Meta Platforms, Inc (META) 10-Q Quarterly Report Thu Apr 25 2019

"We had a good quarter and our business and community continued to grow," said Mark Zuckerberg, Facebook founder and CEO. "We are focused on building out our privacy-focused vision for the future of social networking, and working collaboratively to address important issues around the internet."

First Quarter 2019 Financial Highlights



	Three Months Ended March 31,						Year-over-Year % Change
In millions, except percentages and per share amounts	2019			2018			Year-over-Year % Change
Revenue:
Advertising	$	14,912		$	11,795		26	%
Payments and other fees	165			171			(4	)%
Total revenue	15,077			11,966			26	%
Total costs and expenses*	11,760			6,517			80	%
Income from operations*	$	3,317		$	5,449		(39	)%
Operating margin*	22		%	46		%
Provision for income taxes	$	1,053
Effective tax rate*	30		%
Net income*	$	2,429		$	4,988		(51	)%
Diluted earnings per share (EPS)*	$	0.85		$	1.69		(50	)%

*Includes a $3.0 billion legal expense accrued in the first quarter of 2019 related to the ongoing U.S. Federal Trade Commission (FTC) matter as discussed below. As this expense is not expected to be tax-deductible, it had no effect on our provision for income taxes. Excluding this expense, our operating margin would have been 20 percentage points higher, our effective tax rate would have been 14 percentage points lower and our diluted EPS would have been $1.04 higher.

First Quarter 2019 Operational and Other Financial Highlights


•	Daily active users (DAUs) – DAUs were 1.56 billion on average for March 2019, an increase of 8% year-over-year.


•	Monthly active users (MAUs) – MAUs were 2.38 billion as of March 31, 2019, an increase of 8% year-over-year.


•	Mobile advertising revenue – Mobile advertising revenue represented approximately 93% of advertising revenue for the first quarter of 2019, up from approximately 91% of advertising revenue in the first quarter of 2018.


•	Capital expenditures – Capital expenditures, including principal payments on finance leases, were $3.96 billion for the first quarter of 2019.


•	Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $45.24 billion at the end of the first quarter of 2019.


•	Headcount – Headcount was 37,773 as of March 31, 2019, an increase of 36% year-over-year.

In addition, we estimate that more than 2.1 billion people now use Facebook, Instagram, WhatsApp, or Messenger (our "Family" of services) every day on average, and around 2.7 billion people use at least one of our Family of services each month.

In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in connection with the inquiry of the FTC into our platform and user data practices, which accrual is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet. We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.

The following information was filed by Meta Platforms, Inc (META) on Wednesday, April 24, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________

FORM 10-Q

____________________________________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35551

____________________________________________

FACEBOOK, INC.

(Exact name of registrant as specified in its charter)

____________________________________________



Delaware	20-1665019
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1601 Willow Road, Menlo Park, California 94025

(Address of principal executive offices and Zip Code)

(650) 543-4800

(Registrant's telephone number, including area code)

____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.



Class	Number of Shares Outstanding
Class A Common Stock $0.000006 par value	2,402,542,856 shares outstanding as of April 22, 2019
Class B Common Stock $0.000006 par value	451,945,880 shares outstanding as of April 22, 2019

FACEBOOK, INC.

TABLE OF CONTENTS



		Page No.

Note About Forward-Looking Statements		3

Limitations of Key Metrics and Other Data		4

PART I—FINANCIAL INFORMATION		5

Item 1.	Financial Statements (unaudited)	5

	Condensed Consolidated Balance Sheets—March 31, 2019 and December 31, 2018	5

	Condensed Consolidated Statements of Income—for the three months ended March 31, 2019 and 2018	6

	Condensed Consolidated Statements of Comprehensive Income—for the three months ended March 31, 2019 and 2018	7

	Condensed Consolidated Statements of Stockholders' Equity—for the three months ended March 31, 2019 and 2018	8

	Condensed Consolidated Statements of Cash Flows—for the three months ended March 31, 2019 and 2018	9

	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	40

PART II—OTHER INFORMATION		41

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 6.	Exhibits	65

SIGNATURES		66

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Unless expressly indicated or the context requires otherwise, the terms "Facebook," "company," "we," "us," and "our" in this document refer to Facebook, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries. The term "Facebook" may also refer to our products, regardless of the manner in which they are accessed. For references to accessing Facebook on the "web" or via a "website," such terms refer to accessing Facebook on personal computers. For references to accessing Facebook on "mobile," such term refers to accessing Facebook via a mobile application or via a mobile-optimized version of our website such as m.facebook.com, whether on a mobile phone or tablet.

LIMITATIONS OF KEY METRICS AND OTHER DATA

The numbers for our key metrics, which include our daily active users (DAUs), monthly active users (MAUs), and average revenue per user (ARPU), are calculated using internal company data based on the activity of user accounts. While these numbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent challenges in measuring usage of our products across large online and mobile populations around the world. In addition, we are continually seeking to improve our estimates of our user base, and such estimates may change due to improvements or changes in our methodology.

We regularly evaluate these metrics to estimate the number of "duplicate" and "false" accounts among our MAUs. A duplicate account is one that a user maintains in addition to his or her principal account. We divide "false" accounts into two categories: (1) user-misclassified accounts, where users have created personal profiles for a business, organization, or non-human entity such as a pet (such entities are permitted on Facebook using a Page rather than a personal profile under our terms of service); and (2) undesirable accounts, which represent user profiles that we determine are intended to be used for purposes that violate our terms of service, such as spamming. The estimates of duplicate and false accounts are based on an internal review of a limited sample of accounts, and we apply significant judgment in making this determination. For example, to identify duplicate accounts we use data signals such as similar IP addresses or user names, and to identify false accounts we look for names that appear to be fake or other behavior that appears inauthentic to the reviewers. Our estimates may change as our methodologies evolve, including through the application of new data signals or technologies, which may allow us to identify previously undetected duplicate or false accounts and may improve our ability to evaluate a broader population of our users. Duplicate and false accounts are very difficult to measure at our scale, and it is possible that the actual number of duplicate and false accounts may vary significantly from our estimates.

In the fourth quarter of 2018, we estimated that duplicate accounts may have represented approximately 11% of our worldwide MAUs. We believe the percentage of duplicate accounts is meaningfully higher in developing markets such as the Philippines and Vietnam, as compared to more developed markets. In the fourth quarter of 2018, we estimated that false accounts may have represented approximately 5% of our worldwide MAUs. Our estimation of false accounts can vary as a result of episodic spikes in the creation of such accounts, which we have seen originate more frequently in specific countries such as Indonesia and Vietnam. From time to time, we may make product changes or take other actions to reduce the number of duplicate or false accounts among our users, which may also reduce our DAU and MAU estimates in a particular period.

