Last10K.com

Facebook Inc (FB) SEC Filing 10-Q Quarterly report for the period ending Wednesday, September 30, 2020

Meta Platforms, Inc.

CIK: 1326801 Ticker: META
Facebook Reports Third Quarter 2020 Results

MENLO PARK, Calif. – October 29, 2020 – Facebook, Inc. (Nasdaq: FB) today reported financial results for the quarter ended September 30, 2020.

"We had a strong quarter as people and businesses continue to rely on our services to stay connected and create economic opportunity during these tough times," said Mark Zuckerberg, Facebook founder and CEO. "We continue to make significant investments in our products and hiring in order to deliver new and meaningful experiences for our community around the world."

Third Quarter 2020 Financial Highlights
 
Three Months Ended September 30,
 
Year-over-Year % Change
In millions, except percentages and per share amounts
2020(1)
 
2019 
 
Revenue:
 
 
 
 
 
Advertising
$
21,221

 
$
17,383

 
22%
Other
249

 
269

 
(7)%
Total revenue
21,470

 
17,652

 
22%
Total costs and expenses
13,430

 
10,467

 
28%
Income from operations
$
8,040

 
$
7,185

 
12%
Operating margin
37
%
 
41
%
 

Provision for income taxes
$
287

 
$
1,238

 
(77)%
Effective tax rate
4
%
 
17
%
 

Net income
$
7,846

 
$
6,091

 
29%
Diluted earnings per share (EPS)
$
2.71

 
$
2.12

 
28%
_________________________
(1) Our third quarter 2020 effective tax rate was 4%, which reflects a one-time income tax benefit of $913 million related to the effects of a tax election to capitalize and amortize certain research and development expenses for U.S. income tax purposes. Excluding this tax benefit, our effective tax rate would have been 11 percentage points higher and our diluted EPS would have been $0.31 lower.

Third Quarter 2020 Operational and Other Financial Highlights

Facebook daily active users (DAUs) – DAUs were 1.82 billion on average for September 2020, an increase of 12% year-over-year.
Facebook monthly active users (MAUs) – MAUs were 2.74 billion as of September 30, 2020, an increase of 12% year-over-year.
Family daily active people (DAP) – DAP was 2.54 billion on average for September 2020, an increase of 15% year-over-year.
Family monthly active people (MAP) – MAP was 3.21 billion as of September 30, 2020, an increase of 14% year-over-year.
Capital expenditures – Capital expenditures, including principal payments on finance leases, were $3.88 billion for the third quarter of 2020.
Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $55.62 billion as of September 30, 2020.
Headcount – Headcount was 56,653 as of September 30, 2020, an increase of 32% year-over-year.




1


The following information was filed by Meta Platforms, Inc (META) on Thursday, October 29, 2020 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)
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or
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)

(650543-4800
(Registrant's telephone number, including area code)
 ____________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.000006
FB
The Nasdaq Stock Market LLC

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      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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
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
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
2,403,968,963

shares outstanding as of October 23, 2020
Class B Common Stock
$0.000006 par value
444,323,708

shares outstanding as of October 23, 2020



FACEBOOK, INC.
TABLE OF CONTENTS

 
 
Page 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 

2


NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. 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 subsidiaries. The term "Facebook" may also refer to our products, regardless of the manner in which they are accessed. The term "Family" refers to our Facebook, Instagram, Messenger, and WhatsApp products. For references to accessing Facebook or our other products on the "web" or via a "website," such terms refer to accessing such products on personal computers. For references to accessing Facebook or our other products on "mobile," such term refers to accessing such products via a mobile application or via a mobile-optimized version of our websites such as m.facebook.com, whether on a mobile phone or tablet.


3


LIMITATIONS OF KEY METRICS AND OTHER DATA

The numbers for our key metrics are calculated using internal company data based on the activity of user accounts. We have historically reported the numbers of our daily active users (DAUs), monthly active users (MAUs), and average revenue per user (ARPU) (collectively, our "Facebook metrics") based on user activity only on Facebook and Messenger and not on our other products. Beginning with our Annual Report on Form 10-K for the year ended December 31, 2019, we also report our estimates of the numbers of our daily active people (DAP), monthly active people (MAP), and average revenue per person (ARPP) (collectively, our "Family metrics") based on the activity of users who visited at least one of Facebook, Instagram, Messenger, and WhatsApp (collectively, our "Family" of products) during the applicable period of measurement. We believe our Family metrics better reflect the size of our community and the fact that many people are using more than one of our products. As a result, over time we intend to report our Family metrics as our key metrics in place of DAUs, MAUs, and ARPU in our periodic reports filed with the Securities and Exchange Commission.

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. The methodologies used to measure these metrics require significant judgment and are also susceptible to algorithm or other technical errors. 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 review our processes for calculating these metrics, and from time to time we discover inaccuracies in our metrics or make adjustments to improve their accuracy, which can result in adjustments to our historical metrics. Our ability to recalculate our historical metrics may be impacted by data limitations or other factors that require us to apply different methodologies for such adjustments. We generally do not intend to update previously disclosed Family metrics for any such inaccuracies or adjustments that are within the error margins disclosed below.

In addition, our Facebook metrics and Family metrics estimates will differ from estimates published by third parties due to differences in methodology.

Facebook Metrics

We regularly evaluate our Facebook 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) violating accounts, which represent user profiles that we believe are intended to be used for purposes that violate our terms of service, such as bots and spam. 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 identical IP addresses and similar 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. Any loss of access to data signals we use in this process, whether as a result of our own product decisions, actions by third-party browser or mobile platforms, regulatory or legislative requirements, limitations while our personnel work remotely during the COVID-19 pandemic, or other factors, also may impact the stability or accuracy of our estimates of duplicate and false accounts. Our estimates also may change as our methodologies evolve, including through the application of new data signals or technologies or product changes that 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 2019, 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 2019, 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 disable certain user accounts, 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. We intend to disclose our estimates of the number of duplicate and false accounts among our MAUs on an annual basis.

