Facebook Revised SEC Prospectus (S1)

5/3/12
Amendment No. 5 to Registration Statement on Form S-1
S-1/A 1 d287954ds1a.htm AMENDMENT NO. 5 TO REGISTRATION STATEMENT ON FORM S-1

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AsfiledwiththeSecuritiesandExchangeCommissiononMay3,2012
RegistrationNo.333179287
UNITEDSTATES SECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549
AmendmentNo.5to FormS1 REGISTRATIONSTATEMENT

Under TheSecuritiesActof1933
Facebook,Inc.
(ExactnameofRegistrantasspecifiedinitscharter) Delaware (Stateorotherjurisdictionof incorporationororganization) 7370 (PrimaryStandardIndustrial ClassificationCodeNumber) 201665019 (IRSEmployer IdentificationNo.)
Facebook,Inc. 1601WillowRoad MenloPark,California94025 (650)3087300 (Address,includingzipcode,andtelephonenumber,includingareacode,ofRegistrantsprincipalexecutiveoffices) DavidA.Ebersman ChiefFinancialOfficer Facebook,Inc. 1601WillowRoad MenloPark,California94025 (650)3087300 (Name,address,includingzipcode,andtelephonenumber,includingareacode,ofagentforservice) Pleasesendcopiesofallcommunicationsto: GordonK.Davidson,Esq. JeffreyR.Vetter,Esq. JamesD.Evans,Esq. Fenwick&WestLLP 801CaliforniaStreet MountainView,California94041 (650)9888500 TheodoreW.Ullyot,Esq. DavidW.Kling,Esq. MichaelL.Johnson,Esq. Facebook,Inc. 1601WillowRoad MenloPark,California94025 (650)3087300 WilliamH.Hinman,Jr.,Esq. DanielN.Webb,Esq. SimpsonThacher&BartlettLLP 2550HanoverStreet PaloAlto,California94304 (650)2515000
Approximatedateofcommencementofproposedsaletothepublic:AssoonaspracticableaftertheeffectivedateofthisRegistrationStatement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the followingbox: IfthisFormisfiledtoregisteradditionalsecuritiesforanofferingpursuanttoRule462(b)undertheSecuritiesAct,checkthefollowingboxandlisttheSecurities Actregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering. If this Form is a posteffective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statementnumberoftheearliereffectiveregistrationstatementforthesameoffering. If this Form is a posteffective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statementnumberoftheearliereffectiveregistrationstatementforthesameoffering. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitionsoflargeacceleratedfiler,acceleratedfilerandsmallerreportingcompanyinRule12b2oftheExchangeAct.(Checkone):
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Largeacceleratedfiler Nonacceleratedfilerx

(Donotcheckifasmallerreportingcompany) CALCULATIONOFREGISTRATIONFEE Acceleratedfiler Smallerreportingcompany
ProposedMaximum ProposedMaximum Offering Aggregate Amounttobe Amountof PricePerShare OfferingPrice(2) Registered(1) RegistrationFee(3) 388,027,654 $35.00 $13,580,967,890 $1,556,379 (1) EstimatedpursuanttoRule457(a)undertheSecuritiesActof1933,asamended.Includesadditionalsharesthattheunderwritershavetheoptiontopurchasetocover overallotments,ifany. (2) Estimatedsolelyforthepurposeofcalculatingtheregistrationfee. (3) TheRegistrantpreviouslypaid$573,000ofthisamountinconnectionwiththeinitialfilingofthisRegistrationStatement. TitleofEachClassof SecuritiestobeRegistered ClassACommonStock,$0.000006parvalue The Registrant hereby amends thisRegistrationStatementon such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the SecuritiesActof1933oruntiltheRegistrationStatementshallbecomeeffectiveonsuchdateastheSecuritiesandExchangeCommission,actingpursuantto saidSection8(a),maydetermine.
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Theinformationinthisprospectusisnotcompleteandmaybechanged.Neitherwenorthesellingstockholdersmaysellthesesecurities untiltheregistrationstatementfiledwiththeSecuritiesandExchangeCommissioniseffective.Thisprospectusisnotanoffertosellthese securitiesandneitherwenorthesellingstockholdersaresolicitingofferstobuythesesecuritiesinanyjurisdictionwheretheofferorsale isnotpermitted.
PROSPECTUS(SubjecttoCompletion)
IssuedMay3,2012
337,415,352Shares
CLASSACOMMONSTOCK
Facebook, Inc. is offering 180,000,000 shares of its Class A common stock and the selling stockholders are offering 157,415,352 shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering and no public market currently exists for our shares of Class A common stock.Weanticipatethattheinitialpublicofferingpricewillbebetween$28.00and$35.00pershare.
We have two classes of common stock, Class A common stock and Class B common stock. The rights of the holders of ClassAcommonstockandClassBcommonstockareidentical,exceptvotingandconversionrights.EachshareofClassA commonstockisentitledtoonevote.EachshareofClassBcommonstockisentitledtotenvotesandisconvertibleatany timeintooneshareofClassAcommonstock.TheholdersofouroutstandingsharesofClassBcommonstockwillhold approximately 96.3% of the voting power of our outstanding capital stock following this offering, and our founder, Chairman,andCEO,MarkZuckerberg,willholdorhavetheabilitytocontrolapproximately57.3%ofthevotingpowerof ouroutstandingcapitalstockfollowingthisoffering.
WehaveappliedtolistourClassAcommonstockontheNASDAQGlobalSelectMarketunderthesymbolFB. We are a controlled company under the corporate governance rules for NASDAQlisted companies, and our board of directorshasdeterminednottohaveanindependentnominatingfunctionandinsteadtohavethefullboardofdirectorsbe directlyresponsiblefornominatingmembersofourboard.
InvestinginourClassAcommonstockinvolvesrisks.SeeRiskFactorsbeginningonpage12.
PRICE$ASHARE
Underwriting Discountsand Commissions Proceedsto Selling Stockholders
Priceto Public
Proceedsto Facebook
Pershare Total
$ $
$ $
$ $
$ $
Weandthesellingstockholdershavegrantedtheunderwriterstherighttopurchaseuptoanadditional50,612,302sharesof ClassAcommonstocktocoveroverallotments.
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The Securities and Exchange Commission and state regulators have not approved or disapproved of these securities, or determinedifthisprospectusistruthfulorcomplete.Anyrepresentationtothecontraryisacriminaloffense. TheunderwritersexpecttodeliverthesharesofClassAcommonstocktopurchaserson,2012.
MORGANSTANLEY
BofAMERRILLLYNCH CITIGROUP
J.P.MORGAN
BARCLAYS CREDITSUISSE
GOLDMAN,SACHS&CO.
ALLEN&COMPANYLLC DEUTSCHEBANKSECURITIES WELLSFARGOSECURITIES
RBCCAPITALMARKETS ,2012
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Page Page
ProspectusSummary RiskFactors SpecialNoteRegardingForwardLooking Statements IndustryDataandUserMetrics UseofProceeds DividendPolicy Capitalization Dilution SelectedConsolidatedFinancialData ManagementsDiscussionandAnalysisof FinancialConditionandResultsofOperations LetterfromMarkZuckerberg Business
1 12 35 36 37 37 38 41 43 46 80 84
Management ExecutiveCompensation RelatedPartyTransactions PrincipalandSellingStockholders DescriptionofCapitalStock SharesEligibleforFutureSale MaterialU.S.FederalTaxConsiderationsforNon U.S.HoldersofClassACommonStock Underwriting LegalMatters Experts WhereYouCanFindAdditionalInformation IndextoConsolidatedFinancialStatements
108 116 137 140 148 155 158 162 170 170 170 F1
Neitherwe,northesellingstockholders,northeunderwriters,haveauthorizedanyonetoprovideanyinformationorto makeanyrepresentationsotherthanthosecontainedinthisprospectusorinanyfreewritingprospectuseswehaveprepared. Wetakenoresponsibilityfor,andcanprovidenoassuranceastothereliabilityof,anyotherinformationthatothersmaygive you.Weandthesellingstockholdersareofferingtosell,andseekingofferstobuy,sharesofourClassAcommonstockonlyin jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock. Our business,financialcondition,resultsofoperations,andprospectsmayhavechangedsincethatdate. Theinformationinthispreliminaryprospectusisnotcompleteandissubjecttochange.Nopersonshouldrelyonthe informationcontainedinthisdocumentforanypurposeotherthanparticipatinginourproposedinitialpublicoffering,and onlythepreliminaryprospectusissuedMay3,2012,isauthorizedbyustobeusedinconnectionwithourproposedinitial public offering. The preliminary prospectus will only be distributed by us and the underwriters named herein and no other personhasbeenauthorizedbyustousethisdocumenttoofferorsellanyofoursecurities. Until,2012(25daysafterthecommencementofourinitialpublicoffering),alldealersthatbuy,sell,or tradesharesofourClassAcommonstock,whetherornotparticipatinginourinitialpublicoffering,mayberequiredto deliveraprospectus.Thisdeliveryrequirementisinadditiontotheobligationofdealerstodeliveraprospectuswhen actingasunderwritersandwithrespecttotheirunsoldallotmentsorsubscriptions. ForinvestorsoutsidetheUnitedStates:Neitherwe,northesellingstockholders,northeunderwritershavedoneanything thatwouldpermitourinitialpublicofferingorpossessionordistributionofthisprospectusinanyjurisdictionwhereactionfor thatpurposeisrequired,otherthanintheUnitedStates.PersonsoutsidetheUnitedStateswhocomeintopossessionofthis prospectusmustinformthemselvesabout,andobserveanyrestrictionsrelatingto,theofferingofthesharesofourClassA commonstockandthedistributionofthisprospectusoutsideoftheUnitedStates. i
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PROSPECTUSSUMMARY Thissummaryhighlightsinformationcontainedingreaterdetailelsewhereinthisprospectus.Thissummaryisnot completeanddoesnotcontainalloftheinformationyoushouldconsiderinmakingyourinvestmentdecision.Youshould read the entire prospectus carefully before making an investment in our Class A common stock. You should carefully consider,amongotherthings,ourconsolidatedfinancialstatementsandtherelatednotesandthesectionsentitledRisk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhereinthisprospectus. FACEBOOK,INC. Ourmissionistomaketheworldmoreopenandconnected. PeopleuseFacebooktostayconnectedwiththeirfriendsandfamily,todiscoverwhatisgoingonintheworldaround them,andtoshareandexpresswhatmatterstothemtothepeopletheycareabout. DeveloperscanusetheFacebookPlatformtobuildapplications(apps)andwebsitesthatintegratewithFacebookto reachourglobalnetworkofusersandtobuildproductsthataremorepersonalized,social,andengaging. Advertiserscanengagewithmorethan900millionmonthlyactiveusers(MAUs)onFacebookorsubsetsofourusers basedoninformationtheyhavechosentosharewithussuchastheirage,location,gender,orinterests.Weofferadvertisers auniquecombinationofreach,relevance,socialcontext,andengagementtoenhancethevalueoftheirads. Webelievethatweareattheforefrontofenablingfaster,easier,andrichercommunicationbetweenpeopleandthat Facebookhasbecomeanintegralpartofmanyofourusersdailylives.Wehaveexperiencedrapidgrowthinthenumber ofusersandtheirengagement.
Wehad901millionMAUsasofMarch31,2012,anincreaseof33%ascomparedto680millionMAUsasof March31,2011. Wehad526milliondailyactiveusers(DAUs)onaverageinMarch2012,anincreaseof41%ascomparedto 372millionDAUsinMarch2011. Wehad488millionMAUswhousedFacebookmobileproductsinMarch2012. Thereweremorethan125billionfriendconnectionsonFacebookasofMarch31,2012. Ourusersgeneratedanaverageof3.2billionLikesandCommentsperdayduringthefirstquarterof2012. 1
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ForadescriptionofhowwecalculateourMAUsandDAUsandfactorsthatcanaffectthesemetrics,seeIndustryData andUserMetricsandManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationsTrends inOurUserMetrics. HowWeCreateValueforUsers Ourtoppriorityistobuildusefulandengagingproductsthatenableyouto: ConnectwithYourFriends.Withmorethan900millionMAUsworldwide,ourusersareincreasinglyabletofind andstayconnectedwiththeirfriends,family,andcolleaguesonFacebook. DiscoverandLearn.WebelievethatuserscometoFacebooktodiscoverandlearnmoreaboutwhatisgoingon in the world around them, particularly in the lives of their friends and family and with public figures and organizationsthatinterestthem. Express Yourself. We enable our users to share and publish their opinions, ideas, photos, and activities to audiences ranging from their closest friends to our 900 million users, giving every user a voice within the Facebookcommunity. Control What You Share. Through Facebooks privacy and sharing settings, our users can control what they shareandwithwhomtheyshareit. Experience Facebook Across the Web. Through apps and websites built by developers using the Facebook Platform,ouruserscaninteractwiththeirFacebookfriendswhileplayinggames,listeningtomusic,watching movies,readingnews,andengaginginotheractivities. StayConnectedwithYourFriendsonMobileDevices.Throughthecombinationofourmobilesites,smartphone apps,andfeaturephoneproducts,userscanbringFacebookwiththemonmobiledeviceswherevertheygo.
FoundationsoftheSocialWeb We believe that the web, including the mobile web, is evolving to become more social and personalized. This evolutioniscreatingmorerewardingexperiencesthatarecenteredonpeople,theirconnections,andtheirinterests.We believethatthefollowingelementsformthefoundationofthesocialweb: Authentic Identity. We believe that using your real name, connecting to your real friends, and sharing your genuine interests online create more engaging and meaningful experiences. Representing yourself with your authenticidentityonlineencouragesyoutobehavewiththesamenormsthatfostertrustandrespectinyourdaily lifeoffline.AuthenticidentityiscoretotheFacebookexperience,andwebelievethatitiscentraltothefutureof theweb.Ourtermsofservicerequireyoutouseyourrealnameandweencourageyoutobeyourtrueselfonline, enablingusandPlatformdeveloperstoprovideyouwithmorepersonalizedexperiences. SocialGraph.TheSocialGraphrepresentstheconnectionsbetweenpeopleandtheirfriendsandinterests.Every personorentityisrepresentedbyapointwithinthegraph,andtheaffiliationsbetweenpeopleandtheirfriends andinterestsformbillionsofconnectionsbetweenthepoints.OurmappingoftheSocialGraphenablesFacebook andPlatformdeveloperstobuildmoreengaginguserexperiencesthatarebasedontheseconnections. SocialDistribution.Over time, people are consuming and creating more kinds of information at a faster pace acrossabroaderrangeofdevices.Thegrowingvolumeofinformationmakesitchallengingtofindmeaningful andtrustedcontentandtoeffectivelymakeyourvoiceheard.Facebookorganizesandprioritizescontentand servesasapowerfulsocialdistributiontooldeliveringtouserswhatwebelievetheywillfindmostcompelling basedontheirfriendsandinterests. 2
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HowWeCreateValueforDevelopersThroughtheFacebookPlatform The Facebook Platform is a set of development tools and application programming interfaces (APIs) that enables developers to easily integrate with Facebook to create social apps and websites and to reach our 900 million users. Platform developers build experiences that allow our users to connect and share with friends while engaging in a wide rangeofactivities.Platformdevelopersrangefromastudentonhisorhercomputerathometoteamsofprogrammersat leadingwebsites.WearefocusedonthegrowthandsuccessofPlatformdevelopersbyenabling: Personalized and Social Experiences. We enable Platform developers to create better products that are personalizedandsocialandthatoffernewwaysforouruserstoengagewithfriendsandshareexperiencesacross thewebandonmobiledevices.Forexample,aFacebookusercanvisitthePandorawebsiteandimmediately beginlisteningtoapersonalizedradiostationthatiscustomizedbasedonthebandstheuserLikesonFacebook. SocialDistribution.WeenablePlatformdeveloperstoreachourglobaluserbaseanduseoursocialdistribution channelstoincreasetraffictotheirappsandwebsites. Payments.WeprovideanonlinepaymentsinfrastructurethatenablesPlatformdeveloperstoreceivepayments fromourusersinaneasytouse,secure,andtrustedenvironment.
HowWeCreateValueforAdvertisersandMarketers Weofferadvertisersandmarketersauniquecombinationofreach,relevance,socialcontext,andengagement: Reach. With over 900 million MAUs, Facebook offers the ability to reach a vast consumer audience with our advertisingsolutions. Relevance.Advertiserscanspecifythatweshowtheiradstoasubsetofourusersbasedondemographicfactors andspecificintereststhattheyhavechosentosharewithusonFacebookorbyusingtheLikebuttonaroundthe web. We allow advertisers to select relevant and appropriate audiences for their ads, ranging from millions of usersinthecaseofglobalbrandstohundredsofusersinthecaseofsmaller,localbusinesses. SocialContext.Webelievethattherecommendationsoffriendshaveapowerfulinfluenceonconsumerinterest and purchase decisions. We offer advertisers the ability to include social context with their marketing messages.Socialcontextisinformationthathighlightsafriendsconnectionswithaparticularbrandorbusiness, for example, that a friend Liked a product or checked in at a restaurant. We believe that users find marketing messagesmoreengagingwhentheyincludesocialcontext. Engagement.Webelievethattheshifttoamoresocialwebcreatesnewopportunitiesforbusinessestoengage withinterestedcustomers.AnybrandorbusinesscancreateaFacebookPagetostimulateanongoingdialogwith ourusers.
OurMarketOpportunity OurAdvertisingMarketOpportunity Advertisers objectives range from building longterm brand awareness to stimulating an immediate purchase. We offeradvertisingsolutionsthataredesignedtobemoreengagingandrelevantforusersinordertohelpadvertisersbetter achieve their goals. Facebooks combination of reach, relevance, social context, and engagement gives advertisers enhancedopportunitiestogeneratebrandawarenessandaffiliation,whilealsocreatingnewwaystogeneratenearterm demandfortheirproductsfromconsumerslikelytohavepurchase 3
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intent.AccordingtoanIDCreportdatedAugust2011,totalworldwideadvertisingspendingin2010was$588billion.Our addressablemarketopportunityincludesportionsofmanyexistingadvertisingmarkets,includingthetraditionaloffline brandedadvertising,onlinedisplayadvertising,onlineperformancebasedadvertising,andmobileadvertisingmarkets. Advertisingonthesocialwebisasignificantmarketopportunitythatisstillemergingandevolving.Webelievethat mostadvertisersarestilllearningandexperimentingwiththebestwaystoleverageFacebooktocreatemoresocialand valuableads. OurMarketOpportunityforPayments WhenuserspurchasevirtualanddigitalgoodsfromourPlatformdevelopersusingourPaymentsinfrastructure,we receive fees that represent a portion of the transaction value. Currently, substantially all of the Payments transactions betweenourusersandPlatformdevelopersareforvirtualgoodsusedinsocialgames.AccordingtoanNPDInStatreport dated April 2012, the worldwide revenue generated from the sale of virtual goods on social networking sites, online worlds,andcasualgameswas$9billionin2011,andisforecastedtoincreaseto$14billionby2016.Wecurrentlyrequire PaymentsintegrationingamesonFacebook,andwemayseektoextendtheuseofPaymentstoothertypesofappsinthe future. OurStrategy Weareintheearlydaysofpursuingourmissiontomaketheworldmoreopenandconnected.Wehaveasignificant opportunitytofurtherenhancethevaluewedelivertousers,developers,andadvertisers.Keyelementsofourstrategyare: ExpandOurGlobalUserCommunity. We continue to focus on growing our user base across all geographies, including relatively lesspenetrated, large markets such as Brazil, Germany, India, Japan, Russia, and South Korea.Weintendtogrowouruserbasebycontinuingourmarketinganduseracquisitioneffortsandenhancing ourproducts,includingmobileapps,inordertomakeFacebookmoreaccessibleanduseful. BuildGreatSocialProductstoIncreaseEngagement.Weprioritizeproductdevelopmentinvestmentsthatwe believewillcreateengaginginteractionsbetweenourusers,developers,andadvertisersonFacebook,acrossthe web,andonmobiledevices.WecontinuetoinvestsignificantlyinimprovingourcoreproductssuchasNews Feed, Photos, and Groups, developing new products such as Timeline and Ticker, and enabling new Platform appsandwebsiteintegrations. ProvideUserswiththeMostCompellingExperience.Facebookusersaresharingandreceivingmoreinformation across a broader range of devices. To provide the most compelling user experience, we continue to develop products and technologies focused on optimizing our social distribution channels to deliver the most useful contenttoeachuserbyanalyzingandorganizingvastamountsofinformationinrealtime. Build Engaging Mobile Experiences. We are devoting substantial resources to developing engaging mobile productsandexperiencesforawiderangeofplatforms,includingsmartphonesandfeaturephones.Inaddition, weareworkingacrossthemobileindustrywithoperators,hardwaremanufacturers,operatingsystemproviders, anddeveloperstoimprovetheFacebookexperienceonmobiledevicesandmakeFacebookavailabletomore peoplearoundtheworld.WebelievethatmobileusageofFacebookiscriticaltomaintainingusergrowthand engagementoverthelongterm. EnableDeveloperstoBuildGreatSocialProductsUsingtheFacebookPlatform.ThesuccessofourPlatform developersandthevibrancyofourPlatformecosystemarekeytoincreasinguserengagement. 4
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WecontinuetoinvestintoolsandAPIsthatenhancetheabilityofPlatformdeveloperstodeliverproductsthat aremoresocialandpersonalizedandbetterengageusersonFacebook,acrosstheweb,andonmobiledevices. Additionally,weplantoinvestinenhancingourPaymentsofferingsandinmakingthePaymentsexperienceon FacebookasconvenientaspossibleforusersandPlatformdevelopers. Improve Ad Products for Advertisers and Users. We plan to continue to improve our ad products in order to createmorevalueforadvertisersandenhancetheirabilitytomaketheiradvertisingmoresocialandrelevantfor users.Ouradvertisingstrategycentersonthebeliefthatadproductsthataresocial,relevant,andwellintegrated with other content on Facebook can enhance the user experience while providing an attractive return for advertisers. We intend to invest in additional products for our advertisers and marketers while continuing to balanceourmonetizationobjectiveswithourcommitmenttooptimizingtheuserexperience.
SummaryRiskFactors Our business is subject to numerous risks described in the section entitled Risk Factors and elsewhere in this prospectus.Youshouldcarefullyconsidertheserisksbeforemakinganinvestment.Someoftheserisksinclude: If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook,ourrevenue,financialresults,andbusinessmaybesignificantlyharmed We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spendingbyadvertiserswithFacebook,couldseriouslyharmourbusiness Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substituteforuseonpersonalcomputersmaynegativelyaffectourrevenueandfinancialresults Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operatingsystems,networks,andstandardsthatwedonotcontrol WemaynotbesuccessfulinoureffortstogrowandfurthermonetizetheFacebookPlatform Ourbusinessishighlycompetitive,andcompetitionpresentsanongoingthreattothesuccessofourbusiness Improperaccesstoordisclosureofourusersinformation,orviolationofourtermsofserviceorpolicies,could harmourreputationandadverselyaffectourbusiness OurbusinessissubjecttocomplexandevolvingU.S.andforeignlawsandregulationsregardingprivacy,data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation,andcouldharmourbusiness OurCEOhascontroloverkeydecisionmakingasaresultofhiscontrolofamajorityofourvotingstock ThelossofMarkZuckerberg,SherylK.Sandberg,orotherkeypersonnelcouldharmourbusiness We anticipate that we will expend substantial funds in connection with tax withholding and remittance obligationsrelatedtotheinitialsettlementofourrestrictedstockunits(RSUs) ThemarketpriceofourClassAcommonstockmaybevolatileormaydecline,andyoumaynotbeabletoresell yoursharesatorabovetheinitialpublicofferingpriceand Substantialblocksofourtotaloutstandingsharesmaybesoldintothemarketaslockupperiodsend,asfurther describedinSharesEligibleforFutureSale.Iftherearesubstantialsalesofsharesofourcommonstock,the priceofourClassAcommonstockcoulddecline. 5
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Mr.ZuckerbergsVotingRightsandOurStatusasaControlledCompany Mr. Zuckerberg, who after our initial public offering will control approximately 57.3% of the voting power of our outstanding capital stock, will have the ability to control the outcome of matters submitted to our stockholders for approval,includingtheelectionofourdirectors,aswellastheoverallmanagementanddirectionofourcompany.Inthe eventofhisdeath,thesharesofourcapitalstockthatMr.Zuckerbergownswillbetransferredtothepersonsorentitiesthat hedesignates. BecauseMr.Zuckerbergcontrolsamajorityofouroutstandingvotingpower,weareacontrolledcompanyunder the corporate governance rules for NASDAQlisted companies. Therefore, we are not required to have a majority of our boardofdirectorsbeindependent,norarewerequiredtohaveacompensationcommitteeoranindependentnominating function.Inlightofourstatusasacontrolledcompany,ourboardofdirectorshasdeterminednottohaveanindependent nominatingfunctionandtohavethefullboardofdirectorsbedirectlyresponsiblefornominatingmembersofourboard. CorporateInformation We were incorporated in Delaware in July 2004. Unless expressly indicated or the context requires otherwise, the termsFacebook,company,we,us,andourinthisprospectusrefertoFacebook,Inc.,aDelawarecorporation, and,whereappropriate,itswhollyownedsubsidiaries.ThetermFacebookmayalsorefertoourproducts,regardlessof the manner in which they are accessed. Our principal executive offices are located at 1601 Willow Road, Menlo Park, California 94025, and our telephone number is (650) 3087300. Our website address is www.facebook.com. The informationonorthatcanbeaccessedthroughourwebsiteisnotpartofthisprospectus. Facebook,theFacebooklogo,FB,theLikeButton,f8,andourotherregisteredorcommonlawtrademarks,service marks,ortradenamesappearinginthisprospectusarethepropertyofFacebook,Inc.Othertrademarks,servicemarks,or tradenamesappearinginthisprospectusarethepropertyoftheirrespectiveowners. 6
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THEOFFERING ClassAcommonstockoffered Byus Bythesellingstockholders Total 180,000,000shares 157,415,352shares 337,415,352shares
ClassAcommonstocktobeoutstandingafterourinitialpublic 598,396,119shares offering ClassBcommonstocktobeoutstandingafterourinitialpublic 1,539,688,918shares offering TotalClassAandClassBcommonstocktobeoutstanding afterourinitialpublicoffering OverallotmentoptionofClassAcommonstockoffered Byus Bythesellingstockholders Total Useofproceeds 2,138,085,037shares
6,029,988shares 44,582,314shares 50,612,302shares We estimate that our net proceeds from the sale of the Class A common stock that we are offering will be approximately $5.6 billion, assuming an initial public offeringpriceof$31.50pershare,whichisthemidpointof the price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Theprincipalpurposesofourinitialpublicofferingareto createapublicmarketforourClassAcommonstockand therebyenablefutureaccesstothepublicequitymarkets by us and our employees, obtain additional capital, and facilitate an orderly distribution of shares for the selling stockholders.Weintendtousethenetproceedstousfrom our initial public offering for working capital and other general corporate purposes however we do not have any specific uses of the net proceeds planned. We may use some of the net proceeds to us to satisfy a portion of the anticipated tax withholding and remittance obligations related to the initial settlement of our outstanding RSUs. Additionally,wemayuseaportionoftheproceedstous for acquisitions of complementary businesses, technologies,orotherassets. Wewillnotreceiveanyproceedsfromthesaleofsharesof Class A common stock by the selling stockholders. In connectionwithourinitialpublic 7
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offering, Mark Zuckerberg, our founder, Chairman, and CEO, will exercise an outstanding stock option with respectto60,000,000sharesofClassBcommonstockand will then offer 30,200,000 of those shares as Class A common stock in our initial public offering. We expect that the substantial majority of the net proceeds Mr.Zuckerbergwillreceiveuponsuchsalewillbeusedto satisfy taxes that he will incur in connection with the optionexercise.SeeUseofProceeds. Votingrights Shares of Class A common stock are entitled to one vote pershare. SharesofClassBcommonstockareentitledtotenvotes pershare. Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law. Mr. Zuckerberg, whoafterourinitialpublicofferingwillcontrolmorethan 57.3% of the voting power of our outstanding capital stock, will have the ability to control the outcome of matters submitted to our stockholders for approval, includingtheelectionofourdirectors.SeeDescriptionof CapitalStock. ProposedNASDAQGlobalSelectMarketsymbol FB
The number of shares of Class A and Class B common stock to be outstanding after our initial public offering includes: (i) 117,549,393 shares of our Class A common stock and 1,780,535,644 shares of our Class B common stock outstandingasofMarch31,2012and(ii)theissuanceof60,000,000sharesofourClassBcommonstockuponthepartial exercisebyMr.Zuckerbergofanoutstandingstockoptiontopurchase120,000,000sharesofourClassBcommonstock andtheautomaticconversionof30,200,000ofthosesharesintoanequivalentnumberofsharesofClassAcommonstock upontheirsaleinourinitialpublicoffering,andexcludes: 116,756,442sharesofClassBcommonstockissuableupontheexerciseofoptionsoutstandingasofMarch31, 2012underour2005StockPlan,withaweightedaverageexercisepriceofapproximately$0.94pershare 60,000,000sharesofClassBcommonstockissuableupontheexerciseoftheremainingportionofanoption heldbyMr.Zuckerberg,withanexercisepriceof$0.06pershare 378,429,048sharesofClassBcommonstocksubjecttoRSUsoutstandingasofMarch31,2012underour2005 StockPlan 22,999,412sharesofcommonstockissuableuponcompletionofouracquisitionofInstagram,Inc. 25,257,815 shares of Class B common stock subject to RSUs granted under our 2005 Stock Plan and 40,000sharesofClassAcommonstockissuedbetweenApril1,2012andMay3,2012and 77,466,293 shares of our common stock reserved for future issuance under our equity compensation plans, consistingof25,000,000sharesofClassAcommonstockreservedforissuanceunderour2012EquityIncentive Plan,and52,466,293sharesofClassBcommonstockreservedasofMarch31,2012 8
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forissuanceunderour2005StockPlan(whichreserveincludesthe25,257,815sharesofClassBcommonstock subjecttoRSUsgrantedafterMarch31,2012).Onthedateofthisprospectus,anyremainingsharesavailablefor issuanceunderour2005StockPlanwillbeaddedtothesharesreservedunderour2012EquityIncentivePlan andwewillceasegrantingawardsunderthe2005StockPlan.Our2012EquityIncentivePlanalsoprovidesfor automaticannualincreasesinthenumberofsharesreservedthereunderandforincreasesbasedonforfeitedor withheld shares and other events, as more fully described in Executive CompensationEmployee Benefit Plans. Unlessexpresslyindicatedorthecontextrequiresotherwise,allinformationinthisprospectusassumes: the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2012 into 545,401,443sharesofClassBcommonstockinconnectionwithourinitialpublicoffering the automatic conversion of 121,788,489 shares of our Class B common stock into an equivalent number of sharesofourClassAcommonstockupontheirsalebythesellingstockholdersinourinitialpublicoffering the conversion by certain of our existing stockholders pursuant to contractual agreements of an aggregate of 179,058,237sharesofourClassBcommonstockintoanequivalentnumberofsharesofourClassAcommon stockinconnectionwithourinitialpublicoffering no exercise by the underwriters of their right to purchase up to an additional 50,612,302 shares of Class A commonstockfromusandthesellingstockholderstocoveroverallotmentsand thefilingofourrestatedcertificateofincorporationandtheeffectivenessofourrestatedbylawsinconnection withourinitialpublicoffering. 9
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SUMMARYCONSOLIDATEDFINANCIALDATA The following table summarizes our consolidated financial data. We have derived the summary consolidated statementsofincomedatafortheyearsendedDecember31,2009,2010,and2011fromourauditedconsolidatedfinancial statementsincludedelsewhereinthisprospectus.Theconsolidatedstatementsofincomedataforthethreemonthsended March 31, 2011 and 2012, and the consolidated balance sheet data as of March 31, 2012 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. In our opinion, such financial statementsincludealladjustments,consistingonlyofnormalrecurringadjustments,thatweconsidernecessaryforafair presentationofthefinancialinformationsetforthinthosestatements.Ourhistoricalresultsarenotnecessarilyindicative ofourresultsinanyfutureperiod.Thesummaryofourconsolidatedfinancialdatasetforthbelowshouldbereadtogether withourconsolidatedfinancialstatementsandtherelatednotes,aswellasthesectionentitledManagementsDiscussion andAnalysisofFinancialConditionandResultsofOperations,includedelsewhereinthisprospectus.
ThreeMonthsEnded YearEndedDecember31, March31, 2009 2010 2011 2011 2012 (inmillions,exceptpersharedata)
ConsolidatedStatementsofIncomeData: Revenue Costsandexpenses(1): Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalcostsandexpenses Incomefromoperations Interestandotherincome(expense),net Incomebeforeprovisionforincometaxes Provisionforincometaxes Netincome NetincomeattributabletoClassAandClassBcommon stockholders EarningspershareattributabletoClassAandClassB commonstockholders(2): Basic Diluted ProformaearningspershareattributabletoClassAand ClassBcommonstockholders(2): Basic Diluted
$ $ $
777 223 115 87 90 515 262 (8) 254 25 229 122
$ 1,974 493 184 144 121 942 1,032 (24) 1,008 402 $ 606 $ 372
$ 3,711 $ $ 860 427 388 280 1,955 1,756 (61) 1,695 695 1,000 668
$ $ $
731 167 68 57 51 343 388 10 398 165 233 153
$ 1,058 $ $ 277 159 153 88 677 381 1 382 177 205 137
$ 0.12 $ 0.10
$ $
0.34 0.28
$ $
0.52 0.46
$ 0.12 $ 0.11
$ $
0.10 0.09
$ $
0.49 0.43
$ $
0.10 0.09
(1) Costs and expenses in 2009, 2010, and 2011 and the first quarter of 2011 and 2012 include sharebased compensation expense of $27 million, $20 million, $217million,$7million,and$103million,respectively,asfollows:
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Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalsharebasedcompensationexpense
YearEndedDecember31, 2009 2010 2011 (inmillions) $ $ $ 9 2 2 43 6 9 114 19 9 51 $ 27 $ 20 $ 217
ThreeMonths EndedMarch31, 2011 2012 $ 4 3 $ 7 $ $ 4 23 60 16 103
(2) Seenote2ofthenotestoourconsolidatedfinancialstatementsforadescriptionofhowwecomputebasicanddilutedearningspershareattributabletoClassA andClassBcommonstockholdersandproformabasicanddilutedearningspershareattributabletoClassAandClassBcommonstockholders. March31,2012 Actual ProForma(1) (inmillions) ProFormaAs Adjusted (2)
(3)
ConsolidatedBalanceSheetData: Cash,cashequivalents,andmarketablesecurities Workingcapital Propertyandequipment,net Totalassets Totalliabilities Additionalpaidincapital Retainedearnings Totalstockholdersequity
$3,910 3,655 1,855 6,859 1,587 2,853 1,811 5,272
$3,910 3,980 1,855 7,184 1,587 4,433 1,171 5,597
9,511 9,581 1,855 12,785 1,587 10,034 1,171 11,198
(1) TheproformaconsolidatedbalancesheetdataasofMarch31,2012presentsourconsolidatedbalancesheetdatatogiveeffecttotheautomaticconversionofall ofouroutstandingsharesofconvertiblepreferredstockintosharesofClassBcommonstockandtoalsogiveeffecttoasharebasedcompensationexpenseof approximately $965 million associated with RSUs granted prior to 2011, for which the service condition was satisfied as of March 31, 2012 and which we expect to record upon completion of our initial public offering, as further described in Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and EstimatesSharebased Compensation. The pro forma adjustment related to sharebased compensationexpenseofapproximately$965millionhasbeenreflectedasanincreasetoadditionalpaidincapitalandtheassociatedtaxeffectof$325million hasbeennettedagainstthischarge,resultinginanetreductionof$640milliontoretainedearnings.Theincometaxeffectshavebeenreflectedasanincreaseto deferredtaxassetsincludedinprepaidexpensesandothercurrentassets,toreflecttheanticipatedfuturetaxbenefitsuponsettlementoftheseRSUs. (2) The pro forma as adjusted consolidated balance sheet data reflects the items described in footnote (1) above and gives effect to our receipt of estimated net proceeds from the sale of shares of Class A common stock that we are offering at an assumed initial public offering price of the Class A common stock of $31.50 per share, the midpoint of the price range on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $31.50 per share would increase (decrease) each of cash, cash equivalents, and marketable securities, working capital, total assets, additional paidin capital, and total stockholders equity by $178 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimatedunderwritingdiscountsandcommissions. (3) Theproformaasadjusteddatadiscussedaboveisillustrativeonlyandwillbeadjustedbasedontheactualinitialpublicofferingpriceandothertermsofour initialpublicofferingdeterminedatpricing.