Our data limitations may affect our understanding of certain details of our business. For example, while user-provided data indicates a decline in usage among younger users, this age data is unreliable because a disproportionate number of our younger users register with an inaccurate age. Accordingly, our understanding of usage by age group may not be complete.

In addition, our data regarding the geographic location of our users is estimated based on a number of factors, such as the user's IP address and self-disclosed location. These factors may not always accurately reflect the user's actual location. For example, a user may appear to be accessing Facebook from the location of the proxy server that the user connects to rather than from the user's actual location. The methodologies used to measure user metrics may also be susceptible to algorithm or other technical errors. Our estimates for revenue by user location and revenue by user device are also affected by these factors.

We regularly review our processes for calculating these metrics, and from time to time we may discover inaccuracies in our metrics or make adjustments to improve their accuracy, including adjustments that may result in the recalculation of our historical metrics. We believe that any such inaccuracies or adjustments are immaterial unless otherwise stated. We intend to disclose our estimates of the number of duplicate and false accounts among our MAUs on an annual basis. In addition, our DAU and MAU estimates will differ from estimates published by third parties due to differences in methodology.

The numbers of DAUs and MAUs discussed in this Quarterly Report on Form 10-Q, as well as ARPU, do not include Instagram, WhatsApp, or Oculus users unless they would otherwise qualify as such users, respectively, based on their other activities on Facebook. In addition, other user engagement metrics included herein do not include Instagram, WhatsApp, or Oculus unless otherwise specifically stated.

PART I—FINANCIAL INFORMATION


Item 1.	Financial Statements

FACEBOOK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except for number of shares and par value)

(Unaudited)



	March 31, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	11,076		$	10,019
Marketable securities	34,167			31,095
Accounts receivable, net of allowances of $216 and $229 as of March 31, 2019 and December 31, 2018, respectively	6,475			7,587
Prepaid expenses and other current assets	1,582			1,779
Total current assets	53,300			50,480
Property and equipment, net	27,345			24,683
Operating lease right-of-use assets, net	6,747			—
Intangible assets, net	1,150			1,294
Goodwill	18,333			18,301
Other assets	2,602			2,576
Total assets	$	109,477		$	97,334

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	604		$	820
Partners payable	537			541
Operating lease liabilities, current	645			—
Accrued expenses and other current liabilities	7,980			5,509
Deferred revenue and deposits	142			147
Total current liabilities	9,908			7,017
Operating lease liabilities, non-current	6,565			—
Other liabilities	6,488			6,190
Total liabilities	22,961			13,207
Commitments and contingencies
Stockholders' equity:
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,404 million and 2,385 million shares issued and outstanding, as of March 31, 2019 and December 31, 2018, respectively; 4,141 million Class B shares authorized, 452 million and 469 million shares issued and outstanding, as of March 31, 2019 and December 31, 2018, respectively.	—			—
Additional paid-in capital	43,533			42,906
Accumulated other comprehensive loss	(781		)	(760		)
Retained earnings	43,764			41,981
Total stockholders' equity	86,516			84,127
Total liabilities and stockholders' equity	$	109,477		$	97,334

See Accompanying Notes to Condensed Consolidated Financial Statements.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)



	Three Months Ended March 31,
	2019		2018
Revenue	$	15,077	$	11,966
Costs and expenses:
Cost of revenue	2,816		1,927
Research and development	2,860		2,238
Marketing and sales	2,020		1,595
General and administrative	4,064		757
Total costs and expenses	11,760		6,517
Income from operations	3,317		5,449
Interest and other income, net	165		161
Income before provision for income taxes	3,482		5,610
Provision for income taxes	1,053		622
Net income	$	2,429	$	4,988
Less: Net income attributable to participating securities	—		1
Net income attributable to Class A and Class B common stockholders	$	2,429	$	4,987
Earnings per share attributable to Class A and Class B common stockholders:
Basic	$	0.85	$	1.72
Diluted	$	0.85	$	1.69
Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
Basic	2,856		2,906
Diluted	2,869		2,945
Share-based compensation expense included in costs and expenses:
Cost of revenue	$	87	$	56
Research and development	723		718
Marketing and sales	113		109
General and administrative	87		72
Total share-based compensation expense	$	1,010	$	955

See Accompanying Notes to Condensed Consolidated Financial Statements.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)



	Three Months Ended March 31,
	2019			2018
Net income	$	2,429		$	4,988
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax	(175		)	94
Change in unrealized gain/loss on available-for-sale investments and other, net of tax	154			(161		)
Comprehensive income	$	2,408		$	4,921

See Accompanying Notes to Condensed Consolidated Financial Statements.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In millions)

(Unaudited)



	Three Months Ended March 31, 2019																Three Months Ended March 31, 2018
	Class A and Class B Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders' Equity			Class A and Class B Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders' Equity
	Shares		Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders' Equity			Shares		Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders' Equity
Balances at beginning of period	2,854		$	—	$	42,906		$	(760	)	$	41,981		$	84,127		2,906		$	—	$	40,584		$	(227	)	$	33,990		$	74,347
Impact of the adoption of new accounting pronouncement	—		—		—			—			—			—			—		—		—			—			141			141
Issuance of common stock	8		—		4			—			—			4			12		—		3			—			—			3
Shares withheld related to net share settlement	(3	)	—		(387		)	—			(125		)	(512		)	(5	)	—		(408		)	—			(424		)	(832		)
Share-based compensation, related to employee share-based awards	—		—		1,010			—			—			1,010			—		—		955			—			—			955
Share repurchases	(3	)	—		—			—			(521		)	(521		)	(11	)	—		—			—			(1,915		)	(1,915		)
Other comprehensive loss	—		—		—			(21		)	—			(21		)	—		—		—			(67		)	—			(67		)
Net income	—		—		—			—			2,429			2,429			—		—		—			—			4,988			4,988
Balances at end of period	2,856		$	—	$	43,533		$	(781	)	$	43,764		$	86,516		2,902		$	—	$	41,134		$	(294	)	$	36,780		$	77,620

See Accompanying Notes to Condensed Consolidated Financial Statements.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities
Net income	$	2,429		$	4,988
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,355			949
Share-based compensation	1,010			955
Deferred income taxes	183			(47		)
Other	6			8
Changes in assets and liabilities:
Accounts receivable	1,070			788
Prepaid expenses and other current assets	84			(365		)
Other assets	41			22
Operating lease right-of-use assets, net	(1,190		)	—
Accounts payable	(96		)	1
Partners payable	(1		)	2
Accrued expenses and other current liabilities	3,154			707
Deferred revenue and deposits	(4		)	(5		)
Operating lease liabilities, non-current	1,083			—
Other liabilities	184			(143		)
Net cash provided by operating activities	9,308			7,860
Cash flows from investing activities
Purchases of property and equipment, net	(3,837		)	(2,812		)
Purchases of marketable securities	(6,603		)	(4,022		)
Sales of marketable securities	1,512			4,330
Maturities of marketable securities	2,210			1,267
Other investing activities, net	(50		)	(50		)
Net cash used in investing activities	(6,768		)	(1,287		)
Cash flows from financing activities
Taxes paid related to net share settlement of equity awards	(512		)	(832		)
Repurchases of Class A common stock	(613		)	(1,774		)
Principal payments on finance leases	(125		)	—
Net change in overdraft in cash pooling entities	(177		)	—
Other financing activities, net	4			3
Net cash used in financing activities	(1,423		)	(2,603		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(44		)	36
Net increase in cash, cash equivalents, and restricted cash	1,073			4,006
Cash, cash equivalents, and restricted cash at beginning of the period	10,124			8,204
Cash, cash equivalents, and restricted cash at end of the period	$	11,197		$	12,210