4



The numbers of DAUs and MAUs discussed in this Quarterly Report on Form 10-Q, as well as ARPU, do not include users on Instagram, WhatsApp, or our other products, unless they would otherwise qualify as DAUs or MAUs, respectively, based on their other activities on Facebook.

Family Metrics

Many people in our community have user accounts on more than one of our products, and some people have multiple user accounts within an individual product. Accordingly, for our Family metrics, we do not seek to count the total number of user accounts across our products because we believe that would not reflect the actual size of our community. Rather, our Family metrics represent our estimates of the number of unique people using at least one of Facebook, Instagram, Messenger, and WhatsApp. We do not require people to use a common identifier or link their accounts to use multiple products in our Family, and therefore must seek to attribute multiple user accounts within and across products to individual people. To calculate these metrics, we rely upon complex techniques, algorithms and machine learning models that seek to count the individual people behind user accounts, including by matching multiple user accounts within an individual product and across multiple products when we believe they are attributable to a single person, and counting such group of accounts as one person. These techniques and models require significant judgment, are subject to data and other limitations discussed below, and inherently are subject to statistical variances and uncertainties. We estimate the potential error in our Family metrics primarily based on user survey data, which itself is subject to error as well. While we expect the error margin for our Family metrics to vary from period to period, we estimate that such margin generally will be approximately 4% of our worldwide MAP. At our scale, it is very difficult to attribute multiple user accounts within and across products to individual people, and it is possible that the actual numbers of unique people using our products may vary significantly from our estimates, potentially beyond our estimated error margins. As a result, it is also possible that our Family metrics may indicate changes or trends in user numbers that do not match actual changes or trends.

To calculate our estimates of Family DAP and MAP, we currently use a series of machine learning models that are developed based on internal reviews of limited samples of user accounts and calibrated against user survey data. We apply significant judgment in designing these models and calculating these estimates. For example, to match user accounts within individual products and across multiple products, we use data signals such as similar device information, IP addresses, and user names. We also calibrate our models against data from periodic user surveys of varying sizes and frequency across our products, which are inherently subject to error. The timing and results of such user surveys have in the past contributed, and may in the future contribute, to changes in our reported Family metrics from period to period. In addition, our data limitations may affect our understanding of certain details of our business and increase the risk of error for our Family metrics estimates. Our techniques and models rely on a variety of data signals from different products, and we rely on more limited data signals for some products compared to others. For example, as a result of limited visibility into encrypted products, we have fewer data signals from WhatsApp user accounts and primarily rely on phone numbers and device information to match WhatsApp user accounts with accounts on our other products. Similarly, although Messenger Kids users are included in our Family metrics, we do not seek to match their accounts with accounts on our other applications for purposes of calculating DAP and MAP. Any loss of access to data signals we use in our process for calculating Family metrics, whether as a result of our own product decisions, actions by third-party browser or mobile platforms, regulatory or legislative requirements, limitations while our personnel work remotely during the COVID-19 pandemic, or other factors, also may impact the stability or accuracy of our reported Family metrics. Our estimates of Family metrics also may change as our methodologies evolve, including through the application of new data signals or technologies, product changes, or other improvements in our user surveys, algorithms, or machine learning that may improve our ability to match accounts within and across our products or otherwise evaluate the broad population of our users. In addition, such evolution may allow us to identify previously undetected violating accounts (as defined below).

We regularly evaluate our Family metrics to estimate the percentage of our MAP consisting solely of "violating" accounts. We define "violating" accounts as accounts which we believe are intended to be used for purposes that violate our terms of service, including bots and spam. In the fourth quarter of 2019, we estimated that approximately 3% of our worldwide MAP consisted solely of violating accounts. Such estimation is based on an internal review of a limited sample of accounts, and we apply significant judgment in making this determination. For example, we look for account information and behaviors associated with Facebook and Instagram accounts that appear to be inauthentic to the reviewers, but we have limited visibility into WhatsApp user activity due to encryption. In addition, if we believe an individual person has one or more violating accounts, we do not include such person in our violating accounts estimation as long as we believe they have one account that does not constitute a violating account. From time to time, we disable certain user accounts, make product changes, or take other actions to reduce

5


the number of violating accounts among our users, which may also reduce our DAP and MAP estimates in a particular period. We intend to disclose our estimates of the percentage of our MAP consisting solely of violating accounts on an annual basis. Violating accounts are very difficult to measure at our scale, and it is possible that the actual number of violating accounts may vary significantly from our estimates.

The numbers of Family DAP and MAP discussed in this Quarterly Report on Form 10-Q, as well as ARPP, do not include users on our other products, unless they would otherwise qualify as DAP or MAP, respectively, based on their other activities on our Family products.

User Geography

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 our metrics are also susceptible to algorithm or other technical errors, and our estimates for revenue by user location and revenue by user device are also affected by these factors.


6


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)
 
September 30,
2020
 
December 31,
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
11,617

 
$
19,079

Marketable securities
44,003

 
35,776

Accounts receivable, net of allowances of $311 and $206 as of September 30, 2020 and December 31, 2019, respectively
8,024

 
9,518

Prepaid expenses and other current assets
2,155

 
1,852

Total current assets
65,799

 
66,225

Equity investments
6,164

 
86

Property and equipment, net
42,291

 
35,323

Operating lease right-of-use assets, net
9,439

 
9,460

Intangible assets, net
744

 
894

Goodwill
19,031

 
18,715

Other assets
2,969

 
2,673

Total assets
$
146,437

 
$
133,376

 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,106

 
$
1,363

Partners payable
800

 
886

Operating lease liabilities, current
975

 
800

Accrued expenses and other current liabilities
8,684

 
11,735

Deferred revenue and deposits
379

 
269

Total current liabilities
11,944

 
15,053

Operating lease liabilities, non-current
9,641

 
9,524

Other liabilities
7,121

 
7,745

Total liabilities
28,706

 
32,322

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Common stock, $0.000006 par value; 5,000 million Class A shares authorized, 2,406 million and 2,407 million shares issued and outstanding, as of September 30, 2020 and December 31, 2019, respectively; 4,141 million Class B shares authorized, 444 million and 445 million shares issued and outstanding, as of September 30, 2020 and December 31, 2019, respectively

 

Additional paid-in capital
48,910

 
45,851

Accumulated other comprehensive income (loss)
308

 
(489
)
Retained earnings
68,513

 
55,692

Total stockholders' equity
117,731

 
101,054

Total liabilities and stockholders' equity
$
146,437

 
$
133,376

See Accompanying Notes to Condensed Consolidated Financial Statements.

