FACEBOOK INC, 10-K filed on 1/31/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2018
Jan. 28, 2019
Jun. 29, 2018
Entity Information      
Document Type 10-K    
Amendment Flag false    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol FB    
Entity Registrant Name FACEBOOK INC    
Entity Central Index Key 0001326801    
Current Fiscal Year End Date --12-31    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 486
Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Class A Common Stock      
Entity Information      
Entity Common Stock, Shares Outstanding   2,385,533,940  
Class B Common Stock      
Entity Information      
Entity Common Stock, Shares Outstanding   468,455,860  
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 10,019 $ 8,079
Marketable securities 31,095 33,632
Accounts receivable, net of allowances of $229 and $189 as of December 31, 2018 and 2017, respectively 7,587 5,832
Prepaid expenses and other current assets 1,779 1,020
Total current assets 50,480 48,563
Property and equipment, net 24,683 13,721
Intangible assets, net 1,294 1,884
Goodwill 18,301 18,221
Other assets 2,576 2,135
Total assets 97,334 84,524
Current liabilities:    
Accounts payable 820 380
Partners payable 541 390
Accrued expenses and other current liabilities 5,509 2,892
Deferred revenue and deposits 147 98
Total current liabilities 7,017 3,760
Other liabilities 6,190 6,417
Total liabilities 13,207 10,177
Commitments and contingencies
Stockholders' equity:    
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,385 million and 2,397 million shares issued and outstanding, as of December 31, 2018 and December 31, 2017, respectively; 4,141 million Class B shares authorized, 469 million and 509 million shares issued and outstanding, as of December 31, 2018 and December 31, 2017, respectively. 0 0
Additional paid-in capital 42,906 40,584
Accumulated other comprehensive loss (760) (227)
Retained earnings 41,981 33,990
Total stockholders' equity 84,127 74,347
Total liabilities and stockholders' equity $ 97,334 $ 84,524
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Accounts receivable, allowances for doubtful accounts $ 229 $ 189
Stockholders' equity:    
Common stock, par value (in dollars per share) $ 0.000006 $ 0.000006
Class A Common Stock    
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) 2,385,000,000 2,397,000,000
Common stock, shares, outstanding (in shares) 2,385,000,000 2,397,000,000
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) 469,000,000 509,000,000
Common stock, shares, outstanding (in shares) 469,000,000 509,000,000
v3.10.0.1
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenue $ 55,838 $ 40,653 $ 27,638
Costs and expenses:      
Cost of revenue 9,355 5,454 3,789
Research and development 10,273 7,754 5,919
Marketing and sales 7,846 4,725 3,772
General and administrative 3,451 2,517 1,731
Total costs and expenses 30,925 20,450 15,211
Income from operations 24,913 20,203 12,427
Interest and other income (expense), net 448 391 91
Income before provision for income taxes 25,361 20,594 12,518
Provision for income taxes 3,249 4,660 2,301
Net income 22,112 15,934 10,217
Less: Net income attributable to participating securities 1 14 29
Net income attributable to Class A and Class B common stockholders $ 22,111 $ 15,920 $ 10,188
Earnings per share attributable to Class A and Class B common stockholders:      
Basic (in dollars per share) $ 7.65 $ 5.49 $ 3.56
Diluted (in dollars per share) $ 7.57 $ 5.39 $ 3.49
Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:      
Basic (in shares) 2,890 2,901 2,863
Diluted (in shares) 2,921 2,956 2,925
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense $ 4,152 $ 3,723 $ 3,218
Cost of revenue      
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense 284 178 113
Research and development      
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense 3,022 2,820 2,494
Marketing and sales      
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense 511 436 368
General and administrative      
Share-based compensation expense included in costs and expenses:      
Share-based compensation expense $ 335 $ 289 $ 243
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net income $ 22,112 $ 15,934 $ 10,217
Other comprehensive income (loss):      
Change in foreign currency translation adjustment, net of tax (450) 566 (152)
Change in unrealized gain/loss on available-for-sale investments and other, net of tax (52) (90) (96)