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	11,076		$	12,082
Restricted cash, included in prepaid expenses and other current assets	10			14
Restricted cash, included in other assets	111			114
Total cash, cash equivalents, and restricted cash	$	11,197		$	12,210

See Accompanying Notes to Condensed Consolidated Financial Statements.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Three Months Ended March 31,
	2019			2018
Supplemental cash flow data
Cash paid during the period for:
Interest	$	2		$	—
Income taxes, net	$	682		$	736
Non-cash investing activities:
Net change in prepaids and liabilities related to property and equipment	$	(314	)	$	429
Accrued property and equipment	$	1,617		$	1,291

See Accompanying Notes to Condensed Consolidated Financial Statements.

FACEBOOK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Note 1.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

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

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2019.

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.

Recently Adopted Accounting Pronouncements

On January 1, 2019, we adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (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 and Note 7— Leases.

Significant Accounting Policies - Leases

On January 1, 2019, we adopted Topic 842 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 ROU assets and liabilities.

Upon adoption, we recognized total ROU assets of $6.63 billion, with corresponding liabilities of $6.35 billion on the condensed 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 condensed 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 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.

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


Note 2.	Revenue

Revenue disaggregated by revenue source for the three months ended March 31, 2019 and 2018, consists of the following (in millions):



	Three Months Ended March 31,
	2019		2018
Advertising	$	14,912	$	11,795
Payments and other fees	165		171
Total revenue	$	15,077	$	11,966

Revenue disaggregated by geography, based on the billing address of our customer, consists of the following (in millions):



	Three Months Ended March 31,
	2019		2018
Revenue:
US & Canada⁽¹⁾	$	6,777	$	5,442
Europe⁽²⁾	3,624		3,027
Asia-Pacific	3,337		2,475
Rest of World⁽²⁾	1,339		1,022
Total revenue	$	15,077	$	11,966

^{(1) United States revenue was}^{$6.36 billion}^and^{$5.09 billion}^{for the}^{three months ended}^{March 31, 2019}^and²⁰¹⁸^{, respectively.}

^{(2) 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):



	March 31, 2019		December 31, 2018
Deferred revenue	$	111	$	117
Deposits	31		30
Total deferred revenue and deposits	$	142	$	147


Note 3.	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, 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 three months ended March 31, 2019 and 2018, 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):



	Three Months Ended March 31,
	2019				2018
	Class A		Class B		Class A		Class B
Basic EPS:
Numerator
Net income	$	2,038	$	391	$	4,123	$	865
Less: Net income attributable to participating securities	—		—		1		—
Net income attributable to common stockholders	$	2,038	$	391	$	4,122	$	865
Denominator
Weighted average shares outstanding	2,396		460		2,402		504
Basic EPS	$	0.85	$	0.85	$	1.72	$	1.72
Diluted EPS:
Numerator
Net income attributable to common stockholders	$	2,038	$	391	$	4,122	$	865
Reallocation of net income attributable to participating securities	—		—		1		—
Reallocation of net income as a result of conversion of Class B to Class A common stock	391		—		865		—
Reallocation of net income to Class B common stock	—		—		—		(5		)
Net income attributable to common stockholders for diluted EPS	$	2,429	$	391	$	4,988	$	860
Denominator
Number of shares used for basic EPS computation	2,396		460		2,402		504
Conversion of Class B to Class A common stock	460		—		504		—
Weighted average effect of dilutive securities:
Employee stock options	1		1		3		3
RSUs	12		1		36		1
Number of shares used for diluted EPS computation	2,869		462		2,945		508
Diluted EPS	$	0.85	$	0.85	$	1.69	$	1.69


Note 4.	Cash and Cash Equivalents, and Marketable Securities

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



	March 31, 2019		December 31, 2018
Cash and cash equivalents:
Cash	$	3,459	$	2,713
Money market funds	6,969		6,792
U.S. government securities	239		90
U.S. government agency securities	54		54
Certificate of deposits and time deposits	355		369
Corporate debt securities	—		1
Total cash and cash equivalents	11,076		10,019
Marketable securities:
U.S. government securities	16,794		13,836
U.S. government agency securities	8,039		8,333
Corporate debt securities	9,334		8,926
Total marketable securities	34,167		31,095
Total cash and cash equivalents, and marketable securities	$	45,243	$	41,114

The gross unrealized losses on our marketable securities were $208 million and $357 million as of March 31, 2019 and December 31, 2018, 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 $204 million and $332 million as of March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019, 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):



	March 31, 2019
Due in one year	$	12,476
Due after one year to five years	21,691
Total	$	34,167


Note 5.	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	March 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	$	6,969	$	6,969	$	—	$	—
U.S. government securities	239		239		—		—
U.S. government agency securities	54		54		—		—
Certificate of deposits and time deposits	355		—		355		—
Marketable securities:
U.S. government securities	16,794		16,794		—		—
U.S. government agency securities	8,039		8,039		—		—
Corporate debt securities	9,334		—		9,334		—
Total cash equivalents and marketable securities	$	41,784	$	32,095	$	9,689	$	—



			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.


Note 6.	Property and Equipment

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



	March 31, 2019			December 31, 2018
Land	$	949		$	899
Buildings	8,090			7,401
Leasehold improvements	2,019			1,841
Network equipment	12,964			13,017
Computer software, office equipment and other	1,326			1,187
Finance lease right-of-use assets	1,145			—
Construction in progress	8,509			7,228
Total	35,002			31,573
Less: Accumulated depreciation	(7,657		)	(6,890		)
Property and equipment, net	$	27,345		$	24,683

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 all periods presented.

Note 7. Leases

We have entered into various non-cancelable operating lease agreements for certain of our offices, data center, land, colocations and certain network equipment. Our leases have original lease periods expiring between 2019 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 do not contain any material residual value guarantees or material restrictive covenants.

