted, forfeited, or canceled for the year ended December 31, 2019. The aggregate intrinsic value of the options exercised in the years ended December 31, 2019, 2018, and 2017 was $185 million, $315 million, and $359 million, respectively. All of our outstanding options had vested by December 31, 2018. The total grant date fair value of stock options vested during the years ended December 31, 2018, and 2017 was not material.

The following table summarizes the activities for our unvested RSUs for the year ended December 31, 2019:
 
Number of Shares
 
Weighted-Average Grant Date Fair Value
 
(in thousands)
 
 
Unvested at December 31, 2018
67,298

 
$
144.77

Granted
54,379

 
$
173.66

Vested
(33,501
)
 
$
142.04

Forfeited
(9,325
)
 
$
145.86

Unvested at December 31, 2019
78,851

 
$
165.74



The fair value as of the respective vesting dates of RSUs that vested during the years ended December 31, 2019, 2018, and 2017 was $6.01 billion, $7.57 billion, and $6.76 billion, respectively.

As of December 31, 2019, there was $12.21 billion of unrecognized share-based compensation expense related to RSUs awards. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years based on vesting under the award service conditions.
v3.19.3.a.u2
Interest and other income, net
12 Months Ended
Dec. 31, 2019
Nonoperating Income (Expense) [Abstract]  
Interest and other income, net Interest and other income, net

The following table presents the detail of interest and other income, net, for the years ended December 31, 2019, 2018, and 2017 are as follows (in millions):
 
Year Ended December 31,
 
2019
 
2018
 
2017
Interest income
$
924

 
$
661

 
$
398

Interest expense
(20
)
 
(9
)
 
(6
)
Foreign currency exchange losses, net
(105
)
 
(213
)
 
(6
)
Other
27

 
9

 
5

Interest and other income, net
$
826

 
$
448

 
$
391