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Table of Contents RISKFACTORS Investing in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including the consolidated financialstatementsandtherelatednotesincludedelsewhereinthisprospectus,beforedecidingwhethertoinvestinshares ofourClassAcommonstock.Therisksanduncertaintiesdescribedbelowarenottheonlyonesweface.Additionalrisksand uncertaintiesthatweareunawareof,orthatwecurrentlybelievearenotmaterial,mayalsobecomeimportantfactorsthat adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations,andfutureprospectscouldbemateriallyandadverselyaffected.Inthatevent,themarketpriceofourClassA commonstockcoulddecline,andyoucouldlosepartorallofyourinvestment. RisksRelatedtoOurBusinessandIndustry Ifwefailtoretainexistingusersoraddnewusers,orifourusersdecreasetheirlevelofengagementwithFacebook,our revenue,financialresults,andbusinessmaybesignificantlyharmed. The size of our user base and our users level of engagement are critical to our success. We had 901 million monthly active users (MAUs) as of March 31, 2012. Our financial performance has been and will continue to be significantly determinedbyoursuccessinadding,retaining,andengagingactiveusers.Weanticipatethatouractiveusergrowthratewill declineovertimeasthesizeofouractiveuserbaseincreases,andasweachievehighermarketpenetrationrates.Totheextent our active user growth rate slows, our business performance will become increasingly dependent on our ability to increase levels of user engagement in current and new markets. If people do not perceive our products to be useful, reliable, and trustworthy,wemaynotbeabletoattractorretainusersorotherwisemaintainorincreasethefrequencyanddurationoftheir engagement.Anumberofothersocialnetworkingcompaniesthatachievedearlypopularityhavesinceseentheiractiveuser basesorlevelsofengagementdecline,insomecasesprecipitously.Thereisnoguaranteethatwewillnotexperienceasimilar erosion of our active user base or engagement levels. A decrease in user retention, growth, or engagement could render Facebook less attractive to developers and advertisers, which may have a material and adverse impact on our revenue, business, financial condition, and results of operations. Any number of factors could potentially negatively affect user retention,growth,andengagement,includingif: usersincreasinglyengagewithcompetingproducts wefailtointroducenewandimprovedproductsorifweintroducenewproductsorservicesthatarenotfavorably received weareunabletosuccessfullybalanceoureffortstoprovideacompellinguserexperiencewiththedecisionswemake withrespecttothefrequency,prominence,andsizeofadsandothercommercialcontentthatwedisplay weareunabletocontinuetodevelopproductsformobiledevicesthatusersfindengaging,thatworkwithavariety ofmobileoperatingsystemsandnetworks,andthatachieveahighlevelofmarketacceptance therearechangesinusersentimentaboutthequalityorusefulnessofourproductsorconcernsrelatedtoprivacyand sharing,safety,security,orotherfactors we are unable to manage and prioritize information to ensure users are presented with content that is interesting, useful,andrelevanttothem there are adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, includingsettlementsorconsentdecrees technicalorotherproblemspreventusfromdeliveringourproductsinarapidandreliablemannerorotherwiseaffect theuserexperience 12
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Table of Contents weadoptpoliciesorproceduresrelatedtoareassuchassharingoruserdatathatareperceivednegativelybyour usersorthegeneralpublic wefailtoprovideadequatecustomerservicetousers,developers,oradvertisers we, our Platform developers, or other companies in our industry are the subject of adverse media reports or other negativepublicityor ourcurrentorfutureproducts,suchastheFacebookPlatform,reduceuseractivityonFacebookbymakingiteasier forouruserstointeractandshareonthirdpartywebsites.
Ifweareunabletomaintainandincreaseouruserbaseanduserengagement,ourrevenue,financialresults,andfuture growthpotentialmaybeadverselyaffected. We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertiserswithFacebook,couldseriouslyharmourbusiness. ThesubstantialmajorityofourrevenueiscurrentlygeneratedfromthirdpartiesadvertisingonFacebook.In2009,2010, and2011andthefirstquarterof2011and2012,advertisingaccountedfor98%,95%,85%,87%,and82%,respectively,of ourrevenue.Asiscommonintheindustry,ouradvertiserstypicallydonothavelongtermadvertisingcommitmentswithus. Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertisewithus,ifwedonotdeliveradsandothercommercialcontentinaneffectivemanner,oriftheydonotbelievethat theirinvestmentinadvertisingwithuswillgenerateacompetitivereturnrelativetootheralternatives.Ouradvertisingrevenue couldbeadverselyaffectedbyanumberofotherfactors,including: decreasesinuserengagement,includingtimespentonFacebook increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercialcontent product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominenceofadsandothercommercialcontentdisplayedonFacebook ourinabilitytoimproveouranalyticsandmeasurementsolutionsthatdemonstratethevalueofouradsandother commercialcontent decisionsbyadvertiserstouseourfreeproducts,suchasFacebookPages,insteadofadvertisingonFacebook lossofadvertisingmarketsharetoourcompetitors adverse legal developments relating to advertising, including legislative and regulatory developments and developmentsinlitigation adversemediareportsorothernegativepublicityinvolvingus,ourPlatformdevelopers,orothercompaniesinour industry ourinabilitytocreatenewproductsthatsustainorincreasethevalueofouradsandothercommercialcontent thedegreetowhichusersoptoutofsocialadsorotherwiselimitthepotentialaudienceofcommercialcontent changesinthewayonlineadvertisingispriced 13
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Table of Contents theimpactofnewtechnologiesthatcouldblockorobscurethedisplayofouradsandothercommercialcontentand theimpactofmacroeconomicconditionsandconditionsintheadvertisingindustryingeneral.
Theoccurrenceofanyoftheseorotherfactorscouldresultinareductionindemandforouradsandothercommercial content, which may reduce the prices we receive for our ads and other commercial content, or cause advertisers to stop advertisingwithusaltogether,eitherofwhichwouldnegativelyaffectourrevenueandfinancialresults. GrowthinuseofFacebookthroughourmobileproducts,whereourabilitytomonetizeisunproven,asasubstituteforuseon personalcomputersmaynegativelyaffectourrevenueandfinancialresults. Wehad488millionMAUswhousedFacebookmobileproductsinMarch2012.Whilemostofourmobileusersalso accessFacebookthroughpersonalcomputers,weanticipatethattherateofgrowthinmobileusagewillexceedthegrowthin usage through personal computers for the foreseeable future, in part due to our focus on developing mobile products to encouragemobileusageofFacebook.WehavehistoricallynotshownadstousersaccessingFacebookthroughmobileappsor ourmobilewebsite.InMarch2012,webegantoincludesponsoredstoriesinusersmobileNewsFeeds.However,wedonot currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfullyisunproven.Accordingly,ifusersincreasinglyaccessFacebookmobileproductsasasubstituteforaccessthrough personalcomputers,andifweareunabletosuccessfullyimplementmonetizationstrategiesforourmobileusers,orifweincur excessiveexpensesinthiseffort,ourfinancialperformanceandabilitytogrowrevenuewouldbenegativelyaffected. Facebookusergrowthandengagementonmobiledevicesdependuponeffectiveoperationwithmobileoperatingsystems, networks,andstandardsthatwedonotcontrol. There is no guarantee that popular mobile devices will continue to feature Facebook, or that mobile device users will continuetouseFacebookratherthancompetingproducts.WearedependentontheinteroperabilityofFacebookwithpopular mobileoperatingsystemsthatwedonotcontrol,suchasAndroidandiOS,andanychangesinsuchsystemsthatdegradeour products functionality or give preferential treatment to competitive products could adversely affect Facebook usage on mobiledevices.Additionally,inordertodeliverhighqualitymobileproducts,itisimportantthatourproductsworkwellwith a range of mobile technologies, systems, networks, and standards that we do not control. We may not be successful in developingrelationshipswithkeyparticipantsinthemobileindustryorindevelopingproductsthatoperateeffectivelywith these technologies, systems, networks, or standards. In the event that it is more difficult for our users to access and use Facebookontheirmobiledevices,orifouruserschoosenottoaccessoruseFacebookontheirmobiledevicesorusemobile productsthatdonotofferaccesstoFacebook,ourusergrowthanduserengagementcouldbeharmed. WemaynotbesuccessfulinoureffortstogrowandfurthermonetizetheFacebookPlatform. We have made and are continuing to make major investments to enable developers to build applications (apps) and websites that integrate with the Facebook Platform. Existing and prospective Platform developers may not be successful in buildingappsorwebsitesthatcreateandmaintainuserengagement.Additionally,developersmaychoosetobuildonother platforms, including mobile platforms controlled by third parties, rather than building on the Facebook Platform. We are continuouslyseekingtobalancethedistributionobjectivesofourPlatformdeveloperswithourdesiretoprovideanoptimal userexperience,andwemaynotbesuccessfulinachievingabalancethatcontinuestoattractandretainPlatformdevelopers. Fromtimetotime,wehavetakenactionstoreducethevolumeofcommunicationsfromappstousersonFacebookwiththe objectiveofenhancingtheuserexperience,andsuchactionshavereduceddistributionfrom,userengagementwith,andour monetizationopportunitiesfrom,appsonFacebook.Insomeinstances,theseactionshaveadverselyaffectedourrelationships withPlatformdevelopers.IfwearenotsuccessfulinoureffortstogrowourPlatformorifweare 14
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Table of Contents unabletobuildandmaintaingoodrelationswithPlatformdevelopers,ourusergrowthanduserengagementandourfinancial resultsmaybeadverselyaffected. Additionally, we may not be successful in further monetizing the Facebook Platform. We currently monetize the FacebookPlatforminseveralways,includingadsonpagesgeneratedbyappsonFacebook,directadvertisingonFacebook purchasedbyPlatformdeveloperstodrivetraffictotheirappsandwebsites,andfeesfromourPlatformdevelopersuseofour Paymentsinfrastructuretosellvirtualanddigitalgoodstousers.Appsbuiltbydevelopersofsocialgames,particularlyZynga, arecurrentlyresponsibleforsubstantiallyallofourrevenuederivedfromPayments.Inaddition,arelativelysmallpercentage ofourusershavetransactedwithFacebookPayments.Forexample,in2011,approximately15millionuserspurchasedvirtual goodsusingFacebookPayments.IfthePlatformappsthatcurrentlygeneraterevenuefailtogrowormaintaintheirusersand engagement,ifPlatformdevelopersdonotcontinuetointroducenewappsthatattractusersandcreateengagement,ifPlatform developersreducetheiradvertisingonFacebook,ifwefailtomaintaingoodrelationshipswithPlatformdevelopersorattract new developers, or if Platform apps outside of social games do not gain popularity and generate significant revenue, our financialperformanceandabilitytogrowrevenuecouldbeadverselyaffected. Ourbusinessishighlycompetitive.Competitionpresentsanongoingthreattothesuccessofourbusiness. We face significant competition in almost every aspect of our business, including from companies such as Google, Microsoft,andTwitter,whichofferavarietyofInternetproducts,services,content,andonlineadvertisingofferings,aswellas from mobile companies and smaller Internet companies that offer products and services that may compete with specific Facebook features. We also face competition from traditional and online media businesses for advertising budgets. We competebroadlywithGooglessocialnetworkingofferings,includingGoogle+,andalsowithother,largelyregional,social networks that have strong positions in particular countries, including Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India, and vKontakte in Russia. We would also face competition from companies in China such as Renren, Sina, and Tencent in the event that we are able to access the market in China in the future. As we introduce new products,asourexistingproductsevolve,orasothercompaniesintroducenewproductsandservices,wemaybecomesubject toadditionalcompetition. Some of our current and potential competitors have significantly greater resources and better competitive positions in certainmarketsthanwedo.Thesefactorsmayallowourcompetitorstorespondmoreeffectivelythanustoneworemerging technologiesandchangesinmarketrequirements.Ourcompetitorsmaydevelopproducts,features,orservicesthataresimilar tooursorthatachievegreatermarketacceptance,mayundertakemorefarreachingandsuccessfulproductdevelopmentefforts ormarketingcampaigns,ormayadoptmoreaggressivepricingpolicies.Inaddition,Platformpartnersmayuseinformation shared by our users through the Facebook Platform in order to develop products or features that compete with us. Certain competitors,includingGoogle,couldusestrongordominantpositionsinoneormoremarketstogaincompetitiveadvantage againstusinareaswhereweoperateincluding:byintegratingcompetingsocialnetworkingplatformsorfeaturesintoproducts theycontrolsuchassearchengines,webbrowsers,ormobiledeviceoperatingsystemsbymakingacquisitionsorbymaking accesstoFacebookmoredifficult.Asaresult,ourcompetitorsmayacquireandengageusersattheexpenseofthegrowthor engagementofouruserbase,whichmaynegativelyaffectourbusinessandfinancialresults. We believe that our ability to compete effectively depends upon many factors both within and beyond our control, including: theusefulness,easeofuse,performance,andreliabilityofourproductscomparedtoourcompetitors thesizeandcompositionofouruserbase theengagementofouruserswithourproducts 15
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Table of Contents thetimingandmarketacceptanceofproducts,includingdevelopmentsandenhancementstoourorourcompetitors products ourabilitytomonetizeourproducts,includingourabilitytosuccessfullymonetizemobileusage the frequency, size, and relative prominence of the ads and other commercial content displayed by us or our competitors customerserviceandsupportefforts marketingandsellingefforts ourabilitytoestablishandmaintaindevelopersinterestinbuildingontheFacebookPlatform changes mandated by legislation, regulatory authorities, or litigation, including settlements and consent decrees, someofwhichmayhaveadisproportionateeffectonus acquisitionsorconsolidationwithinourindustry,whichmayresultinmoreformidablecompetitors ourabilitytoattract,retain,andmotivatetalentedemployees,particularlysoftwareengineers ourabilitytocosteffectivelymanageandgrowouroperationsand ourreputationandbrandstrengthrelativetoourcompetitors.
Ifwearenotabletoeffectivelycompete,ouruserbaseandlevelofuserengagementmaydecrease,whichcouldmakeus lessattractivetodevelopersandadvertisersandmateriallyandadverselyaffectourrevenueandresultsofoperations. ActionbygovernmentstorestrictaccesstoFacebookintheircountriescouldsubstantiallyharmourbusinessandfinancial results. It is possible that governments of one or more countries may seek to censor content available on Facebook in their country,restrictaccesstoFacebookfromtheircountryentirely,orimposeotherrestrictionsthatmayaffecttheaccessibilityof Facebook in their country for an extended period of time or indefinitely. For example, access to Facebook has been or is currentlyrestrictedinwholeorinpartinChina,Iran,NorthKorea,andSyria.Inaddition,governmentsinothercountriesmay seektorestrictaccesstoFacebookiftheyconsiderustobeinviolationoftheirlaws.IntheeventthataccesstoFacebookis restricted,inwholeorinpart,inoneormorecountriesorourcompetitorsareabletosuccessfullypenetrategeographicmarkets thatwecannotaccess,ourabilitytoretainorincreaseouruserbaseanduserengagementmaybeadverselyaffected,wemay notbeabletomaintainorgrowourrevenueasanticipated,andourfinancialresultscouldbeadverselyaffected. Our efforts to expand the Facebook Platform may result in users increasingly engaging with our Platform developers FacebookintegratedwebsitesinsteadofengagingonFacebook,whichmaynegativelyaffectouradvertisingrevenueand harmourbusiness. We actively support Platform developers efforts to develop products that integrate with Facebook on the developers websites.OurPlatformdevelopersmaychoosetoprioritizebuildingorsupportingFacebookintegratedwebsitesasopposedto building or supporting apps that run on the Facebook website. When users visit a Platform partners Facebookintegrated website,wedonotdeliveradvertisements,whereaswewouldhavedisplayedadvertisementstotheseusersiftheiractivityhad takenplaceontheFacebookwebsite.IfFacebookintegratedwebsitesdrawusersawayfromourwebsite,itmayreduceorslow thegrowthofouruseractivitythatgeneratesadvertisingopportunities,whichcouldnegativelyaffectouradvertisingrevenue. Although we believe that there are significant longterm benefits to Facebook resulting from increased engagement on Facebookintegrated websites, these benefits may not offset the possible loss of advertising revenue, in which case our businesscouldbeharmed. 16
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Table of Contents Ournewproductsandchangestoexistingproductscouldfailtoattractorretainusersorgeneraterevenue. Ourabilitytoretain,increase,andengageouruserbaseandtoincreaseourrevenuewilldependheavilyonourabilityto createsuccessfulnewproducts,bothindependentlyandinconjunctionwithPlatformdevelopersorotherthirdparties.Wemay introducesignificantchangestoourexistingproductsordevelopandintroducenewandunprovenproducts,includingusing technologieswithwhichwehavelittleornopriordevelopmentoroperatingexperience.Ifneworenhancedproductsfailto engage users, developers, or advertisers, we may fail to attract or retain users or to generate sufficient revenue, operating margin,orothervaluetojustifyourinvestments,andourbusinessmaybeadverselyaffected.Inthefuture,wemayinvestin newproductsandinitiativestogeneraterevenue,butthereisnoguaranteetheseapproacheswillbesuccessful.Ifwearenot successfulwithnewapproachestomonetization,wemaynotbeabletomaintainorgrowourrevenueasanticipatedorrecover anyassociateddevelopmentcosts,andourfinancialresultscouldbeadverselyaffected. Ourcultureemphasizesrapidinnovationandprioritizesuserengagementovershorttermfinancialresults. We have a culture that encourages employees to quickly develop and launch new and innovative products. As our businessgrowsandbecomesmorecomplex,ourculturalemphasisonmovingquicklymayresultinunintendedoutcomesor decisionsthatarepoorlyreceivedbyusers,developers,oradvertisers.Ourculturealsoprioritizesouruserengagementover shorttermfinancialresults,andwefrequentlymakeproductdecisionsthatmayreduceourshorttermrevenueorprofitability if we believe that the decisions are consistent with our mission and benefit the aggregate user experience and will thereby improveourfinancialperformanceoverthelongterm.Thesedecisionsmaynotproducethelongtermbenefitsthatweexpect, inwhichcaseourusergrowthandengagement,ourrelationshipswithdevelopersandadvertisers,andourbusinessandresults ofoperationscouldbeharmed. Ifwearenotabletomaintainandenhanceourbrand,orifeventsoccurthatdamageourreputationandbrand,ourability toexpandourbaseofusers,developers,andadvertisersmaybeimpaired,andourbusinessandfinancialresultsmaybe harmed. WebelievethattheFacebookbrandhassignificantlycontributedtothesuccessofourbusiness.Wealsobelievethat maintainingandenhancingourbrandiscriticaltoexpandingourbaseofusers,developers,andadvertisers.Manyofournew users are referred by existing users, and therefore we strive to ensure that our users remain favorably inclined towards Facebook.Maintainingandenhancingourbrandwilldependlargelyonourabilitytocontinuetoprovideuseful,reliable, trustworthy,andinnovativeproducts,whichwemaynotdosuccessfully.Wemayintroducenewproductsortermsofservice thatusersdonotlike,whichmaynegativelyaffectourbrand.Additionally,theactionsofourPlatformdevelopersmayaffect ourbrandifusersdonothaveapositiveexperienceusingthirdpartyappsandwebsitesintegratedwithFacebook.Wehavein thepastexperienced,andweexpectthatinthefuturewewillcontinuetoexperience,media,legislative,orregulatoryscrutiny ofourdecisionsregardinguserprivacyorotherissues,whichmayadverselyaffectourreputationandbrand.Wealsomayfail toprovideadequatecustomerservice,whichcoulderodeconfidenceinourbrand.Ourbrandmayalsobenegativelyaffected bytheactionsofusersthataredeemedtobehostileorinappropriatetootherusers,orbyusersactingunderfalseorinauthentic identities.Maintainingandenhancingourbrandmayrequireustomakesubstantialinvestmentsandtheseinvestmentsmay notbesuccessful.IfwefailtosuccessfullypromoteandmaintaintheFacebookbrandorifweincurexcessiveexpensesinthis effort,ourbusinessandfinancialresultsmaybeadverselyaffected. Improperaccesstoordisclosureofourusersinformation,orviolationofourtermsofserviceorpolicies,couldharmour reputationandadverselyaffectourbusiness. OureffortstoprotecttheinformationthatourusershavechosentoshareusingFacebookmaybeunsuccessfulduetothe actions of third parties, software bugs or other technical malfunctions, employee error or malfeasance, or other factors. In addition,thirdpartiesmayattempttofraudulentlyinduceemployeesoruserstodiscloseinformationinordertogainaccessto ourdataorourusersdata.Ifanyoftheseeventsoccur,ourusersinformationcouldbeaccessedordisclosedimproperly.Our DataUsePolicygovernstheuseofinformationthat 17
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Table of Contents users have chosen to share using Facebook and how that information may be used by us and third parties. Some Platform developersmaystoreinformationprovidedbyourusersthroughappsontheFacebookPlatformorwebsitesintegratedwith Facebook. If these third parties or Platform developers fail to adopt or adhere to adequate data security practices or fail to complywithourtermsandpolicies,orintheeventofabreachoftheirnetworks,ourusersdatamaybeimproperlyaccessedor disclosed. Anyincidentsinvolvingunauthorizedaccesstoorimproperuseoftheinformationofourusersorincidentsinvolving violationofourtermsofserviceorpolicies,includingourDataUsePolicy,coulddamageourreputationandourbrandand diminishourcompetitiveposition.Inaddition,theaffectedusersorgovernmentauthoritiescouldinitiatelegalorregulatory actionagainstusinconnectionwithsuchincidents,whichcouldcauseustoincursignificantexpenseandliabilityorresultin ordersorconsentdecreesforcingustomodifyourbusinesspractices.Anyoftheseeventscouldhaveamaterialandadverse effectonourbusiness,reputation,orfinancialresults. Unfavorablemediacoveragecouldnegativelyaffectourbusiness. Wereceiveahighdegreeofmediacoveragearoundtheworld.Unfavorablepublicityregarding,forexample,ourprivacy practices,productchanges,productquality,litigationorregulatoryactivity,ortheactionsofourPlatformdevelopersorour users,couldadverselyaffectourreputation.Suchnegativepublicityalsocouldhaveanadverseeffectonthesize,engagement, andloyaltyofouruserbaseandresultindecreasedrevenue,whichcouldadverselyaffectourbusinessandfinancialresults. Ourfinancialresultswillfluctuatefromquartertoquarter,whichmakesthemdifficulttopredict. Ourquarterlyfinancialresultshavefluctuatedinthepastandwillfluctuateinthefuture.Additionally,wehavealimited operatinghistorywiththecurrentscaleofourbusiness,whichmakesitdifficulttoforecastourfutureresults.Asaresult,you shouldnotrelyuponourpastquarterlyfinancialresultsasindicatorsoffutureperformance.Youshouldtakeintoaccountthe risksanduncertaintiesfrequentlyencounteredbycompaniesinrapidlyevolvingmarkets.Ourfinancialresultsinanygiven quartercanbeinfluencedbynumerousfactors,manyofwhichweareunabletopredictorareoutsideofourcontrol,including: ourabilitytomaintainandgrowouruserbaseanduserengagement ourabilitytoattractandretainadvertisersinaparticularperiod seasonalfluctuationsinspendingbyouradvertisers thenumberofadsshowntousers thepricingofouradsandotherproducts ourabilitytoincreasepaymentsandotherfeesrevenue thediversificationandgrowthofrevenuesourcesbeyondcurrentadvertisingandPayments thedevelopmentandintroductionofnewproductsorservicesbyusorourcompetitors increasesinmarketing,sales,andotheroperatingexpensesthatwemayincurtogrowandexpandouroperationsand toremaincompetitive ourabilitytomaintaingrossmarginsandoperatingmargins ourabilitytoobtainequipmentandcomponentsforourdatacentersandothertechnicalinfrastructureinatimely andcosteffectivemanner systemfailuresorbreachesofsecurityorprivacy inaccessibilityofFacebookduetothirdpartyactions 18
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Table of Contents sharebased compensation expense including approximately $965 million that we will incur in the quarter of the completionofourinitialpublicofferinginconnectionwiththevestingofrestrictedstockunits(RSUs)grantedprior to2011forwhichtheserviceconditionwassatisfiedasofMarch31,2012 adverselitigationjudgments,settlements,orotherlitigationrelatedcosts changes in the legislative or regulatory environment, including with respect to privacy, or enforcement by governmentregulators,includingfines,orders,orconsentdecrees fluctuationsincurrencyexchangeratesandchangesintheproportionofourrevenueandexpensesdenominatedin foreigncurrencies fluctuationsinthemarketvaluesofourportfolioinvestmentsandininterestrates changesinU.S.generallyacceptedaccountingprinciplesand changesinbusinessormacroeconomicconditions.
In2011andthefirstquarterof2012,weestimatethatupto19%and15%ofourrevenue,respectively,wasderivedfrom PaymentsprocessingfeesfromZynga,directadvertisingfromZynga,andrevenuefromthirdpartiesforadsshownonpages generated by Zynga apps. If Zynga does not maintain its level of engagement with our users or if we are unable to successfullymaintainourrelationshipwithZynga,ourfinancialresultscouldbeharmed. In 2011 and the first quarter of 2012, Zynga directly accounted for approximately 12% and 11%, respectively, of our revenue,whichwascomprisedofrevenuederivedfromPaymentsprocessingfeesrelatedtoZyngassalesofvirtualgoodsand fromdirectadvertisingpurchasedbyZynga.Additionally,Zyngasappsgeneratepagesonwhichwedisplayadsfromother advertisersfor2011andthefirstquarterof2012,weestimatethatanadditionalapproximately7%and4%,respectively,of ourrevenuewasgeneratedfromthedisplayoftheseads.Zyngahasrecentlylaunchedgamesonitsownwebsiteandonnon Facebookplatforms,andZyngamaychoosetotrytomigrateusersfromexistingFacebookintegratedgamestootherwebsites orplatforms.WemayfailtomaintaingoodrelationswithZyngaorZyngamaydecidetoreduceorceaseitsinvestmentsin gamesontheFacebookPlatform.IftheuseofZyngagamesonourPlatformdeclinesfortheseorotherreasons,ourfinancial resultsmaybeadverselyaffected. Weexpectourratesofgrowthwilldeclineinthefuture. Webelievethatourratesofuserandrevenuegrowthwilldeclineovertime.Forexample,ourrevenuegrew154%from 2009to2010,88%from2010to2011,and45%fromthefirstquarterof2011tothesameperiodin2012.Historically,our usergrowthhasbeenaprimarydriverofgrowthinourrevenue.Weexpectthatourusergrowthandrevenuegrowthrateswill declineasthesizeofouractiveuserbaseincreasesandasweachievehighermarketpenetrationrates.Asourgrowthrates decline,investorsperceptionsofourbusinessmaybeadverselyaffectedandthemarketpriceofourClassAcommonstock coulddecline. OurbusinessissubjecttocomplexandevolvingU.S.andforeignlawsandregulationsregardingprivacy,dataprotection, andothermatters.Manyoftheselawsandregulationsaresubjecttochangeanduncertaininterpretation,andcouldresult in claims, changes to our business practices, increased cost of operations, or declines in user growth or engagement, or otherwiseharmourbusiness. WearesubjecttoavarietyoflawsandregulationsintheUnitedStatesandabroadthatinvolvematterscentraltoour business, including user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contractsandothercommunications,competition,protectionofminors,consumerprotection,taxation,andonlinepayment services.Foreigndataprotection,privacy,andotherlawsandregulationsareoftenmorerestrictivethanthoseintheUnited States.TheseU.S.federalandstateandforeignlawsandregulationsareconstantlyevolvingandcanbesubjecttosignificant change.Inaddition,theapplicationand 19
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Table of Contents interpretationoftheselawsandregulationsareoftenuncertain,particularlyinthenewandrapidlyevolvingindustryinwhich we operate. For example, the interpretation of some laws and regulations that govern the use of names and likenesses in connectionwithadvertisingandmarketingactivitiesisunsettledanddevelopmentsinthisareacouldaffectthemannerin whichwedesignourproducts,aswellasourtermsofuse.Anumberofproposalsarependingbeforefederal,state,andforeign legislativeandregulatorybodiesthatcouldsignificantlyaffectourbusiness.Forexample,arevisiontothe1995European UnionDataProtectionDirectiveiscurrentlybeingconsideredbyEuropeanlegislativebodiesthatmayincludemorestringent operationalrequirementsfordataprocessorsandsignificantpenaltiesfornoncompliance.Similarly,therehavebeenanumber ofrecentlegislativeproposalsintheUnitedStates,atboththefederalandstatelevel,thatwouldimposenewobligationsin areas such as privacy and liability for copyright infringement by third parties. These existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity,increaseouroperatingcosts,requiresignificantmanagementtimeandattention,andsubjectustoclaimsorother remedies,includingfinesordemandsthatwemodifyorceaseexistingbusinesspractices. We have been subject to regulatory investigations and settlements and we expect to continue to be subject to such proceedingsinthefuture,whichcouldcauseustoincursubstantialcostsorrequireustochangeourbusinesspracticesina mannermateriallyadversetoourbusiness. From time to time, we receive inquiries from regulators regarding our compliance with laws and other matters. For example,in2011,wereachedagreementwiththeFederalTradeCommission(FTC)toresolveaninvestigationintovarious practicesbyenteringintoa20yearsettlementagreementthat,amongotherthings,requiresustoestablishandrefinecertain practiceswithrespecttotreatmentofuserdataandprivacysettingsandalsorequiresthatwecompletebiannualindependent privacyaudits.Asanotherexample,in2011theIrishDataProtectionCommissioner(DPC)conductedanauditofthedata, security,andprivacypracticesandpoliciesofFacebookIreland,whichisthedatacontrollerforFacebookusersoutsidethe UnitedStatesandCanada,andreleasedareportofitsconclusionsinDecember2011.TheFTCandDPChaveinvestigatedand auditedaspectsofourproductsandpractices,andweexpecttocontinuetobethesubjectofregulatoryinvestigationsand auditsinthefuturebytheseandotherregulatorsthroughouttheworld. Itispossiblethataregulatoryinquirymightresultinchangestoourpoliciesorpractices.Violationofexistingorfuture regulatoryordersorconsentdecreescouldsubjectustosubstantialmonetaryfinesandotherpenaltiesthatcouldnegatively affectourfinancialconditionandresultsofoperations.Inaddition,itispossiblethatfutureordersissuedby,orenforcement actions initiated by, regulatory authorities could cause us to incur substantial costs or require us to change our business practicesinamannermateriallyadversetoourbusiness. Ifweareunabletoprotectourintellectualproperty,thevalueofourbrandandotherintangibleassetsmaybediminished, andourbusinessmaybeadverselyaffected. Werelyandexpecttocontinuetorelyonacombinationofconfidentialityandlicenseagreementswithouremployees, consultants, and third parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domainnameprotectionlaws,toprotectourproprietaryrights.IntheUnitedStatesandinternationally,wehavefiledvarious applicationsforprotectionofcertainaspectsofourintellectualproperty,andwecurrentlyholdanumberofissuedpatentsin multiplejurisdictions.Inaddition,inthefuturewemayacquireadditionalpatentsorpatentportfolios,whichcouldrequire significant cash expenditures. However, third parties may knowingly or unknowingly infringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved.Inaddition,effectiveintellectualpropertyprotectionmaynotbeavailableineverycountryinwhichweoperateor intendtooperateourbusiness.Inanyorallofthesecases,wemayberequiredtoexpendsignificanttimeandexpenseinorder topreventinfringementortoenforceourrights.Althoughwehavetakenmeasurestoprotectourproprietaryrights,therecan be no assurance that others will not offer products or concepts that are substantially similar to ours and compete with our business. In addition, we regularly contribute software source code under open source licenses and have made other technologywedevelopedavailableunderotheropenlicenses,andweincludeopensourcesoftwarein 20
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Table of Contents ourproducts.Forexample,wehavecontributedcertainspecificationsanddesignsrelatedtoourdatacenterequipmenttothe Open Compute Project Foundation, a nonprofit entity that shares and develops such information with the technology community,undertheOpenWebFoundationLicense.Asaresultofouropensourcecontributionsandtheuseofopensource inourproducts,wemaylicenseorberequiredtolicenseinnovationsthatturnouttobematerialtoourbusinessandmayalso beexposedtoincreasedlitigationrisk.Iftheprotectionofourproprietaryrightsisinadequatetopreventunauthorizeduseor appropriationbythirdparties,thevalueofourbrandandotherintangibleassetsmaybediminishedandcompetitorsmaybe abletomoreeffectivelymimicourserviceandmethodsofoperations.Anyoftheseeventscouldhaveanadverseeffectonour businessandfinancialresults. Wearecurrently,andexpecttobeinthefuture,partytopatentlawsuitsandotherintellectualpropertyrightsclaimsthatare expensive and time consuming, and, if resolved adversely, could have a significant impact on our business, financial condition,orresultsofoperations. CompaniesintheInternet,technology,andmediaindustriesownlargenumbersofpatents,copyrights,trademarks,and tradesecrets,andfrequentlyenterintolitigationbasedonallegationsofinfringement,misappropriation,orotherviolationsof intellectual property or other rights. In addition, various nonpracticing entities that own patents and other intellectual property rights often attempt to aggressively assert their rights in order to extract value from technology companies. Furthermore,fromtimetotimewemayintroducenewproducts,includinginareaswherewecurrentlydonotcompete,which couldincreaseourexposuretopatentandotherintellectualpropertyclaimsfromcompetitorsandnonpracticingentities. Fromtimetotime,wereceivenoticelettersfrompatentholdersallegingthatcertainofourproductsandservicesinfringe theirpatentrights.Someofthesehaveresultedinlitigationagainstus.Forexample,onMarch12,2012,Yahoofiledalawsuit againstusintheU.S.DistrictCourtfortheNorthernDistrictofCaliforniathatallegesthatanumberofourproductsinfringe the claims of ten of Yahoos patents that Yahoo claims relate to advertising, social networking, privacy, customization,andmessaging,andonApril27,2012,YahooaddedtwopatentstothelawsuitthatYahooclaimsrelateto advertising.Yahooisseekingunspecifieddamages,adamagemultiplierforallegedwillfulinfringement,andaninjunction. We intend to vigorously defend this lawsuit, and on April 3, 2012, we filed our answer with respect to this complaint and assertedcounterclaimsthatYahoosproductsinfringetenofourpatents.Thislitigationisstillinitsearlystagesandthefinal outcome,includingourliability,ifany,withrespecttoYahoosclaims,isuncertain.Ifanunfavorableoutcomeweretooccur inthislitigation,theimpactcouldbematerialtoourbusiness,financialcondition,orresultsofoperations.Asiscommonin intellectualpropertylitigation,Yahoocouldinthefutureassertadditionalpatentorotherclaimsagainstusinthisorinother proceedings.Forexample,wereceivedaletterdatedApril23,2012fromYahooindicatingthattheybelieve16patentsthey claimtoholdmayberelevanttoopensourcetechnologytheyallegeisbeingusedinourdatacentersandservers.Yahoohas notthreatenedorinitiatedlitigationwithrespecttomattersdescribedinthisletterbutitmaydosointhefuture. Wepresentlyareinvolvedinanumberofotherlawsuits,andaswefaceincreasingcompetitionandgainanincreasingly highprofile,includinginconnectionwithourinitialpublicoffering,weexpectthenumberofpatentandotherintellectual property claims against us to grow. Defending patent and other intellectual property litigation is costly and can impose a significant burden on management and employees, and there can be no assurances that favorable final outcomes will be obtainedinallcases.Inaddition,plaintiffsmayseek,andwemaybecomesubjectto,preliminaryorprovisionalrulingsinthe courseofanysuchlitigation,includingpotentialpreliminaryinjunctionsrequiringustoceasesomeorallofouroperations. Wemaydecidetosettlesuchlawsuitsanddisputesontermsthatareunfavorabletous.Similarly,ifanylitigationtowhichwe areapartyisresolvedadversely,wemaybesubjecttoanunfavorablejudgmentthatmaynotbereverseduponappeal.The termsofsuchasettlementorjudgmentmayrequireustoceasesomeorallofouroperationsorpaysubstantialamountstothe otherparty.Inaddition,wemayhavetoseekalicensetocontinuepracticesfoundtobeinviolationofathirdpartysrights, whichmaynotbeavailableonreasonableterms,oratall,andmaysignificantlyincreaseouroperatingcostsandexpenses.As aresult,wemayalsoberequiredtodevelopalternativenoninfringingtechnologyorpracticesordiscontinuethepractices. Thedevelopmentofalternativenoninfringingtechnologyorpracticescouldrequiresignificanteffortandexpenseormaynot befeasible.Ourbusiness,financialcondition,orresultsofoperationscouldbeadverselyaffectedasaresultofanunfavorable resolutionofthedisputesandlitigationreferredtoabove. 21