The components of lease costs, lease term and discount rate are as follows (in millions):



	Three Months Ended
	March 31, 2019
Finance lease cost
Amortization of right-of-use assets	$	42
Interest	2
Operating lease cost	246
Variable lease cost and other, net	49
Total lease cost	$	339

Weighted Average Remaining Lease Term
Operating leases	13.1 years
Finance leases	15.1 years

Weighted Average Discount Rate
Operating leases	3.6		%
Finance leases	3.2		%

The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2019 (in millions):



	Operating Leases			Finance Leases
The remainder of 2019	$	611		$	53
2020	944			35
2021	868			26
2022	811			24
2023	776			24
Thereafter	5,602			266
Total undiscounted cash flows	9,612			428
Less imputed interest	(2,402		)	(88		)
Present value of lease liabilities	$	7,210		$	340

As of March 31, 2019, we have additional operating and finance leases for facilities and network equipment that have not yet commenced with lease obligations of $5.77 billion and $429 million, respectively. These operating and finance leases will commence between 2019 and 2022 with lease terms of greater than one year to 25 years. This table does not include lease payments that were not fixed at commencement or modification.

Supplemental cash flow information related to leases are as follows (in millions):



	Three Months Ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	188
Operating cash flows from finance leases	$	2
Financing cash flows from finance leases	$	125
Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$	1,383
Finance leases	$	35


Note 8.	Goodwill and Intangible Assets

During the three months ended March 31, 2019, we completed business acquisitions that were not material to our condensed consolidated financial statements, either individually or in the aggregate. Accordingly, pro forma historical results of operations related to these business acquisitions during the three months ended March 31, 2019 have not been presented. We have included the financial results of these business acquisitions in our condensed consolidated financial statements from their respective dates of acquisition.

The changes in the carrying amount of goodwill for the three months ended March 31, 2019 are as follows (in millions):



Balance as of December 31, 2018	$	18,301
Goodwill acquired	30
Effect of currency translation adjustment	2
Balance as of March 31, 2019	$	18,333

Intangible assets consist of the following (in millions):



		March 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	2.5	$	2,056	$	(1,332	)	$	724	$	2,056	$	(1,260	)	$	796
Acquired technology	1.3	1,014		(909		)	105		1,002		(871		)	131
Acquired patents	5.0	805		(580		)	225		805		(565		)	240
Trade names	1.3	629		(545		)	84		629		(517		)	112
Other	2.6	162		(150		)	12		162		(147		)	15
Total intangible assets	2.8	$	4,666	$	(3,516	)	$	1,150	$	4,654	$	(3,360	)	$	1,294

Amortization expense of intangible assets was $156 million and $169 million for the three months ended March 31, 2019 and 2018, respectively.

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



The remainder of 2019	$	400
2020	382
2021	277
2022	33
2023	26
Thereafter	32
Total	$	1,150


Note 9.	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 March 31, 2019, no amounts had been drawn down, and we were in compliance with the covenants under this facility.


Note 10.	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 $4.84 billion of non-cancelable contractual commitments as of March 31, 2019, the majority of which is 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. 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), 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 and other government inquiries.

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.

The aforementioned inquiry of the FTC has progressed to a point that, in the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion which is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet. We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.

In addition to the FTC matter, although we believe that it is reasonably possible that we may incur a substantial loss in some of the other 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.


Note 11.	Stockholders' Equity

Share Repurchase Program

Our board of directors has authorized a share repurchase program that commenced in 2017 and does not have an expiration date. In December 2018, our board of directors authorized an additional $9.0 billion of repurchases under this program. During the three months ended March 31, 2019, we repurchased and subsequently retired approximately 3.1 million shares of our Class A common stock for an aggregate amount of approximately $521 million. As of March 31, 2019, approximately $8.5 billion remained available and authorized for repurchases.

The timing and actual number of shares repurchased under the share 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.

Effective January 1, 2019, there were 143 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 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.

The following table summarizes the activities for our unvested RSUs for the three months ended March 31, 2019:



	Unvested RSUs
	Number of Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Unvested at December 31, 2018	67,298		$	144.77
Granted	36,626		$	164.68
Vested	(7,985	)	$	128.18
Forfeited	(1,973	)	$	142.67
Unvested at March 31, 2019	93,966		$	153.98

The fair value as of the respective vesting dates of RSUs that vested during the three months ended March 31, 2019 and 2018 was $1.31 billion and $1.95 billion, respectively.

As of March 31, 2019, there was $13.70 billion of unrecognized share-based compensation expense 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.


Note 12.	Income Taxes

Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of our income (loss) before provision for income taxes in multiple jurisdictions, the effects of acquisitions, and the integration of those acquisitions.

Our 2019 effective tax rate differs from the U.S. statutory rate of 21% primarily due to a portion of our income before provision for income taxes being earned in jurisdictions subject to tax rates lower than 21%, the $3.0 billion legal accrual recorded in the first quarter of 2019 related to the ongoing FTC matter which is not expected to be tax-deductible, and the recognition of excess tax benefits from share-based compensation.

Our gross unrecognized tax benefits were $4.89 billion and $4.68 billion on March 31, 2019 and December 31, 2018, respectively. If the gross unrecognized tax benefits as of March 31, 2019 were realized in a subsequent period, this would result in a tax benefit of $2.94 billion within our provision of income taxes at such time. The amount of interest and penalties accrued as of March 31, 2019 and December 31, 2018 was $391 million and $340 million, respectively. We expect to continue to accrue unrecognized tax benefits for certain recurring tax positions.

On July 27, 2015, the United States Tax Court (Tax Court) issued an opinion in Altera Corp. v. Commissioner (Tax Court Opinion), which concluded that related parties in a cost sharing arrangement are not required to share expenses related to share-based compensation. The Tax Court Opinion was appealed by the Commissioner to the Ninth Circuit Court of Appeals (Ninth Circuit). On July 24, 2018, the Ninth Circuit issued an opinion (Ninth Circuit Opinion) that reversed the Tax Court Opinion. The Ninth Circuit Opinion was subsequently withdrawn and the case is in the process of being reheard. Since the Ninth Circuit Opinion was withdrawn, we continue to treat our share-based compensation expense in accordance with the Tax Court Opinion. We also continue to monitor developments in this case and any impact the final opinion could have on our consolidated financial statements.

We are subject to taxation in the United States and various other state and foreign jurisdictions. The material jurisdictions in which we are subject to potential examination include the United States and Ireland. We are under examination by the Internal Revenue Service (IRS) for our 2014 through 2016 tax years and by the Ireland tax authorities for our 2012 through 2015 tax years. Our 2017 and subsequent tax years remain open to examination by the IRS. Our 2016 and subsequent tax years remain open to examination in Ireland.