Comprehensive income $ 21,610 $ 16,410 $ 9,969
v3.10.0.1
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
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Impact of the adoption of new accounting pronouncement $ 1,705   $ 39   $ 1,666
Common stock, shares outstanding beginning (in shares) at Dec. 31, 2015   2,845      
Total stockholders' equity, beginning at Dec. 31, 2015 44,218 $ 0 34,886 $ (455) 9,787
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
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 16   16    
Issuance of common stock related to acquisitions, shares   1      
Issuance of common stock related to acquisitions, value 74   74    
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, value (6)   (6)    
Share-based compensation, related to employee share-based awards 3,218   3,218    
Other comprehensive income (loss) (248)     (248)  
Net income 10,217       10,217
Common stock, shares outstanding ending (in shares) at Dec. 31, 2016   2,892      
Total stockholders' equity, ending at Dec. 31, 2016 59,194 $ 0 38,227 (703) 21,670
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
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 related to acquisitions, shares   2      
Issuance of common stock related to acquisitions, value 323   323    
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
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities      
Net income $ 22,112 $ 15,934 $ 10,217
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 4,315 3,025 2,342
Share-based compensation 4,152 3,723 3,218
Deferred income taxes 286 (377) (457)
Other (64) 24 30
Changes in assets and liabilities:      
Accounts receivable (1,892) (1,609) (1,489)
Prepaid expenses and other current assets (690) (192) (159)
Other assets (159) 154 14
Accounts payable 221 43 14
Partners payable 157 95 67
Accrued expenses and other current liabilities 1,417 309 1,014
Deferred revenue and deposits 53 4 35
Other liabilities (634) 3,083 1,262
Net cash provided by operating activities 29,274 24,216 16,108
Cash flows from investing activities      
Purchases of property and equipment, net (13,915) (6,733) (4,491)
Purchases of marketable securities (14,656) (25,682) (22,341)
Sales of marketable securities 12,358 9,444 13,894
Maturities of marketable securities 4,772 2,988 1,261
Acquisitions of businesses, net of cash acquired, and purchases of intangible assets (137) (122) (123)
Other investing activities, net (25) (13) 8
Net cash used in investing activities (11,603) (20,118) (11,792)
Cash flows from financing activities      
Taxes paid related to net share settlement of equity awards (3,208) (3,246) (6)
Principal payments on capital lease and other financing obligations 0 0 (312)
Repurchases of Class A common stock (12,879) (1,976) 0
Net change in overdraft in cash pooling entities 500 0 0
Other financing activities, net 15 (13) 8
Net cash used in financing activities (15,572) (5,235) (310)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (179) 232 (63)
Net increase (decrease) in cash, cash equivalents, and restricted cash 1,920 (905) 3,943
Cash, cash equivalents, and restricted cash at beginning of the period 8,204 9,109 5,166
Cash, cash equivalents, and restricted cash at end of the period 10,124 8,204 9,109
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets      
Total cash, cash equivalents, and restricted cash 8,204 9,109 5,166
Cash paid during the period for:      
Interest 1 0 11
Income taxes, net 3,762 2,117 1,210
Non-cash investing and financing activities:      
Net change in prepaids and liabilities related to property and equipment additions 918 495 136
Settlement of acquisition-related contingent consideration liability 0 102 33
Change in unsettled repurchases of Class A common stock $ 51 $ 94 $ 0
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
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. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Use of Estimates
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to 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
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The impact of adopting the new revenue standard was not material to our condensed consolidated financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.
Under Topic 606, 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.
Revenue disaggregated by revenue source for the years ended December 31, 2018, 2017 and 2016 consists of the following (in millions):
 