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Table of Contents Weareinvolvedinnumerousclassactionlawsuitsandotherlitigationmattersthatareexpensiveandtimeconsuming,and, ifresolvedadversely,couldharmourbusiness,financialcondition,orresultsofoperations. In addition to intellectual property claims, we are also involved in numerous other lawsuits, including putative class action lawsuits brought by users and advertisers, many of which claim statutory damages, and we anticipate that we will continuetobeatargetfornumerouslawsuitsinthefuture.Becausewehavehundredsofmillionsofusers,theplaintiffsin classactioncasesfiledagainstustypicallyclaimenormousmonetarydamageseveniftheallegedperuserharmissmallor nonexistent.Anylitigationtowhichweareapartymayresultinanonerousorunfavorablejudgmentthatmaynotbereversed uponappeal,orwemaydecidetosettlelawsuitsonsimilarlyunfavorableterms.Anysuchnegativeoutcomecouldresultin payments of substantial monetary damages or fines, or changes to our products or business practices, and accordingly our business, financial condition, or results of operations could be materially and adversely affected. Although the results of lawsuits and claims cannot be predicted with certainty, we do not believe that the final outcome of those matters that we currently face will have a material adverse effect on our business, financial condition, or results of operations. However, defending these claims is costly and can impose a significant burden on management and employees, and we may receive unfavorable preliminary or interim rulings in the course of litigation, which could adversely affect the market price of our ClassAcommonstock.Therecanbenoassurancesthatafavorablefinaloutcomewillbeobtainedinallcases. OurCEOhascontroloverkeydecisionmakingasaresultofhiscontrolofamajorityofourvotingstock. As a result of voting agreements with certain stockholders, together with the shares he holds, Mark Zuckerberg, our founder, Chairman, and CEO, will be able to exercise voting rights with respect to an aggregate of 933,969,202 shares of commonstock,whichwillrepresentapproximately57.3%ofthevotingpowerofouroutstandingcapitalstockfollowingour initial public offering. As a result, Mr. Zuckerberg has the ability to control the outcome of matters submitted to our stockholdersforapproval,includingtheelectionofdirectorsandanymerger,consolidation,orsaleofallorsubstantiallyallof ourassets.Thisconcentratedcontrolcoulddelay,defer,orpreventachangeofcontrol,merger,consolidation,orsaleofallor substantiallyallofourassetsthatourotherstockholderssupport,orconverselythisconcentratedcontrolcouldresultinthe consummation of such a transaction that our other stockholders do not support. This concentrated control could also discourage a potential investor from acquiring our Class A common stock due to the limited voting power of such stock relative to the Class B common stock and might harm the market price of our Class A common stock. In addition, Mr.Zuckerberghastheabilitytocontrolthemanagementandmajorstrategicinvestmentsofourcompanyasaresultofhis positionasourCEOandhisabilitytocontroltheelectionorreplacementofourdirectors.Intheeventofhisdeath,theshares of our capital stock that Mr. Zuckerberg owns will be transferred to the persons or entities that he designates. As a board member and officer, Mr. Zuckerberg owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr.Zuckerbergisentitledtovotehisshares,andsharesoverwhichhehasvotingcontrolasaresultofvotingagreements,in hisowninterests,whichmaynotalwaysbeintheinterestsofourstockholdersgenerally.Foradescriptionofthesevoting agreements,seeDescriptionofCapitalStockVotingAgreements. We anticipate that we will expend substantial funds in connection with the tax liabilities that arise upon the initial settlement of RSUs following our initial public offering and the manner in which we fund that expenditure may have an adverseeffectonourfinancialcondition. Weanticipatethatwewillexpendsubstantialfundstosatisfytaxwithholdingandremittanceobligationsondatesthat are151to181daysafterthedateofthisprospectus,whenwewillsettleaportionofourRSUsgrantedpriortoJanuary1,2011 (Pre2011RSUs).Onthesettlementdates,weplantowithholdandremitincometaxesatapplicableminimumstatutoryrates basedonthethencurrentvalueoftheunderlyingshares.Wecurrentlyexpectthattheaverageofthesewithholdingtaxrates willbeapproximately45%.Ifthepriceofourcommonstockatthetimeofsettlementwereequaltothemidpointoftheprice range on the cover page of this prospectus, we estimate that this tax obligation would be approximately $4 billion in the aggregate.Theamountofthisobligationcouldbehigherorlower,dependingonthepriceofoursharesontheRSUsettlement date.Tosettle 22
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Table of Contents theseRSUs,assuminganapproximate45%taxwithholdingrate,weanticipatethatwewillnetsettletheawardsbydelivering anaggregateofapproximately155millionsharesofClassBcommonstocktoRSUholdersandwithholdinganaggregateof approximately122millionsharesofClassBcommonstock,basedonRSUsoutstandingasofMarch31,2012forwhichthe serviceconditionwillbesatisfiedasofthedateofsettlement.Inconnectionwiththesenetsettlementswewillwithholdand remitthetaxliabilitiesonbehalfoftheRSUholdersincashtotheapplicabletaxauthorities. Tofundthewithholdingandremittanceobligations,weexpecttosellequitysecuritiesneartheinitialsettlementdatein anamountthatissubstantiallyequivalenttothenumberofsharesofcommonstockthatwewithholdinconnectionwiththese netsettlements,suchthatthenewlyissuedsharesshouldnotbedilutive.Wehaveanexceptioninourlockupagreement withourunderwritersthatwouldpermitustoraisecapitalinanunderwrittenofferingtofundthesewithholdingandremittance obligations.However,intheeventthatweissueequitysecurities,wecannotassureyouthatwewillbeabletosuccessfully matchtheproceedstotheamountofthistaxliability.Inaddition,anysuchequityfinancingcouldresultinadeclineinour stockprice.Ifweelectnottofullyfundtaxwithholdingandremittanceobligationsthroughtheissuanceofequityorweare unabletocompletesuchanofferingduetomarketconditionsorotherwise,wemaychoosetoborrowfundsfromourcredit facilities,useasubstantialportionofourexistingcash,orrelyuponacombinationofthesealternatives.Intheeventthatwe electtosatisfytaxwithholdingandremittanceobligationsinwholeorinpartbydrawingonourcreditfacilities,ourinterest expense and principal repayment requirements could increase significantly, which could have an adverse effect on our financialresults. Wecannotbecertainthatadditionalfinancingwillbeavailableonreasonabletermswhenrequired,oratall. Fromtimetotime,wemayneedadditionalfinancing,whetherinconnectionwithourRSUtaxobligationorotherwise. Ourabilitytoobtainadditionalfinancing,ifandwhenrequired,willdependoninvestordemand,ouroperatingperformance, the condition of the capital markets, and other factors. To the extent we draw on our credit facilities to fund the RSU tax obligation,wemayneedtoraiseadditionalfundsandwecannotassureyouthatadditionalfinancingwillbeavailabletouson favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equitylinked or debt securities,thosesecuritiesmayhaverights,preferences,orprivilegesseniortotherightsofourClassAcommonstock,andour existingstockholdersmayexperiencedilution. Ourcostsaregrowingquickly,whichcouldharmourbusinessandprofitability. Providing our products to our users is costly and we expect our expenses to continue to increase in the future as we broadenouruserbase,asusersincreasethenumberofconnectionsandamountofdatatheysharewithus,aswedevelopand implementnewproductfeaturesthatrequiremorecomputinginfrastructure,andaswehireadditionalemployees.Historically, ourcostshaveincreasedeachyearduetothesefactorsandweexpecttocontinuetoincurincreasingcosts,inparticularfor employees,servers,storage,power,anddatacenters,tosupportouranticipatedfuturegrowth.Weexpecttocontinuetoinvest inourglobalinfrastructureinordertoprovideourproductsrapidlyandreliablytoallusersaroundtheworld,includingin countrieswherewedonotexpectsignificantshorttermmonetization.Ourexpensesmaybegreaterthanweanticipate,andour investmentstomakeourbusinessandourtechnicalinfrastructuremoreefficientmaynotbesuccessful.Inaddition,wemay increasemarketing,sales,andotheroperatingexpensesinordertogrowandexpandouroperationsandtoremaincompetitive. Increasesinourcostsmayadverselyaffectourbusinessandprofitability. Ourbusinessisdependentonourabilitytomaintainandscaleourtechnicalinfrastructure,andanysignificantdisruptionin our service could damage our reputation, result in a potential loss of users and engagement, and adversely affect our financialresults. Ourreputationandabilitytoattract,retain,andserveourusersisdependentuponthereliableperformanceofFacebook andourunderlyingtechnicalinfrastructure.Oursystemsmaynotbeadequatelydesignedwiththe 23
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Table of Contents necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business. If Facebookisunavailablewhenusersattempttoaccessit,orifitdoesnotloadasquicklyastheyexpect,usersmaynotreturnto ourwebsiteasofteninthefuture,oratall.AsouruserbaseandtheamountandtypesofinformationsharedonFacebook continuetogrow,wewillneedanincreasingamountoftechnicalinfrastructure,includingnetworkcapacity,andcomputing power,tocontinuetosatisfytheneedsofourusers.Itispossiblethatwemayfailtoeffectivelyscaleandgrowourtechnical infrastructuretoaccommodatetheseincreaseddemands.Inaddition,ourbusinessissubjecttointerruptions,delays,orfailures resultingfromearthquakes,othernaturaldisasters,terrorism,orothercatastrophicevents. Asubstantialportionofournetworkinfrastructureisprovidedbythirdparties.Anydisruptionorfailureintheserviceswe receivefromtheseproviderscouldharmourabilitytohandleexistingorincreasedtrafficandcouldsignificantlyharmour business. Any financial or other difficulties these providers face may adversely affect our business, and we exercise little controlovertheseproviders,whichincreasesourvulnerabilitytoproblemswiththeservicestheyprovide. Werecentlybegantoownandbuildkeyportionsofourtechnicalinfrastructure,and,becauseofourlimitedexperiencein thisarea,wecouldexperienceunforeseendifficulties. In2011,webeganservingourproductsfromdatacentersownedbyFacebookusingserversspecificallydesignedforus. Weplantocontinuetosignificantlyexpandthesizeofourinfrastructure,primarilythroughdatacentersthatwedesignand own.Theinfrastructureexpansionweareundertakingiscomplex,andunanticipateddelaysinthecompletionoftheseprojects oravailabilityofcomponentsmayleadtoincreasedprojectcosts,operationalinefficiencies,orinterruptionsinthedeliveryor degradationofthequalityofourproducts.Inaddition,theremaybeissuesrelatedtothisinfrastructurethatarenotidentified duringthetestingphasesofdesignandimplementation,whichmayonlybecomeevidentafterwehavestartedtofullyutilize theunderlyingequipment,thatcouldfurtherdegradetheuserexperienceorincreaseourcosts. Oursoftwareishighlytechnical,andifitcontainsundetectederrors,ourbusinesscouldbeadverselyaffected. Ourproductsincorporatesoftwarethatishighlytechnicalandcomplex.Oursoftwarehascontained,andmaynoworin thefuturecontain,undetectederrors,bugs,orvulnerabilities.Someerrorsinoursoftwarecodemayonlybediscoveredafter thecodehasbeenreleased.Anyerrors,bugs,orvulnerabilitiesdiscoveredinourcodeafterreleasecouldresultindamageto ourreputation,lossofusers,lossofrevenue,orliabilityfordamages,anyofwhichcouldadverselyaffectourbusinessand financialresults. Certainofourusermetricsaresubjecttoinherentchallengesinmeasurement,andrealorperceivedinaccuraciesinsuch metricsmayharmourreputationandnegativelyaffectourbusiness. The numbers of our MAUs and daily active users (DAUs) and average revenue per user (ARPU) are calculated using internalcompanydata.Whilethesenumbersarebasedonwhatwebelievetobereasonableestimatesofouruserbaseforthe applicableperiodofmeasurement,thereareinherentchallengesinmeasuringusageofourproductsacrosslargeonlineand mobile populations around the world. For example, there may be individuals who have multiple Facebook accounts in violationofourtermsofservice,despiteoureffortstodetectandsuppresssuchbehavior.Weestimatethatfalseorduplicate accountsmayhaverepresentedapproximately56%ofourMAUsasofDecember31,2011.However,thisestimateisbasedon aninternalreviewofalimitedsampleofaccountsandweapplysignificantjudgmentinmakingthisdetermination,suchas identifyingnamesthatappeartobefakeorotherbehaviorthatappearsinauthentictothereviewers.Assuch,ourestimationof falseorduplicateaccountsmaynotaccuratelyrepresenttheactualnumberofsuchaccounts.Ourmetricsarealsoaffectedby applicationsoncertainmobiledevicesthatautomaticallycontactourserversforregularupdateswithnouseractioninvolved, andthisactivitycancauseoursystemtocounttheuserassociatedwithsuchadeviceasanactiveuseronthedaysuchcontact occurs. For example, we estimate that less than 5% of our estimated worldwide DAUs as of December 31, 2011 and 2010 resultedfromthistypeofautomaticmobileactivity,andthatthistypeofactivityhadasubstantially 24
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Table of Contents smallereffectonourestimateofworldwideMAUsandmobileMAUs.Theimpactofthisautomaticactivityonourmetrics varies by geography because mobile usage varies in different regions of the world. In addition, our data regarding the geographiclocation of ourusers is estimated based on a number offactors, suchas the usersIP addressand selfdisclosed location. These factors may not always accurately reflect the users actual location. For example, a mobileonly user may appeartobeaccessingFacebookfromthelocationoftheproxyserverthattheuserconnectstoratherthanfromtheusers actual location. In addition, our estimates for revenue by user location are also affected by these factors. If advertisers, developers, or investors do not perceive our user metrics to be accurate representations of our user base, or if we discover materialinaccuraciesinourusermetrics,ourreputationmaybeharmedandadvertisersanddevelopersmaybelesswillingto allocatetheirbudgetsorresourcestoFacebook,whichcouldnegativelyaffectourbusinessandfinancialresults. Wecannotassureyouthatwewilleffectivelymanageourgrowth. Ouremployeeheadcountandthescopeandcomplexityofourbusinesshaveincreasedsignificantly,withthenumberof fulltimeemployeesincreasingfrom2,431asofMarch31,2011,to3,539asofMarch31,2012,andweexpectheadcount growth to continue for the foreseeable future. The growth and expansion of our business and products create significant challenges for our management, operational, and financial resources, including managing multiple relations with users, advertisers,Platformdevelopers,andotherthirdparties.Intheeventofcontinuedgrowthofouroperationsorinthenumberof ourthirdpartyrelationships,ourinformationtechnologysystemsorourinternalcontrolsandproceduresmaynotbeadequate tosupportouroperations.Inaddition,somemembersofourmanagementdonothavesignificantexperiencemanagingalarge globalbusinessoperation,soourmanagementmaynotbeabletomanagesuchgrowtheffectively.Toeffectivelymanageour growth, we must continue to improve our operational, financial, and management processes and systems and to effectively expand,train,andmanageouremployeebase.Asourorganizationcontinuestogrow,andwearerequiredtoimplementmore complexorganizationalmanagementstructures,wemayfinditincreasinglydifficulttomaintainthebenefitsofourcorporate culture,includingourabilitytoquicklydevelopandlaunchnewandinnovativeproducts.Thiscouldnegativelyaffectour businessperformance. Thelossofoneormoreofourkeypersonnel,orourfailuretoattractandretainotherhighlyqualifiedpersonnelinthe future,couldharmourbusiness. Wecurrentlydependonthecontinuedservicesandperformanceofourkeypersonnel,includingMarkZuckerbergand Sheryl K. Sandberg. Although we have entered into employment agreements with Mr. Zuckerberg and Ms. Sandberg, the agreements have no specific duration and constitute atwill employment. In addition, many of our key technologies and systemsarecustommadeforourbusinessbyourpersonnel.Thelossofkeypersonnel,includingmembersofmanagementas well as key engineering, product development, marketing, and sales personnel, could disrupt our operations and have an adverseeffectonourbusiness. As we continue to grow, we cannot guarantee we will continue to attract the personnel we need to maintain our competitiveposition.Inparticular,weintendtohireasignificantnumberofengineeringandsalespersonnelin2012,andwe expecttofacesignificantcompetitionfromothercompaniesinhiringsuchpersonnel,particularlyintheSanFranciscoBay Area. As we mature, the incentives to attract, retain, and motivate employees provided by our equity awards or by future arrangements,suchasthroughcashbonuses,maynotbeaseffectiveasinthepast.Additionally,wehaveanumberofcurrent employeeswhoseequityownershipinourcompanygivesthemasubstantialamountofpersonalwealth.Likewise,wehavea number of current employees whose equity awards are fully vested and shortly after the completion of our initial public offeringwillbeentitledtoreceivesubstantialamountsofourcapitalstock.Asaresult,itmaybedifficultforustocontinueto retainandmotivatetheseemployees,andthiswealthcouldaffecttheirdecisionsaboutwhetherornottheycontinuetowork for us. If we do not succeed in attracting, hiring, and integrating excellent personnel, or retaining and motivating existing personnel,wemaybeunabletogroweffectively. 25
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Table of Contents WemayincurliabilityasaresultofinformationretrievedfromortransmittedovertheInternetorpostedtoFacebookand claimsrelatedtoourproducts. Wehavefaced,currentlyface,andwillcontinuetofaceclaimsrelatingtoinformationthatispublishedormadeavailable onFacebook.Inparticular,thenatureofourbusinessexposesustoclaimsrelatedtodefamation,intellectualpropertyrights, rights of publicity and privacy, and personal injury torts. This risk is enhanced in certain jurisdictions outside the United Stateswhereourprotectionfromliabilityforthirdpartyactionsmaybeunclearandwherewemaybelessprotectedunder locallawsthanweareintheUnitedStates.Wecouldincursignificantcostsinvestigatinganddefendingsuchclaimsand,ifwe are found liable, significant damages. If any of these events occur, our business and financial results could be adversely affected. Computermalware,viruses,hackingandphishingattacks,andspammingcouldharmourbusinessandresultsofoperations. Computer malware, viruses, and computer hacking and phishing attacks have become more prevalent in our industry, haveoccurredonoursystemsinthepast,andmayoccuronoursystemsinthefuture.Becauseofourprominence,webelieve thatweareaparticularlyattractivetargetforsuchattacks.Thoughitisdifficulttodeterminewhat,ifany,harmmaydirectly resultfromanyspecificinterruptionorattack,anyfailuretomaintainperformance,reliability,security,andavailabilityofour productsandtechnicalinfrastructuretothesatisfactionofourusersmayharmourreputationandourabilitytoretainexisting usersandattractnewusers. Inaddition,spammersattempttouseourproductstosendtargetedanduntargetedspammessagestousers,whichmay embarrassorannoyusersandmakeFacebooklessuserfriendly.Wecannotbecertainthatthetechnologiesandemployeesthat wehavetoattempttodefeatspammingattackswillbeabletoeliminateallspammessagesfrombeingsentonourplatform.As aresultofspammingactivities,ourusersmayuseFacebooklessorstopusingourproductsaltogether. PaymenttransactionsontheFacebookPlatformmaysubjectustoadditionalregulatoryrequirementsandotherrisksthat couldbecostlyanddifficulttocomplywithorthatcouldharmourbusiness. OuruserscanusetheFacebookPlatformtopurchasevirtualanddigitalgoodsfromourPlatformdevelopersusingour Payments infrastructure. Depending on how our Payments product evolves, we may be subject to a variety of laws and regulationsintheUnitedStates,Europe,andelsewhere,includingthosegoverningmoneytransmission,giftcardsandother prepaidaccessinstruments,electronicfundstransfers,antimoneylaundering,counterterroristfinancing,gambling,banking and lending, and import and export restrictions. In some jurisdictions, the application or interpretation of these laws and regulationsisnotclear.ToincreaseflexibilityinhowouruseofPaymentsmayevolveandtomitigateregulatoryuncertainty, wehaveappliedforcertainmoneytransmitterlicensesandexpecttoapplyforadditionalmoneytransmitterlicensesinthe UnitedStates,whichwillgenerallyrequireustodemonstratecompliancewithmanydomesticlawsintheseareas.Oureffortsto complywiththeselawsandregulationscouldbecostlyandresultindiversionofmanagementtimeandeffortandmaystillnot guaranteecompliance.Intheeventthatwearefoundtobeinviolationofanysuchlegalorregulatoryrequirements,wemay be subject to monetary fines or other penalties such as a cease and desist order, or we may be required to make product changes,anyofwhichcouldhaveanadverseeffectonourbusinessandfinancialresults. In addition, we may be subject to a variety of additional risks as a result of Payments on the Facebook Platform, including: increased costs and diversion of management time and effort and other resources to deal with bad transactions or customerdisputes potentialfraudulentorotherwiseillegalactivitybyusers,developers,employees,orthirdparties restrictionsontheinvestmentofconsumerfundsusedtotransactPaymentsand additionaldisclosureandreportingrequirements. 26
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Table of Contents Weplantocontinueexpandingouroperationsabroadwherewehavelimitedoperatingexperienceandmaybesubjectto increasedbusinessandeconomicrisksthatcouldaffectourfinancialresults. We plan to continue the international expansion of our business operations and the translation of our products. We currentlymakeFacebookavailableinmorethan70differentlanguages,andwehaveofficesordatacentersinmorethan20 differentcountries.Wemayenternewinternationalmarketswherewehavelimitedornoexperienceinmarketing,selling,and deployingourproducts.Forexample,wecontinuetoevaluateenteringChina.However,thismarkethassubstantiallegaland regulatory complexities that haveprevented our entry into China todate. Ifwe fail to deploy ormanageour operations in internationalmarketssuccessfully,ourbusinessmaysuffer.Inaddition,wearesubjecttoavarietyofrisksinherentindoing businessinternationally,including: political,social,oreconomicinstability risksrelatedtothelegalandregulatoryenvironmentinforeignjurisdictions,includingwithrespecttoprivacy,and unexpectedchangesinlaws,regulatoryrequirements,andenforcement potentialdamagetoourbrandandreputationduetocompliancewithlocallaws,includingpotentialcensorshipor requirementstoprovideuserinformationtolocalauthorities fluctuationsincurrencyexchangerates higherlevelsofcreditriskandpaymentfraud enhanceddifficultiesofintegratinganyforeignacquisitions burdensofcomplyingwithavarietyofforeignlaws reducedprotectionforintellectualpropertyrightsinsomecountries difficultiesinstaffingandmanagingglobaloperationsandtheincreasedtravel,infrastructure,andlegalcompliance costsassociatedwithmultipleinternationallocations compliancewiththeU.S.ForeignCorruptPracticesAct,theU.K.BriberyAct,andsimilarlawsinotherjurisdictions and compliancewithstatutoryequityrequirementsandmanagementoftaxconsequences.
Ifweareunabletoexpandinternationallyandmanagethecomplexityofourglobaloperationssuccessfully,ourfinancial resultscouldbeadverselyaffected. We plan to continue to make acquisitions, which could require significant management attention, disrupt our business, resultindilutiontoourstockholders,andadverselyaffectourfinancialresults. As part of our business strategy, we have made and intend to make acquisitions to add specialized employees, complementarycompanies,products,ortechnologies.Forexample,inApril2012,weenteredintoanagreementtoacquire Instagram, Inc., the closing of which is subject to closing conditions and regulatory clearance. Our ability to acquire and integratelargerormorecomplexcompanies,products,ortechnologiesinasuccessfulmannerisunproven.Inthefuture,we maynotbeabletofindothersuitableacquisitioncandidates,andwemaynotbeabletocompleteacquisitionsonfavorable terms,ifatall.Ourpreviousandfutureacquisitionsmaynotachieveourgoals,andanyfutureacquisitionswecompletecould beviewednegativelybyusers,developers,advertisers,orinvestors.Inaddition,ifwefailtosuccessfullycloseorintegrateany acquisitions,orintegratetheproductsortechnologiesassociatedwithsuchacquisitionsintoourcompany,ourrevenueand operatingresultscouldbeadverselyaffected.Anyintegrationprocessmayrequiresignificanttimeandresources,andwemay notbeabletomanagetheprocesssuccessfully.Wemaynotsuccessfullyevaluateorutilizetheacquiredproducts,technology, orpersonnel,oraccuratelyforecastthefinancialimpactofanacquisitiontransaction,includingaccountingcharges.Wemay havetopaycash,incurdebt,orissueequitysecuritiestopayforanysuchacquisition,anyofwhichcouldadverselyaffectour financialresults.Thesaleof 27
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Table of Contents equity or issuance of debt to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impedeourabilitytomanageouroperations. Ifwedefaultonourleasingandcreditobligations,ouroperationsmaybeinterruptedandourbusinessandfinancialresults couldbeadverselyaffected. Wefinanceasignificantportionofourexpendituresthroughleasingarrangements,someofwhicharenotrequiredtobe reflectedonourbalancesheet,andwemayenterintoadditionalsimilararrangementsinthefuture.Inparticular,wehaveused thesetypesofarrangementstofinancesomeofourequipmentanddatacenters.Inaddition,wehavecreditfacilitiesthatwe may draw upon to finance our operations or other corporate purposes, such as funding our tax withholding and remittance obligations in connection with the settlement of RSUs. If we default on these leasing and credit obligations, our leasing partnersandlendersmay,amongotherthings: requirerepaymentofanyoutstandingleaseobligationsoramountsdrawnonourcreditfacilities terminateourleasingarrangementsandcreditfacilities terminateouraccesstotheleaseddatacentersweutilize stopdeliveryoforderedequipment sellorrequireustoreturnourleasedequipmentor requireustopaysignificantdamages.
Ifsomeoralloftheseeventsweretooccur,ouroperationsmaybeinterruptedandourabilitytofundouroperationsor obligations,aswellasourbusiness,financialresults,andfinancialcondition,couldbeadverselyaffected. Wemayhaveexposuretogreaterthananticipatedtaxliabilities. Ourincometaxobligationsarebasedonourcorporateoperatingstructureandintercompanyarrangements,includingthe mannerinwhichwedevelop,value,anduseourintellectualpropertyandthevaluationsofourintercompanytransactions.The taxlawsapplicabletoourinternationalbusinessactivities,includingthelawsoftheUnitedStatesandotherjurisdictions,are subjecttointerpretation.Thetaxingauthoritiesofthejurisdictionsinwhichweoperatemaychallengeourmethodologiesfor valuingdevelopedtechnologyorintercompanyarrangements,whichcouldincreaseourworldwideeffectivetaxrateandharm ourfinancialpositionandresultsofoperations.Inaddition,ourfutureincometaxescouldbeadverselyaffectedbyearnings beinglowerthananticipatedinjurisdictionsthathavelowerstatutorytaxratesandhigherthananticipatedinjurisdictions thathavehigherstatutorytaxrates,bychangesinthevaluationofourdeferredtaxassetsandliabilities,orbychangesintax laws, regulations, or accounting principles. We are subject to regular review and audit by both U.S. federal and state and foreigntaxauthorities.Anyadverseoutcomeofsucharevieworauditcouldhaveanegativeeffectonourfinancialposition andresultsofoperations.Inaddition,thedeterminationofourworldwideprovisionforincometaxesandothertaxliabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determinationismade. TheenactmentoflegislationimplementingchangesintheU.S.taxationofinternationalbusinessactivitiesortheadoption ofothertaxreformpoliciescouldmateriallyaffectourfinancialpositionandresultsofoperations. Thecurrentadministrationhasmadepublicstatementsindicatingthatithasmadeinternationaltaxreformapriority,and keymembersoftheU.S.Congresshaveconductedhearingsandproposedawidevarietyof 28
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Table of Contents potential changes. Certain changes to U.S. tax laws, including limitations on the ability to defer U.S. taxation on earnings outside of the United States until those earnings are repatriated to the United States, could affect the tax treatment of our foreignearnings,aswellascashandcashequivalentbalanceswecurrentlymaintainoutsideoftheUnitedStates.Duetothe large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increaseourworldwideeffectivetaxrateandharmourfinancialpositionandresultsofoperations. RisksRelatedtoOurInitialPublicOfferingandOwnershipofOurClassACommonStock ThemarketpriceofourClassAcommonstockmaybevolatileormaydeclineregardlessofouroperatingperformance,and youmaynotbeabletoresellyoursharesatorabovetheinitialpublicofferingprice. The initial public offering price for our Class A common stock will be determined through negotiations between the underwritersandusandmayvaryfromthemarketpriceofourClassAcommonstockfollowingourinitialpublicoffering.If youpurchasesharesofourClassAcommonstockinourinitialpublicoffering,youmaynotbeabletoresellthosesharesator abovetheinitialpublicofferingprice.WecannotassureyouthattheinitialpublicofferingpriceofourClassAcommonstock, orthemarketpricefollowingourinitialpublicoffering,willequalorexceedpricesinprivatelynegotiatedtransactionsofour sharesthathaveoccurredfromtimetotimepriortoourinitialpublicoffering.ThemarketpriceofourClassAcommonstock mayfluctuatesignificantlyinresponsetonumerousfactors,manyofwhicharebeyondourcontrol,including: actualoranticipatedfluctuationsinourrevenueandotheroperatingresults thefinancialprojectionswemayprovidetothepublic,anychangesintheseprojectionsorourfailuretomeetthese projections actionsofsecuritiesanalystswhoinitiateormaintaincoverageofus,changesinfinancialestimatesbyanysecurities analystswhofollowourcompany,orourfailuretomeettheseestimatesortheexpectationsofinvestors additional shares of our common stock being sold into the market by us or our existing stockholders or the anticipation of such sales, including if we issue shares to satisfy RSUrelated tax obligations or if existing stockholderssellsharesintothemarketwhenapplicablelockupperiodsend announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategicpartnerships,jointventures,orcapitalcommitments announcementsbyusorestimatesbythirdpartiesofactualoranticipatedchangesinthesizeofouruserbaseorthe levelofuserengagement changesinoperatingperformanceandstockmarketvaluationsoftechnologycompaniesinourindustry,including ourPlatformdevelopersandcompetitors priceandvolumefluctuationsintheoverallstockmarket,includingasaresultoftrendsintheeconomyasawhole lawsuitsthreatenedorfiledagainstus developmentsinnewlegislationandpendinglawsuitsorregulatoryactions,includinginterimorfinalrulingsby judicialorregulatorybodiesand othereventsorfactors,includingthoseresultingfromwarorincidentsofterrorism,orresponsestotheseevents.
Inaddition,thestockmarketshaveexperiencedextremepriceandvolumefluctuationsthathaveaffectedandcontinueto affectthemarketpricesofequitysecuritiesofmanytechnologycompanies.Stockpricesofmanytechnologycompanieshave fluctuatedinamannerunrelatedordisproportionatetotheoperatingperformanceof 29
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Table of Contents thosecompanies.Inthepast,stockholdershavefiledsecuritiesclassactionlitigationfollowingperiodsofmarketvolatility.If weweretobecomeinvolvedinsecuritieslitigation,itcouldsubjectustosubstantialcosts,divertresourcesandtheattention ofmanagementfromourbusiness,andadverselyaffectourbusiness. Substantialblocksofourtotaloutstandingsharesmaybesoldintothemarketwhenlockupormarketstandoffperiods end.Iftherearesubstantialsalesofsharesofourcommonstock,thepriceofourClassAcommonstockcoulddecline. ThepriceofourClassAcommonstockcoulddeclineiftherearesubstantialsalesofourcommonstock,particularlysales byourdirectors,executiveofficers,employees,andsignificantstockholders,orwhenthereisalargenumberofsharesofour commonstockavailableforsale.Afterourinitialpublicoffering,wewillhaveoutstanding598,396,119sharesofourClassA commonstockand1,539,688,918sharesofourClassBcommonstock,basedonthenumberofsharesoutstandingasofMarch 31,2012.Thisincludes337,415,352sharesthatweandthesellingstockholdersaresellinginourinitialpublicoffering,which shares may be resold in the public market immediately following our initial public offering, and assumes no additional exercisesofoutstandingoptions(otherthanthepartialexerciseofanoutstandingstockoptiontopurchase120,000,000shares ofClassBcommonstockheldbyMr.Zuckerberg,resultingintheissuanceof60,000,000sharesofourClassBcommonstock asdescribedelsewhereinthisprospectus).SharesofourClassBcommonstockareconvertibleintoanequivalentnumberof shares of our Class A common stock and generally convert into shares of our Class A common stock upon transfer. The 260,980,767sharesofourClassAcommonstockand1,539,688,918sharesofourClassBcommonstockthatarenotoffered andsoldinourinitialpublicofferingaswellasthesharesunderlyingoutstandingRSUsandsharessubjecttoemployeestock optionswillbeeligibleforsaleinthepublicmarketinthenearfutureassetforthbelow.