In July 2016, we received a Statutory Notice of Deficiency (Notice) from the IRS related to transfer pricing with our foreign subsidiaries in conjunction with the examination of the 2010 tax year. While the Notice applies only to the 2010 tax year, the IRS states that it will also apply its position for tax years subsequent to 2010, which, if the IRS prevails in its position, could result in an additional federal tax liability of an estimated, aggregate amount of up to approximately $5.0 billion in excess of the amounts in our originally filed U.S. return, plus interest and any penalties asserted. We do not agree with the position of the IRS and have filed a petition in the Tax Court challenging the Notice. In March 2018, we received a second Notice from the IRS in conjunction with the examination of our 2011 through 2013 tax years. The IRS applied its position from the 2010 tax year to each of these years and also proposed new adjustments related to other transfer pricing with our foreign subsidiaries and certain tax credits that we claimed. If the IRS prevails in its position for these new adjustments, this could result in an additional federal tax liability of up to approximately $680 million in excess of the amounts in our originally filed U.S. return, plus interest and any penalties asserted. We do not agree with the positions of the IRS in the second Notice and have filed a petition in the Tax Court challenging the second Notice. We have previously accrued an estimated unrecognized tax benefit consistent with the guidance in ASC 740 that is lower than the potential additional federal tax liability from the positions taken by the IRS in the two Notices. In addition, if the IRS prevails in its positions related to transfer pricing with our foreign subsidiaries, the additional tax that we would owe would be partially offset by a reduction in the tax that we owe under the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act (Tax Act). As of March 31, 2019, we have not resolved these matters and proceedings continue in the Tax Court.

We believe that adequate amounts have been reserved in accordance with ASC 740 for any adjustments to the provision for income taxes or other tax items that may ultimately result from these examinations. The timing of the resolution, settlement, and closure of any audits is highly uncertain, and it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. Given the number of years remaining that are subject to examination, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. If the taxing authorities prevail in the assessment of additional tax due, the assessed tax, interest, and penalties, if any, could have a material adverse impact on our financial position, results of operations, and cash flows.


Note 13.	Geographical Information

The following table sets forth our long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets, net (in millions):



	March 31, 2019		December 31, 2018
Long-lived assets:
United States	$	26,474	$	18,950
Rest of the world⁽¹⁾	7,618		5,733
Total long-lived assets	$	34,092	$	24,683


(1)	No individual country, other than disclosed above, exceeded 10% of our total long-lived assets for any period presented.


Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A, "Risk Factors." For a discussion of limitations in the measurement of certain of our user metrics, see the section entitled "Limitations of Key Metrics and Other Data" in this Quarterly Report on Form 10-Q.

Certain revenue information in the section entitled "—Three Months Ended March 31, 2019 and 2018—Revenue—Foreign Exchange Impact on Revenue" is presented on a constant currency basis. This information is a non-GAAP financial measure. To calculate revenue on a constant currency basis, we translated revenue for the three months ended March 31, 2019 using the prior year's monthly exchange rates for our settlement or billing currencies other than the U.S. dollar. This non-GAAP financial measure is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. This measure may be different from non-GAAP financial measures used by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of revenue on a constant currency basis is provided for year-over-year comparison purposes, and investors should be cautioned that the effect of changing foreign currency exchange rates has an actual effect on our operating results. We believe this non-GAAP financial measure provides investors with useful supplemental information about the financial performance of our business, enables comparison of financial results between periods where certain items may vary independent of business performance, and allows for greater transparency with respect to key metrics used by management in operating our business.

Executive Overview of First Quarter Results

Our key user metrics and financial results for the first quarter of 2019 are as follows:

User growth:


•	Daily active users (DAUs) were 1.56 billion on average for March 2019, an increase of 8% year-over-year.


•	Monthly active users (MAUs) were 2.38 billion as of March 31, 2019, an increase of 8% year-over-year.

Financial results:


•	Revenue was $15.08 billion, up 26% year-over-year, and ad revenue was $14.91 billion, up 26% year-over-year.


•	Total costs and expenses were $11.76 billion.


•	Income from operations was $3.32 billion.


•	Net income was $2.43 billion with diluted earnings per share of $0.85.


•	Capital expenditures, including principal payments on finance leases, were $3.96 billion.


•	Effective tax rate was 30%.


•	Cash and cash equivalents and marketable securities were $45.24 billion as of March 31, 2019.


•	Headcount was 37,773 as of March 31, 2019, an increase of 36% year-over-year.

In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in connection with the inquiry of the U.S. Federal Trade Commission (FTC) into our platform and user data practices, which accrual is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet. We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.

In the first quarter of 2019, we also continued to focus on our main revenue growth priorities: (i) helping marketers use our products to connect with consumers where they are and (ii) making our ads more relevant and effective.

We continued to invest, based on our roadmap, in: (i) our most developed ecosystems, Facebook and Instagram, (ii) driving growth and building ecosystems around our products that already have significant user bases, such as Messenger and WhatsApp, as well as continuing to grow features like Stories, and (iii) long-term technology initiatives, such as connectivity, artificial intelligence, and augmented and virtual reality, that we believe will further our mission to give people the power to build community and bring the world closer together. We intend to continue to invest based on this roadmap and we anticipate that additional investments in the following areas will continue to drive significant year-over-year expense growth in 2019: (i) expanding our data center capacity, network infrastructure, and office facilities as well as scaling our headcount to support our growth, and (ii) investments in safety and security, marketing, video content, and our long-term technology initiatives. Expense growth exceeded revenue growth in the first quarter of 2019, which we anticipate will continue in the remainder of 2019.

Trends in Our User Metrics

The numbers for our key metrics, our DAUs, MAUs, and average revenue per user (ARPU), do not include Instagram, WhatsApp, or Oculus users unless they would otherwise qualify as such users, respectively, based on their other activities on Facebook. In addition, other user engagement metrics do not include Instagram, WhatsApp, or Oculus unless otherwise specifically stated.

Trends in the number of users affect our revenue and financial results by influencing the number of ads we are able to show, the value of our ads to marketers, the volume of Payments transactions, as well as our expenses and capital expenditures. Substantially all of our daily and monthly active users (as defined below) access Facebook on mobile devices.


•	Daily Active Users (DAUs). We define a daily active user as a registered Facebook user who logged in and visited Facebook through our website or a mobile device, or used our Messenger application (and is also a registered Facebook user), on a given day. We view DAUs, and DAUs as a percentage of MAUs, as measures of user engagement on Facebook.

Note: For purposes of reporting DAUs, MAUs, and ARPU by geographic region, Europe includes all users in Russia and Turkey and Rest of World includes all users in Africa, Latin America, and the Middle East.

Worldwide DAUs increased 8% to 1.56 billion on average during March 2019 from 1.45 billion during March 2018. Users in India, Indonesia, and the Philippines represented key sources of growth in DAUs during March 2019, relative to the same period in 2018.


•	Monthly Active Users (MAUs). We define a monthly active user as a registered Facebook user who logged in and visited Facebook through our website or a mobile device, or used our Messenger application (and is also a registered Facebook user), in the last 30 days as of the date of measurement. MAUs are a measure of the size of our global active user community on Facebook.