Year Ended December 31, 
 
2018
 
2017 (1)
 
2016 (1)
Advertising
$
55,013

 
$
39,942

 
$
26,885

Payments and other fees
825

 
711

 
753

Total revenue
$
55,838

 
$
40,653

 
$
27,638

(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.  

Revenue disaggregated by geography, based on the billing address of our customer, consists of the following (in millions):
 
Year Ended December 31, 
 
2018
 
2017 (1)
 
2016 (1)
Revenue:
 
 
 
 
 
US & Canada(2)
$
25,727

 
$
19,065

 
$
13,432

Europe(3)
13,631

 
10,126

 
6,792

Asia-Pacific
11,733

 
7,921

 
5,037

Rest of World(3)
4,747

 
3,541

 
2,377

Total revenue
$
55,838

 
$
40,653

 
$
27,638

(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method. 
(2) United States revenue was $24.10 billion, $17.73 billion, and $12.58 billion for the years ended December 31, 2018, 2017, and 2016. 
(3) Europe includes Russia and Turkey, and Rest of World includes Africa, Latin America, and the Middle East.  
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.
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 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 a 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.
Payments and Other Fees
Payments revenue is comprised of the net fee we receive from developers using our Payments infrastructure.
Other fees revenue consists primarily of revenue from the delivery of consumer hardware devices, as well as revenue from various other sources.
Deferred Revenue and Deposits
Deferred revenue consists of billings and payments 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, approximately 70% 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, 2018 was driven by prepayments from marketers, partially 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.
Deferred revenue and deposits consists of the following (in millions):
 
December 31,
 
2018
 
2017
Deferred revenue
$
117

 
$
68

Deposits
30

 
30

Total deferred revenue and deposits
$
147

 
$
98



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, 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 device inventory sold.
Content acquisition costs

We license and pay to produce content in order to increase engagement on the platform. For licensed content, we capitalize the fee per title and record a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known and the title is accepted and available for viewing. The amounts capitalized are limited to estimated net realizable value or fair value on a per title basis. The portion available for viewing within one year is recognized as prepaid expenses and other current assets and the remaining portion as other assets on the consolidated balance sheets. For original content, we capitalize costs associated with the production, including development costs and direct costs, if those amounts are recoverable. Capitalized original content costs are included in other assets on the consolidated balance sheets. Capitalized costs are amortized in cost of revenue on the consolidated statements of income based on historical and estimated viewing patterns.

Capitalized content costs are reviewed when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than amortized cost. If such changes are identified, capitalized content assets will be stated at the lower of unamortized cost, net realizable value or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

Capitalized content acquisition costs have not been material to date.
Income Taxes
We record 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 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 position, results of operations, and cash flows.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (Tax Act) was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, we previously provided a provisional estimate of the effect of the Tax Act in our financial statements. In the fourth quarter of 2018, we completed our analysis to determine the effect of the Tax Act and recorded immaterial adjustments as of December 31, 2018. See Note 12 in these notes to the consolidated financial statements for additional information.
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 $1.10 billion, $324 million, and $310 million for the years ended December 31, 2018, 2017, and 2016, respectively.
Cash and Cash Equivalents, Marketable Securities, and Restricted Cash
Cash and cash equivalents primarily consist of cash on deposit with banks and investments in money market funds 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 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 (expense), net when a decline in fair value is determined to be other-than-temporary. We have not recorded any such impairment charge in the periods presented. We determine realized gains or losses on sale of marketable securities on a specific identification method, and record such gains or losses as interest and other income (expense), 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. 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. We classify these 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 money market funds and marketable debt securities were derived from quoted market prices or alternative pricing sources and models utilizing market observable 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 capital 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 25 years
Buildings
 