7


FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
Revenue
$
21,470

 
$
17,652

 
$
57,893

 
$
49,615

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
4,194

 
3,155

 
11,482

 
9,279

Research and development
4,763

 
3,548

 
13,240

 
9,722

Marketing and sales
2,683

 
2,416

 
8,310

 
6,850

General and administrative
1,790

 
1,348

 
4,965

 
8,636

Total costs and expenses
13,430

 
10,467

 
37,997

 
34,487

Income from operations
8,040

 
7,185

 
19,896

 
15,128

Interest and other income, net
93

 
144

 
229

 
515

Income before provision for income taxes
8,133

 
7,329

 
20,125

 
15,643

Provision for income taxes
287

 
1,238

 
2,198

 
4,507

Net income
$
7,846

 
$
6,091

 
$
17,927

 
$
11,136

Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
$
2.75

 
$
2.13

 
$
6.29

 
$
3.90

Diluted
$
2.71

 
$
2.12

 
$
6.22

 
$
3.87

Weighted-average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
2,850

 
2,854

 
2,850

 
2,855

Diluted
2,891

 
2,874

 
2,883

 
2,875

Share-based compensation expense included in costs and expenses:
 
 
 
 
 
 
 
Cost of revenue
$
116

 
$
91

 
$
327

 
$
287

Research and development
1,297

 
907

 
3,557

 
2,557

Marketing and sales
180

 
148

 
516

 
421

General and administrative
129

 
103

 
352

 
297

Total share-based compensation expense
$
1,722

 
$
1,249

 
$
4,752

 
$
3,562

See Accompanying Notes to Condensed Consolidated Financial Statements.

8


FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
Net income
$
7,846

 
$
6,091

 
$
17,927

 
$
11,136

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment, net of tax
502

 
(418
)
 
373

 
(503
)
Change in unrealized gain (loss) on available-for-sale investments and other, net of tax
(52
)
 
52

 
424

 
414

Comprehensive income
$
8,296

 
$
5,725

 
$
18,724

 
$
11,047

See Accompanying Notes to Condensed Consolidated Financial Statements.

9


FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
(Unaudited) 
 
Three Months Ended September 30, 2020
 
Three Months Ended September 30, 2019
 
Class A and Class B Common Stock
 
Additional
Paid-In Capital
 
Accumulated Other Comprehensive Income (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
 
 
Shares
 
Par 
Value
 
Balances at beginning of period
2,850

 
$

 
$
47,805

 
$
(142
)
 
$
62,784

 
$
110,447

 
2,854

 
$

 
$
44,277

 
$
(483
)
 
$
44,968

 
$
88,762

Issuance of common stock
10

 

 

 

 

 

 
9

 

 
5

 

 

 
5

Shares withheld related to net share settlement
(3
)
 

 
(617
)
 

 
(383
)
 
(1,000
)
 
(3
)
 

 
(472
)
 

 
(119
)
 
(591
)
Share-based compensation

 

 
1,722

 

 

 
1,722

 

 

 
1,249

 

 

 
1,249

Share repurchases
(7
)
 

 

 

 
(1,734
)
 
(1,734
)
 
(6
)
 

 

 

 
(1,151
)
 
(1,151
)
Other comprehensive income (loss)

 

 

 
450

 

 
450

 

 

 

 
(366
)
 

 
(366
)
Net income

 

 

 

 
7,846

 
7,846

 

 

 

 

 
6,091

 
6,091

Balances at end of period
2,850

 
$

 
$
48,910

 
$
308

 
$
68,513

 
$
117,731

 
2,854

 
$

 
$
45,059

 
$
(849
)
 
$
49,789

 
$
93,999

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2020
 
Nine Months Ended September 30, 2019
 
Class A and Class B Common Stock
 
Additional
Paid-In Capital
 
Accumulated Other Comprehensive Income (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
 
 
Shares
 
Par 
Value
 
Balances at beginning of period
2,852

 
$

 
$
45,851

 
$
(489
)
 
$
55,692

 
$
101,054

 
2,854

 
$

 
$
42,906

 
$
(760
)
 
$
41,981

 
$
84,127

Issuance of common stock
28

 

 

 

 

 

 
25

 

 
14

 

 

 
14

Shares withheld related to net share settlement and other
(10
)
 

 
(1,693
)
 

 
(751
)
 
(2,444
)
 
(10
)
 

 
(1,423
)
 

 
(531
)
 
(1,954
)
Share-based compensation

 

 
4,752

 

 

 
4,752

 

 

 
3,562

 

 

 
3,562

Share repurchases
(20
)
 

 

 

 
(4,355
)
 
(4,355
)
 
(15
)
 

 

 

 
(2,797
)
 
(2,797
)
Other comprehensive income (loss)

 

 

 
797

 

 
797

 

 

 

 
(89
)
 

 
(89
)
Net income

 

 

 

 
17,927

 
17,927

 

 

 

 

 
11,136

 
11,136

Balances at end of period
2,850

 
$

 
$
48,910

 
$
308

 
$
68,513

 
$
117,731

 
2,854

 
$

 
$
45,059

 
$
(849
)
 
$
49,789

 
$
93,999

See Accompanying Notes to Condensed Consolidated Financial Statements.