As of March 31, 2019, we had 2.38 billion MAUs, an increase of 8% from March 31, 2018. Users in India, Indonesia, and the Philippines represented key sources of growth in the first quarter of 2019, relative to the same period in 2018.

Trends in Our Monetization by User Geography

We calculate our revenue by user geography based on our estimate of the geography in which ad impressions are delivered, virtual and digital goods are purchased, or consumer hardware devices are shipped. We define ARPU as our total revenue in a given geography during a given quarter, divided by the average of the number of MAUs in the geography at the beginning and end of the quarter. While ARPU includes all sources of revenue, the number of MAUs used in this calculation only includes users of Facebook and Messenger as described in the definition of MAU above. Revenue from users who are not also Facebook or Messenger MAUs was not material. The geography of our users affects our revenue and financial results because we currently monetize users in different geographies at different average rates. Our revenue and ARPU in regions such as United States & Canada and Europe are relatively higher primarily due to the size and maturity of those online and mobile advertising markets. For example, ARPU in the first quarter of 2019 in the United States & Canada region was more than ten times higher than in the Asia-Pacific region.

Note: Our revenue by user geography in the charts above is geographically apportioned based on our estimation of the geographic location of our users when they perform a revenue-generating activity. This allocation differs from our revenue disaggregated by geography disclosure in our condensed consolidated financial statements where revenue is geographically apportioned based on the location of the customer.

During the first quarter of 2019, worldwide ARPU was $6.42, an increase of 16% from the first quarter of 2018. Over this period, ARPU increased by 28% in United States & Canada, 18% in Europe, and 13% in both Asia-Pacific and Rest of World. In addition, user growth was more rapid in geographies with relatively lower ARPU, such as Asia-Pacific and Rest of World. We expect that user growth in the future will be primarily concentrated in those regions where ARPU is relatively lower, such that worldwide ARPU may continue to increase at a slower rate relative to ARPU in any geographic region, or potentially decrease even if ARPU increases in each geographic region.

Components of Results of Operations

Revenue

Advertising. We generate substantially all of our revenue from advertising. Our 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 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 a user. We recognize revenue from the delivery of action-based ads in the period in which a user takes the action the marketer contracted for. The number of ads we show is subject to methodological changes as we continue to evolve our ads business and the structure of our ads products. We calculate price per ad as total ad revenue divided by the number of ads delivered, representing the effective price paid per impression by a marketer regardless of their desired objective such as impression or action. For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis.

Payments and other fees. Payments revenue is comprised of the net fee we receive from developers using our Payments infrastructure. Our other fees revenue consists primarily of revenue from the delivery of consumer hardware devices, as well as revenue from various other sources.

Cost of Revenue and Operating Expenses

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.

Research and development. Research and development expenses consist primarily of share-based compensation, salaries, and benefits, and facilities-related costs for employees on our engineering and technical teams who are responsible for building new products as well as improving existing products. We expense all of our research and development costs as they are incurred.

Marketing and sales. Our marketing and sales expenses consist of salaries, share-based compensation, and benefits for our employees engaged in sales, sales support, marketing, business development, and customer service functions. Our marketing and sales expenses also include marketing and promotional expenditures and professional services such as content reviewers.

General and administrative. General and administrative expenses consist of legal-related costs; salaries, benefits, and share-based compensation for certain of our executives as well as our legal, finance, human resources, corporate communications and policy, and other administrative employees; and professional services.

Results of Operations

The following tables set forth our condensed consolidated statements of income data:



	Three Months Ended March 31,
	2019		2018
	(in millions)
Revenue	$	15,077	$	11,966
Costs and expenses:
Cost of revenue	2,816		1,927
Research and development	2,860		2,238
Marketing and sales	2,020		1,595
General and administrative	4,064		757
Total costs and expenses	11,760		6,517
Income from operations	3,317		5,449
Interest and other income, net	165		161
Income before provision for income taxes	3,482		5,610
Provision for income taxes	1,053		622
Net income	$	2,429	$	4,988

Share-based compensation expense included in costs and expenses:



	Three Months Ended March 31,
	2019		2018
	(in millions)
Cost of revenue	$	87	$	56
Research and development	723		718
Marketing and sales	113		109
General and administrative	87		72
Total share-based compensation expense	$	1,010	$	955

The following tables set forth our condensed consolidated statements of income data (as a percentage of revenue):



	Three Months Ended March 31,
	2019		2018
Revenue	100	%	100	%
Costs and expenses:
Cost of revenue	19		16
Research and development	19		19
Marketing and sales	13		13
General and administrative	27		6
Total costs and expenses	78		54
Income from operations	22		46
Interest and other income, net	1		1
Income before provision for income taxes	23		47
Provision for income taxes	7		5
Net income	16	%	42	%

Share-based compensation expense included in costs and expenses (as a percentage of revenue):



	Three Months Ended March 31,
	2019		2018
Cost of revenue	1	%	—	%
Research and development	5		6
Marketing and sales	1		1
General and administrative	1		1
Total share-based compensation expense	7	%	8	%

Three Months Ended March 31, 2019 and 2018

Revenue



	Three Months Ended March 31,
	2019		2018		% change
	(in millions, except for percentages)
Advertising	$	14,912	$	11,795	26	%
Payments and other fees	165		171		(4	)%
Total revenue	$	15,077	$	11,966	26	%

Revenue in the first quarter of 2019 increased $3.11 billion, or 26%, compared to the same period in 2018. The increase was due to an increase in advertising revenue.

The most important factor driving advertising revenue growth was an increase in revenue from ads on mobile devices. For the first quarter of 2019, we estimate that mobile advertising revenue represented approximately 93% of total advertising revenue, as compared with approximately 91% in the same period in 2018. The increase in advertising revenue for the first quarter of 2019 was due to an increase in the number of ads delivered, partially offset by a slight decrease in the average price per ad.

During the first quarter of 2019, the number of ads delivered increased by 32%, as compared with approximately 8% in the same period in 2018. The increase in the ads delivered was driven by an increase in users and their engagement, and an increase in the number and frequency of ads displayed across our products. The average price per ad decreased by 4% in the first quarter of 2019, as compared with an increase of approximately 39% in the same period in 2018. The decrease in average price per ad reflects an increasing proportion of the number of ads delivered as Stories ads and in geographies that monetize at lower rates. We anticipate that future advertising revenue growth will be determined by a combination of price and the number of ads delivered.

Foreign Exchange Impact on Revenue

The general strengthening of the U.S. dollar relative to certain foreign currencies in the first quarter of 2019 compared to the same period in 2018 had an unfavorable impact on revenue. If we had translated revenue for the first quarter ended March 31, 2019 using the prior year's monthly exchange rates for our settlement or billing currencies other than the U.S. dollar, our total revenue and advertising revenue would have been $15.58 billion and $15.42 billion, respectively. Using these constant rates, both revenue and advertising revenue would each have been $503 million higher than actual revenue and advertising revenue, respectively, for the first quarter of 2019.