Three to 30 years
Computer software, office equipment and other
 
Two to five years
Leased equipment and leasehold improvements
 
Lesser of estimated useful life or remaining lease term
 
Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of property and equipment that have not yet been placed in service for their intended use.
The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in income from operations.
Lease Obligations
We enter into lease arrangements for office space, land, facilities, data centers, and equipment under non-cancelable capital and operating leases. Certain of the operating lease agreements contain rent holidays, rent escalation provisions, and purchase options. Rent holidays and rent escalation provisions are considered in determining the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease inception.
We record assets and liabilities for the estimated construction costs incurred by third parties under build-to-suit lease arrangements to the extent that we are involved in the construction of structural improvements or bear construction risk prior to commencement of a lease. As of December 31, 2018, we completed our build-to-suit lease arrangements and properly derecognized the associated assets on our consolidated balance sheet.
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 record 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 that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss in the notes to the consolidated financial statements.
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 and the estimated amount.
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. 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 Intangible Assets
We evaluate the recoverability of property and equipment and 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. 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, 2018, 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 reduce 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) income as a component of stockholders' equity. As of December 31, 2018 and 2017, we had a cumulative translation loss, net of tax of $466 million and $16 million, respectively. Net losses resulting from foreign exchange transactions were $213 million, $6 million, and $76 million for the years ended December 31, 2018, 2017, and 2016, respectively. These losses were recorded as interest and other income (expense), 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 short-term money market funds, which are managed by reputable financial institutions. Marketable securities consist of investments in U.S. government securities, U.S. government agency securities, and corporate debt securities. Our investment policy limits investment instruments to U.S. government securities, U.S. government agency securities, and corporate debt securities with the main objective of preserving capital and maintaining liquidity.
Accounts receivable are typically unsecured and are derived from revenue earned from customers across different industries and countries. We generated 43%, 44%, and 46% of our revenue for the years ended December 31, 2018, 2017, and 2016, respectively, 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, Australia, and Brazil.
We perform ongoing credit evaluations of our customers, and generally do not require collateral. We maintain an allowance for estimated credit losses. During the years ended December 31, 2018, 2017, and 2016, our bad debt expenses were $77 million, $48 million, and $66 million, respectively. 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, 2018, 2017, and 2016.
 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
In May 2014, the Financial Accounting Standards Board (FASB) issued Topic 606, which supersedes the revenue recognition requirements in Topic 605. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. See Revenue Recognition above for further details.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers Other than Inventory (ASU 2016-16), which requires companies to recognize the income-tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to an outside party. We adopted the new standard effective January 1, 2018, using the modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the effective date, which was not material to our consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statements of cash flows. We adopted the new standard effective January 1, 2018, using the retrospective transition approach. The reclassified restricted cash balances from investing activities to changes in cash, cash equivalents and restricted cash on the consolidated statements of cash flows were not material for all periods presented.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. We adopted the new standard effective January 1, 2018 on a prospective basis. The new standard did not have a material impact on our consolidated financial statements.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows companies to reclassify stranded tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The new standard is effective for us beginning January 1, 2019, with early adoption permitted. We elected to early adopt the new standard at the beginning of the third quarter of 2018 using the aggregate portfolio approach. The amount of stranded tax effects that were reclassified from accumulated other comprehensive loss to retained earnings was not material.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We will adopt the new standard effective January 1, 2019 on a modified retrospective basis and will not restate comparative periods. We will elect the package of practical expedients permitted under the transition guidance, which allows us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard. We will also elect to combine 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. We estimate approximately $6 billion would be recognized as total right-of-use assets and total lease liabilities on our consolidated balance sheet as of January 1, 2019. Other than disclosed, we do not expect the new standard to have a material impact on our remaining consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04), 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 will be effective for us in the first quarter of 2020 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.
v3.10.0.1
Earnings per Share
12 Months Ended
Dec. 31, 2018
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, such as awards under our equity compensation plans and 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, 2018, 2017, and 2016, 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,
 
2018
 
2017
 
2016
 
Class
A
 
Class
B
 
Class
A
 
Class
B
 
Class
A
 
Class
B 
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
Net income
$
18,411

 
$
3,701

 
$
13,034

 
$
2,900

 
$
8,270

 
$
1,947

Less: Net income attributable to participating securities
1

 

 
12

 
2

 
24

 
5

Net income attributable to common stockholders
$
18,410

 
$
3,701

 
$
13,022

 
$
2,898

 
$
8,246

 
$
1,942

Denominator
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
2,406

 
484

 
2,375

 
528

 
2,323

 
548

Less: Shares subject to repurchase

 

 
2

 