10


FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Nine Months Ended September 30,
 
2020
 
2019
Cash flows from operating activities
 
 
 
Net income
$
17,927

 
$
11,136

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
   Depreciation and amortization
4,999

 
4,273

   Share-based compensation
4,752

 
3,562

   Deferred income taxes
(816
)
 
358

   Other
56

 
44

Changes in assets and liabilities:
 
 
 
   Accounts receivable
1,547

 
(264
)
   Prepaid expenses and other current assets
(89
)
 
(527
)
   Other assets
(8
)
 
66

   Accounts payable
39

 
2

   Partners payable
(100
)
 
59

   Accrued expenses and other current liabilities
(3,273
)
 
6,439

   Deferred revenue and deposits
111

 
82

   Other liabilities
(438
)
 
2,001

Net cash provided by operating activities
24,707

 
27,231

Cash flows from investing activities
 
 
 
Purchases of property and equipment, net
(10,502
)
 
(11,002
)
Purchases of marketable securities
(28,193
)
 
(19,152
)
Sales of marketable securities
9,779

 
7,402

Maturities of marketable securities
10,725

 
7,048

Purchases of equity investments
(6,302
)
 
(61
)
Acquisitions of businesses, net of cash acquired, and purchases of intangible assets
(384
)
 
(63
)
Other investing activities, net
(9
)
 

Net cash used in investing activities
(24,886
)
 
(15,828
)
Cash flows from financing activities
 
 
 
Taxes paid related to net share settlement of equity awards
(2,444
)
 
(1,710
)
Repurchases of Class A common stock
(4,343
)
 
(2,906
)
Principal payments on finance leases
(398
)
 
(411
)
Net change in overdraft in cash pooling entities
(24
)
 
(260
)
Other financing activities, net
124

 
14

Net cash used in financing activities
(7,085
)
 
(5,273
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(36
)
 
(174
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(7,300
)
 
5,956

Cash, cash equivalents, and restricted cash at beginning of the period
19,279

 
10,124

Cash, cash equivalents, and restricted cash at end of the period
$
11,979

 
$
16,080

 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
 
 
 
Cash and cash equivalents
$
11,617

 
$
15,979

Restricted cash, included in prepaid expenses and other current assets
222

 
7

Restricted cash, included in other assets
140

 
94

Total cash, cash equivalents, and restricted cash
$
11,979

 
$
16,080

See Accompanying Notes to Condensed Consolidated Financial Statements.

11


FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Nine Months Ended September 30,
 
2020
 
2019
Supplemental cash flow data
 
 
 
Cash paid for income taxes, net
$
3,122

 
$
2,528

Non-cash investing activities:
 
 
 
Acquisition of businesses and other investments in accrued expenses and other liabilities
$
118

 
$

Property and equipment in accounts payable and accrued expenses and other liabilities
$
2,137

 
$
1,850

See Accompanying Notes to Condensed Consolidated Financial Statements.

12


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 (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019.
The condensed consolidated balance sheet as of December 31, 2019 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., subsidiaries where we have controlling financial interests, and any variable interest entities for which we are deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated.
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, 2020.
Reclassifications
Certain prior year amounts on the condensed consolidated statements of cash flow have been reclassified to conform to the current year presentation. A reclassification was made to net the changes in operating lease right-of use assets with operating lease liabilities. This net change was not material and was included within the changes in other liabilities in cash flows from operating activities on the condensed consolidated statement of cash flow for the nine months ended September 30, 2019. This change does not affect previously reported cash flows from operating activities in the condensed consolidated statements of cash flows. This reclassification had no effect on our other condensed consolidated financial statements for the periods ended September 30, 2020 and 2019.
Use of Estimates
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to income taxes, loss contingencies, fair value of acquired intangible assets and goodwill, collectibility of accounts receivable, fair value of financial instruments, credit losses of available-for-sale (AFS) debt securities, 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.
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for our advertising business, and adversely impact our results of operations. During the three and nine months ended September 30, 2020, we faced uncertainties around our estimates of revenue collectibility and accounts receivable credit losses. We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our condensed consolidated financial statements.

13


Recently Adopted Accounting Pronouncements
Fair Value Measurements
On January 1, 2020, we adopted Accounting Standards Update No. 2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
Credit Losses
On January 1, 2020, we adopted Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method. Upon adoption, we changed our impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost, including our accounts receivable. In addition, we modified our impairment model to the CECL model for AFS debt securities and discontinued using the concept of "other than temporary" impairment on AFS debt securities. CECL estimates on accounts receivable are recorded as general and administrative expenses on our condensed consolidated statements of income. CECL estimates on AFS debt securities are recognized in interest and other income (expense), net on our condensed consolidated statements of income. The cumulative effect adjustment from adoption was immaterial to our condensed consolidated financial statements. We continue to monitor the financial implications of the COVID-19 pandemic on expected credit losses.
Significant Accounting Policies
There have been no material changes to our significant accounting policies from our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except for the policies noted below.
Cash and Cash Equivalents and Marketable Securities
Cash and cash equivalents consist of cash on deposit with banks and highly liquid investments with maturities of 90 days or less from the date of purchase.
We hold investments in marketable securities, consisting of U.S. government securities, U.S. government agency securities, and investment grade corporate debt securities. We classify our marketable securities as AFS investments in our current assets because they represent investments of cash available for current operations. Our AFS investments are carried at estimated fair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive income (loss) in stockholders' equity. AFS debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses. Expected credit losses on AFS debt securities are recognized in interest and other income (expense), net on our condensed consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss) in stockholders' equity. The amount of credit losses recorded for the three and nine months ended September 30, 2020 was not material. We have not recorded any impairment charge for unrealized losses in the periods presented. We determine realized gains or losses on sale of marketable securities on a specific identification method, and record such gains or losses as interest and other income (expense), net.
Equity Investments
Our equity investments are investments in equity securities of privately-held companies without readily determinable market values. We elected to account for most of our equity investments using the measurement alternative, which is cost, less any impairment, adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer. The change in carrying value, if any, is recognized in interest and other income (expense), net on our condensed consolidated statements of income. We periodically review our equity investments for impairment. If indicators exist and the estimated fair value of an investment is below the carrying amount, we will write down the investment to fair value. Equity investments accounted for under the equity method were immaterial as of September 30, 2020 and December 31, 2019. As of September 30, 2020, our equity investments had a carrying value of $6.16 billion. There was no material impairment in the three and nine months ended September 30, 2020.