Cost of revenue



	Three Months Ended March 31,
	2019			2018			% change
	(in millions, except for percentages)
Cost of revenue	$	2,816		$	1,927		46	%
Percentage of revenue	19		%	16		%

Cost of revenue in the first quarter of 2019 increased $889 million, or 46%, compared to the same period in 2018. The increase was mostly due to an increase in operational expenses related to our data centers and technical infrastructure and higher costs associated with partnership agreements, including content and traffic acquisition costs.

Research and development



	Three Months Ended March 31,
	2019			2018			% change
	(in millions, except for percentages)
Research and development	$	2,860		$	2,238		28	%
Percentage of revenue	19		%	19		%

Research and development expenses in the first quarter of 2019 increased $622 million, or 28%, compared to the same period in 2018. The increase was primarily due to increases in payroll and benefits expense and facilities-related costs as a result of a 36% growth in employee headcount from March 31, 2018 to March 31, 2019 in engineering and other technical functions.

Marketing and sales



	Three Months Ended March 31,
	2019			2018			% change
	(in millions, except for percentages)
Marketing and sales	$	2,020		$	1,595		27	%
Percentage of revenue	13		%	13		%

Marketing and sales expenses in the first quarter of 2019 increased $425 million, or 27%, compared to the same period in 2018. The increase was mostly driven by community operations and payroll and benefits expenses. Our payroll and benefits expenses increased as a result of a 32% increase in employee headcount from March 31, 2018 to March 31, 2019 in our marketing and sales functions.

General and administrative



	Three Months Ended March 31,
	2019			2018			% change
	(in millions, except for percentages)
Legal accrual related to FTC inquiry	$	3,000		$	—		NM
Other general and administrative	1,064			757			41	%
General and administrative	$	4,064		$	757		NM
Percentage of revenue	27		%	6		%

General and administrative expenses in the first quarter of 2019 increased $3.31 billion compared to the same period in 2018. The increase was mostly due to a $3.0 billion legal accrual related to the ongoing FTC matter recorded in the first quarter of 2019. In addition, payroll and benefits expenses increased as a result of a 33% increase in employee headcount from March 31, 2018 to March 31, 2019 in general and administrative functions.

Interest and other income (expense), net



	Three Months Ended March 31,
	2019			2018		% change
	(in millions, except for percentages)
Interest income, net	$	198		$	145	37	%
Other income (expense), net	(33		)	16		NM
Interest and other income, net	$	165		$	161	2	%

Interest and other income, net in the first quarter of 2019 increased $4 million compared to the same period in 2018. The increase was due to an increase in interest income driven by higher interest rates, partially offset by a foreign exchange loss in 2019 as compared to a foreign exchange gain in 2018 as a result of the periodic re-measurement of our foreign currency balances.

Provision for income taxes



	Three Months Ended March 31,
	2019			2018			% change
	(in millions, except for percentages)
Provision for income taxes	$	1,053		$	622		69	%
Effective tax rate	30		%	11		%

Our provision for income taxes in the first quarter of 2019 increased $431 million, or 69%, compared to the same period in 2018, a majority of which is due to a decrease in excess tax benefits from share-based compensation and an increase in income prior to the effect of the $3.0 billion legal accrual related to the ongoing FTC matter that is not expected to be tax-deductible.

Our effective tax rates in the first quarter of 2019 increased compared to same period in 2018, mostly due to the legal accrual related to the ongoing FTC matter that is not expected to be tax-deductible and a decrease in excess tax benefits from share-based compensation.

Effective Tax Rate Items. Our effective tax rate in the future will depend upon the proportion of our income before provision for income taxes earned in the United States and in jurisdictions with a tax rate lower than the U.S. statutory rate, as well as a number of other factors, including excess tax benefits from share-based compensation, tax effects of integrating intellectual property from acquisitions, settlement of tax contingency items, tax effects of changes in our business, and the impact of changes in tax law.

The proportion of our income before provision for income taxes earned in jurisdictions with a tax rate lower than the U.S. statutory rate will depend upon the proportion of revenue and costs associated with the respective jurisdictions.

The accounting for share-based compensation will increase or decrease our effective tax rate based upon the difference between our share-based compensation expense and the deductions taken on our tax return which depends upon the stock price at the time of employee award vesting. If our stock price remains constant to the April 22, 2019 price, we expect our effective tax rate for the remaining quarters of the year to be in the mid-teens.

Integrating intellectual property from acquisitions into our business generally involves intercompany transactions that have the impact of increasing our provision for income taxes. Consequently, our provision for income taxes and our effective tax rate may initially increase in the period of an acquisition and integration. The magnitude of this impact will depend upon the specific type, size, and taxing jurisdictions of the intellectual property as well as the relative contribution to income in subsequent periods.

Unrecognized Tax Benefits. As of March 31, 2019, we had net unrecognized tax benefits of $3.23 billion which were accrued as other liabilities. These unrecognized tax benefits were predominantly accrued for uncertainties related to transfer pricing with our foreign subsidiaries, which includes licensing of intellectual property, providing services and other transactions, as well as for uncertainties with our research tax credits. The ultimate settlement of the liabilities will depend upon resolution of tax audits, litigation, or events that would otherwise change the assessment of such items. Based upon the status of litigation described below, the current status of tax audits in various jurisdictions, and excluding the effects of the Altera Corp. v. Commissioner case that we are monitoring, we do not anticipate a significant impact to such amounts within the next 12 months.

In July 2016, we received a Statutory Notice of Deficiency (Notice) from the IRS related to transfer pricing with our foreign subsidiaries in conjunction with the examination of the 2010 tax year. While the Notice applies only to the 2010 tax year, the IRS states that it will also apply its position for tax years subsequent to 2010, which, if the IRS prevails in its position, could result in an additional federal tax liability of an estimated, aggregate amount of up to approximately $5.0 billion in excess of the amounts in our originally filed U.S. return, plus interest and any penalties asserted. We do not agree with the position of the IRS and have filed a petition in the Tax Court challenging the Notice. In March 2018, we received a second Notice from the IRS in conjunction with the examination of our 2011 through 2013 tax years. The IRS applied its position from the 2010 tax year to each of these years and also proposed new adjustments related to other transfer pricing with our foreign subsidiaries and certain tax credits that we claimed. If the IRS prevails in its position for these new adjustments, this could result in an additional federal tax liability of up to approximately $680 million in excess of the amounts in our originally filed U.S. return, plus interest and any penalties asserted. We do not agree with the positions of the IRS in the second Notice and have filed a petition in the Tax Court challenging the second Notice. We have previously accrued an estimated unrecognized tax benefit consistent with the guidance in ASC 740 that is lower than the potential additional federal tax liability from the positions taken by the IRS in the two Notices. In addition, if the IRS prevails in its positions, related to transfer pricing with our foreign subsidiaries, the additional tax that we would owe would be partially offset by a reduction in the tax that we owe under the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act (Tax Act). As of March 31, 2019, we have not resolved these matters, and proceedings continue in Tax Court.