 
6

 
2

Number of shares used for basic EPS computation
2,406

 
484

 
2,373

 
528

 
2,317

 
546

Basic EPS
$
7.65

 
$
7.65

 
$
5.49

 
$
5.49

 
$
3.56

 
$
3.56

Diluted EPS:
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
18,410

 
$
3,701

 
$
13,022

 
$
2,898

 
$
8,246

 
$
1,942

Reallocation of net income attributable to participating securities
1

 

 
14

 

 
29

 

Reallocation of net income as a result of conversion of Class B to Class A common stock
3,701

 

 
2,898

 

 
1,942

 

Reallocation of net income to Class B common stock

 
(16
)
 

 
(13
)
 

 
14

Net income attributable to common stockholders for diluted EPS
$
22,112

 
$
3,685

 
$
15,934

 
$
2,885

 
$
10,217

 
$
1,956

Denominator
 
 
 
 
 
 
 
 
 
 
 
Number of shares used for basic EPS computation
2,406

 
484

 
2,373

 
528

 
2,317

 
546

Conversion of Class B to Class A common stock
484

 

 
528

 

 
546

 

Weighted average effect of dilutive securities:

 

 
 
 
 
 
 
 
 
Employee stock options
2

 
2

 
4

 
4

 
6

 
6

RSUs
29

 
1

 
49

 
3

 
49

 
5

Shares subject to repurchase and other

 

 
2

 

 
7

 
3

Number of shares used for diluted EPS computation
2,921

 
487

 
2,956

 
535

 
2,925

 
560

Diluted EPS
$
7.57

 
$
7.57

 
$
5.39

 
$
5.39

 
$
3.49

 
$
3.49

v3.10.0.1
Cash and Cash Equivalents, and Marketable Securities
12 Months Ended
Dec. 31, 2018
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,
 
2018
 
2017
Cash and cash equivalents:
 
 
 
Cash
$
2,713

 
$
2,212

Money market funds
6,792

 
5,268

U.S. government securities
90

 
66

U.S. government agency securities
54

 
25

Certificate of deposits and time deposits
369

 
440

Corporate debt securities
1

 
68

Total cash and cash equivalents
10,019

 
8,079

Marketable securities:
 
 
 
U.S. government securities
13,836

 
12,766

U.S. government agency securities
8,333

 
10,944

Corporate debt securities
8,926

 
9,922

Total marketable securities
31,095

 
33,632

Total cash and cash equivalents, and marketable securities
$
41,114

 
$
41,711


The gross unrealized losses on our marketable securities were $357 million and $289 million as of December 31, 2018 and 2017, respectively. The gross unrealized gains for both periods were not significant. In addition, gross unrealized losses that had been in a continuous loss position for 12 months or longer were $332 million and $169 million as of December 31, 2018 and 2017, respectively. As of December 31, 2018, we considered the decreases in market value 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,
 
2018
 
2017
Due in one year
$
9,746

 
$
7,976

Due after one year to five years
21,349

 
25,656

Total
$
31,095

 
$
33,632

v3.10.0.1
Fair Value Measurement
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurement
Fair Value Measurement
The following table summarizes, for assets or liabilities measured at fair value, the respective fair value and the classification by level of input within the fair value hierarchy (in millions):
 
 
 
 
Fair Value Measurement at Reporting Date Using
Description 
 
December 31,
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

 
$

 
 
 
 
Fair Value Measurement at Reporting Date Using
Description
 
December 31,
2017
 
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
 
$
5,268

 
$
5,268

 
$

 
$

U.S. government securities
 
66

 
66

 

 

U.S. government agency securities
 
25

 
25

 

 

Certificate of deposits and time deposits
 
440

 

 
440

 

Corporate debt securities
 
68

 

 
68

 

Marketable securities:
 

 
 
 
 
 
 
U.S. government securities
 
12,766

 
12,766

 

 

U.S. government agency securities
 
10,944

 
10,944

 

 

Corporate debt securities
 
9,922

 

 
9,922

 