14


Accounts Receivable and Allowances
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We make estimates of expected credit and collectibility trends for the allowance for credit losses and allowance for unbilled receivables based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. Expected credit losses are recorded as general and administrative expenses on our condensed consolidated statements of income. As of September 30, 2020, we reported $8.02 billion of accounts receivable, net of an allowance of $311 million.
Credit Risk and Concentration
Our financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, marketable securities, and accounts receivable. The majority of cash equivalents consists of money market funds that primarily invest in U.S. government and agency securities. Marketable securities consist of investments in U.S. government securities, U.S. government agency securities, and investment grade corporate debt securities. Our investment portfolio in corporate debt securities is highly liquid and diversified among individual issuers.
AFS debt securities with an amortized cost basis in excess of estimated fair value are assessed using the CECL model to determine what amount of that difference, if any, is caused by expected credit losses. Expected credit losses on AFS debt securities are recognized in interest and other income (expense), net on our condensed consolidated statements of income and were not material for the three and nine months ended September 30, 2020.
Accounts receivable are typically unsecured and are derived from revenue earned from customers across different industries and countries. We generated 41% and 43% of our revenue for the three months ended September 30, 2020 and 2019, respectively, and 42% of our revenue for each of the nine months ended September 30, 2020 and 2019 from marketers and developers based in the United States, with the majority of revenue outside of the United States coming from customers located in western Europe, China, Canada, Vietnam, Japan, Australia and Brazil.
We perform ongoing credit evaluations of our customers and generally do not require collateral. We maintain an allowance for estimated credit losses. Bad debt expense was immaterial during the three and nine months ended September 30, 2020 and 2019. In the event that accounts receivable collection cycles deteriorate, our operating results and financial position could be adversely affected.
Accounting Pronouncements Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, with early adoption permitted. We will adopt the new standard effective January 1, 2021 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be effective for us in the first quarter of 2021 on a prospective basis, with early adoption permitted. We are currently evaluating the impact of the new guidance, but based upon our current portfolio of investments, we do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter of 2022 on a full or modified retrospective basis, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

15


Note 2. Revenue

Revenue disaggregated by revenue source consists of the following (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
Advertising
$
21,221

 
$
17,383

 
$
56,981

 
$
48,919

Other revenue
249

 
269

 
912

 
696

Total revenue
$
21,470

 
$
17,652

 
$
57,893

 
$
49,615


Revenue disaggregated by geography, based on the addresses of our customers, consists of the following (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
United States and Canada(1)
$
9,229

 
$
8,026

 
$
25,534

 
$
22,435

Europe(2)
5,055

 
4,053

 
13,453

 
11,774

Asia-Pacific
5,311

 
3,958

 
13,893

 
10,923

Rest of World(2)
1,875

 
1,615

 
5,013

 
4,483

Total revenue
$
21,470

 
$
17,652

 
$
57,893

 
$
49,615

____________________________________
(1)
United States revenue was $8.71 billion and $7.54 billion for the three months ended September 30, 2020 and 2019, respectively, and $24.10 billion and $21.05 billion for the nine months ended September 30, 2020 and 2019, 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):
 
September 30, 2020
 
December 31, 2019
Deferred revenue
$
332

 
$
234

Deposits
47

 
35

Total deferred revenue and deposits
$
379

 
$
269



16


Note 3. Earnings per Share
We compute earnings per share (EPS) of Class A and Class B common stock using the two-class method.
Basic EPS is computed by dividing net income by the weighted-average number of shares of our Class A and Class B common stock outstanding.
For the calculation of diluted EPS, net income for basic EPS is adjusted by the effect of dilutive securities under our equity compensation plans. 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 by the weighted-average number of fully diluted common shares outstanding.
Restricted stock units (RSUs) with anti-dilutive effect were excluded from the EPS calculation and they were not material for the three and nine months ended September 30, 2020 and 2019.
Basic and diluted EPS are the same for each class of common stock because they are entitled to the same liquidation and dividend rights.
The numerators and denominators of the basic and diluted EPS computations for our common stock are calculated as follows (in millions, except per share amounts): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2020
 
2019
 
2020
 
2019
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
 
Class A
 
Class B
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
6,623

 
$
1,223

 
$
5,138

 
$
953

 
$
15,133

 
$
2,794

 
$
9,372

 
$
1,764

Denominator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
2,406

 
444

 
2,407

 
447

 
2,406

 
444

 
2,403

 
452

Basic EPS
$
2.75

 
$
2.75

 
$
2.13

 
$
2.13

 
$
6.29

 
$
6.29

 
$
3.90

 
$
3.90

Diluted EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
6,623

 
$
1,223

 
$
5,138

 
$
953

 
$
15,133

 
$
2,794

 
$
9,372

 
$
1,764

Reallocation of net income as a result of conversion of Class B to Class A common stock
1,223

 

 
953

 

 
2,794

 

 
1,764

 

Reallocation of net income to Class B common stock

 
(18
)
 

 
(6
)
 

 
(32
)
 

 
(9
)
Net income for diluted EPS
$
7,846

 
$
1,205

 
$
6,091

 
$
947

 
$
17,927

 
$
2,762

 
$
11,136

 
$
1,755

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

 
444

 
2,407

 
447

 
2,406

 
444

 
2,403

 
452

Conversion of Class B to Class A common stock
444

 

 
447

 

 
444

 

 
452

 

Weighted-average effect of dilutive RSUs and employee stock options
41

 

 
20

 

 
33

 

 
20

 
1

Number of shares used for diluted EPS computation
2,891

 
444

 
2,874

 
447

 
2,883

 
444

 
2,875

 
453

Diluted EPS
$
2.71

 
$
2.71

 
$
2.12

 
$
2.12

 
$
6.22

 
$
6.22

 
$
3.87

 
$
3.87



17


Note 4. Cash and Cash Equivalents, and Marketable Securities
The following table sets forth the cash and cash equivalents and marketable securities (in millions):
 
September 30, 2020
 
December 31, 2019
Cash and cash equivalents:
 
 
 
Cash
$
5,501

 
$
4,735

Money market funds
4,590

 
12,787

U.S. government securities
1,272

 
815

U.S. government agency securities

 
444

Certificate of deposits and time deposits
254

 
217

Corporate debt securities

 
81

Total cash and cash equivalents
11,617

 
19,079

Marketable securities:
 