DateAvailableforSaleintoPublicMarket NumberofSharesofCommonStock
91daysafterthedateofthisprospectus 151to180daysafterthedateofthisprospectus
171,797,666sharesheldbythesellingstockholders otherthanMr.Zuckerberg approximately137millionsharesunderlyingnet settledPre2011RSUsheldbyourdirectorsandthen currentemployeesandapproximately55million outstandingsharesandapproximately55million sharessubjecttostockoptionsheldbythencurrent employeesotherthanMr.Zuckerberg 1,338,453,216outstandingsharesandapproximately 18millionsharesunderlyingothernetsettledPre2011 RSUs 141,776,569sharesheldbythesellingstockholders otherthanMr.Zuckerberg 93,815,940sharesheldbyMail.ruGroupLimitedand DSTGlobalLimitedandtheirrespectiveaffiliates
181daysafterthedateofthisprospectus
211daysafterthedateofthisprospectus 366daysafterthedateofthisprospectus
In addition, as of March 31, 2012, options to purchase 49,390,599 shares of Class B common stock held by former employeeswereoutstandingandfullyvestedandtheClassBcommonstockunderlyingsuchoptionswillbeeligibleforsale 181daysafterthedateofthisprospectus.Furthermore,followingourinitialpublicoffering,theremaining60,000,000shares subjecttothepartiallyexercisedstockoptionheldbyMr.Zuckerbergwillbeeligibleforsale181daysafterthedateofthis prospectus.Weexpectanadditionalapproximately2millionsharesofClassBcommonstocktobedelivereduponthenet settlementofRSUsbetweenthedateoftheinitialsettlementofRSUsdescribedaboveandDecember31,2012willbeeligible forsaleinthepublicmarketimmediatelyfollowingsettlement. 30
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Table of Contents Afterourinitialpublicoffering,certainholdersofourClassAcommonstockandClassBcommonstockwillhaverights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registrationstatementsthatwemayfileforourselvesorourstockholders.Allofthesesharesaresubjecttomarketstandoffor lockupagreementsrestrictingtheirsaleforspecifiedperiodsoftimeafterthedateofthisprospectus.Wealsointendtoregister sharesofcommonstockthatwehaveissuedandmayissueunderouremployeeequityincentiveplans.Onceweregisterthese shares,theywillbeabletobesoldfreelyinthepublicmarketuponissuance,subjecttoexistingmarketstandofforlockup agreements. Morgan Stanley & Co. LLC may, with our prior written consent, permit our executive officers, our directors, and the sellingstockholderstosellsharespriortotheexpirationoftherestrictiveprovisionscontainedinthelockupagreements withtheunderwriters.SeeUnderwritingforamorecompletedescriptionofthelockupagreementsthatweandourdirectors, executiveofficers,andsellingstockholdershaveenteredintowiththeunderwriters.Inaddition,wemay,inoursolediscretion, permitouremployeesandcurrentstockholderswhoaresubjecttomarketstandoffagreementsorarrangementswithusandwho arenotsubjecttoalockupagreementwiththeunderwriterstosellsharespriortotheexpirationoftherestrictiveprovisions containedinthosemarketstandoffagreementsorarrangements. ThemarketpriceofthesharesofourClassAcommonstockcoulddeclineasaresultofthesaleofasubstantialnumberof oursharesofcommonstockinthepublicmarketortheperceptioninthemarketthattheholdersofalargenumberofshares intendtoselltheirshares. Inmakingyourinvestmentdecision,youshouldnotrelyoninformationinpublicmediathatispublishedbythirdparties. Youshouldrelyonlyonstatementsmadeinthisprospectusindeterminingwhethertopurchaseourshares. Youshouldcarefullyevaluatealloftheinformationinthisprospectus.Wehaveinthepastreceived,andmaycontinueto receive, a high degree of media coverage, including coverage that is not directly attributable to statements made by our officersandemployees,thatincorrectlyreportsonstatementsmadebyourofficersoremployees,orthatismisleadingasa resultofomittinginformationprovidedbyus,ourofficers,oremployees.Youshouldrelyonlyontheinformationcontained inthisprospectusindeterminingwhethertopurchaseoursharesofClassAcommonstock. Wehavebroaddiscretionintheuseofthenetproceedsfromourinitialpublicofferingandmaynotusethemeffectively. Wecannotspecifywithanycertaintytheparticularusesofthenetproceedsthatwewillreceivefromourinitialpublic offering. Our management will have broad discretion in the application of the net proceeds, including working capital, possibleacquisitions,andothergeneralcorporatepurposes,andwemayspendorinvesttheseproceedsinawaywithwhich our stockholders disagree. The failure by our management to apply these funds effectively could harm our business and financialcondition.Pendingtheiruse,wemayinvestthenetproceedsfromourinitialpublicofferinginamannerthatdoes notproduceincomeorthatlosesvalue. If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price could decline. The trading market for our Class A common stock will depend in part on the research and reports that securities or industryanalystspublishaboutusorourbusiness.IfoneormoreoftheanalystswhocoverusdowngradeourClassAcommon stockorpublishinaccurateorunfavorableresearchaboutourbusiness,ourClassAcommonstockpricewouldlikelydecline. Wedonotintendtopaydividendsfortheforeseeablefuture. Wehaveneverdeclaredorpaidcashdividendsonourcapitalstock.Wecurrentlyintendtoretainanyfutureearningsto financetheoperationandexpansionofourbusiness,andwedonotexpecttodeclareorpayany 31
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Table of Contents dividendsintheforeseeablefuture.Asaresult,youmayonlyreceiveareturnonyourinvestmentinourClassAcommonstock ifthemarketpriceofourClassAcommonstockincreases.Inaddition,ourcreditfacilitiescontainrestrictionsonourabilityto paydividends. Ifweareunabletoimplementandmaintaineffectiveinternalcontroloverfinancialreportinginthefuture,investorsmay loseconfidenceintheaccuracyandcompletenessofourfinancialreportsandthemarketpriceofourClassAcommonstock maybenegativelyaffected. Asapubliccompany,wewillberequiredtomaintaininternalcontrolsoverfinancialreportingandtoreportanymaterial weaknessesinsuchinternalcontrols.Inaddition,beginningwithour2013AnnualReportonForm10Ktobefiledin2014, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuanttoSection404oftheSarbanesOxleyAct.Weareintheprocessofdesigning,implementing,andtestingtheinternal control over financial reporting required to comply with this obligation, which process is time consuming, costly, and complicated.Ifweidentifymaterialweaknessesinourinternalcontroloverfinancialreporting,ifweareunabletocomply withtherequirementsofSection404inatimelymannerorassertthatourinternalcontroloverfinancialreportingiseffective, orifourindependentregisteredpublicaccountingfirmisunabletoexpressanopinionastotheeffectivenessofourinternal controloverfinancialreporting,investorsmayloseconfidenceintheaccuracyandcompletenessofourfinancialreportsand themarketpriceofourClassAcommonstockcouldbenegativelyaffected,andwecouldbecomesubjecttoinvestigationsby thestockexchangeonwhichoursecuritiesarelisted,theSecuritiesandExchangeCommission,orotherregulatoryauthorities, whichcouldrequireadditionalfinancialandmanagementresources. Therequirementsofbeingapubliccompanymaystrainourresourcesanddivertmanagementsattention. As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended(ExchangeAct),theSarbanesOxleyAct,theDoddFrankAct,thelistingrequirementsoftheNASDAQGlobalSelect Market,andotherapplicablesecuritiesrulesandregulations.Compliancewiththeserulesandregulationswillincreaseour legalandfinancialcompliancecosts,makesomeactivitiesmoredifficult,timeconsuming,orcostly,andincreasedemandon oursystemsandresources.TheExchangeActrequires,amongotherthings,thatwefileannual,quarterly,andcurrentreports withrespecttoourbusinessandoperatingresults. Asaresultofdisclosureofinformationinthisprospectusandinfilingsrequiredofapubliccompany,ourbusinessand financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitorsandotherthirdparties.Ifsuchclaimsaresuccessful,ourbusinessandoperatingresultscouldbeharmed,andeven iftheclaimsdonotresultinlitigationorareresolvedinourfavor,theseclaims,andthetimeandresourcesnecessarytoresolve them,coulddiverttheresourcesofourmanagementandharmourbusinessandoperatingresults. If you purchase shares of our Class A common stock in our initial public offering, you will experience substantial and immediatedilution. IfyoupurchasesharesofourClassAcommonstockinourinitialpublicoffering,youwillexperiencesubstantialand immediatedilutionintheproformanettangiblebookvaluepershareof$26.35pershareasofMarch31,2012,basedonan assumedinitialpublicofferingpriceofourClassAcommonstockof$31.50pershare,themidpointofthepricerangeonthe coverpageofthisprospectus,becausethepricethatyoupaywillbesubstantiallygreaterthantheproformanettangiblebook valuepershareoftheClassAcommonstockthatyouacquire.Thisdilutionisdueinlargeparttothefactthatourearlier investorspaidsubstantiallylessthantheinitialpublicofferingpricewhentheypurchasedtheirsharesofourcapitalstock. Youwillexperienceadditionaldilutionuponexerciseofoptionstopurchasecommonstockunderourequityincentiveplans, uponvestingof 32
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Table of Contents RSUs,ifweissuerestrictedstocktoouremployeesunderourequityincentiveplans,orifweotherwiseissueadditionalshares ofourcommonstock.Formoreinformation,seeDilution. The dual class structure of our common stock and the voting agreements among certain stockholders have the effect of concentrating voting control with our CEO, and also with employees and directors and their affiliates this will limit or precludeyourabilitytoinfluencecorporatematters. OurClassBcommonstockhastenvotespershare,andourClassAcommonstock,whichisthestockweareofferingin our initial public offering, has one vote per share. Stockholders who hold shares of Class B common stock, including our executiveofficers,employees,anddirectorsandtheiraffiliates,willtogetherholdapproximately96.3%ofthevotingpowerof ouroutstandingcapitalstockfollowingourinitialpublicoffering.BecauseofthetentoonevotingratiobetweenourClassB andClassAcommonstock,theholdersofourClassBcommonstockcollectivelywillcontinuetocontrolamajorityofthe combinedvotingpowerofourcommonstockandthereforebeabletocontrolallmatterssubmittedtoourstockholdersfor approvalsolongasthesharesofClassBcommonstockrepresentatleast9.1%ofalloutstandingsharesofourClassAand Class B common stock. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeablefuture. FuturetransfersbyholdersofClassBcommonstockwillgenerallyresultinthosesharesconvertingtoClassAcommon stock, subject to limited exceptions, such as certain transfers effected for estate planning or charitable purposes. The conversionofClassBcommonstocktoClassAcommonstockwillhavetheeffect,overtime,ofincreasingtherelativevoting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Mr. Zuckerberg retainsasignificantportionofhisholdingsofClassBcommonstockforanextendedperiodoftime,hecould,inthefuture, continuetocontrolamajorityofthecombinedvotingpowerofourClassAcommonstockandClassBcommonstock.Fora descriptionofthedualclassstructure,seeDescriptionofCapitalStockAntiTakeoverProvisions. WehaveelectedtotakeadvantageofthecontrolledcompanyexemptiontothecorporategovernancerulesforNASDAQ listedcompanies,whichcouldmakeourClassAcommonstocklessattractivetosomeinvestorsorotherwiseharmourstock price. BecausewequalifyasacontrolledcompanyunderthecorporategovernancerulesforNASDAQlistedcompanies,we are not required to have a majority of our board of directors be independent, nor are we required to have a compensation committeeoranindependentnominatingfunction.Inlightofourstatusasacontrolledcompany,ourboardofdirectorshas determinednottohaveanindependentnominatingfunctionandhaschosentohavethefullboardofdirectorsbedirectly responsible for nominating members of our board, and in the future we could elect not to have a majority of our board of directors be independent or not to have a compensation committee. Accordingly, should the interests of our controlling stockholder differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholdersofcompaniesthataresubjecttoallofthecorporategovernancerulesforNASDAQlistedcompanies.Ourstatusas acontrolledcompanycouldmakeourClassAcommonstocklessattractivetosomeinvestorsorotherwiseharmourstock price. Delawarelawandprovisionsinourrestatedcertificateofincorporationandbylawsthatwillbeineffectattheclosingof ourinitialpublicofferingcouldmakeamerger,tenderoffer,orproxycontestdifficult,therebydepressingthetradingprice ofourClassAcommonstock. Followingtheclosingofourinitialpublicoffering,ourstatusasaDelawarecorporationandtheantitakeoverprovisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interestedstockholder,evenifachangeofcontrolwouldbebeneficialtoourexistingstockholders.Inaddition,ourrestated certificateofincorporationandbylawsthatwillbeineffectat 33
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Table of Contents theclosingofourinitialpublicofferingwillcontainprovisionsthatmaymaketheacquisitionofourcompanymoredifficult, includingthefollowing: until the first date on which the outstanding shares of our Class B common stock represent less than 35% of the combined voting power of our common stock, any transaction that would result in a change in control of our companywillrequiretheapprovalofamajorityofouroutstandingClassBcommonstockvotingasaseparateclass wehaveadualclasscommonstockstructure,whichprovidesMr.Zuckerbergwiththeabilitytocontroltheoutcome of matters requiring stockholder approval, even if he owns significantly less than a majority of the shares of our outstandingClassAandClassBcommonstock when the outstanding shares of our Class B common stock represent less than a majority of the combined voting powerofcommonstock,certainamendmentstoourrestatedcertificateofincorporationorbylawswillrequirethe approvaloftwothirdsofthecombinedvoteofourthenoutstandingsharesofClassAandClassBcommonstock when the outstanding shares of our Class B common stock represent less than a majority of the combined voting power of our common stock, vacancies on our board of directors will be able to be filled only by our board of directorsandnotbystockholders when the outstanding shares of our Class B common stock represent less than a majority of the combined voting powerofourcommonstock,ourboardofdirectorswillbeclassifiedintothreeclassesofdirectorswithstaggered threeyeartermsanddirectorswillonlybeabletoberemovedfromofficeforcause when the outstanding shares of our Class B common stock represent less than a majority of the combined voting powerofourcommonstock,ourstockholderswillonlybeabletotakeactionatameetingofstockholdersandnot bywrittenconsent only our chairman, our chief executive officer, our president, or a majority of our board of directors will be authorizedtocallaspecialmeetingofstockholders advancenoticeprocedureswillapplyforstockholderstonominatecandidatesforelectionasdirectorsortobring mattersbeforeanannualmeetingofstockholders our restated certificate of incorporation will authorize undesignated preferred stock, the terms of which may be established,andsharesofwhichmaybeissued,withoutstockholderapprovaland certainlitigationagainstuscanonlybebroughtinDelaware.
Forinformationregardingtheseandotherprovisions,seeDescriptionofCapitalStockAntiTakeoverProvisions. 34
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Table of Contents SPECIALNOTEREGARDINGFORWARDLOOKINGSTATEMENTS Thisprospectuscontainsforwardlookingstatements.Allstatementscontainedinthisprospectusotherthanstatementsof historicalfact,includingstatementsregardingourfutureresultsofoperationsandfinancialposition,ourbusinessstrategyand plans,andourobjectivesforfutureoperations,areforwardlookingstatements.Thewordsbelieve,may,will,estimate, continue,anticipate,intend,expect,andsimilarexpressionsareintendedtoidentifyforwardlookingstatements.We have based these forwardlooking 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, shortterm and longterm businessoperationsandobjectives,andfinancialneeds.Theseforwardlookingstatementsaresubjecttoanumberofrisks, uncertainties and assumptions, including those described in the Risk Factors section. Moreover, we operate in a very competitiveandrapidlychangingenvironment.Newrisksemergefromtimetotime.Itisnotpossibleforourmanagementto predictallrisks,norcanweassesstheimpactofallfactorsonourbusinessortheextenttowhichanyfactor,orcombinationof factors,maycauseactualresultstodiffermateriallyfromthosecontainedinanyforwardlookingstatementswemaymake.In lightoftheserisks,uncertaintiesandassumptions,thefutureeventsandtrendsdiscussedinthisprospectusmaynotoccurand actualresultscoulddiffermateriallyandadverselyfromthoseanticipatedorimpliedintheforwardlookingstatements. You should not rely upon forwardlooking statements as predictions of future events. The events and circumstances reflectedintheforwardlookingstatementsmaynotbeachievedoroccur.Althoughwebelievethattheexpectationsreflected in the forwardlooking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.Weareundernodutytoupdateanyoftheseforwardlookingstatementsafterthedateofthisprospectusorto conformthesestatementstoactualresultsorrevisedexpectations. 35
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Table of Contents INDUSTRYDATAANDUSERMETRICS Thisprospectuscontainsestimatesandinformationconcerningourindustry,includingmarketposition,marketsize,and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involvesanumberofassumptionsandlimitations,andyouarecautionednottogiveundueweighttotheseestimates.Wehave notindependentlyverifiedtheaccuracyorcompletenessofthedatacontainedintheseindustrypublicationsandreports.The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those describedintheRiskFactorssection.Theseandotherfactorscouldcauseresultstodiffermateriallyfromthoseexpressedin thesepublicationsandreports. The numbers of monthly active users (MAUs) and daily active users (DAUs) and average revenue per user (ARPU) presentedinthisprospectusarebasedoninternalcompanydataandweusecertainofthesenumbersinmanagingourbusiness. These numbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement,andwetakestepstoimprovetheiraccuracy,suchaseliminatingknownfalseorduplicateaccounts.Thereare inherentchallengesinmeasuringusageacrosslargeonlineandmobilepopulationsaroundtheworld.Forexample,theremay be individuals who have multiple Facebook accounts in violation of our terms of service, despite our efforts to detect and suppresssuchbehavior.Weestimatethatfalseorduplicateaccountsmayhaverepresentedapproximately56%ofourMAUs asofDecember31,2011.However,thisestimateisbasedonaninternalreviewofalimitedsampleofaccountsandweapply significantjudgmentinmakingthisdetermination,suchasidentifyingnamesthatappeartobefakeorotherbehaviorthat appearsinauthentictothereviewers.Assuch,ourestimationoffalseorduplicateaccountsmaynotaccuratelyrepresentthe actualnumberofsuchaccounts.Ourmetricsarealsoaffectedbyapplicationsoncertainmobiledevicesthatautomatically contactourserversforregularupdateswithnouseractioninvolved,andthisactivitycancauseoursystemtocounttheuser associatedwithsuchadeviceasanactiveuseronthedaysuchcontactoccurs.Forexample,weestimatethatlessthan5%of ourestimatedworldwideDAUsasofDecember31,2011and2010resultedfromthistypeofautomaticmobileactivity,and thatthistypeofactivityhadasubstantiallysmallereffectonourestimateofworldwideMAUsandmobileMAUs.Assuch,the calculationsofDAUsasapercentageofMAUspresentedinthisprospectusmaybeaffectedbythisactivity.Theimpactofthis automatic activity on our metrics varies by geography because mobile usage varies in different regions of the world. In addition,ourdataregardingthegeographiclocationofourusersisestimatedbasedonanumberoffactors,suchastheusersIP addressandselfdisclosedlocation.Thesefactorsmaynotalwaysaccuratelyreflecttheusersactuallocation.Forexample,a mobileonlyusermayappeartobeaccessingFacebookfromthelocationoftheproxyserverthattheuserconnectstorather thanfromtheusersactuallocation.Inaddition,ourestimatesforrevenuebyuserlocationarealsoaffectedbythesefactors. We regularly review and may adjust our processes for calculating these metrics to improve their accuracy. In addition, our MAUandDAUestimateswilldifferfromestimatespublishedbythirdpartiesduetodifferencesinmethodology.Forexample, somethirdpartiesdonotcountmobileusers. 36
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Table of Contents USEOFPROCEEDS WeestimatethatournetproceedsfromthesaleoftheClassAcommonstockthatweareofferingwillbeapproximately $5.6billion,orapproximately$5.8billioniftheunderwritersexerciseinfulltheirrighttopurchaseadditionalsharestocover overallotments,assuminganinitialpublicofferingpriceof$31.50pershare,whichisthemidpointofthepricerangeonthe coverpageofthisprospectus,andafterdeductingestimatedunderwritingdiscountsandcommissionsandestimatedoffering expensespayablebyus.A$1.00increase(decrease)intheassumedinitialpublicofferingpriceof$31.50persharewould increase (decrease) the net proceeds to us from our initial public offering by $178 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discountsandcommissions. The principal purposes of our initial public offering are to create a public market for our Class A common stock and therebyenablefutureaccesstothepublicequitymarketsbyusandouremployees,obtainadditionalcapital,andfacilitatean orderly distribution of shares for the selling stockholders. We intend to use the net proceeds to us from our initial public offeringforworkingcapitalandothergeneralcorporatepurposeshowever,wedonotcurrentlyhaveanyspecificusesofthe netproceedsplanned.Wemayuseaportionofthenetproceedstoustosatisfyaportionoftheanticipatedtaxwithholding andremittanceobligationsrelatedtotheinitialsettlementofouroutstandingRSUs.Additionally,wemayuseaportionofthe proceedstousforacquisitionsofcomplementarybusinesses,technologies,orotherassets.However,wehavenocommitments tousetheproceedsfromthisofferingforanysuchacquisitionsorinvestmentsatthistime. Pendingotheruses,weintendtoinvesttheproceedstousininvestmentgrade,interestbearingsecuritiessuchasmoney marketfunds,certificatesofdeposit,ordirectorguaranteedobligationsoftheU.S.government,orholdascash.Wecannot predict whether the proceeds invested will yield a favorable return. Our management will have broad discretion in the applicationofthenetproceedswereceivefromourinitialpublicoffering,andinvestorswillberelyingonthejudgmentofour managementregardingtheapplicationofthenetproceeds. We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders. Mark Zuckerberg,ourfounder,Chairman,andCEO,willofferandsell30,200,000sharesinourinitialpublicoffering.Weexpect thatthesubstantialmajorityofthenetproceedsMr.Zuckerbergwillreceiveuponsuchsalewillbeusedtosatisfytaxesthathe willincurinconnectionwiththepartialexerciseofanoutstandingstockoption. DIVIDENDPOLICY Wehaveneverdeclaredorpaidcashdividendsonourcapitalstock.Wecurrentlyintendtoretainanyfutureearningsfor useintheoperationofourbusinessanddonotintendtodeclareorpayanycashdividendsintheforeseeablefuture.Any further determination to pay dividends on our capital stock will be at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions,andotherfactorsthatourboardofdirectorsconsidersrelevant.Inaddition,thetermsofourcreditfacilitiescontain restrictionsonourabilitytopaydividends. 37
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Table of Contents CAPITALIZATION Thefollowingtablesetsforthourcash,cashequivalents,andmarketablesecuritiesandcapitalizationasofMarch31, 2012: onanactualbasis on a pro forma basis to give effect to (i) the automatic conversion of all of our outstanding shares convertible preferredstockintoClassBcommonstock,(ii)theamendmentandrestatementofourcertificateofincorporationin connection with our initial public offering, and (iii) a sharebased compensation expense of approximately $640 million,netofincometaxes,associatedwithrestrictedstockunits(RSUs)grantedpriortoJanuary1,2011(Pre2011 RSUs) for which the service condition was satisfied as of March 31, 2012, and which we expect to record upon completionofourinitialpublicoffering,asdescribedinfootnote(1)belowand on a pro forma as adjusted basis to give further effect to (i) the issuance and sale by us of 180,000,000 shares of ClassAcommonstockinourinitialpublicoffering,andthereceiptofthenetproceedsfromoursaleoftheseshares atanassumedinitialpublicofferingpriceoftheClassAcommonstockof$31.50pershare,themidpointoftheprice rangeonthecoverpageofthisprospectus,afterdeductingestimatedunderwritingdiscountsandcommissionsand estimatedofferingexpensespayablebyus,(ii)thepartialexercisebyMarkZuckerberg,ourfounder,Chairman,and CEO,ofanoutstandingstockoption,resultingintheissuanceof60,000,000sharesofourClassBcommonstock, (iii)theautomaticconversionof121,788,489sharesofourClassBcommonstockheldbythesellingstockholders intoanequivalentnumberofsharesofourClassAcommonstockupontheirsalebythesellingstockholdersinour initialpublicoffering,and(iv)theconversionbycertainofourexistingstockholdersofanaggregateof179,058,237 sharesofourClassBcommonstockintoanequivalentnumberofsharesofourClassAcommonstockinconnection withourinitialpublicoffering.
The pro forma and pro forma as adjusted information below is illustrative only, and cash, cash equivalents, and marketable securities, additional paidin capital, retained earnings, total stockholders equity, and total capitalization followingthecompletionofourinitialpublicofferingwillbeadjustedbasedontheactualinitialpublicofferingpriceand othertermsofourinitialpublicofferingdeterminedatpricing.Youshouldreadthistableinconjunctionwiththesections entitled Managements Discussion and Analysis of Financial Condition and Results of Operations and Description of CapitalStockandourconsolidatedfinancialstatementsandrelatednotesincludedelsewhereinthisprospectus. 38
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AsofMarch31,2012 ProForma Actual ProForma(1) AsAdjusted (2)(3) (inmillions,exceptshareandpersharedata)
Cash,cashequivalents,andmarketablesecurities Stockholdersequity: Convertiblepreferredstock,$0.000006parvalue569,001,400 sharesauthorized,543,216,895sharesissuedand outstandingactualnosharesauthorized,issuedand outstanding,proformaandproformaasadjusted Preferredstock,$0.000006parvaluenosharesauthorized, issuedandoutstanding,actual100,000,000shares authorized,nosharesissuedandoutstanding,proformaand proformaasadjusted ClassAcommonstock,$0.000006parvalue4,141,000,000 sharesauthorized,117,549,393sharesissuedand outstanding,actual5,000,000,000sharesauthorized, 117,549,393sharesissuedandoutstanding,proforma 5,000,000,000sharesauthorized,598,396,119sharesissued andoutstanding,proformaasadjusted ClassBcommonstock,$0.000006parvalue4,141,000,000 sharesauthorized,1,235,134,201sharesissuedand outstanding,actual4,141,000,000sharesauthorized, 1,780,535,644sharesissuedandoutstanding,proforma 4,141,000,000sharesauthorized,1,539,688,918shares issuedandoutstanding,proformaasadjusted Additionalpaidincapital Accumulatedothercomprehensiveloss Retainedearnings Totalstockholdersequity Totalcapitalization
$3,910
3,910
9,511
$ 615
2,853 (7) 1,811 5,272 $5,272
4,433 (7) 1,171 5,597 5,597
10,034 (7) 1,171 11,198 11,198
(1) TheproformadataasofMarch31,2012presentsourcash,cashequivalents,andmarketablesecurities,totalstockholdersequity,andtotalcapitalization,andgives effect to a sharebased compensation expense of approximately $965 million associated with Pre2011 RSUs, for which the service condition was completed as of March 31, 2012 and which we expect to record upon completion of our initial public offering, as further described in Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and EstimatesSharebased Compensation. The pro forma adjustment related to sharebasedcompensationexpenseofapproximately$965millionhasbeenreflectedasanincreasetoadditionalpaidincapitalandtheassociatedtaxeffectof$325 millionhasbeennettedagainstthischarge,resultinginanetreductionof$640milliontoretainedearnings.Theincometaxeffectshavebeenreflectedasanincrease todeferredtaxassetsincludedinprepaidexpensesandothercurrentassets,toreflecttheanticipatedfuturetaxbenefitsuponsettlementoftheseRSUs.Weestimate thatanaggregateofapproximately277millionsharesunderlyingPre2011RSUsoutstandingasofMarch31,2012willvestandsettleondatesthatare151to181 days following our initial public offering, resulting in the net issuance of an aggregate of approximately 155 million shares to the holders. These shares have not beenincludedinourproformaorproformaasadjustedsharesoutstanding. (2) A $1.00 increase (decrease) in the assumed initial public offering price of $31.50 per share would increase (decrease) each of cash, cash equivalents, and marketable securities, additional paidin capital, total stockholders equity, and total capitalization by $178 million, assuming that the number of shares offered by us, as set forthonthecoverpageofthisprospectus,remainsthesame,andafterdeductingtheestimatedunderwritingdiscountsandcommissions.Iftheunderwritersoption to purchase additional shares to cover overallotments is exercised in full, the pro forma as adjusted amount of each of cash, cash equivalents, and marketable securities, additional paidin capital, total stockholders equity, and total capitalization would increase by approximately $188 million, after deducting estimated underwritingdiscountsandcommissions,andwewouldhave644,455,091sharesofourClassAcommonstockand1,499,659,934sharesofourClassBcommon stockissuedandoutstanding,proformaasadjusted. (3) Theproformaasadjustedinformationdiscussedaboveisillustrativeonlyandwillbeadjustedbasedontheactualinitialpublicofferingpriceandothertermsofour initialpublicofferingdeterminedatpricing.
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Table of Contents Thetableaboveexcludesthefollowingshares: 116,756,442 shares of Class B common stock issuable upon the exercise of options outstanding as of March 31, 2012underour2005StockPlan,withaweightedaverageexercisepriceofapproximately$0.94pershare 60,000,000sharesofClassBcommonstockissuableupontheexerciseoftheremainingportionofanoptionheldby Mr.Zuckerberg,withanexercisepriceof$0.06pershare 378,429,048sharesofClassBcommonstocksubjecttoRSUsoutstandingasofMarch31,2012underour2005 StockPlan 22,999,412sharesofcommonstockissuableuponcompletionofouracquisitionofInstagram,Inc. 25,257,815sharesofClassBcommonstocksubjecttoRSUsgrantedunderour2005StockPlanand40,000sharesof ClassAcommonstockissuedbetweenApril1,2012andMay3,2012and 77,466,293sharesofourcommonstockreservedforfutureissuanceunderourequitycompensationplans,consisting of 25,000,000 shares of Class A common stock reserved for issuance under our 2012 Equity Incentive Plan, and 52,466,293sharesofClassBcommonstockreservedasofMarch31,2012forissuanceunderour2005StockPlan (whichreserveincludesthe25,257,815sharesofClassBcommonstocksubjecttoRSUsgrantedafterMarch31, 2012).Onthedateofthisprospectus,anyremainingsharesavailableforissuanceunderour2005StockPlanwillbe addedtothesharesreservedunderour2012EquityIncentivePlanandwewillceasegrantingawardsunderthe2005 StockPlan.Our2012EquityIncentivePlanalsoprovidesforautomaticannualincreasesinthenumberofshares reservedthereunderandforincreasesbasedonforfeitedorwithheldsharesandothereventsasmorefullydescribed inExecutiveCompensationEmployeeBenefitPlans. 40
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Table of Contents DILUTION IfyouinvestinourClassAcommonstock,yourinterestwillbedilutedtotheextentofthedifferencebetweentheinitial publicofferingpricepershareofourClassAcommonstockandtheproformaasadjustednettangiblebookvaluepershareof ourClassAcommonstockimmediatelyafterourinitialpublicoffering. OurproformanettangiblebookvalueasofMarch31,2012was$5.4billion,or$2.85pershareofcommonstock.Our proformanettangiblebookvaluepersharerepresentstheamountofourtotaltangibleassetsreducedbytheamountofour totalliabilitiesanddividedbythetotalnumberofsharesofourcommonstockoutstandingasofMarch31,2012,aftergiving effecttotheautomaticconversionofalloutstandingsharesofourconvertiblepreferredstockintoClassBcommonstockin connectionwithourinitialpublicoffering. After giving effect to (i) our sale in our initial public offering of 180,000,000 shares of Class A common stock at an assumedinitialpublicofferingpriceoftheClassAcommonstockof$31.50pershare,themidpointofthepricerangeonthe cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expensespayablebyusand(ii)thepartialexercisebyMarkZuckerberg,ourfounder,Chairman,andCEO,ofanoutstanding stock option, resulting in the issuance of 60,000,000 shares of our Class B common stock, our pro forma as adjusted net tangiblebookvalueasofMarch31,2012wouldhavebeenapproximately$11billion,or$5.15pershareofcommonstock. This represents an immediate increase in pro forma as adjusted net tangible book value of $2.30 per share to our existing stockholdersandanimmediatedilutionof$26.35persharetoinvestorspurchasingsharesinourinitialpublicoffering. Thefollowingtableillustratesthispersharedilution. Assumedinitialofferingpricepershare ProformanettangiblebookvaluepershareasofMarch31,2012 Increaseinproformanettangiblebookvaluepershareattributabletoinvestorspurchasingshares inourinitialpublicoffering Proformaasadjustednettangiblebookvaluepershareafterourinitialpublicoffering Dilutioninproformanettangiblebookvaluepersharetoinvestorsinthisoffering $31.50 $2.85 2.30 5.15 $26.35
A$1.00increase(decrease)intheassumedinitialpublicofferingpriceof$31.50persharewouldincrease(decrease)our proformaasadjustednettangiblebookvaluepershareafterourinitialpublicofferingby$0.08,assumingthatthenumberof shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwritingdiscountsandcommissionspayablebyus. Iftheunderwritersoptiontopurchaseadditionalsharestocoveroverallotmentsisexercisedinfull,theproformanet tangiblebookvaluepershareaftergivingeffecttoourinitialpublicofferingwouldbeapproximately$5.22pershare,andthe dilution in pro forma net tangible book value per share to investors in our initial public offering would be approximately $26.28pershare. Thefollowingtablesummarizes,asofMarch31,2012,thedifferencesbetweenthenumberofsharesofourcommonstock purchasedfromus,aftergivingeffecttotheconversionofourconvertiblepreferredstockintoClassBcommonstockandthe partialexercisebyMarkZuckerbergofanoutstandingstockoption,thetotalcashconsiderationpaid,andtheaverageprice persharepaidbyourexistingstockholdersandbyournewinvestorspurchasingsharesinourinitialpublicofferingatthe assumedinitialpublicofferingpriceoftheClassAcommon 41
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Table of Contents stockof$31.50pershare,themidpointofthepricerangeonthecoverpageofthisprospectus,beforedeductingestimated underwritingdiscountsandcommissionsandestimatedofferingexpensespayablebyus:

SharesPurchased Number Percent TotalConsideration Amount Percent Average PricePer Share
Existingstockholders Newinvestors Total
1,958,085,037 180,000,000 2,138,085,037
91.6% 8.4 100%
$2,167,000,000 5,670,000,000 $7,837,000,000
27.7% 72.3 100%
$ 1.11 31.50
A$1.00increase(decrease)intheassumedinitialpublicofferingpriceof$31.50persharewouldincrease(decrease)total considerationpaidbynewinvestorsby$180million,assumingthatthenumberofsharesofferedbyus,assetforthonthe coverpageofthisprospectus,remainsthesame. SalesofsharesofClassAcommonstockbythesellingstockholdersinourinitialpublicofferingwillreducethenumber of shares of common stock held by existing stockholders to 1,800,669,685, or approximately 84.2% of the total shares of commonstockoutstandingafterourinitialpublicoffering,andwillincreasethenumberofsharesheldbynewinvestorsto 337,415,352,orapproximately15.8%ofthetotalsharesofcommonstockoutstandingafterourinitialpublicoffering. Aftergivingeffecttothesaleofsharesinthisofferingbyusandthesellingstockholders,iftheunderwritersoptionto purchaseadditionalsharestocoveroverallotmentsisexercisedinfull,ourexistingstockholderswouldown81.9%andour new investors would own 18.1% of the total number of shares of our common stock outstanding after our initial public offering. Theabovetableanddiscussioninclude:(i)117,549,393sharesofourClassAcommonstockand1,780,535,644sharesof our Class B common stock outstanding as of March 31, 2012 and (ii) the issuance of 60,000,000 shares of our Class B commonstockuponthepartialexercisebyMarkZuckerberg,ourfounder,Chairman,andCEO,ofanoutstandingstockoption topurchase120,000,000sharesofourClassBcommonstock,andexclude: 116,756,442 shares of Class B common stock issuable upon the exercise of options outstanding as of March 31, 2012underour2005StockPlan,withaweightedaverageexercisepriceofapproximately$0.94pershare 60,000,000sharesofClassBcommonstockissuableupontheexerciseoftheremainingportionofanoptionheldby Mr.Zuckerberg,withanexercisepriceof$0.06pershare 378,429,048sharesofClassBcommonstocksubjecttoRSUsoutstandingasofMarch31,2012underour2005 StockPlan 22,999,412sharesofcommonstockissuableuponcompletionofouracquisitionofInstagram,Inc. 25,257,815sharesofClassBcommonstocksubjecttoRSUsgrantedunderour2005StockPlanand40,000sharesof ClassAcommonstockissuedbetweenApril1,2012andMay3,2012and 77,466,293sharesofourcommonstockreservedforfutureissuanceunderourequitycompensationplans,consisting of 25,000,000 shares of Class A common stock reserved for issuance under our 2012 Equity Incentive Plan, and 52,466,293sharesofClassBcommonstockreservedasofMarch31,2012forissuanceunderour2005StockPlan (whichreserveincludesthe25,257,815sharesofClassBcommonstocksubjecttoRSUsgrantedafterMarch31, 2012).Onthedateofthisprospectus,anyremainingsharesavailableforissuanceunderour2005StockPlanwillbe addedtothesharesreservedunderour2012EquityIncentivePlanandwewillceasegrantingawardsunderthe2005 StockPlan.Our2012EquityIncentivePlanalsoprovidesforautomaticannualincreasesinthenumberofshares reservedthereunderandforincreasesbasedonforfeitedorwithheldsharesandotherevents,asmorefullydescribed inExecutiveCompensationEmployeeBenefitPlans.
To the extent that any outstanding options are exercised or RSUs are settled, there will be further dilution to new investors. 42
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Table of Contents SELECTEDCONSOLIDATEDFINANCIALDATA The consolidated statements of income data for each of the years ended December 31, 2009, 2010, and 2011 and the consolidated balance sheets data as of December 31, 2010 and 2011 are derived from our audited consolidated financial statementsthatareincludedelsewhereinthisprospectus.Theconsolidatedstatementsofoperationsdatafortheyearsended December31,2007and2008andtheconsolidatedbalancesheetsdataasofDecember31,2007,2008,and2009arederived fromauditedconsolidatedfinancialstatementsthatarenotincludedinthisprospectus.Theconsolidatedstatementsofincome dataforthethreemonthsendedMarch31,2011and2012,andtheconsolidatedbalancesheetdataasofMarch31,2012have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. In our opinion, suchfinancialstatementsincludealladjustments,consistingonlyofnormalrecurringadjustments,thatweconsidernecessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicativeofourresultsinanyfutureperiod. You should read this information together with Managements Discussion and Analysis of Financial Condition and ResultsofOperationsandourconsolidatedfinancialstatementsandtherelatednotesincludedelsewhereinthisprospectus.
YearEndedDecember31, 2008 2009 2010 2011 (inmillions,exceptpersharedata) ThreeMonths EndedMarch31, 2011 2012
2007
ConsolidatedStatementsofOperationsData: Revenue Costsandexpenses(1): Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalcostsandexpenses Income(loss)fromoperations Interestandotherincome(expense),net Income(loss)beforeprovisionforincometaxes Provisionforincometaxes Netincome(loss) Netincome(loss)attributabletoClassAandClassB commonstockholders Earnings(loss)pershareattributabletoClassAand ClassBcommonstockholders(2): Basic Diluted ProformaearningspershareattributabletoClassAand ClassBcommonstockholders(2): Basic Diluted
$ 153 $ 272 $ 777 $1,974 $3,711 $ 731 $1,058 41 32 81 123 277 (124) (11) (135) 3 $ (138) $ 124 76 47 80 327 (55) (1) (56) (56) 223 115 87 90 515 262 (8) 254 25 $ 229 493 184 144 121 942 1,032 (24) 1,008 402 $ 606 860 427 388 280 1,955 1,756 (61) 1,695 695 $1,000 167 68 57 51 343 388 10 398 165 $ 233 $ 277 159 153 88 677 381 1 382 177 205
$ (138) $ (56) $ 122 $ 372 $ 668 $ 153 $ 137
$(0.16) $(0.06) $0.12 $ 0.34 $ 0.52 $0.12 $ 0.10 $(0.16) $(0.06) $0.10 $ 0.28 $ 0.46 $0.11 $ 0.09
$ 0.49 $ 0.43 43
$ 0.10 $ 0.09
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(1) Costsandexpensesincludesharebasedcompensationexpenseasfollows: YearEndedDecember31, 2008 2009 2010 (inmillions) $ $ $ 4 2 2 7 6 9 19 19 9 $ 30 $ 27 $ 20 ThreeMonths EndedMarch31, 2011 2012 $ 4 3 $ $ 4 23 60 16 103
2007 Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalsharebasedcompensationexpense $ $ 1 3 56 13 73
2011 $ $ 9 43 114 51 217
$ 7
(2) See note 2 of the notes to our consolidated financial statements for a description of how we compute basic and diluted earnings (loss) per share attributable to ClassAandClassBcommonstockholdersandproformabasicanddilutedearningspershareattributabletoClassAandClassBcommonstockholders. AsofDecember31, 2007 2008 2009 2010 (inmillions) 2011 Asof March 31, 2012
ConsolidatedBalanceSheetsData: Cash,cashequivalents,andmarketablesecurities Workingcapital Propertyandequipment,net Totalassets Totalliabilities Totalstockholdersequity FreeCashFlow
$ 305 250 82 448 174 273
$ 297 279 131 505 170 335
$ 633 703 148 1,109 241 868
$1,785 1,857 574 2,990 828 2,162
$3,908 3,705 1,475 6,331 1,432 4,899
$3,910 3,655 1,855 6,859 1,587 5,272
In addition to other financial measures presented in accordance with U.S. generally accepted accounting principles (GAAP),wemonitorfreecashflow(FCF)asanonGAAPmeasuretomanageourbusiness,makeplanningdecisions,evaluate ourperformance,andallocateresources.WedefineFCFasnetcashprovidedbyoperatingactivitiesreducedbypurchasesof propertyandequipmentandpropertyandequipmentacquiredundercapitalleases. WebelievethatFCFisoneofthekeyfinancialindicatorsofourbusinessperformanceoverthelongtermandprovides useful information regarding whether cash provided by operating activities is sufficient to fund the ongoing property and equipmentinvestmentsrequiredtomaintainandgrowourbusiness.Wehavechosentosubtractbothpurchasesofproperty andequipmentandpropertyandequipmentacquiredundercapitalleasesinourcalculationofFCFbecausewebelievethat these two items collectively represent the amount of property and equipment we need to procure to support our business, regardlessofwhetherwefinancesuchpropertyorequipmentwithacapitallease.Themarketforfinancingserversandother technicalequipmentisdynamicandweexpectouruseofcapitalleasescouldvarysignificantlyfromyeartoyear. We have chosen our definition for FCF because we believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business. We present FCF in this document in the samemanneritissharedwithourseniormanagementandboardofdirectors. FCFhaslimitationsasananalyticaltool,andyoushouldnotconsideritinisolationorasasubstituteforanalysisofother GAAPfinancialmeasures,suchasnetcashprovidedbyoperatingactivities.SomeofthelimitationsofFCFare: FCFdoesnotreflectourfuturecontractualcommitmentsand othercompaniesinourindustrypresentsimilarlytitledmeasuresdifferentlythanwedo,limitingtheirusefulnessas comparativemeasures. 44
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Table of Contents ManagementcompensatesfortheinherentlimitationsassociatedwithusingtheFCFmeasurethroughdisclosureofsuch limitations,presentationofourfinancialstatementsinaccordancewithGAAP,andreconciliationofFCFtothemostdirectly comparableGAAPmeasure,netcashprovidedbyoperatingactivities,aspresentedbelow. The following is a reconciliation of FCF to the most comparable GAAP measure, net cash provided by operating activities:
YearEndedDecember31, 2008 2009 2010 2011 (inmillions) ThreeMonths EndedMarch31, 2011 2012
2007
Netcashprovidedbyoperatingactivities Purchasesofpropertyandequipment Propertyandequipmentacquiredundercapitalleases Freecashflow
$ 11 (55) (11) $ (55) 45
$ 8 (70) (26) $ (88)
$ 155 (33) (56) $ 66
$ 698 (293) (217) $ 188
$1,549 (606) (473) $ 470
$ 345 $ 441 (153) (453) (211) (38) $ (19) $ (50)
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Table of Contents MANAGEMENTSDISCUSSIONANDANALYSISOFFINANCIAL CONDITIONANDRESULTSOFOPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this prospectus. In addition to historicalconsolidatedfinancialinformation,thefollowingdiscussioncontainsforwardlookingstatementsthatreflectour plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forwardlooking statements.Factorsthatcouldcauseorcontributetothesedifferencesincludethosediscussedbelowandelsewhereinthis prospectus,particularlyinRiskFactors.Foradiscussionoflimitationsinthemeasurementofcertainofourusermetrics, seethesectionentitledIndustryDataandUserMetrics. Overview Ourmissionistomaketheworldmoreopenandconnected.Facebookenablesyoutoexpressyourselfandconnectwith theworldaroundyouinstantlyandfreely. Webuildproductsthatsupportourmissionbycreatingutilityforusers,developers,andadvertisers: Users.WeenablepeoplewhouseFacebooktostayconnectedwiththeirfriendsandfamily,todiscoverwhatisgoingon intheworldaroundthem,andtoshareandexpresswhatmatterstothemtothepeopletheycareabout. Developers.WeenabledeveloperstousetheFacebookPlatformtobuildapplications(apps)andwebsitesthatintegrate withFacebooktoreachourglobalnetworkofusersandtobuildproductsthataremorepersonalized,social,andengaging. Advertisers.Weenableadvertiserstoengagewithmorethan900millionmonthlyactiveusers(MAUs)onFacebookor subsetsofourusersbasedoninformationtheyhavechosentosharewithussuchastheirage,location,gender,orinterests.We offeradvertisersauniquecombinationofreach,relevance,socialcontext,andengagementtoenhancethevalueoftheirads. WegeneratesubstantiallyallofourrevenuefromadvertisingandfromfeesassociatedwithourPaymentsinfrastructure thatenablesuserstopurchasevirtualanddigitalgoodsfromourPlatformdevelopers.In2011,werecordedrevenueof$3,711 million, operating income of $1,756 million, and net income of $1,000 million. In the first quarter of 2012, we recorded revenueof$1,058million,operatingincomeof$381million,andnetincomeof$205million.WewereincorporatedinJuly 2004andareheadquarteredinMenloPark,California. Highlightsinourhistoryaredepictedinthegraphiconthenextpage. 46
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Table of Contents OurHistory
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Table of Contents TrendsinOurUserMetrics MonthlyActiveUsers(MAUs).WedefineamonthlyactiveuserasaregisteredFacebookuserwhologgedinand visitedFacebookthroughourwebsiteoramobiledevice,ortookanactiontosharecontentoractivitywithhisor herFacebookfriendsorconnectionsviaathirdpartywebsitethatisintegratedwithFacebook,inthelast30daysas ofthedateofmeasurement.MAUsareameasureofthesizeofourglobalactiveusercommunity,whichhasgrown substantiallyinthepastseveralyears.