Total cash equivalents and marketable securities
 
$
39,499

 
$
29,069

 
$
10,430

 
$


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.
v3.10.0.1
Property and Equipment
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Property and Equipment
Property and Equipment
Property and equipment consists of the following (in millions):
 
December 31,
 
2018
 
2017
Land
$
899

 
$
798

Buildings
7,401

 
4,909

Leasehold improvements
1,841

 
959

Network equipment
13,017

 
7,998

Computer software, office equipment and other
1,187

 
681

Construction in progress
7,228

 
2,992

Total
31,573

 
18,337

Less: Accumulated depreciation
(6,890
)
 
(4,616
)
Property and equipment, net
$
24,683

 
$
13,721

 
Depreciation expense on property and equipment was $3.68 billion, $2.33 billion, and $1.59 billion during 2018, 2017, and 2016, respectively.
Property and equipment as of December 31, 2018 and 2017 includes $1.06 billion and $533 million, respectively, acquired under capital lease agreements, of which a substantial majority, is included in network equipment. Accumulated depreciation of property and equipment acquired under these capital leases was $217 million and $101 million at December 31, 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. The construction of office buildings as of December 31, 2017 included our build-to-suit lease arrangements which were completed and derecognized during 2018.
No interest was capitalized during the years ended December 31, 2018, 2017 and 2016.
v3.10.0.1
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets
Goodwill and Intangible Assets
During the year ended December 31, 2018, 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, 2018 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 during the year ended December 31, 2018 was primarily attributable to expected synergies from future growth and potential monetization opportunities. The amount of goodwill generated during this period that was deductible for tax purposes was not material.
The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 are as follows (in millions):
Balance as of December 31, 2016
$
18,122

Goodwill acquired
90

Effect of currency translation adjustment
9

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


Intangible assets consist of the following (in millions):
 
 
 
December 31, 2018
 
December 31, 2017
 
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
2.8
 
$
2,056

 
$
(1,260
)
 
$
796

 
$
2,056

 
$
(971
)
 
$
1,085

Acquired technology
1.2
 
1,002

 
(871
)
 
131

 
972

 
(711
)
 
261

Acquired patents
5.2
 
805

 
(565
)
 
240

 
785

 
(499
)
 
286

Trade names
1.4
 
629

 
(517
)
 
112

 
629

 
(406
)
 
223

Other
2.4
 
162

 
(147
)
 
15

 
162

 
(133
)
 
29

Total intangible assets
2.9
 
$
4,654

 
$
(3,360
)
 
$
1,294

 
$
4,604

 
$
(2,720
)
 
$
1,884

 
Amortization expense of intangible assets for the years ended December 31, 2018, 2017, and 2016 was $640 million, $692 million, and $751 million, respectively.
As of December 31, 2018, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):
2019
$
553

2020
378

2021
273

2022
33

2023
26

Thereafter
31

Total
$
1,294

v3.10.0.1
Liabilities
12 Months Ended
Dec. 31, 2018
Accounts Payable and Accrued Liabilities [Abstract]  
Liabilities
Liabilities
The components of accrued expenses and other current liabilities are as follows (in millions):
 
December 31,
 
2018
 
2017
Accrued compensation and benefits
$
1,203

 
$
790

Accrued property and equipment
1,531

 
685

Overdraft in cash pooling entities
500

 

Accrued taxes
491

 
340

Other current liabilities
1,784

 
1,077

Accrued expenses and other current liabilities
$
5,509

 
$
2,892


The components of other liabilities are as follows (in millions):
 
December 31,
 
2018
 
2017
Income tax payable
$
4,655

 
$
5,372

Deferred tax liabilities
673

 
50

Other liabilities
862

 
995

Other liabilities
$
6,190

 
$
6,417

v3.10.0.1
Long-term Debt
12 Months Ended
Dec. 31, 2018
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, 2018, no amounts had been drawn down and we were in compliance with the covenants under this facility.
v3.10.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Commitments
Leases
We have entered into various non-cancelable operating lease agreements for certain of our offices, data centers, land, and colocations with original lease periods expiring between 2019 and 2093. We are committed to pay a portion of the related actual operating expenses under certain of these lease agreements. Certain of these arrangements have free rent periods or escalating rent payment provisions, and we recognize rent expense under such arrangements on a straight-line basis.
The following is a schedule, by years, of the future minimum lease payments required under non-cancelable operating leases as of December 31, 2018 (in millions):
 