 
 
U.S. government securities
21,047

 
18,679

U.S. government agency securities
11,063

 
6,712

Corporate debt securities
11,893

 
10,385

Total marketable securities
44,003

 
35,776

Total cash and cash equivalents and marketable securities
$
55,620

 
$
54,855


The gross unrealized gains on our marketable securities were $719 million and $205 million as of September 30, 2020 and December 31, 2019, respectively. The gross unrealized losses on our marketable securities were not material as of September 30, 2020 and December 31, 2019. The allowance for credit losses was not material as of September 30, 2020.
The following table classifies our marketable securities by contractual maturities (in millions):
 
September 30, 2020
Due in one year
$
13,591

Due after one year to five years
30,412

Total
$
44,003



18


Note 5. Equity Investments

Our equity investments are investments in equity securities of privately-held companies without readily determinable market values. On July 7, 2020, we completed our equity investment in Jio Platforms Limited (Jio), a subsidiary of Reliance Industries Limited, for $5.82 billion. As of September 30, 2020, our equity investments in Jio and other companies had a carrying value of $6.16 billion. There was no material impairment in the three and nine months ended September 30, 2020.

The changes in the carrying value of equity investments for the nine months ended September 30, 2020 are as follows (in millions): 
Balance as of December 31, 2019
$
86

Jio
5,824

Other investments
263

Adjustments
(9
)
Balance as of September 30, 2020
$
6,164



Note 6. Fair Value Measurement

The following table summarizes our cash equivalents and marketable securities 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
 
September 30, 2020
 
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
 
$
4,590

 
$
4,590

 
$

 
$

U.S. government securities
 
1,272

 
1,272

 

 

Certificate of deposits and time deposits
 
254

 

 
254

 

Marketable securities:
 
 
 
 
 
 
 
 
U.S. government securities
 
21,047

 
21,047

 

 

U.S. government agency securities
 
11,063

 
11,063

 

 

Corporate debt securities
 
11,893

 

 
11,893

 

Total cash equivalents and marketable securities
 
$
50,119

 
$
37,972

 
$
12,147

 
$


19


 
 
 
 
Fair Value Measurement at
Reporting Date Using
Description
 
December 31, 2019
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs
 (Level 2)
 
Significant Unobservable Inputs
(Level 3)
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
12,787

 
$
12,787

 
$

 
$

U.S. government securities
 
815

 
815

 

 

U.S. government agency securities
 
444

 
444

 

 

Certificate of deposits and time deposits
 
217

 

 
217

 

Corporate debt securities
 
81

 

 
81

 

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

 
18,679

 

 

U.S. government agency securities
 
6,712

 
6,712

 

 

Corporate debt securities
 
10,385

 

 
10,385

 

Total cash equivalents and marketable securities
 
$
50,120

 
$
39,437

 
$
10,683

 
$



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.

Beginning in 2020, we had other assets and liabilities classified within Level 3 because factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. The aggregate absolute value of these Level 3 assets and liabilities was not material to our condensed consolidated financial statements as of September 30, 2020.

On July 7, 2020, we completed our equity investment in Jio and noted observable transactions in similar securities subsequent to the date of our investment. Based on our assessment, we concluded no change in fair value from the initial carrying value of $5.82 billion was required as a result of these observable transactions. Had there been a change in the fair value, our investment in Jio would be classified within Level 3. For information regarding our investment in Jio, see Note 5 — Equity Investments.


20


Note 7. Property and Equipment
Property and equipment, net consists of the following (in millions): 
 
September 30, 2020
 
December 31, 2019
Land
$
1,319

 
$
1,097

Buildings
16,053

 
11,226

Leasehold improvements
3,799

 
3,112

Network equipment
20,527

 
17,004

Computer software, office equipment and other
2,246

 
1,813

Finance lease right-of-use assets
2,035

 
1,635

Construction in progress
10,449

 
10,099

    Total
56,428

 
45,986

Less: Accumulated depreciation
(14,137
)
 
(10,663
)
Property and equipment, net
$
42,291

 
$
35,323


Depreciation expense on property and equipment was $1.58 billion and $1.27 billion for the three months ended September 30, 2020 and 2019, respectively, and $4.65 billion and $3.82 billion for the nine months ended September 30, 2020 and 2019, respectively. Construction in progress includes costs mostly related to construction of data centers, network equipment infrastructure to support our data centers around the world, and office buildings. No interest was capitalized for any period presented.

Note 8. Leases
We have entered into various non-cancelable operating lease agreements for certain of our offices, data centers, land, colocations, and equipment. We have also entered into various non-cancelable finance lease agreements for certain network equipment. Our leases have original lease periods expiring between the remainder of 2020 and 2093. Many leases include one or more options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
The components of lease costs are as follows (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2020

2019
 
2020
 
2019
Finance lease cost
 
 
 
 
 
 
 
     Amortization of right-of-use assets
$
65

 
$
51

 
$
185

 
$
140

     Interest
4

 
4

 
11

 
9

Operating lease cost
352

 
298

 
1,036

 
818

Variable lease cost and other, net
57

 
41

 
174

 
111

       Total lease cost
$
478

 
$
394

 
$
1,406

 
$
1,078




21


Supplemental balance sheet information related to leases is as follows:
 
 
 
 
 
September 30, 2020
 
December 31, 2019
Weighted-average remaining lease term
 
 
 
 
 
 
 
     Operating leases
 
 
 
 
12.4 years

 
13.0 years

     Finance leases
 
 
 
 
15.1 years

 
15.3 years

Weighted-average discount rate
 
 
 
 

 

     Operating leases
 
 
 
 
3.1
%
 
3.2
%
     Finance leases
 
 
 
 
2.9
%
 
3.1
%

The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2020 (in millions):
 
Operating Leases
 
Finance Leases
The remainder of 2020
$
235

 
$
38

2021
1,365

 
53

2022
1,348

 
46

2023
1,213

 
40

2024
1,130

 
40

Thereafter
8,055

 
432

Total undiscounted cash flows
13,346

 
649

Less: Imputed interest
(2,730
)
 