We believe that adequate amounts have been reserved in accordance with ASC 740 for any adjustments to the provision for income taxes or other tax items that may ultimately result from these examinations. The timing of the resolution, settlement, and closure of any audits is highly uncertain, and it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. Given the number of years remaining that are subject to examination in various jurisdictions, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. If the taxing authorities prevail in the assessment of additional tax due, the assessed tax, interest, and penalties, if any, could have a material adverse effect on our financial position, results of operations, and cash flows.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents, marketable securities, and cash generated from operations. Cash and cash equivalents, and marketable securities consist mostly of cash on deposit with banks, investments in money market funds, and investments in U.S. government securities, U.S. government agency securities, and corporate debt securities. Cash and cash equivalents, and marketable securities were $45.24 billion as of March 31, 2019, an increase of $4.13 billion from December 31, 2018, mostly due to $9.31 billion of cash generated from operations, offset by $3.96 billion for capital expenditures, including principal payments on finance leases, $613 million for repurchases of our Class A common stock, $512 million of taxes paid related to net share settlement of equity awards, and a $177 million decrease in overdraft in cash pooling entities.

Cash paid for income taxes was $682 million for the first quarter of 2019. As of March 31, 2019, our federal net operating loss carryforward was $8.07 billion, and we anticipate that none of this amount will be utilized to offset our federal taxable income in 2019. As of March 31, 2019, we had $292 million of federal tax credit carryforward, of which none will be available to offset our federal tax liabilities in 2019. In addition, we are monitoring the Altera Corp. v. Commissioner case as it applies to our facts and circumstances as it could increase our cash paid for income taxes.

In May 2016, we entered into a $2.0 billion senior unsecured revolving credit facility, and any amounts outstanding under the facility will be due and payable on May 20, 2021. As of March 31, 2019, no amounts had been drawn down and we were in compliance with the covenants under this credit facility.

Our board of directors has authorized a share repurchase program that commenced in 2017 and does not have an expiration date. In December 2018, our board of directors authorized an additional $9.0 billion of repurchases under this program. During the three months ended March 31, 2019, we repurchased and subsequently retired approximately 3.1 million shares of our Class A common stock for an aggregate amount of $521 million. As of March 31, 2019, approximately $8.5 billion remained available and authorized for repurchases.

In the first quarter of 2019, we paid $512 million of taxes related to the net share settlement of equity awards.

As of March 31, 2019, $13.95 billion of the $45.24 billion in cash and cash equivalents and marketable securities was held by our foreign subsidiaries. The Tax Act imposed a mandatory transition tax on accumulated foreign earnings and eliminated U.S. taxes on foreign subsidiary distributions. As a result, earnings in foreign jurisdictions are available for distribution to the U.S. without incremental U.S. taxes.

We currently anticipate that our available funds, credit facility, and cash flow from operations will be sufficient to meet our operational cash needs for the foreseeable future.

Cash Provided by Operating Activities

Cash flow from operating activities during the first quarter of 2019 primarily consisted of income prior to the effect of the $3.0 billion legal accrual related to the ongoing FTC matter, adjusted for certain non-cash items, such as total depreciation and amortization of $1.36 billion and share-based compensation expense of $1.01 billion. The majority of the increase in cash flow from operating activities during the first quarter of 2019, compared to the same period in 2018, was due to an increase in income prior to the effect of the $3.0 billion legal accrual related to the ongoing FTC matter, adjusted for certain non-cash items, such as depreciation and amortization and deferred income tax.

Cash Used in Investing Activities

Cash used in investing activities for the first quarter of 2019 mostly resulted from $3.84 billion of net purchases of property and equipment as we continued to invest in data centers, servers, office buildings, and network infrastructure, and $2.88 billion of net purchases of marketable securities. The increase in cash used in investing activities during the first quarter of 2019, compared to the same period in 2018, was mostly due to increases in the net purchases of marketable securities and property and equipment.

We anticipate making capital expenditures in 2019 of approximately $17 billion to $19 billion.

Cash Used in Financing Activities

Cash used in financing activities during the first quarter of 2019 mostly consisted of $613 million for repurchases of our Class A common stock, $512 million of taxes paid related to net share settlement of equity awards, and a $177 million decrease in overdraft in cash pooling entities. The decrease in cash used in financing activities during the first quarter of 2019, compared to the same period in 2018, was mostly due to a decrease in repurchases of our Class A common stock.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2019.

Contractual Obligations

Our principal commitments consist mostly of obligations under operating leases, which include among others, certain of our offices, data centers, land, and colocation leases, as well as contractual commitments related to network infrastructure and data center operations. The following table summarizes our commitments to settle contractual obligations in cash as of March 31, 2019 (in millions):



			Payment Due by Period
	Total		The remainder of 2019		2020-2021		2022-2023		Thereafter
Operating lease obligations, including imputed interest⁽¹⁾	$	15,402	$	623	$	2,228	$	2,238	$	10,313
Finance lease obligations, including imputed interest⁽¹⁾	862		199		151		75		437
Transition tax payable	1,587		—		—		324		1,263
Other contractual commitments⁽²⁾	4,835		2,609		1,095		179		952
Total contractual obligations	$	22,686	$	3,431	$	3,474	$	2,816	$	12,965


(1)	Includes variable lease payments that were fixed subsequent to lease commencement or modification.


(2)	Other contractual commitments primarily relate to network infrastructure and our data center operations.

As part of the normal course of the business, we may enter into multi-year agreements to purchase certain network components that do not specify a fixed or minimum price commitment or to purchase renewable energy that do not specify a fixed or minimum volume commitment. These agreements are generally entered into in order to secure either volume or price. Using projected market prices or expected volume consumption, the total estimated spend is approximately $5.06 billion. The ultimate spend under these agreements may vary and will be based on prevailing market prices or actual volume purchased.

In addition, our other liabilities also include $3.23 billion related to net uncertain tax positions as of March 31, 2019. Due to uncertainties in the timing of the completion of tax audits, the timing of the resolution of these positions is uncertain and we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months. As a result, this amount is not included in the above contractual obligations table.

Contingencies

We are involved in legal proceedings, claims, and regulatory, tax or government inquiries and investigations. We record a provision for a liability when we believe that it is both probable that a liability has been incurred, and that 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 accompanying notes to the consolidated financial statements. Significant judgment is required to determine both probability and the estimated amount of loss. Such matters are inhe

Facebook Inc (FB) SEC Filing 10-Q Quarterly report for the period ending Sunday, March 31, 2019

SEC Filings

META Valuations

META Annual Reports

META Quarterly Reports

META Corporate News