Operating Leases
2019
$
698

2020
946

2021
1,055

2022
1,048

2023
1,054

Thereafter
9,850

Total minimum lease payments
$
14,651


Operating lease expense was $629 million, $363 million, and $269 million for the years ended December 31, 2018, 2017 and 2016, respectively. We fully repaid all our capital lease obligations during 2016.
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 $6.17 billion of non-cancelable contractual commitments as of December 31, 2018, primarily related to network infrastructure and our data center operations. These commitments are primarily due within five years.
Contingencies
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. 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, Securities and Exchange Commission, state attorneys general, and other government inquiries in the United States, Europe, and other jurisdictions.
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. We believe these 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, U.S. Federal Trade Commission and other government inquiries in the United States, Europe, and other jurisdictions.
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.
Although we believe that it is reasonably possible that we may incur a substantial loss in some of the cases, actions, or inquiries described above, we are currently unable to estimate the amount of such losses or a range of possible losses. 

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 matters, we evaluate the developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated.

We believe that the amount or any estimable range of reasonably possible or probable loss will not, either individually or in the aggregate, have a material adverse effect on our business and consolidated financial statements. However, the outcome of these matters 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 12—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, 2018, 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, 2018.
v3.10.0.1
Stockholders' Equity
12 Months Ended
Dec. 31, 2018
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, 2018, 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, 2018, 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, 2018, there were 2,385 million shares and 469 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 that commenced in 2017 and does not have an expiration date. During the second quarter of 2018, we completed repurchases under the original authorization to purchase up to $6.0 billion of our Class A common stock. In April 2018, the authorization for the repurchase of our Class A common stock was increased by an additional $9.0 billion, and we completed repurchases under this authorization during the fourth quarter of 2018. During the year ended December 31, 2018, we repurchased and subsequently retired 79 million shares of our Class A common stock for $12.93 billion.
In December 2018, our board of directors authorized an additional $9.0 billion of repurchases under this program. The timing and actual number of shares repurchased under this 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. As of December 31, 2018, $9.0 billion remained available and authorized for repurchases.
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.

As of December 31, 2018, there were 83 million shares 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 unless terminated earlier by our board of directors or a committee thereof, 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, 2019.
The following table summarizes the activities of stock option awards under the Stock Plans for the year ended December 31, 2018:
 
Shares Subject to Options Outstanding
 
Number of Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value(1)
 
(in thousands)
 
 
 
(in years)
 
(in millions)
Balance as of December 31, 2017
3,078

 
$
10.06

 
 
 
 
Stock options exercised
(1,941
)
 
$
7.90

 
 
 
 
Balances at December 31, 2018
1,137

 
$
13.74

 
1.7
 
$
133

Stock options exercisable as of December 31, 2018
1,137

 
$
13.74

 
1.7
 
$
133

 
(1)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the official closing price of our Class A common stock of $131.09, as reported on the Nasdaq Global Select Market on December 31, 2018.
There were no options granted, forfeited, or canceled for the year ended December 31, 2018. The aggregate intrinsic value of the options exercised in the years ended December 31, 2018, 2017, and 2016 was $315 million, $359 million, and $309 million, respectively. The total grant date fair value of stock options vested during the years ended December 31, 2018, 2017, and 2016 was not material.
The following table summarizes the activities for our unvested RSUs for the year ended December 31, 2018:
 
Unvested RSUs(1)
 
Number of Shares
 
Weighted Average Grant Date Fair Value
 
(in thousands)
 
 
Unvested at December 31, 2017
81,214

 
$
110.49

Granted
38,283

 
$
168.38

Vested
(43,396
)
 
$
106.59

Forfeited
(8,803
)
 