Note:ForpurposesofreportingMAUs,DAUs,andARPUbygeographicregion,EuropeincludesallusersinRussiaandTurkey,Asiaincludesallusersin AustraliaandNewZealand,andRestofWorldincludesAfrica,LatinAmerica,andtheMiddleEast.
AsofMarch31,2012,wehad901millionMAUs,anincreaseof33%fromMarch31,2011.Weexperiencedgrowth acrossdifferentgeographies,withusersinBrazil,India,andtheUnitedStatesrepresentingkeysourcesofgrowth.We had45millionMAUsinBrazilasofMarch31,2012,anincreaseof180%fromthesameperiodintheprioryear,and wehad51millionMAUsinIndiaasofMarch31,2012,anincreaseof107%fromthesameperiodintheprioryear. Additionally,wehad169millionMAUsintheUnitedStatesasofMarch31,2012,anincreaseof15%fromthesame periodintheprioryear. TherearemorethantwobillionglobalInternetusers,accordingtoanIDCreportdatedAugust2011,andweaimto connect all of them. We have achieved varying levels of penetration within the population of Internet users in differentcountries.Forexample,asofDecember31,2011,incountriessuchasChile,Turkey,andVenezuelawe estimatethatwehadpenetrationratesofgreaterthan85% 48
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Table of Contents of Internet users in countries such as India, the United Kingdom and the United States we estimate that we had penetration rates of approximately 60% in countries such as Brazil and Germany we estimate that we had penetrationratesofapproximately3040%incountriessuchasJapan,Russia,andSouthKoreaweestimatethatwe had penetration rates of 20% or lower and in China, where Facebook access is restricted, we have near 0% penetration. We continue to invest in growing our user base, particularly in markets where we are relatively less penetrated.WeexpectMAUgrowthwillbenefitfromincreasesinworldwideInternetusers,inparticularasaresultof increasingbroadbandpenetrationandusageofmobiledevicesindevelopingmarkets.GrowthinMAUsdependson ourabilitytoretainourcurrentusers,reengagewithinactiveusers,andaddnewusers,includingbyextendingour reachacrossmobileplatforms. DailyActiveUsers(DAUs).WedefineadailyactiveuserasaregisteredFacebookuserwhologgedinandvisited Facebook through our website or a mobile device, or took an action to share content or activity with his or her FacebookfriendsorconnectionsviaathirdpartywebsitethatisintegratedwithFacebook,onagivenday.Weview DAUs,andDAUsasapercentageofMAUs,asmeasuresofuserengagement.
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Table of Contents Worldwide DAUs increased 41% to 526 million on average during March 2012 from 372 million during March 2011.WeexperiencedgrowthinDAUsacrossmajormarketsincludingtheUnitedStates,Brazil,andIndia.Increased mobileusagewasakeycontributortothisgrowth.DAUsasapercentageofMAUsincreasedfrom55%inMarch 2011 to 58% in March 2012, which we believe was driven entirely by increased mobile usage of Facebook. We believe that increases in DAUs and in DAUs as a percentage of MAUs generally positively affect our revenue becauseincreasesinuserengagementmayenableustodelivermorerelevantcommercialcontenttoourusersand mayprovideuswithmoreopportunitiesformonetization. WebelievethatwehavetheopportunitytocontinuetogrowourDAUsaroundtheworld.GrowthinDAUsdepends onourabilitytoattractnewusersandincreasethefrequencyofengagementforexistingusers.Weaimtoincrease DAUsbydevelopingproductsthataremorecompellingforourusers,increasingtherelevanceoftheinformationwe displayforeachuser,increasingthenumberofcompellingPlatformappsandwebsiteintegrations,andimproving the quality of our products across mobile platforms. We also believe that younger users have higher levels of engagement with the web and mobile devices in general and with Facebook specifically. We anticipate that demographictrendsoverthelongtermmaycontributetogrowthinengagementasagreaternumberofuserswill come from demographic groups that have grown up with the web and mobile devices and who spend more time onlineeveryday. MobileMAUs.WedefineamobileMAUasauserwhoaccessedFacebookviaamobileapporviamobileoptimized versionsofourwebsitesuchasm.facebook.com,whetheronamobilephoneortabletsuchastheiPad,duringthe periodofmeasurement. WorldwidemobileMAUsincreasedby69%from288millionasofMarch31,2011to488millionasofMarch31, 2012.Inallregions,anincreasingnumberofourMAUsareaccessingFacebookthroughmobiledevices,withusers intheUnitedStates,India,Indonesia,andBrazilrepresentingkeysourcesofmobilegrowthoverthisperiod.We estimatethatapproximately83millionmobileMAUsaccessedFacebooksolelythroughmobileappsorourmobile websiteduringthemonthendedMarch31,2012,andwebelievethatmobileonlyusersincreasedrelativetothe same period in the prior year. The remaining 405 million mobile MAUs accessed Facebook from both personal computersandmobiledevicesduringthatmonth.WebelievethatourmobileMAUgrowthwasdrivenbyincreased consumerusageofmobiledevicesgenerallyandalsobyourproductenhancementsacrossseveralmobileplatforms. Forexample,weimprovedourproductofferingsonfeaturephonesfollowingouracquisitionofSnaptuinApril2011 and we launched the Facebook app for the iPad in October 2011. Improving our mobile products and increasing mobileusageofFacebookarekeycompanyprioritiesthatwebelievearecriticaltohelpusmaintainandgrowour userbaseandengagementoverthelongterm.Weexpectconsumersaroundtheworldwillincreasetheamountof timetheyspendandtheinformationtheyshareandconsumethroughmobiledevices.
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Table of Contents WehavehistoricallynotshownadstousersaccessingFacebookthroughmobileappsorourmobilewebsite.Tothe extent that increasing usage of Facebook through mobile apps or our mobile website substitutes for the use of Facebookthroughpersonalcomputerswherewedoshowads,thenumberofadsthatwedelivertousersandour revenuemaybenegativelyaffectedunlessanduntilwearesuccessfulwithmonetizationstrategiesformobileusage ofFacebook,suchastheimplementationofsponsoredstoriesinusersmobileNewsFeeds,whichwebeganinMarch 2012.WebelievethatpeoplearoundtheworldwillcontinuetoincreasetheirmobileusageofFacebook,andthat some of this mobile usage has been and will continue to be a substitute for use of Facebook through personal computers. TrendsinOurMonetizationbyUserGeography
Note:Ourrevenuebyusergeographyinthechartsaboveisgeographicallyapportionedbasedonourestimationofthegeographiclocationofouruserswhenthey performarevenuegeneratingactivity.Thisallocationdiffersfromourrevenuebygeographydisclosureinourconsolidatedfinancialstatementswhererevenueis geographicallyapportionedbasedonthelocationoftheadvertiserordeveloper.
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Table of Contents We estimate our revenue by user geography based on the geography in which ad impressions are delivered or virtual goodsarepurchased.Wedefineaveragerevenueperuser(ARPU)asourtotalrevenueinagivengeographyduringagiven period,dividedbytheaverageofthenumberofMAUsinthegeographyatthebeginningandendoftheperiod.Ourrevenue andARPUinmarketssuchastheUnitedStates,Canada,andEuropearerelativelyhigherduetothesizeandmaturityofthose advertising markets as well as our greater sales presence and the number of payment methods that we make available to advertisersandusers. Inthefirstquarterof2012,50%ofourrevenuewasgeneratedbyusersintheUnitedStatesandCanada,adecreasefrom 54%ofourrevenueforthefirstquarterof2011,andin2011,52%ofourrevenuewasgeneratedbyusersintheUnitedStates andCanada,ascomparedto58%in2010,asweexperiencedmorerapidrevenuegrowthinmarketssuchasGermany,Brazil, Australia,andIndia. Duringthefirstquarterof2012,worldwideARPUwas$1.21,anincreaseof6%fromthefirstquarterof2011.Overthis period,ARPUincreasedacrossallgeographies.UsergrowthwasmorerapidingeographieswithrelativelylowerARPU,such asAsiaandRestofWorld.TheseusergrowthdynamicsresultedinworldwideARPUincreasingataslowerratethantherate experiencedinanygeographicregion.ARPUinthefirstquarterof2012declined12%fromthefourthquarterof2011.We believethesequentialquarterlydeclinewasdrivenbyseasonaltrends,whichalsoaffectedARPUtrendsfromthefourthquarter of2010tothefirstquarterof2011,duringwhichperiodARPUdeclinedby10%.Inaddition,thesequentialdeclineinARPU inthefirstquarterof2012wasaffectedbythefactthatourusergrowthwashigheringeographieswithrelativelylowerARPU. WeexpectthatusergrowthinthefuturewillcontinuetobehigherinthoseregionswhereARPUisrelativelylower,suchas Asia and Rest of World, such that worldwide ARPU may continue to increase at a slower rate relative to ARPU in any geographicregion,orpotentiallydecreaseevenifARPUincreasesineachgeographicregion. ARPUincreased32%from$3.08in2009to$4.08in2010and25%to$5.11in2011.Intheseperiods,weexperienced ARPUgrowthacrossallregions. FactorsAffectingOurPerformance GrowthinMAUs,DAUs,andMobileMAUs.GrowthtrendsinMAUs,DAUs,andmobileMAUsarecriticalvariablesthat affect our revenue and financial results by influencing the number of ads we are able to show, the value of those ads, the volumeofPaymentstransactions,aswellasourexpensesandcapitalexpenditures.Weexpectourusergrowthratestodecline asthesizeofouractiveuserbaseincreasesandasweachievehighermarketpenetrationrates.Additionally,aswegrowour business and expand internationally, we expect to face challenges entering new markets such as China, where access to Facebookisrestrictedinwholeorinpart.Asusergrowthratesslow,weexpecttherateofgrowthinrevenuewilllikelydecline overtime,whichwillaffectourincomefromoperationsandnetincome. GrowthinUsersbyGeography.WeexpectfutureusergrowthtoberelativelyhigherinAsiaandRestofWorldwhereon averageusersgeneratelessrevenueascomparedwithusersintheUnitedStatesorEurope.Ingeneral,newusersinAsiaand Rest of World do not require material incremental infrastructure investments because we are able to utilize existing infrastructuresuchasourdatacentersintheUnitedStatestomakeourproductsavailabletotheseusers.Inaddition,wedonot believethatusergrowthbygeographymateriallyaffectsouroverallheadcountrequirementsorheadcountrelatedexpenses sincewearegenerallyabletosupportusersinallgeographiesfromourexistingfacilities. User Engagement. Changes in user engagement also affect our revenue and financial performance. Growth in user engagementmayincreasetheopportunitiesforustodisplayadvertisingandourabilitytodeliverrelevantcommercialcontent tousers.Growthinuserengagementalsogenerallyresultsinincreasesinourexpensesandcapitalexpendituresrequiredto supportuseractivity.Webelievethatoverallengagementasmeasuredbythepercentageofuserswhocreatecontent(suchas wallposts,messages,orphotos)orgeneratefeedback(suchasbyLikingorCommentingonthecontentcreated)hasremained stableorincreasedasouruserbasehasgrown.Moreover,theaverageamountofcontentandfeedbackcreatedbyeachuserhas continuedtoincreaseovertime. 52
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Table of Contents IncreasingMobileUsage.IncreasinguseofFacebookonmobiledeviceswillalsoaffectourperformance,particularlyif mobileusesubstitutesforuseonpersonalcomputers.Historically,wehavenotshownadstousersaccessingFacebookthrough mobileappsorourmobilewebsiteandwecannotbecertainthatourmobilemonetizationapproacheswillbesuccessfulin generatingmeaningfulrevenue.WecannotquantifytheextenttowhichmobileusageofFacebookissubstitutingfor,rather thanincrementalto,usageofFacebookthroughpersonalcomputers,butwegenerallyexpectmobileusagetoincreaseata fasterratethanusagethroughpersonalcomputersfortheforeseeablefuture. Value of Advertising Products. We believe that increasing the value of our advertising products and the consequent return on investment to advertisers from working with Facebook will increase advertiser demand and thereby increase the amountadvertisersspendwithus.Weaimtoincreasethevalueofouradvertisingproductsthroughsuchmeansasincreasing the size and engagement of our user base, improving our ability to select relevant content of interest to individual users, developing new formats and products such as ads with social context, and improving the measurement tools available to advertisers to optimize their campaigns. For example, in 2011, we launched sponsored stories as a new format to leverage socialcontext,andinMarch2012,webegantoincludesponsoredstoriesinusersmobileNewsFeeds. ManagementofAdInventory.Ourrevenuetrendsarealsoaffectedbyadinventorymanagementchangesaffectingthe number, size, or prominence of ads we display. For example, in the fourth quarter of 2010, we significantly increased the numberofadsonmanyFacebookpages.Asanotherexample,inthefourthquarterof2011,weincreasedthereserveprice(i.e., theminimumpricethreshold)inouradvertisingauctionsysteminordertoreducethefrequencywithwhichlowqualityads aredisplayedtousers.Thischangecausedareductionintheoverallnumberofadsshownandincreasedtheaveragepriceper adasaresultoffactorsincludingtheremovalofadswithbidsthatwerebelowthereservepriceandsomeadvertisersraising theirbidsinresponsetothischange.Forthisparticularchange,weestimatethatthedecreaseinthenumberofadsdisplayed andtheincreaseinaveragepriceperadapproximatelyoffseteachothersuchthattheimpactontotalrevenuewasminimal. ProductInnovation.Wemakeongoingproductchangesintendedtoenhancetheuserexperience.InSeptember2011,at ourf8conference,weannouncedthelaunchofTimelineasanenhancedandupdatedversionoftheFacebookProfiletoenable userstobetterorganizeandaccessthegrowingquantityoftheirupdates,photos,comments,andothercontent.Timelinewas rolledoutbroadlyaroundtheworldinthefirstquarterof2012.AlsoinSeptember2011,weannouncedthelaunchofthenext iterationofOpenGraphAPIs,whichenablesPlatformdeveloperstocreatenewtypesofsocialappsthatfacilitatesharing,self expression, and serendipitous discovery across a broad variety of activities and interests. We expanded the Open Graph to includemoretypesofsharingactivitiesinthefirstquarterof2012. InvestmentinInfrastructure. In 2011, we continued to make significant investments in our technical infrastructure to ensurethatourgrowinguserbasecanaccessFacebookrapidlyandreliably.InApril2011andMarch2012,respectively,we beganservingusertrafficoutofourownedandbuiltdatacentersinPrineville,OregonandForestCity,NorthCarolina.We developeddesignsfordatacenters,serverhardware,andsoftwarethatwereoptimizedforuseinournewdatacenterfacilities, resultinginsignificantincreasesinenergyefficiencywhilesignificantlyreducingourserveroperationcostscomparedtothe usageoftraditionalserversandleaseddatacenters.WeareinvestinginadditionalFacebookowneddatacentersintheUnited StatesandEuropeandweaimtodeliverFacebookproductsrapidlyandreliablytoallusersaroundtheworld. InvestmentinTalent.Attheendofthefirstquarterof2012,wehad3,539fulltimeemployees,anincreaseof46%from thesameperiodin2011.Ouremployeeheadcounthasincreasedsignificantlyandweexpectthisgrowthtocontinueforthe foreseeable future. We have also made and intend to make acquisitions with the primary objective of adding software engineers, product designers, and other personnel with certain technology expertise. While our organization is growing rapidly,wearefocusedonincreasingourtalentbaseataratethatallowsustopreserveourculture. 53
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Table of Contents BusinessDevelopmentandAcquisitions.Aspartofourbusinessstrategy,wehavemadeandintendtomakeacquisitions toaddspecializedemployees,complementarycompanies,products,technologies,orotherassets.Forexample,inApril2012, weenteredintoanagreementtoacquireInstagram,Inc.andanagreementwithMicrosoftCorporationtoobtaincertainpatent assetsfromAOLInc.Ouracquisitionswillaffectourfuturefinancialresultsduetofactorssuchastheamortizationofacquired intangibleassetsorotherpotentialchargessuchasrestructuringcostsorimpairmentexpense. SharebasedCompensationExpense.Wehavegrantedrestrictedstockunits(RSUs)toouremployeesandmembersofour board of directors. RSUs granted prior to January 1, 2011 (Pre2011 RSUs) under our 2005 Stock Plan vest upon the satisfactionofbothaserviceconditionandaliquiditycondition.Theserviceconditionforthemajorityoftheseawardsis satisfiedoverfouryears.Theliquidityconditionissatisfiedupontheoccurrenceofaqualifyingevent,definedasachangeof control transaction or six months following the effective date of our initial public offering. Pre2011 RSUs for which the serviceconditionhasbeensatisfiedarenotforfeitedshouldanemployeeterminatepriortotheliquidityconditionbeingmet. AsofMarch31,2012,wehaverecognizednosharebasedcompensationexpenseforPre2011RSUsbecauseaqualifying eventdescribedabovehadnotoccurred.Inthequarterinwhichourinitialpublicofferingiscompleted,wewillrecognize sharebased compensation expense using the accelerated attribution method, net of forfeitures, based on the grant date fair valueofthePre2011RSUs.ForthePre2011RSUs,iftheinitialpublicofferinghadbeencompletedonMarch31,2012,we wouldhaverecognized$965millionofsharebasedcompensationexpenseforallRSUsthatmettheserviceconditionasof that date, and would have approximately $235 million of additional future period expense to be recognized over the remainingserviceperiodsthrough2018. RSUsgrantedonorafterJanuary1,2011(Post2011RSUs)arenotsubjecttoaliquidityconditioninordertovest.Share basedcompensationexpenserelatedtothesegrantsisbasedonthegrantdatefairvalueoftheRSUsandisrecognizedona straightlinebasisovertheapplicableserviceperiod.ThemajorityofPost2011RSUsareearnedoveraserviceperiodoffour tofiveyears.In2011andthefirstquarterof2012,werecognized$189millionand$97million,respectively,ofsharebased compensationexpenserelatedtothePost2011RSUs,andweanticipaterecognizing$1,119millionoffutureperiodexpense relatedtoPost2011RSUsoutstandingasofMarch31,2012. AsofMarch31,2012,therewas$2,381millionofunrecognizedsharebasedcompensationexpense,ofwhich$2,319 million is related to RSUs and $62 million is related to restricted shares and stock options. This unrecognized sharebased compensationexpenseisexpectedtoberecognizedoveraweightedaverageperiodofapproximatelytwoyears. See Critical Accounting Policies and EstimatesSharebased Compensation for additional information regarding oursharebasedcompensationexpense. ComponentsofResultsofOperations Revenue WegeneratesubstantiallyallofourrevenuefromadvertisingandfromfeesassociatedwithourPaymentsinfrastructure thatenablesuserstopurchasevirtualanddigitalgoodsfromourPlatformdevelopers. Advertising. Our advertising revenue is generated by displaying ad products on our website. Advertisers pay for ad productsdisplayedonFacebook,eitherdirectlyorthroughtheirrelationshipswithadvertisingagencies,basedonthenumber ofimpressionsdeliveredorthenumberofclicksmadebyourusers.Werecognizerevenuefromthedisplayofimpression basedadsonourwebsiteinthecontractedperiodinwhichtheimpressionsaredelivered.Impressionsareconsidereddelivered whenanadappearsinpagesdisplayedtousers.Werecognizerevenuefromthedeliveryofclickbasedadsonourwebsitein theperiodinwhichauserclicksonanad. 54
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Table of Contents Paymentsandotherfees.WeenablePaymentsfromouruserstoourPlatformdevelopers.Ouruserscantransactandmake payments on the Facebook Platform by using credit cards, PayPal or other payment methods available on our website. We receive a fee from our Platform developers when users make purchases from our Platform developers using our Payments infrastructure.WerecognizerevenuenetofamountsremittedtoourPlatformdevelopers.Wehavemandatedtheuseofour PaymentsinfrastructureforgameappsonFacebook,andfeesrelatedtoPaymentsaregeneratedalmostexclusivelyfromgames. Todate,gamesfromZyngahavegeneratedthemajorityofourpaymentsandotherfeesrevenue.Inaddition,wegenerateother fees revenue in connection with arrangements related to business development transactions and fees from various mobile providersinrecentperiods,otherfeesrevenuehasbeenimmaterial. CostofRevenueandOperatingExpenses Costofrevenue.Ourcostofrevenueconsistsprimarilyofexpensesassociatedwiththedeliveryanddistributionofour products. These include expenses related to the operation of our data centers such as facility and server equipment depreciation, facility and server equipment rent expense, energy and bandwidth costs, support and maintenance costs, and salaries,benefits,andsharebasedcompensationforemployeesonouroperationsteams.Costofrevenuealsoincludescredit cardandothertransactionfeesrelatedtoprocessingcustomertransactions. Marketing and sales. Our marketing and sales expenses consist primarily of salaries, benefits, and sharebased compensation for our employees engaged in sales, sales support, marketing, business development, and customer service functions.Ourmarketingandsalesexpensesalsoincludeuser,developer,andadvertiserfacingmarketingandpromotional expenditures. Researchanddevelopment.Researchanddevelopmentexpensesconsistprimarilyofsalaries,benefits,andsharebased compensationforemployeesonourengineeringandtechnicalteamswhoareresponsibleforbuildingnewproductsaswellas improvingexistingproducts.Weexpensesubstantiallyallofourresearchanddevelopmentcostsastheyareincurred. Generalandadministrative.Our general and administrative expenses consist primarily of salaries, benefits, and share basedcompensationforourexecutivesaswellasourfinance,legal,humanresources,andotheradministrativeemployees.In addition, general and administrative expenses include outside consulting, legal and accounting services, and facilities and othersupportingoverheadcosts.Generalandadministrativeexpensesalsoincludelegalsettlements. 55
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Table of Contents ResultsofOperations Thefollowingtablesummarizesourhistoricalconsolidatedstatementsofincomedata:

YearEnded December31, 2010 ThreeMonthsEnded March31, 2011 2012
2009 ConsolidatedStatementsofIncomeData: Revenue Costsandexpenses(1): Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalcostsandexpenses Incomefromoperations Interestandotherincome(expense),net Incomebeforeprovisionforincometaxes Provisionforincometaxes Netincome (1) Costsandexpensesincludesharebasedcompensationexpenseasfollows:
2011 (inmillions) $ $ 3,711 860 427 388 280 1,955 1,756 (61) 1,695 695 1,000
$ $
777 223 115 87 90 515 262 (8) 254 25 229
$ $
1,974 493 184 144 121 942 1,032 (24) 1,008 402 606
$ $
731 167 68 57 51 343 388 10 398 165 233
$ $
1,058 277 159 153 88 677 381 1 382 177 205
YearEnded December31, 2009 2010 2011 (inmillions) $ $ $ 9 2 2 43 6 9 114 19 9 51 $ 27 $ 20 $ 217
ThreeMonthsEnded March31, 2011 2012 $ $ 4 3 7 $ $ 4 23 60 16 103
Thefollowingtablesummarizesourhistoricalconsolidatedstatementsofincomedataasapercentageofrevenueforthe periodsshown:
YearEnded December31, 2009 2010 2011 100% 29 15 11 12 66 34 (1) 33 3 100% 25 9 7 6 48 52 (1) 51 20 ThreeMonthsEnded March31, 2011 2012 100% 23 9 8 7 47 53 1 54 23 100% 26 15 14 8 64 36 36 17 19%
ConsolidatedStatementsofIncomeData: Revenue Costsandexpenses(1): Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalcostsandexpenses Incomefromoperations Interestandotherincome(expense),net Incomebeforeprovisionforincometaxes Provisionforincometaxes Netincome
100% 23 12 10 8 53 47 (2) 46 19
29%
31%
27%
32%
(1) Costsandexpensesincludethefollowingsharebasedcompensationexpenseasapercentageofrevenue: YearEnded December31, 2009 2010 % % 1 2 3% ThreeMonthsEnded March31, 2011 2011 2012 % % % 1 2 3 1 6 1 2 6% 1% 10%
1%
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Table of Contents ThreeMonthsEndedMarch31,2011and2012 Revenue

ThreeMonths EndedMarch31, 2011 2012 (inmillions)
%Change
Advertisingrevenue Paymentsandotherfeesrevenue Totalrevenue
$637 94 $731
$ 872 186 $1,058
37% 98% 45%
Revenueinthefirstquarterof2012increased$327million,or45%,comparedtothesameperiodin2011.Theincrease wasdueprimarilytoa37%increaseinadvertisingrevenueto$872million.Advertisingrevenuegrewduetoa35%increase in the number of ads delivered. The increase in ads delivered was driven primarily by user growth MAUs grew 33% from March31,2011toMarch31,2012andaverageDAUsgrew41%fromMarch2011toMarch2012.Averagepriceperadforthe firstquarterof2012comparedtothefirstquarterof2011wasunchanged,asanincreaseintheaveragepriceperadinthe UnitedStatesandCanadawasoffsetbyanincreasedpercentageofourworldwideadsbeingdeliveredintheAsiaandRestof Worldgeographieswheretheaveragepriceperad,whilegrowingonayearoveryearbasis,isrelativelylower.Theaverage priceperadwasalsoaffectedbyadeclineintheaveragepriceperadinEuropeinthefirstquarterof2012comparedtothe sameperiodin2011due,webelieve,tocontinuingweakeconomicconditionsinthatregion. Payments and other fees revenue in the first quarter of 2012 increased to $186 million, or 98%, compared to the first quarterof2011.FacebookPaymentsbecamemandatoryforallgamedevelopersacceptingpaymentsontheFacebookPlatform withlimitedexceptionsonJuly1,2011.Accordingly,comparisonsofPaymentsandotherfeesrevenuetoperiodsbeforethis datemaynotbemeaningful. Thirteenpercentand11%ofourtotalrevenueforthefirstquarterof2011and2012,respectively,camefromasingle customer,Zynga.ThisrevenueconsistedofPaymentsprocessingfeesrelatedtoZyngassaleofvirtualgoodsandfromdirect advertisingpurchasedbyZynga.Additionally,Zyngasappsgeneratepagesonwhichwedisplayadsfromotheradvertisers for the first quarter of 2012, we estimate that an additional approximately 4% of our total revenue was generated from the displayoftheseads.InMay2010,weenteredintoanaddendumtoourstandardtermsandconditionswithZyngapursuantto which it agreed to use Facebook Payments as the primary means of payment within Zynga games played on the Facebook Platform. Under this addendum, we retain a fee of up to 30% of the face value of user purchases in Zyngas games on the FacebookPlatform.ThisaddendumexpiresinMay2015. Costofrevenue
ThreeMonths EndedMarch31, 2011 (inmillions) 2012 %Change
Costofrevenue Percentageofrevenue
$ 167 23%
$ 277 26%
66%
Costofrevenueinthefirstquarterof2012increased$110million,or66%,comparedtothesameperiodin2011.The increasewasprimarilyduetoexpensesrelatedtoexpandingourdatacenteroperations,includinga 57
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Table of Contents $59millionincreaseindepreciation,andtoalesserextent,anincreaseinpayrollandbenefitsexpensesresultingfroma66% increase in employee headcount. These expenses supported our user growth, the increased usage of our products by users, developers,andadvertisers,andthelaunchofnewproducts. Weanticipatethatcostofrevenuewillincreaseindollaramountfortheforeseeablefutureasweexpandourdatacenter capacitytosupportusergrowth,increaseduserengagement,andthedeliveryofnewproductsandofferings.Weexpectcosts will also rise for payment processing as we increase Payments volumes. The expected increase in cost of revenue may be partiallymitigatedtotheextentweareabletorealizeimprovementsinserverperformanceandtheefficiencyofourtechnical operations.Weexpectcostofrevenueasapercentageofrevenuetoincreasein2012comparedto2011aswecontinueto investinourtechnicalinfrastructure. Marketingandsales
ThreeMonths EndedMarch31, 2011 2012 (inmillions) %Change
Marketingandsales Percentageofrevenue
$68 9%
$159 15%
134%
Marketingandsalesexpensesinthefirstquarterof2012increased$91million,or134%,comparedtothesameperiodin 2011.Theincreasewasprimarilyduetoanincreaseinouruser,developer,andadvertiserfacingmarketing,andtoalesser extent,anincreaseinpayrollandbenefitsexpensesresultingfroma34%increaseinemployeeheadcounttosupportglobal sales,businessdevelopment,andcustomerservice.Additionally,sharebasedcompensationexpenseincreasedto$23million inthefirstquarterof2012duetorecognitionofexpenserelatedtoPost2011RSUs.Inthesameperiodin2011,sharebased compensationexpensewasimmaterial. Weanticipatethatmarketingandsalesexpenseswillincreaseindollaramountandasapercentageofrevenuein2012 compared to 2011 as a result of continued growth in headcount and headcountrelated expenses, including sharebased compensation expense related to Post2011 RSUs. We plan to add sales, business development and customer service employees,opennewoffices,andcontinueourinvestmentinuser,developer,andadvertiserfacingmarketing.Assumingwe completeourinitialpublicofferingin2012,wealsoanticipateasignificantincreaseinmarketingandsalesexpensesin2012 due to the inclusion of sharebased compensation expense from Pre2011 RSUs as described in Critical Accounting PoliciesandEstimatesSharebasedCompensation. Researchanddevelopment
Researchanddevelopment Percentageofrevenue
$57 8%
$153 15%
168%
Researchanddevelopmentexpensesinthefirstquarterof2012increased$96million,or168%,comparedtothesame periodin2011.TheincreasewasprimarilyduetoanincreaseofsharebasedcompensationexpenserelatedtoPost2011RSUs from $4 million in the first quarter of 2011 to $60 million in the same period in 2012. Payroll and benefits expense also increased due to a 55% growth in employee headcount in engineering, design, product management, and other technical functions.Thisinvestmentsupportedoureffortstoimproveexistingproductsandbuildnewproductsforusers,developers, andadvertisers. 58
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Table of Contents Weanticipatethatresearchanddevelopmentexpenseswillincreaseindollaramountandasapercentageofrevenuein 2012comparedto2011asaresultofcontinuedgrowthinheadcountandheadcountrelatedexpenses,includingsharebased compensation expense related to Post2011 RSUs. We plan to continue rapidly hiring engineering, design, product management,andothertechnicalemployees.Assumingwecompleteourinitialpublicofferingin2012,wealsoanticipatea significantincreaseinresearchanddevelopmentexpensesin2012duetotheinclusionofsharebasedcompensationexpense fromPre2011RSUsasdescribedinCriticalAccountingPoliciesandEstimatesSharebasedCompensation. Generalandadministrative
Generalandadministrative Percentageofrevenue
$51 7%
$88 8%
73%
Generalandadministrativeexpensesinthefirstquarterof2012increased$37million,or73%,comparedtothesame periodin2011.Theincreasewasprimarilyduetoanincreaseinpayrollandbenefitsexpensesresultingfroma57%increasein employeeheadcountinfinance,legal,humanresources,andotherfunctions,andtoalesserextent,outsideconsultingand legal fees. Additionally, sharebased compensation expense increased from $3 million in the first quarter of 2011 to $16 millioninthesameperiodin2012duetorecognitionofexpenserelatedtoPost2011RSUs. We anticipate that general and administrative expenses will increase in dollar amount and increase as a percentage of revenuein2012comparedto2011asaresultofgrowthinheadcountandheadcountrelatedexpenses,includingsharebased compensationrelatedtothePost2011RSUs.Weplantocontinuetoincreasegeneralandadministrativeemployeeheadcount tosupportourgrowth.Assumingwecompleteourinitialpublicofferingin2012,wealsoanticipateasignificantincreasein generalandadministrativeexpensesin2012duetotheinclusionofsharebasedcompensationexpensefromPre2011RSUsas describedinCriticalAccountingPoliciesandEstimatesSharebasedCompensation. Interestandotherincome(expense),net
Interestexpense Otherincome,net Interestandotherincome(expense),net
$ (7) 17 $ 10
$ (13) 14 $ 1
86% (18)% (90)%
Interestandotherincome(expense),netinthefirstquarterof2012decreased$9million,or90%,comparedtothesame periodin2011.Interestexpenseincreasedby$6million,primarilyduetoanincreasedvolumeofpropertyandequipment financedbycapitalleases.Thechangeinotherincome,netwasprimarilyduetoa$6milliondecreaseinforeignexchange related gains. Foreign exchange gains resulted from the periodic remeasurement of our intercompany Euro balances. This decreasewaspartiallyoffsetbyanincreaseininterestincomedrivenbylargerinvestedcashbalances. 59
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Table of Contents Provisionforincometaxes

Provisionforincometaxes Effectivetaxrate
$ 165 41%
$ 177 46%
7%
Ourprovisionforincometaxesinthefirstquarterof2012increased$12million,or7%,comparedtothesameperiodin 2011.Oureffectivetaxrateincreasedprimarilyduetotheimpactofnondeductiblesharebasedcompensationexpense,losses arisingoutsidetheUnitedStatesinjurisdictionswherewedonotreceiveataxbenefit,andtheexpirationofthefederaltax creditforresearchanddevelopmentactivitiesattheendof2011. Assuming we complete our initial public offering in 2012, there will be a significant increase in our sharebased compensationexpensefromPre2011RSUsfortheremainderof2012.Weexpectthatoureffectivetaxratesinthequarterwe completeourofferingandthesubsequentquartersof2012willbesignificantlygreaterthanoureffectivetaxratewasinthe first quarter of 2012, primarily because certain sharebased compensation expense will not be tax deductible in the United States.Inaddition,oureffectivetaxratemayfluctuatesignificantlyinanyquarterinwhichthereissignificantsharebased compensationexpenseorsignificantexercisesorsettlementsofstockawards. OureffectivetaxratehasexceededtheU.S.statutoryrateinpartbecauseoflossesarisingoutsidetheUnitedStatesin jurisdictionswherewedonotreceiveataxbenefit.Theselosseswereprimarilyduetotheinitialstartupcostsincurredbyour foreignsubsidiariestooperateincertainforeignmarkets,includingthecostsincurredbythosesubsidiariestolicense,develop, anduseourintellectualproperty.Oureffectivetaxrateinthefuturewilldependontheportionofourprofitsearnedwithinand outside the United States, which will also be affected by our methodologies for valuing our intellectual property and intercompanytransactions. Netincome Ournetincomeinthefirstquarterof2012decreasedcomparedtothesameperiodin2011.Totalcostsandexpensesgrew morethanrevenue,dueinparticulartoasignificantincreaseinsharebasedcompensationexpenseforPost2011RSUsduring thefirstquarterof2012,whichexpensewasnotsignificantinthefirstquarterof2011duetothetimingofRSUgrants.We expecttoincuranetlossinthesecondquarterof2012asaresultofthesharebasedcompensationexpenseassociatedwith Pre2011RSUsthatwewillincurupontheeffectivenessofourinitialpublicoffering,asdescribedinCriticalAccounting PoliciesandEstimatesSharebasedCompensation. YearsEndedDecember31,2009,2010,and2011 Revenue
YearEndedDecember31, 2009 2010 2011 (inmillions) 2009to2010 %Change 2010to2011 %Change
Advertisingrevenue Paymentsandotherfeesrevenue Totalrevenue
$ 764 13 $777
$1,868 106 $1,974
$3,154 557 $3,711
145% NM 154%
69% NM 88%
2011Comparedto2010.Revenuein2011increased$1,737million,or88%comparedto2010.Theincreasewasdue primarilytoa69%increaseinadvertisingrevenueto$3,154million.Advertisingrevenuegrewduetoa42%increaseinthe numberofadsdeliveredandan18%increaseintheaveragepriceperaddelivered. 60
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Table of Contents TheincreaseinadsdeliveredwasdrivenprimarilybyusergrowthMAUsgrew39%fromDecember31,2010toDecember31, 2011andaverageDAUsgrew48%fromDecember2010toDecember2011.Thenumberofadsdeliveredwasalsoaffectedby many other factors including product changes that significantly increased the number of ads on many Facebook pages beginninginthefourthquarterof2010,partiallyoffsetbyanincreaseinusageofourmobileproducts,wherewedidnotshow ads,andbyvariousproductchangesimplementedin2011thatinaggregatemodestlyreducedthenumberofadsoncertain pages.Theincreaseinaveragepriceperaddeliveredwasaffectedbyfactorsincludingimprovementsinourabilitytodeliver more relevant ads to users and product changes that contributed to higher user interaction with the ads by increasing their relativeprominence. Paymentsandotherfeesrevenueincreasedto$557millionin2011duetotheadoptionofFacebookPayments,whichhas beengraduallyadoptedbyourPlatformdevelopersandbegangeneratingsignificantrevenueinthefourthquarterof2010.We estimate that approximately 5 million and 15 million users purchased virtual or digital goods using Facebook Payments during the years ended December 31, 2010 and 2011, respectively. Facebook Payments became mandatory for all game developersacceptingpaymentsontheFacebookPlatformwithlimitedexceptionsonJuly1,2011.Accordingly,comparisons of payments and other fees revenue to periods before that date may not be meaningful. In 2011, other fees revenue was immaterial. In2011,wegeneratedapproximately56%ofourrevenuefromadvertisersandPlatformdevelopersbasedintheUnited States,comparedto62%in2010.Thischangeisduetofactorsincludingafastergrowthrateofinternationalusersandthe expansionofinternationalsalesofficesandpaymentmethods.ThemajorityofourrevenueoutsideoftheUnitedStatescame fromcustomerslocatedinwesternEurope,Canada,andAustralia. 2010 Compared to 2009. Revenue in 2010 increased $1,197 million, or 154%, compared to 2009. The increase was primarilyduetoa145%increaseinadvertisingrevenueto$1,868millionin2010.Advertisingrevenuegrewprimarilydueto anincreaseinthenumberofadsdelivereddrivenbygrowthinusersandengagementaswellasthenumberofadsperpage. MAUs grew 69% from December 31, 2009 to December 31, 2010 and average DAUs grew 77% from December 2009 to December2010.Paymentsandotherfeesrevenueincreasedto$106millionin2010duetotheinitialadoptionofFacebook Paymentsduringtheyear.In2010,wegeneratedapproximately62%ofourrevenuefromadvertisersandPlatformdevelopers basedintheUnitedStates,comparedto67%in2009. Twelvepercentofourtotalrevenuein2011,andlessthan10%in2010and2009,camefromasinglecustomer,Zynga. This revenue consisted of Payments processing fees related to Zyngas sales of virtual goods and from direct advertising purchasedbyZynga.Additionally,Zyngasappsgeneratepagesonwhichwedisplayadsfromotheradvertisersfor2011,we estimatethatanadditionalapproximately7%ofourrevenuewasgeneratedfromthedisplayoftheseads. Costofrevenue
YearEndedDecember31, 2009 2010 2011 (dollarsinmillions) 2009to2010 %Change 2010to2011 %Change
Costofrevenue Percentageofrevenue
$ 223 29%
$ 493 25%
$ 860 23%
121%
74%
2011Comparedto2010.Costofrevenuein2011increased$367million,or74%,comparedto2010.Theincreasewas primarilyduetoexpensesrelatedtoexpandingourdatacenteroperations,includinga$164millionincreaseindepreciation anda$35millionincreaseindatacenterfacilityrent.Theseexpensessupportedourusergrowth,theincreasedusageofour products by users, developers, and advertisers, and the launch of new products. Additionally, credit card and other related revenueprocessingfeesincreasedby$60million. 61
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Table of Contents 2010Comparedto2009.Costofrevenuein2010increased$270million,or121%,comparedto2009.Theincreasewas primarilyduetoexpensesrelatedtoexpandingourdatacenteroperations,includinga$77millionincreaseinequipmentrent, a$49millionincreaseindepreciation,anda$33millionincreaseindatacenterfacilityrent.Additionally,creditcardand otherrelatedrevenueprocessingfeesincreasedby$25million. Marketingandsales

Marketingandsales Percentageofrevenue
$ 115 15%
$ 184 9%
$ 427 12%
60%
132%
2011Comparedto2010.Marketingandsalesexpensesin2011increased$243million,or132%,comparedto2010.The increase was primarily due to an increase in payroll and benefits expenses resulting from a 46% increase in employee headcounttosupportglobalsales,businessdevelopment,andcustomerservice,andtoalesserextent,anincreaseinouruser, developer, and advertiserfacing marketing. Additionally, sharebased compensation expense increased from $2 million in 2010to$43millionin2011duetorecognitionofexpenserelatedtoPost2011RSUs. 2010Comparedto2009.Marketingandsalesexpensesin2010increased$69million,or60%,comparedto2009.The increase was primarily due to an increase in payroll and benefits expenses resulting from a 90% increase in employee headcounttosupportglobalsales,businessdevelopment,andcustomerservice.Additionally,weincreasedourspendingto supportouruser,developer,andadvertiserfacingmarketingaswellasourmarketresearchandanalyticscapabilities. Researchanddevelopment
Researchanddevelopment Percentageofrevenue
$ 87 11%
$ 144 7%
$ 388 10%
66%
169%
2011Comparedto2010.Researchanddevelopmentexpensesin2011increased$244million,or169%,comparedto 2010. The increase was primarily due to an increase from $9 million in 2010 to $114 million in 2011 for sharebased compensation expense related to Post2011 RSUs. Payroll and benefits expense also increased due to a 57% growth in employeeheadcountinengineering,design,productmanagement,andothertechnicalfunctions.Thisinvestmentsupported oureffortstoimproveexistingproductsandbuildnewproductsforusers,developers,andadvertisers. 2010Comparedto2009.Researchanddevelopmentexpensesin2010increased$57million,or66%,comparedto2009. Theincreasewasprimarilyduetoanincreaseinpayrollandbenefitsexpensesresultingfroman81%increaseinemployee headcountinengineeringandrelatedfunctions.Thisinvestmentsupportedoureffortstoimproveexistingproductsandbuild newproductsforusers,developers,andadvertisers. Generalandadministrative
Generalandadministrative Percentageofrevenue 62
$ 90 12%
$ 121 6%
$ 280 8%
34%
131%
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Table of Contents 2011Comparedto2010.Generalandadministrativeexpensesin2011increased$159million,or131%,comparedto 2010. The increase was primarily due to an increase in payroll and benefits expenses resulting from a 54% increase in employeeheadcountinfinance,legal,humanresources,andotherfunctions.Additionally,outsideconsultingandlegalfees contributedtotheincrease.Sharebasedcompensationexpenseincreasedfrom$9millionin2010to$51millionin2011due torecognitionofexpenserelatedtoPost2011RSUs. 2010Comparedto2009.Generalandadministrativeexpensesin2010increased$31million,or34%,comparedto2009. The increase was primarily due to an increase in payroll and benefits expenses resulting from a 61% increase in employee headcountingeneralandadministrativefunctionsand,toalesserextent,anincreaseinoutsideconsultingandlegalfees. Interestandotherincome(expense),net
2009 YearEndedDecember31, 2010 2011 (inmillions) 2009to2010 %Change 2010to2011 %Change
Interestexpense Otherincome(expense),net Interestandotherincome(expense),net
$(10) 2 $ (8)
$(22) (2) $(24)
$(42) (19) $(61)
120% NM 200%
91% NM 154%
2011Comparedto2010.Interestandotherincome(expense),netin2011increased$37million,or154%,comparedto 2010.Interestexpenseincreasedby$20million,drivenbyanincreaseinfeesrelatedtoourcreditfacilityasdescribedin LiquidityandCapitalResources,andthepaymentsrelatedtoanincreasedvolumeofpropertyandequipmentfinancedby capitalleases.Thechangeinotherincome(expense),netwasprimarilydueto$29millioninforeignexchangerelatedlosses in 2011. Foreign exchange losses in 2011 stemmed from the periodic remeasurement of our intercompany Euro balances. Foreign currency balances were immaterial in 2010. These expenses were partially offset by an increase in interest income drivenbylargerinvestedcashbalances. 2010Comparedto2009.Interestexpensein2010increasedasaresultofanincreaseduseofcapitalleasesandinterest paymentsrelatedtoour$250millioncreditfacilityasdescribedinLiquidityandCapitalResources.Thisloanwasrepaid infullinMarch2011. Provisionforincometaxes
Provisionforincometaxes Effectivetaxrate
$ 25 10%
$ 402 40%
$ 695 41%
NM
73%
2011 Compared to 2010. Our provision for income taxes in 2011 increased $293 million, or 73%, compared to 2010 primarily due to an increase in pretax income. Our effective tax rate increased primarily due to losses arising outside the United States in jurisdictions where we do not receive a tax benefit and the impact of nondeductible sharebased compensationexpenseduringtheyear. 2010Comparedto2009.Ourprovisionforincometaxesin2010increased$377millioncomparedto2009primarilydue toanincreaseinpretaxincome.Oureffectivetaxrateincreasedprimarilyduetoabenefitrecordedin2009relatedtothe releaseofavaluationallowance,whichdidnotrecurin2010. 63
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Table of Contents QuarterlyResultsofOperationsData Thefollowingtablessetforthourquarterlyconsolidatedstatementsofincomedataindollarsandasapercentageoftotal revenue for each of the nine quarters in the period ended March 31, 2012. We have prepared the quarterly consolidated statementsofincomedataonabasisconsistentwiththeauditedconsolidatedfinancialstatementsincludedelsewhereinthis prospectus. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of this data. This information should be read in conjunctionwiththeauditedconsolidatedfinancialstatementsandrelatednotesincludedelsewhereinthisprospectus.The resultsofhistoricalperiodsarenotnecessarilyindicativeoftheresultsforanyfutureperiod.