(121
)
Present value of lease liabilities
$
10,616

 
$
528

 
 
 
 
Lease liabilities, current
$
975

 
$
62

Lease liabilities, non-current
9,641

 
466

Present value of lease liabilities
$
10,616

 
$
528


The table above does not include lease payments that were not fixed at commencement or modification. As of September 30, 2020, we have additional operating and finance leases mostly for offices, data centers and network equipment that have not yet commenced with lease obligations of approximately $7.31 billion and $398 million, respectively. These operating and finance leases will commence between the remainder of 2020 and 2023 with lease terms of greater than one year to 30 years.
Supplemental cash flow information related to leases are as follows (in millions):
 
Nine Months Ended September 30,
 
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
     Operating cash flows from operating leases
$
878

 
$
633

     Operating cash flows from finance leases
$
11

 
$
8

     Financing cash flows from finance leases
$
398

 
$
411

Lease liabilities arising from obtaining right-of-use assets:
 
 
 
     Operating leases
$
954

 
$
3,756

     Finance leases
$
101

 
$
128




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Note 9. Goodwill and Intangible Assets
During the nine months ended September 30, 2020, we completed several 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 nine months ended September 30, 2020 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 nine months ended September 30, 2020 are as follows (in millions): 
Balance as of December 31, 2019
$
18,715

Goodwill acquired
314

Effect of currency translation adjustment
2

Balance as of September 30, 2020
$
19,031

The following table sets forth the major categories of the intangible assets and the weighted‑average remaining useful lives for those assets that are not already fully amortized (in millions):
 
 
 
September 30, 2020
 
December 31, 2019
 
Weighted-Average Remaining Useful Lives
(in years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Acquired users
1.0
 
$
2,056

 
$
(1,767
)
 
$
289

 
$
2,056

 
$
(1,550
)
 
$
506

Acquired technology
3.0
 
1,293

 
(1,060
)
 
233

 
1,158

 
(986
)
 
172

Acquired patents
4.2
 
805

 
(665
)
 
140

 
805

 
(625
)
 
180

Trade names
1.9
 
641

 
(618
)
 
23

 
635

 
(604
)
 
31

Other
3.4
 
223

 
(164
)
 
59

 
162

 
(157
)
 
5

    Total intangible assets
 
 
$
5,018

 
$
(4,274
)
 
$
744

 
$
4,816

 
$
(3,922
)
 
$
894


Amortization expense of intangible assets was $123 million and $145 million for the three months ended September 30, 2020 and 2019, respectively, and $352 million and $457 million for the nine months ended September 30, 2020 and 2019, respectively.
As of September 30, 2020, expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter is as follows (in millions):
The remainder of 2020
$
120

2021
388

2022
122

2023
54

2024
29

Thereafter
31

Total
$
744



Note 10. 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 September 30, 2020, no amounts had been drawn down, and we were in compliance with the covenants under this facility.

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Note 11. 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 $7.91 billion of non-cancelable contractual commitments as of September 30, 2020, which are mostly related to our investments in network infrastructure, consumer hardware, content acquisitions and data center operations. The majority of these commitments are due within five years.
Legal Matters
Beginning on March 20, 2018, multiple putative class actions and derivative actions were filed in state and federal courts in the United States and elsewhere against us and certain of our directors and officers alleging violations of securities laws, breach of fiduciary duties, and other causes of action in connection with our platform and user data practices as well as the misuse of certain data by a developer that shared such data with third parties in violation of our terms and policies, and seeking unspecified damages and injunctive relief. Beginning on July 27, 2018, two putative class actions were filed in federal court in the United States against us and certain of our directors and officers alleging violations of securities laws in connection with the disclosure of our earnings results for the second quarter of 2018 and seeking unspecified damages. These two actions subsequently were transferred and consolidated in the U.S. District Court for the Northern District of California with the putative securities class action described above relating to our platform and user data practices. On September 25, 2019, the district court granted our motion to dismiss the consolidated putative securities class action, with leave to amend. On November 15, 2019, a second amended complaint was filed in the consolidated putative securities class action. On August 7, 2020, the district court granted our motion to dismiss the second amended complaint, with leave to amend. On October 16, 2020, a third amended complaint was filed in the consolidated putative securities class action. We believe these lawsuits are without merit, and we are vigorously defending them. In addition, our platform and user data practices, as well as the events surrounding the misuse of certain data by a developer, became the subject of U.S. Federal Trade Commission (FTC), state attorneys general, and other government inquiries in the United States, Europe, and other jurisdictions. In July 2019, we entered into a settlement and modified consent order to resolve the FTC inquiry, which was approved by the federal court and took effect in April 2020. Among other matters, our settlement with the FTC required us to pay a penalty of $5.0 billion which was paid in April 2020 upon the effectiveness of the modified consent order.
On April 1, 2015, a putative class action was filed against us in the U.S. District Court for the Northern District of California by Facebook users alleging that the "tag suggestions" facial recognition feature violates the Illinois Biometric Information Privacy Act, and seeking statutory damages and injunctive relief. On April 16, 2018, the district court certified a class of Illinois residents, and on May 14, 2018, the district court denied both parties' motions for summary judgment. On May 29, 2018, the U.S. Court of Appeals for the Ninth Circuit granted our petition for review of the class certification order and stayed the proceeding. On August 8, 2019, the Ninth Circuit affirmed the class certification order. On December 2, 2019, we filed a petition with the U.S. Supreme Court seeking review of the decision of the Ninth Circuit, which was denied. On January 15, 2020, the parties agreed to a settlement in principle to resolve the lawsuit, which provided for a payment of $550 million by us and was subject to court approval. On or about May 8, 2020, the parties executed a formal settlement agreement, and plaintiffs filed a motion for preliminary approval of the settlement by the district court. On June 4, 2020, the district court denied the plaintiffs' motion without prejudice. On July 22, 2020, the parties executed an amended settlement agreement, which, among other terms, provides for a payment of $650 million by us. On August 19, 2020, the court granted preliminary approval of the settlement. The settlement is subject to final court approval. The settlement amount is reflected in accrued expenses and other current liabilities on our condensed consolidated balance sheet as of September 30, 2020.
Beginning on September 28, 2018, multiple putative class actions were filed in state and federal courts in the United States and elsewhere against us alleging violations of consumer protection laws and other causes of action in connection with a third-party cyber-attack that exploited a vulnerability in Facebook's code to steal user access tokens and access certain profile information from user accounts on Facebook, and seeking unspecified damages and injunctive relief. The actions filed in the