$
119.25

Unvested at December 31, 2018
67,298

 
$
144.77


(1)
Unvested shares at December 31, 2017 included an inducement award issued in connection with the WhatsApp acquisition in 2014, which was subject to the terms, restrictions, and conditions of a separate non-plan RSU award agreement. This inducement award was no longer outstanding as of December 31, 2018.
The fair value as of the respective vesting dates of RSUs that vested during the years ended December 31, 2018, 2017, and 2016 was $7.57 billion, $6.76 billion, and $4.92 billion, respectively.
As of December 31, 2018, there was $8.96 billion of unrecognized share-based compensation expense, which was related to RSUs. 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.
v3.10.0.1
Interest and other income (expense), net
12 Months Ended
Dec. 31, 2018
Nonoperating Income (Expense) [Abstract]  
Interest and other income (expense), net
Interest and other income (expense), net
The following table presents the detail of interest and other income (expense), net, for the periods presented (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Interest income
$
661

 
$
398

 
$
176

Interest expense
(9
)
 
(6
)
 
(10
)
Foreign currency exchange losses, net
(213
)
 
(6
)
 
(76
)
Other
9

 
5

 
1

Interest and other income (expense), net
$
448

 
$
391

 
$
91

v3.10.0.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The components of income before provision for income taxes for the years ended December 31, 2018, 2017, and 2016 are as follows (in millions):
 
Year Ended December 31, 
 
2018
 
2017
 
2016
Domestic
$
8,800

 
$
7,079

 
$
6,368

Foreign
16,561

 
13,515

 
6,150

Income before provision for income taxes
$
25,361

 
$
20,594

 
$
12,518


The provision for income taxes consisted of the following (in millions):
 
Year Ended December 31, 
 
2018
 
2017
 
2016
Current:
 
 
 
 
 
Federal
$
1,747

 
$
4,455

 
$
2,384

State
176

 
190

 
179

Foreign
1,031

 
389

 
195

Total current tax expense
2,954

 
5,034

 
2,758

Deferred:
 
 
 
 
 
Federal
316

 
(296
)
 
(414
)
State
34

 
(33
)
 
(18
)
Foreign
(55
)
 
(45
)
 
(25
)
Total deferred tax expense/(benefits)
295

 
(374
)
 
(457
)
Provision for income taxes
$
3,249

 
$
4,660

 
$
2,301

 
A reconciliation of the U.S. federal statutory income tax rate of 21.0% to our effective tax rate is as follows (in percentages):
 
Year Ended December 31, 
 
2018
 
2017
 
2016
U.S. federal statutory income tax rate
21.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal benefit
0.7

 
0.6

 
1.0

Research tax credits
(1.0
)
 
(0.9
)
 
(0.7
)
Share-based compensation
0.3

 
0.4

 
1.0

Excess tax benefits related to share-based compensation
(2.6
)
 
(5.8
)
 
(7.0
)
Effect of non-U.S. operations
(5.9
)
 
(18.6
)
 
(12.8
)
Effect of U.S. tax law change (1)

 
11.0

 

Other
0.3

 
0.9

 
1.9

Effective tax rate
12.8
 %
 
22.6
 %
 
18.4
 %
 
(1)
Due to the Tax Act which was enacted in December 2017, provisional one-time mandatory transition tax on accumulated foreign earnings was accrued as of December 31, 2017. In addition, deferred taxes were derecognized for previous estimated tax liabilities that would arise upon repatriation of a portion of these earnings in the foreign jurisdictions.
Our deferred tax assets (liabilities) are as follows (in millions):
 
December 31, 
 
2018
 
2017
Deferred tax assets:
 
 
 
Net operating loss carryforward
$
1,825

 
$
1,300

Tax credit carryforward
668

 
509

Share-based compensation
270

 
385

Accrued expenses and other liabilities
487

 
381

Other
153

 
131

Total deferred tax assets
3,403

 
2,706

Less: valuation allowance
(600
)
 
(438
)
Deferred tax assets, net of valuation allowance
2,803