Mar31, 2010 Jun30, 2010 Sep30, 2010 ThreeMonthsEnded Dec31, Mar31, Jun30, 2010 2011 2011 (inmillions) Sep30, 2011 Dec31, 2011 Mar31, 2012
ConsolidatedStatementsofIncome Data: Revenue: Advertisingrevenue Paymentsandotherfeesrevenue Totalrevenue Costsandexpenses(1): Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalcostsandexpenses Incomefromoperations Netincome
$340 $424 $450 $655 $637 $776 $798 $ 943 $ 872 5 8 17 76 94 119 156 188 186 345 431 467 731 731 895 954 1,131 1,058 100 111 131 36 44 45 25 32 41 22 26 34 183 213 251 162 218 216 $ 95 $ 129 $ 131 $ 150 59 45 40 294 437 251 $ 167 68 57 51 343 388 233 $ 210 103 99 76 488 407 240 $ 236 124 108 72 540 414 227 $ 247 132 124 80 583 548 302 $ 277 159 153 88 677 381 205
(1) Costsandexpensesincludesharebasedcompensationexpenseasfollows: ThreeMonthsEnded Dec31, Mar31, Jun30, 2010 2011 2011 (inmillions) $ $ $ 3 1 11 3 4 35 2 3 15 $ 6 $ 7 $ 64
Mar31, 2010 Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalsharebasedcompensation $ $ 2 3 5
Jun30, 2010 $ $ 1 2 2 5
Sep30, 2010 $ $ 2 2 4
Sep30, 2011 $ $ 3 16 33 18 70
Dec31, 2011 $ $ 3 16 42 15 76
Mar31, 2012 $ $ 4 23 60 16 103
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ThreeMonthsEnded Dec31, Mar31, Jun30, 2010 2011 2011 (asapercentageoftotalrevenue)
Mar31, 2010
Jun30, 2010
Sep30, 2010
Sep30, 2011
Dec31, 2011
Mar31, 2012
ConsolidatedStatementsof IncomeData: Revenue: Advertisingrevenue Paymentsandotherfees revenue Totalrevenue Costsandexpenses(1): Costofrevenue Marketingandsales Researchand development Generaland administrative Totalcostsandexpenses Incomefromoperations Netincome
99%
98%
96%
90%
87%
87%
84%
83%
82%
1 2 4 10 13 13 16 17 18 100% 100% 100% 100% 100% 100% 100% 100% 100% 29% 10 7 6 53 47 28% 26% 10 7 6 49 51 30% 28% 10 9 7 54 46 28% 21% 8 6 5 40 60 34% 23% 9 8 7 47 53 32% 23% 12 11 8 55 45 27% 25% 13 11 8 57 43 24% 22% 12 11 7 52 48 27% 26% 15 14 8 64 36 19%
(1) Costsandexpensesincludesharebasedcompensationexpenseasfollows: Mar31, 2010 Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalsharebased compensation % 1 1 1% Jun30, 2010 % 1% Sep30, 2010 % 1% ThreeMonthsEnded Dec31, Mar31, Jun30, 2010 2011 2011 (asapercentageoftotalrevenue) % % % 1 1 4 2 1% 1% 7% Sep30, 2011 % 2 3 2 7% Dec31, 2011 % 1 4 1 7% Mar31, 2012 % 2 6 2 10%
QuarterlyTrends Revenue Advertisingspendingistraditionallyseasonallystronginthefourthquarterofeachyear.Webelievethatthisseasonality inadvertisingspendingaffectsourquarterlyresults,whichgenerallyreflectstronggrowthinadvertisingrevenuebetweenthe thirdandfourthquartersandslowergrowth,andforcertainyearsadecline,inadvertisingspendingbetweenthefourthand subsequentfirstquarters.Forinstance,ouradvertisingrevenueincreased64%,46%,and18%betweenthethirdandfourth quarters of 2009, 2010, and 2011, respectively, while advertising revenue in the first quarter of 2010 increased 5% as comparedtothefourthquarterof2009andadvertisingrevenueforthefirstquarterof2011and2012declined3%and8% comparedtothefourthquartersof2010and2011,respectively.Therapidgrowthinourbusinessmayhavepartiallymasked theseseasonaltrendstodateandtheseasonalimpactsmaybemorepronouncedinthefuture. Costofrevenueandoperatingexpenses Costofrevenueandoperatingexpensesincreasedduringeveryquarterpresented,primarilyduetoincreasedexpenses relatedtothecontinuedexpansionofourtechnicalinfrastructureandincreasesinemployeeheadcount. 65
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Table of Contents The increases in marketing and sales, research and development, and general and administrative expenses in the 2011 quarterlyperiodsalsoreflectsignificantincreasesforsharebasedcompensationexpenserelatedtoPost2011RSUs. Foradditionalinformationonmattersthatmayaffectourquarterlyresults,seeRiskFactorsOurfinancialresultswill fluctuatefromquartertoquarter,whichmakesthemdifficulttopredict. LiquidityandCapitalResources
ThreeMonths Ended March31, 2011 2012
YearEndedDecember31, 2009 2010 2011 (inmillions)
ConsolidatedStatementsofCashFlowsData: Netcashprovidedbyoperatingactivities Netcashusedininvestingactivities Netcashprovidedbyfinancingactivities Purchasesofpropertyandequipment Depreciationandamortization Sharebasedcompensation
$155 (62) 243 (33) 78 27
$698 (324) 781 (293) 139 20
$ 1,549 (3,023) 1,198 (606) 323 217
$ 345 (153) 798 (153) 51 7
$ 441 (720) 50 (453) 110 103
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 primarily of cash on deposit with banks and investmentsinmoneymarketfundsandU.S.governmentandU.S.governmentagencysecurities.Cashandcashequivalents andmarketablesecuritiestotaled$3,910millionasofMarch31,2012,anincreaseof$2millionfromDecember31,2011.The mostsignificantcashflowactivitiesconsistedof$441millionofcashgeneratedfromoperations,offsetby$453millionused forcapitalexpenditures.Cashandcashequivalentsandmarketablesecuritiestotaled$3,908millionasofDecember31,2011, anincreaseof$2,123millionfromDecember31,2010.Thisincreaseprimarilyreflects$1,549millionofcashgeneratedfrom operations and $998 million of proceeds from the sale of common stock, partially offset by $606 million used for capital expendituresandrepaymentofa$250millioncreditfacility.Wecurrentlyanticipatethatouravailablefunds,creditfacilities, andcashflowfromoperationswillbesufficienttomeetouroperationalcashneedsfortheforeseeablefuture. In April 2012, we entered into an agreement to acquire Instagram, Inc., which has built a mobile phonebased photo sharingservice,for22,999,412sharesofourcommonstockand$300millionincash.Thevalueoftheequitycomponentof thefinalpurchasepricewillbedeterminedforaccountingpurposesbasedonthefairvalueofourcommonstockontheclosing dateanditispossiblethatthepersharepriceofourcommonstockonthatdatecouldbesignificantlyhigherorlowerthanthe initial public offering price. Following the closing of this acquisition, we plan to maintain Instagrams products as independentmobileapplicationstoenhanceourphotosproductofferingsandtoenableuserstoincreasetheirlevelsofmobile engagementandphotosharing.Thisacquisitionissubjecttocustomaryclosingconditions,includingtheexpirationorearly termination of all applicable waiting periods under the HartScottRodino Antitrust Improvement Act of 1976, as amended (HSR), and is currently expected to close in the second quarter of 2012. We have agreed to pay Instagram a $200 million terminationfeeifgovernmentalauthoritiespermanentlyenjoinorotherwisepreventthecompletionofthemergerorifeither partyterminatestheagreementafterDecember10,2012. Also, in April 2012, we entered into an agreement with Microsoft Corporation pursuant to which we will be assigned Microsoftsrightstoacquireapproximately615U.S.patentsandpatentapplicationsandtheirforeigncounterparts,consisting of approximately 170 foreign patents and patent applications, that are subject to the agreement between AOL Inc. and MicrosoftenteredintoonApril5,2012,inexchangeforatotalcashpaymentofapproximately$550million.Aspartofthis transaction,wewillobtainanonexclusivelicensetotheother 66
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Table of Contents AOLpatentsandpatentapplicationsbeingpurchasedbyMicrosoftandwillgrantMicrosoftanonexclusivelicensetothe AOLpatentsandpatentapplicationsthatweareacquiring.Inaddition,wewillbeassignedMicrosoftsrightstoacquirethe outstandingsharesofawhollyowned,nonoperatingsubsidiaryofAOLthatholdsaportionoftheaforementionedpatents andpatentapplications.ThetransactionissubjecttotheclosingofMicrosoftstransactionwithAOLaswellascustomary closingconditions,includingtheexpirationorearlyterminationofallapplicablewaitingperiodsunderHSR. Pre2011RSUsvestuponthesatisfactionofbothaserviceconditionandaliquiditycondition.Theliquiditycondition willbesatisfiedsixmonthsfollowingourinitialpublicoffering.Undersettlementproceduresapplicabletotheseawards,we are permitted to deliver the underlying shares within 30 days before or after the date on which the liquidity condition is satisfied.Asaresult,weexpectthataportionoftheseRSUsthatareheldbyourdirectorsandthencurrentemployeeswillbe settledonadatethatis151to180daysafterthedateofthisprospectus.Inaddition,aportionoftheseRSUsthatareheldby formeremployeeswillbesettledapproximately181daysafterthedateofthisprospectus.Onthesettlementdates,weplanto withhold and remit income taxes at applicable minimum statutory rates based on the then current value of the underlying shares. We currently expect that the average of these withholding tax rates will be approximately 45%. If the price of our commonstockatthetimeofsettlementwereequaltothemidpointofthepricerangeonthecoverpageofthisprospectus,and basedonPre2011RSUsoutstandingasofMarch31,2012forwhichtheserviceconditionwillbesatisfiedasofthedateof settlement, we estimate that this tax obligation would be approximately $4 billion in the aggregate. The amount of this obligationcouldbehigherorlower,dependingonthepriceofoursharesontheRSUsettlementdate.TosettletheseRSUs, assuminganapproximate45%taxwithholdingrate,weanticipatethatwewillnetsettletheawardsbydeliveringanaggregate ofapproximately155millionsharesofClassBcommonstocktoRSUholdersandwithholdinganaggregateofapproximately 122 million shares of Class B common stock. In connection with these net settlements we will withhold and remit the tax liabilitiesonbehalfoftheRSUholderstotherelevanttaxauthoritiesincash. Tofundthewithholdingandremittanceobligations,weexpecttosellequitysecuritiesneartheinitialsettlementdatein anamountsubstantiallyequivalenttothenumberofsharesofcommonstockthatwewithholdinconnectionwiththesenet settlements,suchthatthenewlyissuedsharesshouldnotbedilutive.However,intheeventthatweissueequitysecurities,we cannotassureyouthatwewillbeabletosuccessfullymatchtheproceedstotheamountofthistaxliability.Ifweelectnotto fullyfundtaxwithholdingandremittanceobligationsthroughtheissuanceofequityorweareunabletocompletesuchan offering due to market conditions or otherwise, we may choose to borrow funds from our credit facilities, use a substantial portionofourexistingcash,orrelyuponacombinationofthesealternatives. In2011,weenteredintoanagreementforanunsecuredfiveyearrevolvingcreditfacilitythatallowedustoborrowupto $2,500million,withinterestpayableonborrowedamountssetattheLondonInterbankOfferedRate(LIBOR)plus1.0%.In February2012,weterminatedthiscreditfacilityandweenteredintoanewagreementforanunsecuredfiveyearrevolving credit facility that allows us to borrow up to $5,000 million for general corporate purposes, with interest payable on the borrowedamountssetatLIBORplus1.0%.Priortoourinitialpublicoffering,wecanborrowupto$2,500millionunderthis facility.Wepaidoriginationfeesatclosingandthesefeesareamortizedovertheremainingtermofthecreditfacility.Under thetermsofthenewagreement,weareobligatedtopayacommitmentfeeof0.10%perannumonthedailyundrawnbalance. NoamountsweredrawndownunderthisagreementasofMarch31,2012. Concurrentwithourenteringintothenewrevolvingcreditfacility,wealsoenteredintoabridgecreditfacilitythatallows ustoborrowupto$3,000milliontofundtaxwithholdingandremittanceobligationsrelatedtothesettlementofRSUsin connectionwithourinitialpublicoffering,withinterestpayableontheborrowedamountssetatLIBORplus1.0%andan additional0.25%payableondrawnbalancesoutstandingfromandafterthe180thdayofborrowing.Wemaymakeasingle borrowingunderthisbridgefacilitybeginningontheclosingdateofourinitialpublicofferingandendingonthedatethatis 240daysafterthatdate.Anyamountsoutstandingunderthisfacilitywillbedueoneyearafterthedatewedrawonthefacility butnolaterthanJune30,2014.Duringthetermofthisbridgefacility,thelenderscommitmentsaresubjecttoreductionand amountsborrowedthereunderaresubjectto 67
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Table of Contents repaymentintheeventweraisecapitalthroughcertainassetsales,debtissuances,orequityissuances.Wepaidorigination feesatclosingandthesefeesareamortizedovertheremainingtermofthefacility,andweareobligatedtopayanadditional upfrontfeeof0.20%oftheaggregateamountoftheborrowingsrequestedonanyapplicablefundingdate.Underthetermsof theagreement,weareobligatedtopayacommitmentfeeof0.10%perannumonthedailyundrawnbalancefromandafterthe 90th day following the date we entered into the bridge facility No amounts were drawn down under this agreement as of March31,2012. AsofMarch31,2012,$486millionofthe$3,910millionincashandcashequivalentsandmarketablesecuritieswas heldbyourforeignsubsidiaries.Wehaveprovidedfortheadditionaltaxesthatwouldbedueifwerepatriatedthesefundsfor useinouroperationsintheUnitedStates. Cashprovidedbyoperatingactivities Cashflowfromoperatingactivitiesduringthefirstquarterof2012primarilyconsistedofnetincomeof$205million, adjusted for certain noncash items, including total depreciation and amortization of $110 million, and sharebased compensationexpenseof$103million.Theincreaseincashflowfromoperatingactivitiesduringthefirstquarterof2012 compared to the same period in 2011 was mainly due to an increase in net income as adjusted for noncash items such as depreciation,amortization,andsharebasedcompensation. Cashflowfromoperatingactivitiesduring2011primarilyresultedfromnetincomeof$1,000million,adjustedforcertain noncashitems,includingtotaldepreciationandamortizationof$323million,andsharebasedcompensationexpenseof$217 million. Cashflowfromoperatingactivitiesduring2010primarilyresultedfromnetincomeof$606million,adjustedforcertain noncashitems,includingtotaldepreciationandamortizationof$139millionandsharebasedcompensationexpenseof$20 million,partiallyoffsetbycashconsumedbyworkingcapitalof$70million. Cashflowfromoperatingactivitiesduring2009primarilyresultedfromnetincomeof$229million,adjustedforcertain noncashitems,includingtotaldepreciationandamortizationof$78millionandsharebasedcompensationof$27million, partiallyoffsetbycashconsumedbyworkingcapitalof$179million. Cashusedininvestingactivities Cash used in investing activities during the first quarter of 2012 primarily resulted from capital expenditures of $453 million related to the purchase of servers, networking equipment, storage infrastructure, and the construction of data centersaswellas$240millionforthenetpurchaseofmarketablesecurities.Theincreaseincashusedininvestingactivities duringthefirstquarterof2012comparedtothesameperiodin2011wasmainlyduetoincreasesincapitalexpendituresand thepurchaseofmarketablesecuritieswhichwerenotinourinvestmentportfoliointhepriorperiod. Cashusedininvestingactivitiesduring2011primarilyresultedfromtheuseofapproximately$2,396millionforthenet purchaseofmarketablesecurities.Ourcashusedininvestingactivitiesin2011alsoconsistedofcapitalexpendituresof$606 millionrelatedtothepurchaseofservers,networkingequipment,storageinfrastructure,andtheconstructionofdatacenters. Cash used in investing activities during 2010 and 2009 primarily consisted of capital expenditures related to the purchasesofpropertyandequipmentandtheconstructionofdatacenters.Changesinrestrictedcashanddepositsconsumed $9 million and $32 million of cash related to security deposits in support of real estate expansion in 2010 and 2009, respectively.Acquisitions,netofcashacquired,alsoconsumed$22millionofcashin2010. Weanticipatemakingcapitalexpendituresin2012ofapproximately$1.6billionto$1.8billion,aportionofwhichwe willfinancethroughleasingarrangements.Wealsoanticipatespending$300millionincashaspartofthepurchasepricefor theacquisitionofInstagramandapproximately$550millionincashinexchangeforthe 68
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Table of Contents assignmentofMicrosoftCorporationsrightstoacquirecertainpatentassetsofAOLInc.aswellastheentityholdingaportion ofthoseassets. Cashprovidedbyfinancingactivities Our financing activities have primarily consisted of equity issuances, lease financing, and debt financing. Net cash providedbyfinancingactivitieswas$50millionand$798million,respectively,forthefirstquartersof2012and2011,and $1,198million,$781million,and$243million,respectively,for2011,2010,and2009.Thisincludesexcesstaxbenefitsfrom stockawardactivitiesof$54million,$69million,$433million,$115million,and$51million,respectively. InJanuary2011,wecompletedanofferingofourClassAcommonstocktocertainnonU.S.investorsthatgenerated$998 million in net proceeds. In December 2010, we completed an offering of our Class A common stock that generated $500 million in proceeds. In May 2009, we completed an offering of Series E preferred stock that generated $200 million in proceeds. InMarch2010,weenteredintoacreditfacilitywithcertainlenders.Thisfacilityallowedforthedrawdownofupto$250 millioninunsecuredseniorloans.InApril2010,wedrewdownthefullamountavailableunderthefacility,andinMarch 2011,werepaidtheentire$250millionbalance. OffBalanceSheetArrangements Wedidnothaveanyoffbalancesheetarrangementsinthefirstquarterof2012,orin2011,2010,or2009. Contingencies Weareinvolvedinclaims,lawsuits,governmentinvestigations,andproceedingsarisingfromtheordinarycourseofour business.Werecordaprovisionforaliabilitywhenwebelievethatitisbothprobablethataliabilityhasbeenincurred,and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. Such legal proceedings are inherently unpredictable and subject to significant uncertainties, some of which are beyondourcontrol.Shouldanyoftheseestimatesandassumptionschangeorprovetobeincorrect,itcouldhaveamaterial impactonourresultsofoperations,financialposition,andcashflows. Commitments Ourprincipalcommitmentsconsistofobligationsundercapitalandoperatingleasesforequipmentandofficeanddata centerfacilities.ThefollowingtablesummarizesourcommitmentstosettlecontractualobligationsincashasofDecember31, 2011.
PaymentDuebyPeriod Total Less than 1Year 13 Years 35 Years More than 5Years
Operatingleaseobligations Capitalleaseobligations Othercontractualcommitments(1) Totalcontractualobligations
$ 945 817 500 $2,262
$180 322 450 $ 952
$243 337 25 $ 605
$197 28 25 $ 250
$325 130 $ 455
(1) Othercontractualcommitmentsprimarilyrelatetoequipmentandsuppliesforourdatacenteroperations,andtoalesserextent,constructionofourdatacentersites.
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Table of Contents Inaddition,ourotherliabilitiesinclude$60millionrelatedtouncertaintaxpositionsasofDecember31,2011.Dueto uncertaintiesinthetimingofthecompletionoftaxaudits,thetimingoftheresolutionofthesepositionsisuncertainandwe areunabletomakeareasonablyreliableestimateofthetimingofpaymentsinindividualyearsbeyond12months.Asaresult, thisamountisnotincludedintheabovetable. RecentlyIssuedandAdoptedAccountingPronouncements ComprehensiveIncome InMay2011,theFinancialAccountingStandardsBoardissuedguidancethatchangedtherequirementforpresenting ComprehensiveIncomeintheconsolidatedfinancialstatements.Theupdaterequiresanentitytopresentthecomponentsof other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The update is effective for fiscal years, and interim periods within those years, beginning after December15,2011andshouldbeappliedretrospectively.WeadoptedthisnewguidanceonJanuary1,2012. CriticalAccountingPoliciesandEstimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP).Thepreparationoftheseconsolidatedfinancialstatementsrequiresustomakeestimatesandassumptionsthataffect thereportedamountsofassets,liabilities,revenue,costsandexpenses,andrelateddisclosures.Theseestimatesformthebasis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources.Webaseourestimatesandjudgmentsonhistoricalexperienceandonvariousotherassumptionsthatwebelieveare reasonableunderthecircumstances.Onanongoingbasis,weevaluateourestimatesandassumptions.Ouractualresultsmay differfromtheseestimatesunderdifferentassumptionsorconditions. We believe that of our significant accounting policies, which are described in note 1 to our consolidated financial statements,thefollowingaccountingpoliciesinvolveagreaterdegreeofjudgmentandcomplexity.Accordingly,thesearethe policieswebelievearethemostcriticaltoaidinfullyunderstandingandevaluatingourfinancialconditionandresultsof operations. RevenueRecognitionforPaymentsandOtherFees WeenablePaymentsfromouruserstoourPlatformdevelopers.OuruserscanmakepaymentsontheFacebookPlatform byusingcreditcardsorotherpaymentmethodsavailableonourwebsite.Theprimaryprocessforthesetransactionsisthrough thepurchaseofourvirtualcurrency.Ourusersthenusethisvirtualcurrencytopurchasevirtualanddigitalgoodsingamesand appsfromdevelopersontheFacebookPlatform.Upontheinitialsaleofthevirtualcurrency,werecordconsiderationreceived fromauserasadeposit. Whenauserengagesinapaymenttransactionutilizingthevirtualcurrencyforthepurchaseofavirtualordigitalgood fromaPlatformdeveloper,wereducethevirtualcurrencybalanceoftheuserbythepriceofthepurchase,whichisapricethat is solely determined by the Platform developer. We remit to the Platform developer an amount that is based on the total amountofvirtualcurrencyredeemedlesstheprocessingfeethatwechargethePlatformdeveloperfortheserviceperformed. Ourrevenueisthenetamountofthetransactionrepresentingourprocessingfeeforthetransaction.Werecordrevenueonanet basisaswedonotconsiderourselvestobetheprincipalinthesaleofthevirtualordigitalgoodtotheuser.UnderGAAP guidancerelatedtoreportingrevenuegrossasaprincipalversusnetasanagent,theindicatorsusedtodeterminewhetheran entityisaprincipaloranagenttoatransactionaresubjecttojudgment.Weconsiderourselvestheagenttothesetransactions whenweapplytheindicatorstoourfacts.Shouldmaterialsubsequentchangesinthesubstanceornatureofthetransactions with Platform developers result in us being considered the principal in such sales, we would reflect the virtual and digital goodssaleasrevenueandtheamountspaidtothePlatformdevelopersasan 70
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Table of Contents associatedcost.Thiswouldhavenoimpactuponouroperatingincome,butourrevenueandassociatedcostswouldincrease byasimilaramount. IncomeTaxes WearesubjecttoincometaxesintheUnitedStatesandnumerousforeignjurisdictions.Significantjudgmentisrequired indeterminingourprovisionforincometaxesandincometaxassetsandliabilities,includingevaluatinguncertaintiesinthe applicationofaccountingprinciplesandcomplextaxlaws. Werecordaprovisionforincometaxesfortheanticipatedtaxconsequencesofthereportedresultsofoperationsusingthe asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for operatinglossandtaxcreditcarryforwards.Deferredtaxassetsandliabilitiesaremeasuredusingthetaxratesthatareexpected toapplytotaxableincomefortheyearsinwhichthosetaxassetsandliabilitiesareexpectedtoberealizedorsettled.We recordavaluationallowancetoreduceourdeferredtaxassetstothenetamountthatwebelieveismorelikelythannottobe realized. We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax positionwillbesustainedonexaminationbythetaxingauthoritiesbasedonthetechnicalmeritsoftheposition.Althoughwe believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcomeofthesematterswillnotbemateriallydifferent.Wemakeadjustmentstothesereserveswhenfactsandcircumstances change,suchastheclosingofataxauditortherefinementofanestimate.Totheextentthatthefinaltaxoutcomeofthese mattersisdifferentthantheamountsrecorded,suchdifferenceswillaffecttheprovisionforincometaxesintheperiodinwhich suchdeterminationismadeandcouldhaveamaterialimpactonourfinancialconditionandoperatingresults.Theprovision for income taxes includes the effects of any reserves that we believe are appropriate, as well as the related net interest and penalties. SharebasedCompensation Overview WehavegrantedRSUstoouremployeesandmembersofourboardofdirectors.Pre2011RSUsvestuponthesatisfaction ofbothaserviceconditionandaliquiditycondition.Theserviceconditionforthemajorityoftheseawardsissatisfiedover four years. The liquidity condition is satisfied upon the occurrence of a qualifying event, defined as a change of control transactionorsixmonthsfollowingtheeffectivedateofaninitialpublicoffering.Underthetermsofour2005StockPlan,the sharesunderlyingRSUsthatsatisfybothoftheseconditionsaretobedeliveredtoholderssixmonthsfollowingourinitial publicoffering. Post2011RSUsarenotsubjecttoaliquidityconditioninordertovest.ThemajorityofPost2011RSUsareearnedover aserviceperiodoffourorfiveyears. SharebasedCompensationExpense Weaccountforsharebasedemployeecompensationplansunderthefairvaluerecognitionandmeasurementprovisions inaccordancewithapplicableaccountingstandards,whichrequireallsharebasedpaymentstoemployees,includinggrantsof stockoptionsandRSUs,tobemeasuredbasedonthegrantdatefairvalueoftheawards. Sharebasedcompensationexpenseisrecordednetofestimatedforfeituresinourconsolidatedstatementsofincomeand assuchisrecordedforonlythosesharebasedawardsthatweexpecttovest.Weestimatetheforfeitureratebasedonhistorical forfeitures of equity awards and adjust the rate to reflect changes in facts and circumstances, if any. We will revise our estimatedforfeiturerateifactualforfeituresdifferfromourinitialestimates.Werecordsharebasedcompensationexpensefor servicebasedequityawardssuchasstockoptions, 71
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Table of Contents restrictedshares,andPost2011RSUsusingthestraightlineattributionmethodovertheperiodduringwhichtheemployeeis requiredtoperformserviceinexchangefortheaward.Werecordsharebasedcompensationexpenseforperformancebased equityawardssuchasPre2011RSUsusingtheacceleratedattributionmethod.Upontheeffectivenessofourinitialpublic offering,wewillrecognizeasignificantcumulativesharebasedcompensationexpensefortheportionofthePre2011RSUs thathadmettheserviceconditionasofthatdate. Wehavehistoricallyissuedunvestedrestrictedsharestoemployeestockholdersofcertainacquiredcompanies.Asthese awardsaregenerallysubjecttocontinuedpostacquisitionemployment,wehaveaccountedforthemaspostacquisitionshare basedcompensationexpense.Werecognizecompensationexpenseequaltothegrantdatefairvalueofthecommonstockona straightlinebasisovertheemployeesrequiredserviceperiod,netofestimatedforfeitures. We capitalize sharebased employee compensation expense when appropriate. We did not capitalize any sharebased compensationexpenseinthefirstquarterof2012orinthethreeyearsendedDecember31,2011. As of March 31, 2012, no sharebased compensation expense had been recognized for Pre2011 RSUs because the qualifyingeventsdescribedabovehadnotoccurred.Inthequarterinwhichourinitialpublicofferingiscompleted,wewill beginrecordingsharebasedcompensationexpenseusingtheacceleratedattributionmethodnetofforfeituresbasedonthe grantdatefairvalueofthePre2011RSUs.ForPre2011RSUs,ifourinitialpublicofferinghadoccurredonMarch31,2012, wewouldhaverecognized$965millionofcumulativesharebasedcompensationexpenseonthatdate. Thefollowingtablesummarizes,onaproformabasis,thenumberofvestedandunvestedPre2011RSUsoutstandingat March31,2012andthesharebasedcompensationexpenserelatedtoPre2011RSUsthatwewouldhaveincurred,assuming ourinitialpublicofferinghadoccurredonMarch31,2012.