24


United States were consolidated in the U.S. District Court for the Northern District of California. On November 26, 2019, the district court certified a class for injunctive relief purposes but denied certification of a class for purposes of pursuing damages. On January 16, 2020, the parties agreed to a settlement in principle to resolve the lawsuit. The settlement is subject to court approval. We believe the remaining lawsuits are without merit, and we are vigorously defending them. In addition, the events surrounding this cyber-attack became the subject of Irish Data Protection Commission (IDPC) and other government inquiries.
From time to time we also notify the IDPC, our designated European privacy regulator under the General Data Protection Regulation, of certain other personal data breaches and privacy issues, and are subject to inquiries and investigations regarding various aspects of our regulatory compliance. Although we are vigorously defending our regulatory compliance, we believe there is a reasonable possibility that the ultimate potential loss related to the inquiries and investigations by the IDPC could be material in the aggregate.
In addition, from time to time, we are subject to litigation and other proceedings involving law enforcement and other regulatory agencies, including in particular in Brazil and Europe, in order to ascertain the precise scope of our legal obligations to comply with the requests of those agencies, including our obligation to disclose user information in particular circumstances. A number of such instances have resulted in the assessment of fines and penalties against us. We believe we have multiple legal grounds to satisfy these requests or prevail against associated fines and penalties, and we intend to vigorously defend such fines and penalties.
With respect to the cases, actions, and inquiries described above, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. In addition, we believe there is a reasonable possibility that we may incur a loss in some of these matters. With respect to the matters described above that do not include an estimate of the amount of loss or range of possible loss, such losses or range of possible losses either cannot be estimated or are not individually material, but we believe there is a reasonable possibility that they may be material in the aggregate.
We are also party to various other legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. Additionally, we are required to comply with various legal and regulatory obligations around the world. The requirements for complying with these obligations may be uncertain and subject to interpretation and enforcement by regulatory and other authorities, and any failure to comply with such obligations could eventually lead to asserted legal or regulatory action. With respect to these other matters, asserted and unasserted, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. In addition, we believe there is a reasonable possibility that we may incur a loss in some of these other matters. We believe that the amount of losses or any estimable range of possible losses with respect to these other matters will not, either individually or in the aggregate, have a material adverse effect on our business and condensed consolidated financial statements.

The ultimate outcome of the legal matters described in this section, such as whether the likelihood of loss is remote, reasonably possible, or probable, or if and when the reasonably possible range of loss is estimable, is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's estimates of loss, 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 13 — Income Taxes.
Indemnifications

In the normal course of business, to facilitate transactions of services and products, we have agreed to indemnify certain parties with respect to certain matters. We have agreed to hold certain parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made by third parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers, directors, and certain employees, and our certificate of incorporation and bylaws contain similar indemnification obligations.

It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material impact on our consolidated financial statements. In our opinion, as of September 30, 2020, there was not at least a reasonable possibility we had incurred a material loss with respect

25


to indemnification of such parties. We have not recorded any liability for costs related to indemnification through September 30, 2020.

Note 12. Stockholders' Equity
Share Repurchase Program
Our board of directors has authorized a share repurchase program of our Class A common stock, which does not have an expiration date. As of December 31, 2019, $4.90 billion remained available and authorized for repurchases. In January 2020, an additional $10.0 billion of repurchases was authorized under this program. During the nine months ended September 30, 2020, we repurchased and subsequently retired 20 million shares of our Class A common stock for an aggregate amount of $4.36 billion. As of September 30, 2020, $10.55 billion remained available and authorized for repurchases.
The timing and actual number of shares repurchased under the repurchase program depend on a variety of factors, including price, general business and market conditions, and other investment opportunities, and shares may be repurchased through open market purchases or privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
Share-based Compensation Plans
We maintain two share-based employee compensation plans: the 2012 Equity Incentive Plan, which was amended in each of June 2016 and February 2018 (Amended 2012 Plan), and the 2005 Stock Plan (collectively, Stock Plans). Our Amended 2012 Plan serves as the successor to our 2005 Stock Plan and provides for the issuance of incentive and nonstatutory stock options, restricted stock awards, stock appreciation rights, RSUs, performance shares, and stock bonuses to qualified employees, directors and consultants. Outstanding awards under the 2005 Stock Plan continue to be subject to the terms and conditions of the 2005 Stock Plan. Shares that are withheld in connection with the net settlement of RSUs or forfeited under our Stock Plans are added to the reserves of the Amended 2012 Plan. We account for forfeitures as they occur.
Share-based compensation expense consists of our RSU expense. RSUs granted to employees are measured based on the grant-date fair value. In general, our RSUs vest over a service period of four years. Share-based compensation expense is generally recognized based on the straight-line basis over the requisite service period.
Effective January 1, 2020, there were 171 million shares of our Class A common stock reserved for future issuance under our Amended 2012 Plan. The number of shares reserved for issuance under our Amended 2012 Plan increases automatically on January 1 of each of the calendar years during the term of the Amended 2012 Plan, which will continue through April 2026, by a number of shares of Class A common stock equal to the lesser of (i) 2.5% of the total issued and outstanding shares of our Class A common stock as of the immediately preceding December 31st or (ii) a number of shares determined by our board of directors.
The following table summarizes the activities for our unvested RSUs for the nine months ended September 30, 2020:
 
Unvested RSUs
 
Number of Shares
 
Weighted-Average Grant Date Fair Value
 
(in thousands)
 
 
Unvested at December 31, 2019
78,851

 
$
165.74

Granted
56,546

 
$
180.84

Vested
(28,388
)
 
$