VestedPre2011RSUs asofMar31,2012(1) (inthousands) UnvestedPre2011RSUs asofMar31,2012(2) ProFormaSharebased CompensationExpense (inmillions)
240,457
84,590
$965
(1) Forpurposesofthistable,VestedRSUsincludethoseRSUsforwhichtheserviceconditionhadbeenfulfilledasofMarch31,2012. (2) For purposes of this table, Unvested RSUs include those RSUs for which the service condition had not been fulfilled as of March 31, 2012 and exclude an estimateofforfeitedRSUs.
ThistableisbasedonPre2011RSUsoutstandingasofMarch31,2012andisintendedtobeillustrativeonly.Theactual timingofcompensationexpensewewillrecognizerelatedtooutstandingPre2011RSUawardswilldependonthedateofthe closingofourinitialpublicoffering.Theactualamountofcompensationexpensewewillincurwillvarybecausetheservice conditionofadditionalRSUswillbefulfilledbetweenMarch31,2012andtheclosingdateofourinitialpublicoffering. We estimate that the remaining unrecognized sharebased compensation expense relating to Pre2011 RSUs would be approximately$235million,aftergivingeffecttoestimatedforfeituresandwouldberecognizedintheremainderof2012and thereafterasshownonthetablebelow,ifourinitialpublicofferinghadoccurredonMarch31,2012. In addition, as of March 31, 2012, we had 53 million Post2011 RSUs outstanding. For these Post2011 RSUs, $97 million in expense was recognized in the first quarter of 2012 and, after giving effect to estimated forfeitures, a remaining $1,119millionwillberecognizedintheremainderof2012andthereafterasshowninthetablebelow.Thistableestimates futuresharebasedcompensationexpenserelatedtoalloutstandingequitygrants,consistingofRSUs,restrictedshares,and stockoptionsthroughMarch31,2012.Thetabledoesnottakeintoaccountanysharebasedcompensationexpenserelatedto futureawardsthatmaybegrantedtoemployees,directors,orotherserviceproviders.Additionally,theamountsinthetable includeanestimateofunvested 72
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Table of Contents awards that may be forfeited in future periods due to the departure of employees or directors. Our forfeiture estimates are subjecttoadjustmentbasedonactualexperience.
Remainderof 2012 2013 2014 (inmillions) 2015 Beyond2015
Pre2011RSUs(1)(2) Post2011RSUs(3) Restrictedshares Stockoptions Total
$ $
107 215 10 6 338
$ 79 289 11 7 $386
$ 31 291 10 5 $337
$ 8 240 3 4 $255
$ $
10 84 6 100
(1) AssumesourinitialpublicofferingwascompletedonMarch31,2012. (2) Excludes the estimated $965 million expense related to Pre2011 RSUs for which the service condition had been achieved as of March 31, 2012 and which would havebeenincurredassumingourinitialpublicofferinghadoccurredonMarch31,2012. (3) Does not reflect the sharebased compensation expense that we will incur in future periods in connection with the grant of an aggregate of 25,257,815 Post2011 RSUsonMay3,2012.
TheaggregateintrinsicvalueofvestedandunvestedstockoptionsandvestedandunvestedRSUsasofMarch31,2012, basedonanassumedinitialpublicofferingpriceof$31.50pershare,themidpointofthepricerangesetforthonthecoverof thisprospectus,was$7,019million,$323million,$7,764million,and$4,157million,respectively. WeestimatedthefairvalueofstockoptionawardsincludedinthetableaboveusingtheBlackScholesMertonsingle optionvaluation model, which requires inputs such as expected term, expected volatility, and riskfree interest rate. The estimated forfeiture rate of stock option awards also affects the amount of aggregate compensation expense we will incur. Theseinputsaresubjectiveandgenerallyrequiresignificantanalysisandjudgmenttodevelop. We estimate the expected term for stock option awards based upon the historical behavior of our employees. The expectedvolatilityisbasedonastudyofpubliclytradedindustrypeercompanies.Theforfeiturerateisderivedprimarilyfrom our historical data, and the riskfree interest rate is based on the yield available on U.S. Treasury zerocoupon issues. Our dividendyieldis0%,sincewehavenotpaid,anddonotexpecttopay,dividends. Weestimatedthefairvalueofemployeestockoptionsgrantedin2009and2010asofthedateofthegrantusingthe followingweightedaverageassumptions:
YearEndedDecember31, 2009 2010
Expectedtermfromgrantdate(inyears) Riskfreeinterestrate Expectedvolatility Dividendyield
5.04 2.01% 0.57
7.15 1.69% 0.46
The weightedaverage grant date fair value of employee stock options granted during 2009 and 2010 was $1.12 and $5.26,respectively,pershare.Wedidnotgrantanystockoptionsin2011orinthefirstquarterof2012. TaxWithholdingandRemittanceObligations Weestimatethatanaggregateofapproximately277millionsharesunderlyingPre2011RSUswillsettleondatesthatare 151to181daysafterthedateofthisprospectus,basedonPre2011RSUsoutstandingasofMarch31,2012forwhichthe service condition will be satisfied as of the dates of settlement. In addition, we estimate that an additional approximately 3millionPre2011RSUswillsettlefollowingsuchdatesthroughthe 73
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Table of Contents endof2012.Weestimatethatanaggregateofapproximately56millionPre2011RSUsandPost2011RSUswillsettlein 2013. RSUholdersgenerallywillrecognizetaxableincomebaseduponthevalueofthesharesonthedatetheyaresettledand wearerequiredtowithholdtaxesonsuchvalueatapplicableminimumstatutoryrates.Wecurrentlyexpectthattheaverageof these withholding rates will be approximately 45%. For additional information on our tax withholding and remittance obligationsrelatedtoRSUvesting,seeLiquidityandCapitalResourcesabove. CorporateIncomeTaxes TheRSUactivitydiscussedabove,aswellasactivityfromotherequityawardsincludingstockoptions,willalsohave corporate income tax effects. The most significant effect is that the settlement of awards or exercise of nonstatutory stock optionsgeneratesacorporateincometaxdeductionthatwillreduceourU.S.corporateincometaxliability.Theexerciseof incentivestockoptions(ISOs)mayalsoresultinacorporateincometaxdeduction,butonlyincertaincircumstanceswherethe holder of the ISOs also sells the acquired shares in a disqualifying disposition. The amount of this corporate income tax deductionwillbebasedonthevalueofsharesattheexerciseorsettlementdate,whichdiffersfromthevalueofthesharesat thegrantdatethatisusedtodeterminethesharebasedcompensationexpense.Dependingonthevalueofthesharesonthe datetheequityawardsaresettledoroptionsareexercised,wecouldgenerateacorporateincometaxdeductionthatexceeds ourotherU.S.taxableincomeinthatyear,whichwouldresultinataxablelossforU.S.corporateincometaxpurposesthat reduces our U.S. corporate income tax liability to an immaterial amount for that year. In 2012, we expect to settle approximately 280 million RSUs. In addition, as of March 31, 2012, we had vested nonstatutory options outstanding to purchase approximately 185 million shares of our Class B common stock. As of March 31, 2012, we also had vested ISOs outstandingtopurchaseapproximately40millionsharesofourClassBcommonstock,butgiventheuncertaintyinpredicting whether the ISO holders will choose to make disqualifying dispositions, we are assuming that no corporate income tax deductionswillbegeneratedbytheseISOs.Assumingallofthesevestednonstatutorystockoptionsareexercisedduring2012 andassumingthevalueofourClassBcommonstockatsettlementoruponoptionexerciseisthemidpointofthepricerange onthecoverpageofthisprospectus,weestimatethatthissettlementandoptionexerciseactivitybyU.S.employeeswould generateacorporateincometaxdeductionofapproximately$14billion.Theamountthatthisdeductionexceedsourother U.S.taxableincomewillresultinanetoperatingloss(NOL)thatcanbecarriedbacktotheprecedingtwoyearstooffsetour taxableincomeforU.S.federalincometaxpurposes,aswellasinsomestates,whichwouldallowustoreceivearefundof someofthecorporateincometaxeswepaidinthoseyears.Basedontheassumptionsabove,weanticipatethatthisrefund couldbeupto$500millionandpayabletousduringthefirstsixmonthsof2013.AnyportionoftheNOLremainingafterthis carrybackwouldbecarriedforwardtooffsetourotherU.S.taxableincomegeneratedinfutureyears,whichtaxableincomewill also be reduced by deductions generated from new stock award settlement and stock option exercise activity occurring in thosefutureyears. Utilization of our NOL carryforwards may be subject to annual limitations due to the ownership change limitations providedbytheInternalRevenueCodeandsimilarstateprovisions.Suchannuallimitationscouldresultintheexpirationof theNOLcarryforwardsbeforetheirutilization.Theeventsthatmaycauseownershipchangesinclude,butarenotlimitedto,a cumulativestockownershipchangeofgreaterthan50%overathreeyearperiod. Thecorporateincometaxdeductionsgeneratedbythissettlementandexerciseactivitydescribedabovedonotreduce our effective tax rate reflected in our consolidated statements of income. Our provision for income taxes reflects the tax benefitsthatarerecordedatthetimethesharebasedcompensationisinitiallyrecognizedasanexpense,whichisbasedonthe fairvalueofsharesatgrantdate,andisdifferentthanthecorporateincometaxdeduction,whichisbasedonthevalueofshares atsettlementoratexercise.Ifthereductioninourcorporateincometaxliabilityfromsettlementsandexercisesisgreaterthan thetaxbenefitsthatwerecognizedwhenthesharebasedcompensationexpensewasinitiallyrecorded,whichwillgenerally occur if our share price has appreciated between grant date and settlement or exercise date, this will create an excess tax benefitthatisrecordedasacomponentofadditionalpaidincapitalandnotasareductionofourprovisionforincometaxes in 74
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Table of Contents our consolidated statements of income. The timing in which these excess tax benefits are reflected on our balance sheet generallymatchesthetiminginwhichthereductioninpriororfutureincometaxliabilityoccurs.Thus,ifwehavethesetypes ofNOLsremainingafteranycarrybackclaims,wewouldnotrecordadeferredtaxassetforsuchNOLs,butratherwewould recordanadjustmenttoadditionalpaidincapitalandareductiontoourcorporateincometaxliabilityduringtheperiodin whichthoseNOLsareusedtoreduceourcorporateincometaxliability.Theseexcesstaxbenefitswouldberecordedinour statementsofcashflowsascashprovidedbyfinancingactivities. ValuationofOurCommonStock ThevaluationsofourClassBcommonstockweredeterminedinaccordancewiththeguidelinesoutlinedintheAmerican Institute of Certified Public Accountants Practice Aid, Valuation of PrivatelyHeldCompany Equity Securities Issued as Compensation.Weconsiderednumerousobjectiveandsubjectivefactorstodetermineourbestestimateofthefairvalueofour ClassBcommonstock,includingbutnotlimitedto,thefollowingfactors: recentprivatestocksaletransactions ourhistoricalfinancialresultsandestimatedtrendsandprospectsforourfuturefinancialperformance ourperformanceandmarketpositionrelativetoourcompetitorsand/orsimilarpubliclytradedcompanies theeconomicandcompetitiveenvironment,includingtheindustryinwhichweoperateand independentthirdpartyvaluationscompletedasoftheendofeachquarter.
WehavegrantedthefollowingRSUssinceJanuary1,2011:
Shares Underlying RSUs (thousands) GrantDate FairValue Aggregate GrantDate FairValue (millions)
GrantDate
2011 FirstQuarter February16,2011 March25,2011 SecondQuarter May11,2011 June6,2011 June22,2011 ThirdQuarter July21,2011 September1,2011 September6,2011 September22,2011 FourthQuarter November11,2011 December22,2011 2012 FirstQuarter January12,2012 January27,2012 75
2,022 40,006 2,580 1,643 1,010 2,898 1,426 20 1,649 670 1,202
$ 24.10 25.43 27.58 28.88 29.67 30.07 30.07 30.07 30.07 29.91 29.76
$49 1,017 71 47 30 87 43 1 50 20 36
944 1,003
30.18 30.73
28 31
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Table of Contents Through the first quarter of 2012, we conducted valuations of our Class B common stock that took into account the factors described above and used a combination of financial and marketbased methodologies to determine our business enterprisevalue(BEV)includingthefollowingapproaches: DiscountedCashFlowMethod(DCFM).DCFMinvolvesestimatingthefuturecashflowsofabusinessforacertain discreteperiodanddiscountingsuchcashflowstopresentvalue.Ifthecashflowsareexpectedtocontinuebeyond the discrete time period, then a terminal value of the business is estimated and discounted to present value. The discount rate reflects the risks inherent in the cash flows and the market rates of return available from alternative investmentsofsimilartypeandqualityasofthevaluationdate. Guideline Public Company Method (GPCM). GPCM assumes that businesses operating in the same industry will sharesimilarcharacteristicsandthatthesubjectbusinesssvaluewillcorrelatetothosecharacteristics.Therefore,a comparisonofthesubjectbusinesstosimilarbusinesseswhosefinancialinformationandpublicmarketvalueare availablemayprovideareasonablebasistoestimatethesubjectbusinesssvalue.TheGPCMprovidesanestimateof value using multiples derived from the stock prices of publicly traded companies. In selecting guideline public companiesforthisanalysis,wefocusedprimarilyonquantitativeconsiderations,suchasfinancialperformanceand otherquantifiabledata,aswellasqualitativeconsiderations,suchasindustryandeconomicdrivers. Market Transaction Method (MTM). MTM considers transactions in the equity securities of the business being valued. During 2011, there were private stock sale transactions in our common stock. These transactions are considered if they occur with or among willing and unrelated parties. For our MTM estimates, we evaluate all transactionsinthequarterwithparticularfocusontransactionsthatarecloserinproximitytothevaluationdate.We choosetheweightingfortheMTMeachquarterbasedonfactorssuchasthevolumeoftransactionsineachperiod, the timing of these transactions, and whether the transactions involved investors with access to our financial information.
Weperformedallthreemethodologiesforeachquarterlistedabove,andweightedthemethodologiesbasedonthefacts andcircumstancesinthequarter.OurindicatedBEVateachvaluationdatewasthenallocatedtothesharesofpreferredstock, commonstock,warrants,options,andRSUs,usingtheoptionpricingmethod(OPM). FirstQuarter2011 WedeterminedthefairvalueofourClassBcommonstocktobe$25.54pershareasofMarch31,2011.Weassigneda 50% weighting to the MTM due to the significant volume of thirdparty private stock sale transactions in March 2011, including a thirdparty Class B common stock tender offer transaction for employee shares for $25.00 per share which commencedonMarch1,2011andbecamebindinguponthesellingstockholdersonMarch29,2011.Thetenderofferwas undertakenbyinvestorswhohadaccesstoourhistoricalfinancialinformation.TocalculatetheMTM,weusedtheweighted averagepriceofalltransactionsoriginatinginMarch2011thatwereexpectedtobeconsummated,includingthetenderoffer. WebasedourMTMestimateonMarch2011transactionsbecausewebelievetransactionsoccurringclosertothequarterend valuation date are more relevant to fair value than those transactions occurring earlier in the quarter. We assigned a 35% weightingtotheGPCMwhichreflectedthestockpricesandmarketmultiplesofguidelinepubliccompanies.Weassigneda 15%weightingtotheDCFMwhichwasbasedonaweightedaveragecostofcapitalof15%andaperpetualgrowthrateof5%. TheDCFMreceivedthelowestweightbecauseourfinancialplanhadnotbeenrecentlyupdated,andthereforewebelievedthe cashflowassumptionsusedintheDCFMwerelessrelevanttothedeterminationoffairvalueasofthemeasurementdate.The BEVresultingfromthisanalysiswasthenallocatedusingtheOPManda7.5%marketabilitydiscountwasapplied. ThefairvalueoftheRSUsgrantedinFebruary2011wasdeterminedusingastraightlinemethodology,withthebenefit ofhindsight,betweenthefairvaluedeterminedasofDecember31,2010of$20.85pershareandthe$25.00pershareoffer priceforthetenderofferdescribedabovethatcommencedonMarch1,2011.ThefairvalueoftheRSUsgrantedinMarch 2011wasdeterminedusingasimilarstraightlinemethodologybetweenthe 76
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Table of Contents tenderofferpriceof$25.00pershareasofMarch1,2011,andthefairvaluedeterminedasofMarch31,2011of$25.54per share.WedeterminedthatthestraightlinemethodologyprovidesthemostreasonablebasisforthevaluationsfortheRSUs grantedontheinterimdatesbecausewedidnotidentifyanysingleeventthatoccurredduringthisinterimperiod(otherthan theMarch2011tenderoffer)thatwouldhavecausedamaterialchangeinfairvalue. SecondQuarter2011 WedeterminedthefairvalueofourClassBcommonstocktobe$30.07pershareasofJune30,2011.Weassigneda50% weightingtotheMTMduetothesignificantvolumeofthirdpartyprivatestocksaletransactionsinJune2011,including transactionsinvolvinginvestorswhohadaccesstoourhistoricalfinancialinformation.TocalculatetheMTM,weusedthe weighted average price of all transactions originating in June 2011 that were expected to be consummated. We based our MTMestimateonJune2011transactionsbecausewebelievetransactionsoccurringclosertothequarterendvaluationdate aremorerelevanttothedeterminationoffairvaluethanthosetransactionsoccurringearlierinthequarter.Wemadenochange to the weightings assigned to the GPCM and DCFM from the previous quarter. In this period, we added certain Internet companiesthathadrecentlycompletedinitialpublicofferingstooursetofguidelinepubliccompanies,whichincreasedthe valueoftheGPCMfromthepriorvaluationperiod.TheDCFMwasbasedonaweightedaveragecostofcapitalof15%anda perpetualgrowthrateof5%.TheBEVresultingfromthisanalysiswasthenallocatedusingtheOPManda6.5%marketability discount was applied. Significant factors influencing the change in valuation relative to the prior quarter included the foregoingprivatestocksaletransactionsandtheadditiontooursetofguidelinepubliccompaniesofnewlypubliccompanies whosevaluationmultipleswererelativelyhigherthanothersinthecomparisongroup.Webelieveourvaluationincreasewas affectedbymediaspeculationthatwewereplanninganinitialpublicofferingin2012,investorspeculationthatourfinancial performancewasbetterthaninvestorshadpreviouslybelieved,andthesuccessfulpublicofferingsandtradingperformanceof certainInternetcompaniesinthesecondquarter. ThefairvaluesoftheRSUsgrantedinMayandJune2011weredeterminedusingastraightlinemethodology,withthe benefitofhindsight,betweenthefairvaluedeterminedasofMarch31,2011of$25.54pershareandthefairvaluedetermined asofJune30,2011of$30.07pershare.Wedeterminedthatthestraightlinemethodologyprovidesthemostreasonablebasis forthevaluationsfortheRSUsgrantedontheinterimdatesbecausewedidnotidentifyanysingleeventthatoccurredduring thisinterimperiodthatwouldhavecausedamaterialchangeinfairvalue. ThirdQuarter2011 WedeterminedthefairvalueofourClassBcommonstocktobe$30.07pershareasofSeptember30,2011.Weuseda combinationoftheGPCM,theDCFM,andtheMTMtodetermineBEV.Weassigneda50%weightingtotheDCFMbecause wehadrecentlycompletedacomprehensiveupdatetoourfinancialplanandthereforewebelievedtheassumptionsusedin the DCFM closely reflected BEV. The BEV resulting from this DCFM analysis was allocated using the OPM and a 6.0% marketabilitydiscountwasapplied.Relativetothefirstandsecondquarters,inthethirdquarterweassignedalowerweighting of25%totheMTMduetotheloweroverallvolumeofthirdpartyprivatestocksaletransactionsandthelackofsignificant transactionswithinvestorsthathadaccesstoourfinancialinformation.TocalculatetheMTM,weusedtheweightedaverage priceofalltransactionsoriginatinginSeptember2011thatwereexpectedtobeconsummated.WebasedourMTMestimate onSeptember2011transactionsbecausewebelievetransactionsoccurringclosertothequarterendvaluationdatearemore relevanttothedeterminationoffairvaluethanthosetransactionsoccurringearlierinthequarter. Becausetherewasnochangetofairvaluebetweenthetwovaluationperiods,andbecausewedidnotidentifyanyevents duringtheperiodthatwouldhavecausedamaterialchangeinfairvalue,weused$30.07pershareasthefairvalueforallRSU grantsduringtheperiod. 77
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Table of Contents FourthQuarter2011 WedeterminedthefairvalueofourClassBcommonstocktobe$29.73pershareasofDecember31,2011.Weassigneda 50%weightingtotheMTMduetothesignificantvolumeofthirdpartyprivatestocksaletransactionsinDecember2011, includingtransactionsinvolvinginvestorswhohadaccesstoourhistoricalfinancialinformation.TocalculatetheMTM,we usedtheweightedaveragepriceofalltransactionsoriginatinginDecember2011thatwereexpectedtobeconsummated.We basedourMTMestimateonDecember2011transactionsbecausewebelievetransactionsoccurringclosertothequarterend valuationdatearemorerelevanttothedeterminationoffairvaluethanthosetransactionsoccurringearlierinthequarter.We assigneda25%weightingtotheGPCMandtheDCFMtodeterminefairvalue.Inthisperiod,weincludedadditionalInternet companiesthathadrecentlycompletedinitialpublicofferingstooursetofguidelinepubliccompaniesforuseinestimating the GPCM. Compared to our valuation as of September 30, 2011, we assigned a lower weight to the DCFM in this period becausetimehadpassedsincekeyelementsofourfinancialplanhadbeenupdated,andthereforethecashflowassumptions usedintheDCFMwerelessrelevanttothedeterminationoffairvalueasofthemeasurementdate.TheDCFMwasbasedona weightedaveragecostofcapitalof15%andaperpetualgrowthrateof5%.TheBEVresultingfromthisanalysiswasthen allocated using the OPM and a 5.5% marketability discount was applied. The primary factor influencing the change in valuationrelativetothepriorquarterwastheforegoingprivatestocksaletransactions,andwebelieveourvaluationdecrease wasaffectedbycontinuedpublicmarketvolatility. ThefairvaluesoftheRSUsgrantedinNovemberandDecember2011weredeterminedusingastraightlinemethodology, withthebenefitofhindsight,betweenthefairvaluedeterminedasofSeptember30,2011of$30.07pershareandthefairvalue determinedasofDecember31,2011of$29.73pershare.Wedeterminedthatthestraightlinemethodologyprovidesthemost reasonablebasisforthevaluationfortheRSUsgrantedontheinterimdatesbecausewedidnotidentifyanysingleeventthat occurredduringthisinterimperiodthatwouldhavecausedamaterialchangeinfairvalue. FirstQuarter2012 WedeterminedthefairvalueofourClassBcommonstocktobe$30.89pershareasofJanuary31,2012.Weassigneda 50% weighting to the MTM due to the significant volume of thirdparty private stock sale transactions in January 2012, includingtransactionsinvolvinginvestorswhohadaccesstoourhistoricalfinancialinformation.TocalculatetheMTM,we usedtheweightedaveragepriceofalltransactionsoriginatinginJanuary2012thatwereexpectedtobeconsummated.We madenochangetotheweightingsassignedtotheGPCMandDCFMfromthepreviousquarter.TheDCFMwasbasedona weightedaveragecostofcapitalof15%andaperpetualgrowthrateof5%.TheBEVresultingfromthisanalysiswasthen allocatedusingtheOPManda5%marketabilitydiscountwasapplied.Webelievetheprimaryfactorsinfluencingtheincrease invaluationfromthepriorperiodweretheforegoingprivatestocksaletransactionsandageneralincreaseinthepricesof publiclytradedequities. ThefairvaluesoftheRSUsgrantedinJanuary2012weredeterminedusingastraightlinemethodology,withthebenefit ofhindsight,betweenthefairvaluedeterminedasofDecember31,2011of$29.73pershareandthefairvaluedeterminedas ofJanuary31,2012of$30.89pershare.Wedeterminedthatthestraightlinemethodologyprovidesthemostreasonablebasis forthevaluationsfortheRSUsgrantedontheinterimdatesbecausewedidnotidentifyanysingleeventthatoccurredduring thisinterimperiodthatwouldhavecausedamaterialchangeinfairvalue. May2012Grant OnMay3,2012,wegrantedanaggregateof25,257,815RSUs.Wewilldeterminethefairvalueofthesegrantsduringthe secondquarter.IfthefairvalueofourClassAcommonstockwas$31.50,themidpointofthepricerangesetforthonthecover pageofthisprospectus,theaggregategrantdatefairvaluewouldbeapproximately$796million. 78
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Table of Contents QualitativeandQuantitativeDisclosuresaboutMarketRisk Weareexposedtomarketrisk,includingchangestointerestrates,foreigncurrencyexchangeratesandinflation. ForeignCurrencyExchangeRisk Internationalrevenueasapercentageofrevenuewas42%and49%forthefirstquarterof2011and2012,respectively, and33%,38%,and44%for2009,2010,and2011,respectively.Wehaveforeigncurrencyrisksrelatedtoourrevenueand operatingexpensesdenominatedincurrenciesotherthantheU.S.dollar,primarilytheEuro.Ingeneral,weareanetreceiverof currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar,willnegativelyaffectourrevenueandotheroperatingresultsasexpressedinU.S.dollars. Wehaveexperiencedandwillcontinuetoexperiencefluctuationsinournetincomeasaresultoftransactiongainsor lossesrelatedtorevaluingcertaincurrentassetandcurrentliabilitybalancesthataredenominatedincurrenciesotherthanthe functionalcurrencyoftheentitiesinwhichtheyarerecorded.Werecognizedforeigncurrencygainsof$16millionand$10 millioninthefirstquarterof2011and2012,respectively,andaforeigncurrencylossof$29millionin2011.Foreigncurrency losseswerenotsignificantin2009or2010.Atthistimewedonot,butwemayinthefuture,enterintoderivativesorother financialinstrumentsinanattempttohedgeourforeigncurrencyexchangerisk.Itisdifficulttopredicttheimpacthedging activitieswouldhaveonourresultsofoperations. InterestRateSensitivity Our cash and cash equivalents and marketable securities consist of cash, certificates of deposit, time deposits, money market funds and U.S. government treasury and agency debt securities. Our investment policy and strategy are focused on preservationofcapital,supportingourliquidityrequirements,andcompliancewiththeInvestmentCompanyActof1940. ChangesinU.S.interestratesaffecttheinterestearnedonourcashandcashequivalentsandmarketablesecuritiesandthe market value of those securities. A hypothetical 100 basis point increase in interest rates would result in a decrease of approximately$19millionand$15millioninthemarketvalueofouravailableforsaledebtsecuritiesasofMarch31,2012 andDecember31,2011,respectively.Anyrealizedgainsorlossesresultingfromsuchinterestratechangeswouldonlyoccurif wesoldtheinvestmentspriortomaturity. InflationRisk Wedonotbelievethatinflationhashadamaterialeffectonourbusiness,financialcondition,orresultsofoperations. 79
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Table of Contents LETTERFROMMARKZUCKERBERG Facebookwasnotoriginallycreatedtobeacompany.Itwasbuilttoaccomplishasocialmissiontomaketheworldmore openandconnected. We think its important that everyone who invests in Facebook understands what this mission means to us, how we make decisionsandwhywedothethingswedo.Iwilltrytooutlineourapproachinthisletter. AtFacebook,wereinspiredbytechnologiesthathaverevolutionizedhowpeoplespreadandconsumeinformation.Weoften talkaboutinventionsliketheprintingpressandthetelevisionbysimplymakingcommunicationmoreefficient,theyledto a complete transformation of many important parts of society. They gave more people a voice. They encouraged progress. Theychangedthewaysocietywasorganized.Theybroughtusclosertogether. Today,oursocietyhasreachedanothertippingpoint.Weliveatamomentwhenthemajorityofpeopleintheworldhave accesstotheinternetormobilephonestherawtoolsnecessarytostartsharingwhattheyrethinking,feelinganddoingwith whomevertheywant.Facebookaspirestobuildtheservicesthatgivepeoplethepowertoshareandhelpthemonceagain transformmanyofourcoreinstitutionsandindustries. Thereisahugeneedandahugeopportunitytogeteveryoneintheworldconnected,togiveeveryoneavoiceandtohelp transformsocietyforthefuture.Thescaleofthetechnologyandinfrastructurethatmustbebuiltisunprecedented,andwe believethisisthemostimportantproblemwecanfocuson. Wehopetostrengthenhowpeoplerelatetoeachother. Evenifourmissionsoundsbig,itstartssmallwiththerelationshipbetweentwopeople. Personalrelationshipsarethefundamentalunitofoursociety.Relationshipsarehowwediscovernewideas,understandour worldandultimatelyderivelongtermhappiness. AtFacebook,webuildtoolstohelppeopleconnectwiththepeopletheywantandsharewhattheywant,andbydoingthiswe areextendingpeoplescapacitytobuildandmaintainrelationships. Peoplesharingmoreevenifjustwiththeirclosefriendsorfamiliescreatesamoreopencultureandleadstoabetter understandingofthelivesandperspectivesofothers.Webelievethatthiscreatesagreaternumberofstrongerrelationships betweenpeople,andthatithelpspeoplegetexposedtoagreaternumberofdiverseperspectives. Byhelpingpeopleformtheseconnections,wehopetorewirethewaypeoplespreadandconsumeinformation.Wethinkthe worlds information infrastructure should resemble the social graph a network built from the bottom up or peertopeer, ratherthanthemonolithic,topdownstructurethathasexistedtodate.Wealsobelievethatgivingpeoplecontroloverwhat theyshareisafundamentalprincipleofthisrewiring. Wehavealreadyhelpedmorethan900millionpeoplemapoutmorethan100billionconnectionssofar,andourgoalisto helpthisrewiringaccelerate. Wehopetoimprovehowpeopleconnecttobusinessesandtheeconomy. Wethinkamoreopenandconnectedworldwillhelpcreateastrongereconomywithmoreauthenticbusinessesthatbuild betterproductsandservices. Aspeoplesharemore,theyhaveaccesstomoreopinionsfromthepeopletheytrustabouttheproductsandservicestheyuse. Thismakesiteasiertodiscoverthebestproductsandimprovethequalityandefficiencyoftheirlives. 80
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Table of Contents Oneresultofmakingiteasiertofindbetterproductsisthatbusinesseswillberewardedforbuildingbetterproductsones thatarepersonalizedanddesignedaroundpeople.Wehavefoundthatproductsthataresocialbydesigntendtobemore engaging than their traditional counterparts, and we look forward to seeing more of the worlds products move in this direction. Our developer platform has already enabled hundreds of thousands of businesses to build higherquality and more social products. We have seen disruptive new approaches in industries like games, music and news, and we expect to see similar disruptioninmoreindustriesbynewapproachesthataresocialbydesign. In addition to building better products, a more open world will also encourage businesses to engage with their customers directlyandauthentically.MorethanfourmillionbusinesseshavePagesonFacebookthattheyusetohaveadialoguewith theircustomers.Weexpectthistrendtogrowaswell. Wehopetochangehowpeoplerelatetotheirgovernmentsandsocialinstitutions. We believe building tools to help people share can bring a more honest and transparent dialogue around government that couldleadtomoredirectempowermentofpeople,moreaccountabilityforofficialsandbettersolutionstosomeofthebiggest problemsofourtime. Bygivingpeoplethepowertoshare,wearestartingtoseepeoplemaketheirvoicesheardonadifferentscalefromwhathas historicallybeenpossible.Thesevoiceswillincreaseinnumberandvolume.Theycannotbeignored.Overtime,weexpect governments will become more responsive to issues and concerns raised directly by all their people rather than through intermediariescontrolledbyaselectfew. Throughthisprocess,webelievethatleaderswillemergeacrossallcountrieswhoareprointernetandfightfortherightsof theirpeople,includingtherighttosharewhattheywantandtherighttoaccessallinformationthatpeoplewanttosharewith them. Finally, as more of the economy moves towards higherquality products that are personalized, we also expect to see the emergenceofnewservicesthataresocialbydesigntoaddressthelargeworldwideproblemswefaceinjobcreation,education andhealthcare.Welookforwardtodoingwhatwecantohelpthisprogress.
OurMissionandOurBusiness As I said above, Facebook was not originally founded to be a company. Weve always cared primarily about our social mission,theserviceswerebuildingandthepeoplewhousethem.Thisisadifferentapproachforapubliccompanytotake,so IwanttoexplainwhyIthinkitworks. IstartedoffbywritingthefirstversionofFacebookmyselfbecauseitwassomethingIwantedtoexist.Sincethen,mostofthe ideasandcodethathavegoneintoFacebookhavecomefromthegreatpeopleweveattractedtoourteam. Mostgreatpeoplecareprimarilyaboutbuildingandbeingapartofgreatthings,buttheyalsowanttomakemoney.Through the process of building a team and also building a developer community, advertising market and investor base Ive developedadeepappreciationforhowbuildingastrongcompanywithastrongeconomicengineandstronggrowthcanbe thebestwaytoalignmanypeopletosolveimportantproblems. Simplyput:wedontbuildservicestomakemoneywemakemoneytobuildbetterservices. And we think this is a good way to build something. These days I think more and more people want to use services from companiesthatbelieveinsomethingbeyondsimplymaximizingprofits. 81
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Table of Contents Byfocusingon our mission and building greatservices, we believe we will create themost valuefor ourshareholders and partners over the long term and this in turn will enable us to keep attracting the best people and building more great services.Wedontwakeupinthemorningwiththeprimarygoalofmakingmoney,butweunderstandthatthebestwayto achieveourmissionistobuildastrongandvaluablecompany. ThisishowwethinkaboutourIPOaswell.Weregoingpublicforouremployeesandourinvestors.Wemadeacommitment tothemwhenwegavethemequitythatwedworkhardtomakeitworthalotandmakeitliquid,andthisIPOisfulfillingour commitment.Aswebecomeapubliccompany,weremakingasimilarcommitmenttoournewinvestorsandwewillworkjust ashardtofulfillit.
TheHackerWay Aspartofbuildingastrongcompany,weworkhardatmakingFacebookthebestplaceforgreatpeopletohaveabigimpact ontheworldandlearnfromothergreatpeople.Wehavecultivatedauniquecultureandmanagementapproachthatwecallthe HackerWay. The word hacker has an unfairly negative connotation from being portrayed in the media as people who break into computers.Inreality,hackingjustmeansbuildingsomethingquicklyortestingtheboundariesofwhatcanbedone.Likemost things,itcanbeusedforgoodorbad,butthevastmajorityofhackersIvemettendtobeidealisticpeoplewhowanttohavea positiveimpactontheworld. The Hacker Way is an approach to building that involves continuous improvement and iteration. Hackers believe that somethingcanalwaysbebetter,andthatnothingisevercomplete.Theyjusthavetogofixitofteninthefaceofpeople whosayitsimpossibleorarecontentwiththestatusquo. Hackerstrytobuildthebestservicesoverthelongtermbyquicklyreleasingandlearningfromsmalleriterationsratherthan tryingtogeteverythingrightallatonce.Tosupportthis,wehavebuiltatestingframeworkthatatanygiventimecantryout thousandsofversionsofFacebook.WehavethewordsDoneisbetterthanperfectpaintedonourwallstoremindourselves toalwayskeepshipping. Hackingisalsoaninherentlyhandsonandactivediscipline.Insteadofdebatingfordayswhetheranewideaispossibleor whatthebestwaytobuildsomethingis,hackerswouldratherjustprototypesomethingandseewhatworks.Theresahacker mantrathatyoullhearalotaroundFacebookoffices:Codewinsarguments. Hackercultureisalsoextremelyopenandmeritocratic.Hackersbelievethatthebestideaandimplementationshouldalways winnotthepersonwhoisbestatlobbyingforanideaorthepersonwhomanagesthemostpeople. To encourage this approach, every few months we have a hackathon, where everyone builds prototypes for new ideas they have. At the end, the whole team gets together and looks at everything that has been built. Many of our most successful productscameoutofhackathons,includingTimeline,chat,video,ourmobiledevelopmentframeworkandsomeofourmost importantinfrastructureliketheHipHopcompiler. Tomakesureallourengineerssharethisapproach,werequireallnewengineersevenmanagerswhoseprimaryjobwillnot betowritecodetogothroughaprogramcalledBootcampwheretheylearnourcodebase,ourtoolsandourapproach.There arealotoffolksintheindustrywhomanageengineersanddontwanttocodethemselves,butthetypeofhandsonpeople werelookingforarewillingandabletogothroughBootcamp. 82
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Table of Contents The examples above all relate to engineering, but we have distilled these principles into five core values for how we run Facebook: FocusonImpact Ifwewanttohavethebiggestimpact,thebestwaytodothisistomakesurewealwaysfocusonsolvingthemostimportant problems. It sounds simple, but we think most companies do this poorly and waste a lot of time. We expect everyone at Facebooktobegoodatfindingthebiggestproblemstoworkon. MoveFast Movingfastenablesustobuildmorethingsandlearnfaster.However,asmostcompaniesgrow,theyslowdowntoomuch becausetheyremoreafraidofmakingmistakesthantheyareoflosingopportunitiesbymovingtooslowly.Wehaveasaying: Movefastandbreakthings.Theideaisthatifyouneverbreakanything,youreprobablynotmovingfastenough. BeBold Building great things means taking risks. This can be scary and prevents most companies from doing the bold things they should.However,inaworldthatschangingsoquickly,youreguaranteedtofailifyoudonttakeanyrisks.Wehaveanother saying: The riskiest thing is to take no risks. We encourage everyone to make bold decisions, even if that means being wrongsomeofthetime. BeOpen Webelievethatamoreopenworldisabetterworldbecausepeoplewithmoreinformationcanmakebetterdecisionsandhave agreaterimpact.Thatgoesforrunningourcompanyaswell.WeworkhardtomakesureeveryoneatFacebookhasaccesstoas much information as possible about every part of the company so they can make the best decisions and have the greatest impact. BuildSocialValue Once again, Facebook exists to make the world more open and connected, and not just to build a company. We expect everyoneatFacebooktofocuseverydayonhowtobuildrealvaluefortheworldineverythingtheydo.
Thanksfortakingthetimetoreadthisletter.Webelievethatwehaveanopportunitytohaveanimportantimpactontheworld andbuildalastingcompanyintheprocess.Ilookforwardtobuildingsomethinggreattogether.
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Table of Contents BUSINESS Overview
AdigitaldisplayoftheFacebookusercommunityandtheconnectionsbetweenusers.Onablankbackground,theconnectionsforma picturethatapproximatesaglobalmap.
Ourmissionistomaketheworldmoreopenandconnected. Webelievethatsomeofthemostimportantinnovationsinhistoryhavebeentoolsthatmakeiteasierorfasterforone humanbeingtosharesomethingwithanother. Facebookenablesyoutosharethethingsyoucareaboutwiththepeopleyoucareabout.Youcanpublishyourideas, opinions,picturesandactivitiestoyourfriends,family,colleaguesortheworld.WebelievethatFacebookgiveseveryperson avoiceanopportunitytosay:Iexist,andthisismystory. Facebookalsoenablesyoutodiscoverwhatsgoingonintheworldaroundyou,throughtheeyesandearsofpeopleyou trust.EverydayhundredsofmillionsofpeoplecometoFacebooktofindoutwhattheirfriendshavetosharethebestnew musictheyvelistenedto,photosfromtheirrecenthoneymoon,whotheyplantovoteforinthenextelection.Eachpersons experienceonFacebookisuniqueandcompletelypersonalizedakintoreadingarealtimenewspaperofstoriescompiled justforthemthattheycancarrywiththemwherevertheygo. PeopleconnectwithFacebooktoconnectwithpeople.Webelievethatweareattheforefrontofenablingfaster,easier andrichercommunicationbetweenpeoplearoundtheworld. 84
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Table of Contents HowWeCreateValueforUsers
Userscan sharephotos withtheir friendsand family
Friendsand familycan Likeor Commenton thephotos
Ourtoppriorityistobuildusefulandengagingproductsthatenableyouto: Connect with Your Friends. With more than 900 million monthly active users (MAUs) worldwide, our users are increasinglyabletofindandstayconnectedwiththeirfriends,family,andcolleaguesonFacebook.Userscanshare majorlifeeventssuchasthebirthofachild,uploadphotosoftheirlatestvacation,congratulateafriendonanew jobbyLikingorCommentingonthefriendspost,andstayintouchthroughmessagesandchat. DiscoverandLearn.WebelievethatuserscometoFacebooktodiscoverandlearnmoreaboutwhatisgoingonin theworldaroundthem,particularlyinthelivesoftheirfriendsandfamilyandwithpublicfiguresandorganizations thatinterestthem.EachusersexperienceonFacebookisuniquebasedonthecontentsharedbyhisorherfriends andconnections.ThiscontentispersonalizedforeachuserinourproductssuchasNewsFeedandTimeline. ExpressYourself.Weenableouruserstoshareandpublishtheiropinions,ideas,photos,andactivitiestoaudiences ranging from their closest friends to our 900 million users, giving every user a voice within the Facebook community. 85
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Table of Contents ControlWhatYouShare.ThroughFacebooksprivacyandsharingsettings,ouruserscancontrolwhattheyshare andwithwhomtheyshareit.

ExampleofUserControlOverSharing
Userscancontrolwhatthey shareandwithwhomthey shareit.Forexample,each timeauserupdateshisorher status,heorshecanchoose tosharewitheveryone, withallfriends,orwitha subsetoffriendsthattheuser cancustomize. Experience Facebook Across the Web. Through applications (apps) and websites built by developers using the Facebook Platform, our users can interact with their Facebook friends while playing games, listening to music, watchingmovies,readingnews,andengaginginotheractivities. StayConnectedwithYourFriendsonMobileDevices.Throughthecombinationofourmobilesites,smartphone apps,andfeaturephoneproducts,userscanbringFacebookwiththemonmobiledeviceswherevertheygo.
FoundationsoftheSocialWeb Webelievethattheweb,includingthemobileweb,isevolvingtobecomemoresocialandpersonalized.Historically, most people surfed the web anonymously and visited websites where they saw the same content as everyone else. Recent innovationsinsoftwaredevelopmentalongwithadvancesinlargescaledatabaseandcomputinginfrastructurehaveenabled web experiences that are more personalized to each users interests and created new ways of realtime sharing and communicating. The social web creates rewarding experiences that are centered on people, their connections, and their interests.Webelievethatthefollowingelementsformthefoundationofthesocialweb: AuthenticIdentity.Webelievethatusingyourrealname,connectingtoyourrealfriends,andsharingyourgenuine interests online create more engaging and meaningful experiences. Representing yourself with your authentic identityonlineencouragesyoutobehavewiththesamenormsthatfostertrustandrespectinyourdailylifeoffline. AuthenticidentityiscoretotheFacebookexperience,andwebelievethatitiscentraltothefutureoftheweb.Our termsofservicerequireyoutouseyourrealnameandweencourageyoutobeyourtrueselfonline,enablingusand Platform developers to provide you with more personalized experiences. We deploy a variety of algorithmic and manualcheckstohelpensuretheintegrityofuseraccounts,however,wecannotverifytheidentityandauthenticity ofeveryoneofourusersortheiractions. SocialGraph. The Social Graph represents the connections between people and their friends and interests. Every personorentityisrepresentedbyapointwithinthegraph,andtheaffiliationsbetweenpeopleandtheirfriendsand interestsformbillionsofconnectionsbetweenthepoints.OurmappingoftheSocialGraphenablesFacebookand Platformdeveloperstobuildmoreengaginguserexperiencesthatarebasedontheseconnections. 86
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IllustrationoftheSocialGraph
SocialDistribution.Overtime,peopleareconsumingandcreatingmorekindsofinformationatafasterpaceacrossa broaderrangeofdevices.Thegrowingvolumeofinformationmakesitchallengingtofindmeaningfulandtrusted content and to effectively make your voice heard. Facebook organizes and prioritizes content and serves as a powerfulsocialdistributiontooldeliveringtouserswhatwebelievetheywillfindmostcompellingbasedontheir friends and interests. Facebooks social distribution enables users, Platform developers, and advertisers to share informationwithtargetaudienceslargeorsmall.
OurSizeandScale Building on our use of authentic identity, the Social Graph, and social distribution, Facebook has grown from our beginningsinacollegedormroomin2004toaservicethatisfundamentallychangingthewaypeopleconnect,discover,and sharearoundtheworld.WebelievethatFacebookhasbecomeanintegralpartofmanyofourusersdailylives.Usersadd value to the overall Facebook ecosystem each time they engage with friends, developers, or advertisers. Increases in user engagement enable us to attract more users, developers, and advertisers. Growth in the number of users, developers, and advertisersandtheinteractionsamongthemenhancesthevaluewedelivertoallofourconstituencies. We had 901 million MAUs as of March 31, 2012, an increase of 33% as compared to 680 million MAUs as of March31,2011. We had 526 million daily active users (DAUs) on average in March 2012, an increase of 41% as compared to 372millionDAUsinMarch2011. We had 488 million MAUs who used Facebook mobile products in March 2012, and we surpassed 500 million mobileMAUsasofApril20,2012. DuringthemonthofMarch2012,wehadonaverage398millionuserswhowereactivewithFacebookonatleastsix out of the last seven days, providing perspective on the number of people for whom Facebook is essentially an everydayactivity. Thereweremorethan125billionfriendconnectionsonFacebookasofMarch31,2012. Onaveragemorethan300millionphotosperdaywereuploadedtoFacebookinthethreemonthsendedMarch31, 2012. Ourusersgeneratedanaverageof3.2billionLikesandCommentsperdayduringthefirstquarterof2012.Since users Like and Comment on content they find interesting, we believe that the number of Likes and Comments provides some insight into how engaging users find the content available to them on Facebook and through our Platformdevelopers.
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Table of Contents As of March 31, 2012, there were more than 42 million Pages with ten or more Likes. Anyone, including artists, public figures, businesses, brands, or charities can set up a Facebook Page to engage with our users. Examples of popular Pages on Facebook include Lady Gaga, Disney, and Manchester United, each of which has more than 20millionLikes.
HowWeCreateValueforDevelopersThroughtheFacebookPlatform The Facebook Platform is a set of development tools and application programming interfaces (APIs) that enables developerstoeasilyintegratewithFacebooktocreatesocialappsandwebsitesandtoreachour900millionusers.Platform developers build experiences that allow our users to connect and share with friends while engaging in activities such as playing games, listening to music, watching movies, reading news articles, discovering new recipes, and exploring new runningroutes.Platformdevelopersrangefromastudentonhisorhercomputerathometoteamsofprogrammersatleading websites.MorethanninemillionappsandwebsiteswereintegratedwithFacebookasofMarch31,2012.Wearefocusedon thegrowthandsuccessofPlatformdevelopersincreatingcompellinguserexperiencesbyenabling: PersonalizedandSocialExperiences.WeenablePlatformdeveloperstocreatebetterproductsthatarepersonalized andsocialandthatoffernewwaysforouruserstoengagewithfriendsandshareexperiencesacrossthewebandon mobiledevices.Forexample,aFacebookusercanvisitthePandorawebsiteandimmediatelybeginlisteningtoa personalizedradiostationthatiscustomizedbasedonthebandstheuserLikesonFacebook.Asanotherexample,a FacebookusercanvisitTheNewYorkTimeswebsiteandseewhicharticleshavebeenrecommendedbyfriends.Our Platformdeveloperscanonlyaccessinformationthatourusersagreetosharewiththem. SocialDistribution. We enable Platform developers to reach our global user base and use our social distribution channelstoincreasetraffictotheirappsandwebsites.Forexample,userscaninvitetheirFacebookfriendstoplaya gameorseewhentheirfriendshaveachievedanewhighscore. Payments.WeprovideanonlinepaymentsinfrastructurethatenablesPlatformdeveloperstoreceivepaymentsfrom ourusersinaneasytouse,secure,andtrustedenvironment.In2011,ourPlatformdevelopersreceivedmorethan $1.4billionfromtransactionsenabledbyourPaymentsinfrastructure.
HowWeCreateValueforAdvertisersandMarketers Weofferadvertisersandmarketersauniquecombinationofreach,relevance,socialcontext,andengagement: Reach. With over 900 million MAUs, Facebook offers the ability to reach a vast consumer audience with our advertisingsolutions.Forexample,amoviestudioseekingtoincreaseawarenessofanupcomingfilmreleasecan reachabroadaudienceofFacebookusersonthedayorweekbeforethefilmsopening.Byadvertisingthereleaseof Transformers:DarkoftheMoononFacebook,ParamountStudiosreached65millionusersintheUnitedStatesina singleday.
AdvertisingExampleReach
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Table of Contents Relevance.Advertiserscanspecifythatweshowtheiradstoasubsetofourusersbasedondemographicfactorssuch asage,location,gender,education,workhistory,andspecificintereststhattheyhavechosentosharewithuson FacebookorbyusingtheLikebuttonaroundtheweboronmobiledevices.Weallowadvertiserstoselectrelevant andappropriateaudiencesfortheirads,rangingfrommillionsofusersinthecaseofglobalbrandstohundredsof usersinthecaseofsmaller,localbusinesses.Webelievethatusershaveabetterexperiencewhenadsareeffectively tailoredtothem.ExamplesofFacebookadsthatallowedadvertiserstoreacharelevantaudienceinclude: Procter&GamblechosetoadvertiseonFacebooktogenerateawarenessforSecretdeodorantsMeanStinks programandselectedafemaleaudiencelikelytobereceptivetothecampaign.Theadfeaturedaconfessional style video of a girl admitting that she had bullied others, realizing the damage she had caused, and apologizing.Inthe26weeksaftertheMeanStinkscampaignlaunched,Secretexperienceda9%increasein U.S.salesandanincreaseinengagementwithitsFacebookPage. CMPhotographics,aweddingphotographybusinessbasedinMinneapolis,Minnesota,usedFacebookadsto reach the users it cared most about: women aged 24 to 30 living near Minneapolis who shared their relationshipstatusonFacebookasengaged.In2011,CMPhotographicsgeneratedasignificantincreasein revenueafterspending$1,544topurchaseadvertisingonFacebook.
Because authentic identity is core to the user experience on Facebook and users generally share information that reflectstheirrealinterestsanddemographics,weareabletodeliveradsthatreachtheintendedaudiencewithhigher accuracyratescomparedtoonlineindustryaverages.Forbroadlytargetedcampaigns,forexample,adultsbetween the ages of 25 and 49, we were able to reach the desired audience with 95% accuracy as measured by industry standardanalyticstools.Thiscomparestoanindustryaverageof72%,aspubliclyreportedbyNielsenin2011.For morenarrowlytargetedcampaigns,forexample,femalesbetweentheagesof25and34,Facebookwasabletoreach thedesiredaudiencewith90%accuracycomparedtoanindustryaverageof35%.Asourusersmaintainandexpand their authentic identity on Facebook, they are increasingly choosing to share their interests and preferences regarding products and services. We use this information to improve our ability to deliver relevant ads that we believearemoreinterestingandcompellingforeachuser. SocialContext.Webelievethattherecommendationsoffriendshaveapowerfulinfluenceonconsumerinterestand purchasedecisions.Weofferadvertiserstheabilitytoincludesocialcontextwiththeirmarketingmessages.Social context is information that highlights a friends connections with a particular brand or business. We believe that usersfindmarketingmessagesmoreengagingwhentheyincludesocialcontext.Somecurrentexamplesofsocial contextthatweofferincludethefollowing: SocialAds.Weoffertoolstoadvertiserstodisplaysocialcontextalongsidetheirads.Asaresult,advertisers are able to differentiate their products and complement their marketing messages with trusted recommendations from users friends. Our recent analysis of 79 advertising campaigns on Facebook demonstratedagreaterthan50%increaseinadrecallforFacebookadswithsocialcontextascomparedto Facebookadsthatdidnothavesocialcontext. 89
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AdvertisingExamplewithoutSocialContext AdvertisingExamplewithSocialContext
SponsoredStories.Sponsored stories enable marketers to amplify the distribution of stories that users have alreadysharedthatarerelevanttotheirmarketingefforts.Forexample,whenauserpostsonFacebookthathe orshehascheckedintoaStarbucksstore,thischeckincreatesastorythatcanbeshowninthefriends NewsFeeds.Althoughallofausersfriendsmaybeeligibletoviewthischeckinstory,onlyafractionofthe usersfriendswilltypicallyseeit(basedonfactorssuchaswhentheusersfriendschecktheirNewsFeedsand ourrankingofallthecontentthatisavailabletoshowtoeachoftheusersfriends).Starbuckscanpurchase sponsoredstoriestosignificantlyincreasethereach,frequencyofdistribution,andprominenceofthisstoryto the users friends. Marketers can also use sponsored stories to promote the stories they publish from their FacebookPagetouserswhohaveconnectedwiththePage.Sponsoredstoriesareshownontherighthandside ofthepage,andinJanuary2012,webeganincludingtheminusersNewsFeedsonpersonalcomputers.In March2012,wealsobegantoincludesponsoredstoriesinusersmobileNewsFeeds.
Engagement.Webelievethattheshifttoamoresocialwebcreatesnewopportunitiesforbusinessestoengagewith interestedcustomers.Manyofouradproductsoffernewandinnovativewaysforouradvertiserstointeractwithour users,suchasadsthatincludepolls,encouragecomments,orinviteuserstoanevent.Additionally,anybrandor business can have a presence on Facebook by creating a Facebook Page. Through Pages, we give brands the opportunity to form direct and ongoing relationships with their customers, with the potential to turn them into valuableadvocates.WhenaFacebookuserLikesaPage,thePageownerhastheopportunitytopublishstoriestothe usersNewsFeedonanongoingbasis.Webelievethatthisongoingconnectionprovidesasignificantadvantagefor FacebookPagesascomparedtotraditionalbusinesswebsites.Inaddition,businessescanusePagestoinfluencefans anddrivereferraltraffictotheirecommercewebsitesorphysicalstores.WedonotchargebusinessesfortheirPages, nordowechargefortheresultingorganicdistribution.However,webelievethatPageownerscanuseFacebookads and sponsored stories to increase awareness of and engagement with their Pages. Examples of brands utilizing FacebookPagesinclude: BurberryuseditsPageandaninnovativemarketingcampaignonFacebooktoannouncethelaunchofanew luxuryfragrancetoitsnearlytenmillionFacebookfansinordertodrivetraffictoandpurchasesatBurberry storesglobally,includingitsecommercesite.WhenusersLikedorCommentedontheBurberryPageorthe perfumestory,theusersactionsweresharedwiththeirfriendsviaNewsFeed,drivingawarenesstoawider circleofusersandincreasingbrandexposure,recognition,andengagement. 90
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Table of Contents PFChangscreatedacouponofferonitsPageforafreeLettuceWrapappetizerandpromotedtheofferwitha threeweekadcampaign.TheFacebookadstargeteduserswhohadconnectedtoPFChangsPage,thoseusers friends,andusersinmarketswherePFChangshasahighdensityofrestaurants.Over50,000customers,of whom40%werefirsttimecustomers,redeemedthecouponatPFChangsrestaurants.
OurMarketOpportunity OurAdvertisingMarketOpportunity Advertisersobjectivesrangefrombuildinglongtermbrandawarenesstostimulatinganimmediatepurchase.Weoffer advertisingsolutionsthataredesignedtobeengagingforusersandpersonalizedtousersdemographicsandinterestsinorder to help advertisers better achieve their goals. Facebooks combination of reach, relevance, social context, and engagement givesadvertisersenhancedopportunitiestogeneratebrandawarenessandaffiliation,whilealsocreatingnewwaystogenerate neartermdemandfortheirproductsfromconsumerslikelytohavepurchaseintent.AccordingtoanIDCreportdatedAugust 2011,totalworldwideadvertisingspendingin2010was$588billion.Ouraddressablemarketopportunityincludesportions ofmanyexistingadvertisingmarkets,includingthetraditionalofflinebrandedadvertising,onlinedisplayadvertising,online performancebasedadvertising,andmobileadvertisingmarkets. TraditionalOfflineBrandedAdvertising.Television,print,andradioaccountedfor$363billion,or62%ofthetotal advertising market in 2010 according to an IDC report dated August 2011. Historically, advertisers interested in generating awareness of and demand for their brands have heavily relied on these offline media to reach their audiencesatscale.Webelievethatthesebrandadvertiserswillincreasinglydedicateaportionoftheiradvertising dollarstoFacebookbecausethebroadaudiencestheyaretryingtoreachareactiveonFacebookonadailybasis, becausewecanreachtheirdesiredaudienceswithprecision,andbecausetheycansparkwordofmouthmarketing throughFacebook.InDecember2011,anadvertisercouldreachanestimatedaudienceofmorethan65millionU.S. users in a typical day on Facebook. By comparison, the 2011 season finale of American Idol was viewed by an estimatedU.S.audienceof29millionpeople.In2011,ouradvertisingcustomersincludedeachofthe100largest globaladvertisingspenders,asrankedbyAdvertisingAge.ExamplesofFacebookadvertisingcampaignsbylarge brandadvertisersinclude: Nike launched its Write the Future campaign on Facebook as an integral part of its 2010 World Cup marketingeffort.Thelaunchplacementwasseenby140millionusersin20countriesandusersengagedwith the message more than seven million times by taking actions such as watching the threeminute embedded video,orLiking,clicking,orCommentingonthead. American Express purchased ads on Facebook and put its Facebook Page at the center of its advertising campaign in November 2010 to introduce and promote Small Business Saturday, a new local initiative designed to encourage shopping at small businesses on the Saturday after Thanksgiving. The ads reached 84millionFacebookusersoverthethreeweekcampaign.AmericanExpresscontinuedthecampaignin2011. The campaign reached 91 million people, including 74 million who were shown an ad that featured a connection with their Facebook friends, successfully leveraging social context at scale. We believe that advertising on Facebook contributed to the successful results of the Small Business Saturday campaign in 2011publicawarenessofSmallBusinessSaturdayroseto65%from37%in2010.Additionally,American Express saw a 23% increase in Cardmember transactions at small business merchants on Small Business Saturday.
OnlineAdvertising.From2010to2015,theworldwideonlineadvertisingmarket,excludingmobileadvertising,is projectedtoincreasefrom$68billionto$120billion,representing12%and16%,respectively,oftheworldwide advertising market according to an IDC report dated August 2011. Currently, the online advertising market is generallydividedbetweendisplayadvertising,wherethe 91
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Table of Contents advertiser is seeking impressions, and performancebased advertising, where the advertiser is seeking clicks or conversions. DisplayAdvertising.Onlinedisplayadvertisingtypicallyincludesbannerads,interstitials,videoads,andrich media ads that aim to reach large numbers of consumers within a particular audience segment. Display advertisersrunimpressionbasedcampaignsonFacebookinordertoreachourlargeuserbaseandbecauseof the amount of time that users spend with us. From January 2011 through January 2012, Facebook.com has beenthenumberoneonlinepropertyaccessedthroughpersonalcomputersworldwideasmeasuredbytotal minutesspentandtotalpageviews,accordingtoacomScoreMediaMetrixreportdatedFebruary2012.On average, users in the aggregate spent more than 10.5 billion minutes per day on Facebook on personal computersduringJanuary2012.Aggregateminutesperdayincreased57%andaverageminutesperuserper dayincreased14%duringJanuary2012comparedtoJanuary2011.DisplayadvertisersalsouseFacebookin ordertomorepreciselyreachtheirtargetaudiencesamongourusersandtoleveragesocialcontextandour socialdistributionchannelstoincreaseengagement.ExamplesofdisplayadvertisingcampaignsonFacebook include: WalmartU.S.purchasedadvertisingonFacebooktargetingusersintheUnitedStatesbetweentheagesof 18 and 49 during the days surrounding Black Friday in November 2011. The campaign, which encouraged users to download a Black Friday shopping map of their local Walmart U.S. store to help themfindgreatpricesfaster,reached60millionFacebookusers. Diageo,theworldslargestproducerofspirits,purchasedadvertisingonFacebookforaportfolioofits brands, including Captain Morgan rum and Smirnoff vodka, in order to increase market share for its productsbytargetingusersintheUnitedStatesovertheageof21.Thecampaignreached25million Facebookhouseholdsanddrovea20%increaseinofflinesalesinhouseholdsthatwereexposedtothe campaign compared to demographically similar households that were not exposed to the campaign. Theseresultsweredeterminedusinganalyticstoolsthatemployindustrystandardmethodologies.
Performancebased Advertising. Performancebased online advertising has typically involved advertisers seekingaspecificuserbehaviorsuchasaclickonasearchadorakeywordbasedcontentad,aresponsetoan email campaign, or an online purchase. We enable new forms of performancebased advertising, where advertiserscanconnectwithuserswhoarelikelytohavedemandfortheirproductsbasedontheinformation that our users have chosen to share. We believe that performancebased campaigns on Facebook allow advertiserstooffertheirproductstouserswithinferredintentandenhanceusersexperiencesbyshowingthem relevant ads tailored to their specific interests. Examples of performancebased advertising on Facebook include: Alocalconcertpromoteradvertisedavailableticketsforanupcomingconcerttouserswholivedinthe metropolitanareawheretheconcertwastobeheldandwhohadalsoLikedtheartist. 1800FLOWERS.COMpurchasedaMothersDayadvertisingcampaignonFacebooktargetedatitsfans andfriendsofitsfansinordertodrivetraffictoitswebsiteandincreasesales. Social game developers including Disney, Electronic Arts, and Zynga purchased performancebased advertising on Facebook to drive player acquisition by promoting new game launches and existing games.
MobileAdvertising.Theglobalmobileadvertisingmarketwas$1.5billionin2010andisexpectedtogrowata 64% compound annual rate to $17.6 billion in 2015 according to an IDC report dated August 2011. We had 488millionMAUswhousedFacebookmobileproductsinMarch2012.AccordingtoaJanuary2012Nielsenreport, theFacebookmobileapphadmoreuniquecombinedAndroidandiPhoneusersin2011intheUnitedStatesthan anyothermobileapp.Wehavehistoricallynotshown 92
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Table of Contents adstousersaccessingFacebookthroughmobileappsorourmobilewebsite.InMarch2012,webegantoinclude sponsoredstoriesinusersmobileNewsFeeds. Advertisingonthesocialwebisasignificantmarketopportunitythatisstillemergingandevolving.Webelievethat most advertisers are still learning and experimenting with the best ways to leverage reach, relevance, social context, and engagementofferedbyFacebook.Wewillcontinuetobalanceoureffortstobuildeffectiveproductsforadvertiserswhilealso prioritizingtheoveralluserexperience,andthisbalancingeffortwillinfluencethenumberofadsweshowandtheformatsand prominenceoftheads.Ourstrategycentersonthebeliefthatmoresocialandrelevantadproductsaremorevaluableforboth usersandadvertisers. Currently the substantial majority of our revenue is generated by advertisers from more developed online advertising markets including the United States, western Europe, Canada, and Australia. There are also many emerging ad markets in which we sell ads and other commercial content, and we expect continued growth in advertiser demand as these markets mature,weachieveincreasedlevelsofuserpenetrationandengagement,andwefurtherexpandoursalesresourcesdedicated tothesemarkets. OurMarketOpportunityforPayments WhenuserspurchasevirtualanddigitalgoodsfromourPlatformdevelopersusingourPaymentsinfrastructure,wereceive fees that represent a portion of the transaction value. Currently, substantially all of the Payments transactions between our users and Platform developers are for virtual goods used in social games, for example virtual tractors in the social game FarmVille. According to an NPD InStat report dated April 2012, the worldwide revenue generated from the sale of virtual goods on social networking sites, online worlds, and casual games was $9 billion in 2011, and is forecasted to increase to $14billionby2016.PaymentsintegrationiscurrentlyrequiredinappsonFacebookthatarecategorizedasgames,andwe mayseektoextendtheuseofPaymentstoothertypesofappsinthefuture.OurfuturerevenuefromPaymentswilldependon manyfactors,includingoursuccessinenablingPlatformdeveloperstobuildexperiencesthatengageusersandcreateuser demandfortheirproducts,andthefeearrangementsweareabletonegotiateinthefuture. OurStrategy We are in the early days of pursuing our mission to make the world more open and connected. We have a significant opportunitytofurtherenhancethevaluewedelivertousers,developers,andadvertisers.Keyelementsofourstrategyare: ExpandOurGlobalUserCommunity. There are more than two billion global Internet users according to an IDC report dated August 2011 and we aim to connect all of them. We had 901 million MAUs globally with approximately80%accessingFacebookfromoutsidetheUnitedStatesasofMarch31,2012.Wecontinuetofocus ongrowingouruserbaseacrossallgeographies,includingrelativelylesspenetrated,largemarketssuchasBrazil, Germany,India,Japan,Russia,andSouthKorea.Weintendtogrowouruserbasebycontinuingourmarketingand user acquisition efforts and enhancing our products, including mobile apps, in order to make Facebook more accessibleanduseful. Build Great Social Products to Increase Engagement. We prioritize product development investments that we believewillcreateengaginginteractionsbetweenourusers,developers,andadvertisersonFacebook,acrosstheweb, and on mobile devices. We continue to invest significantly in improving our core products such as News Feed, Photos, and Groups, developing new products such as Timeline and Ticker, and enabling new Platform apps and websiteintegrations. ProvideUserswiththeMostCompellingExperience.Facebookusersaresharingandreceivingmoreinformation acrossabroaderrangeofdevices.Toprovidethemostcompellinguserexperience,wecontinuetodevelopproducts andtechnologiesfocusedonoptimizingoursocialdistributionchannels 93
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Table of Contents todeliverthemostusefulcontenttoeachuserbyanalyzingandorganizingvastamountsofinformationinrealtime. Build Engaging Mobile Experiences. We are devoting substantial resources to developing engaging mobile productsandexperiencesforawiderangeofplatforms,includingsmartphonesandfeaturephones.Inaddition,we are working across the mobile industry with operators, hardware manufacturers, operating system providers, and developerstoimprovetheFacebookexperienceonmobiledevicesandmakeFacebookavailabletomorepeople aroundtheworld.Wehad488millionMAUswhousedFacebookmobileproductsinMarch2012.InApril2012,we enteredintoanagreementtoacquireInstagram,Inc.,whichhasbuiltamobilephonebasedphotosharingservice. Following the closing of this acquisition, we plan to maintain Instagrams products as independent mobile applications to enhance our photos product offerings and to enable users to increase their levels of mobile engagementandphotosharing.WebelievethatmobileusageofFacebookiscriticaltomaintainingusergrowthand engagementoverthelongterm,andweareactivelyseekingtogrowmobileusage,althoughsuchusagedoesnot currentlydirectlygenerateanymeaningfulrevenue. Enable Developers to Build Great Social Products Using the Facebook Platform. The success of Platform developersandthevibrancyofourPlatformecosystemarekeytoincreasinguserengagement.Socialgameshave achievedsignificantlevelsofadoptionbyFacebookusers,andwearealsofocusedonenablingthedevelopmentof appsincategoriesbeyondgames.Forexample,ourlatestenhancementstotheFacebookPlatformhaveenablednew types of social apps that facilitate sharing and serendipitous discovery of music, news, movies, television programming, and other everyday interests such as cooking and running. User engagement with our Platform developersappsandwebsitescreatesvalueforFacebookinmultipleways:ourPlatformsupportsouradvertising business because apps on Facebook create user engagement that enables us to show ads our Platform developers purchaseadvertisingonFacebooktodrivetraffictotheirappsandwebsitesPlatformdevelopersuseourPayment systemtofacilitatetransactionswithusersandusersengagementwithPlatformappsandwebsitescontributestoour understandingofusersinterestsandpreferences,improvingourabilitytopersonalizecontent.Wecontinuetoinvest in tools and APIs that enhance the ability of Platform developers to deliver products that are more social and personalizedandbetterengageusersonFacebook,acrosstheweb,andonmobiledevices.Additionally,weplanto investinenhancingourPaymentsofferingsandinmakingthePaymentsexperienceonFacebookasseamlessand convenientaspossibleforusersandPlatformdevelopers. ImproveAdProductsforAdvertisersandUsers.Weplantocontinuetoimproveouradproductsinordertocreate morevalueforadvertisersandenhancetheirabilitytomaketheiradvertisingmoresocialandrelevantforusers.Our advertising strategy centers on the belief that ad products that are social, relevant, and wellintegrated with other contentonFacebookcanenhancetheuserexperiencewhileprovidinganattractivereturnforadvertisers.Weintend toinvestinadditionalproductsforouradvertisersandmarketers,suchasourrecentintroductionofsponsoredstories in users News Feeds on personal computers and mobile devices, while continuing to balance our monetization objectives with our commitment to optimizing the user experience. We also continue to focus on analytics and measurementtoolstoevaluate,demonstrate,andimprovetheeffectivenessofadcampaignsonFacebook.
OurProductsforUsers,Developers,andAdvertisers ProductsforUsers Our product development approach is centered on building the most useful tools that enable users to connect, share, discover,andcommunicatewitheachother.Ourproductsforusersarefreeofchargeandavailableontheweb,mobileweb, andmobileplatformssuchasAndroidandiOS. Timeline.WelaunchedTimelineinSeptember2011asanenhancedandupdatedversionoftheFacebookProfileto addstructureandorganizationtothegrowingquantitiesofeachusersactivities 94
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Table of Contents andsocialcontent.Timelineallowsuserstoorganizeanddisplaytheeventsandactivitiesthatmattermosttothem, enablingthemtocuratetheirmemoriesinasearchablepersonalnarrativethatisorganizedchronologically.Users choose what information to share on their Timeline, such as their interests, photos, education, work history, relationshipstatus,andcontactinformation,anduserscancontrolwithwhomeachpieceofcontentissharedontheir Timeline. NewsFeed.The Facebook News Feed is the core feature of a users homepage and is a regularly updating list of storiesfromfriends,Pages,andotherentitiestowhichauserisconnectedonFacebook.Itincludesposts,photos, eventupdates,groupmemberships,appupdates,andotheractivities.EachusersNewsFeedispersonalizedbasedon hisorherinterestsandthesharingactivityoftheusersfriends.StoriesinausersNewsFeedareprioritizedbasedon severalfactors,includinghowmanyfriendshaveLikedorCommentedonacertainpieceofcontent,whopostedthe content,andwhattypeofcontentitis.NewsFeedisakeycomponentofoursocialdistributioncapability.
ExampleofFacebookNewsFeed
Photos and Videos. Facebook is the most popular photo uploading service on the web. On average, more than 300millionphotosperdaywereuploadedtoFacebookinthefirstquarterof2012.Userscanuploadanunlimited number of high resolution photos, create photo albums, and share them with their friends or any audience they choose.Userscanalsouploadandsharevideos.Userscansetspecificprivacysettingsforeachoftheirphotoalbums andvideos,makingthemvisibletoeveryone,oronlytocertainfriends.Userscaneasilyarrangetheirphotos,add captions,andtagpeopleinaphotoorvideo.Taggingallowsuserstoidentifyapersoninaphotoorvideoasone oftheirfriends. Messages.Ourmessagingproductsincludeemail,chat,andtextmessaging.Thedeliveryofmessagesisoptimized forthedevicethroughwhichtheuserisaccessingFacebook.Forexample,usersontheir 95
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Table of Contents mobilephoneswillreceivemessagesviatextorFacebookmobilemessenger,whiletheconversationisalsostoredin theirFacebookmessageinbox.Weaimtobethefastestandmostreliablewayforuserstocommunicatethrough: Email.Userscansetupafree@facebook.comaddress. Chat.Userscansendmessagestotheirfriendsinaninstantmessageformat. Text Messaging. Users can activate text messaging on Facebook, allowing the texts they exchange with friendstobeincorporatedintotheirrespectiveconversationsalongwiththeirmessageandchathistory.
Groups.GroupsaresharedFacebookpagesforgroupsofuserstodiscusscommoninterests.Forexample,membersof asoccerteamcanplantheseasonsscheduletogetherandsharephotoswitheachother.Usersareabletocustomize theprivacysettingsforeachGrouptheycreate. Lists.ListsallowuserstoorganizetheirfriendsinordertofilterthestoriesshownintheirNewsFeedsandreachor excludespecificpeoplewhentheyshareonFacebook.Forexample,userscanseeNewsFeedpostsfromaListofjust theirclosestfriendsorannounceagaragesaletoaListoffriendswhoresideintheuserscurrentcity.Usersareable tocustomizetheprivacysettingsforeachListtheycreate. Events. Through Events, users can organize gatherings, manage invitations, and send event notifications and reminderstotheirfriends.FromtheEventspage,userscancreateanewevent,checkoutupcomingeventsofinterest tothemandtheirfriends,andviewpreviousevents.Forexample,userscanuseEventstoinvitetheirfriendstoa dinnerpartyororganizearunintheRacefortheCuretoraiseawarenessforbreastcancer.Therearecurrentlymore than16millioneventscreatedonFacebookeachmonth. Places.ThroughPlaces,userscansharetheirlocationandseewheretheirfriendsare.Theyareabletoseeifanyof theirfriendsarenearbyandconnectwiththemeasily.UserscanalsocheckintoPlacestotelltheirfriendswherethey are,tagtheirfriendsinthePlacestheyvisit,orviewCommentstheirfriendshavemadeaboutthePlacestheyvisit. Subscribe.UsingSubscribe,userscansignuptoreceivepublicpostsintheirNewsFeedsfromotherFacebookusers ofinterestsuchascelebrities,thoughtleaders,andotherpublicfigures. Ticker.TickerisalivestreamoftherealtimeactivitiesofausersfriendsandthePagesandotherentitiestowhich theuserisconnected. Notifications.OnthetopofeachFacebookpage,ahighlightediconisdisplayedtouserswhenthereisrelevantand newinformationavailabletothem,suchasanewfriendrequest,anewmessagefromafriend,oranalertthattheuser hasbeentaggedinaphotopostedbyafriend.WebelievethatNotificationsareanimportantpartofFacebooks distributioncapability. Facebook Pages. A Facebook Page is a public profile that allows anyone including artists, public figures, businesses, brands, organizations, and charities to create a presence on Facebook and engage with the Facebook community.APageownercanconnectwithinterestedusersinordertoprovideupdates,answerquestions,receive feedback, or otherwise stimulate interest in the owners messages, products, and services. When a Facebook user LikesaPage,thePageownerhastheopportunitytopublishstoriestotheusersNewsFeedonanongoingbasis.In addition,whenaFacebookuserLikesorCommentsonapostbyaPageowner,thatusersactionmaybesharedwith the users friends via News Feed to drive awareness to a wider circle of users, increasing the Pages exposure, recognition,andengagement.WedonotchargeforPages,nordowechargefortheresultingorganicdistribution. However,webelievethatawarenessofandengagementwithPagescanbeamplifiedandcomplementedbytheuseof FacebookadsandsponsoredstoriesbyPageowners.AsofMarch31,2012,thereweremorethan42millionPages withtenormoreLikes,includingHarvard,LadyGaga,TheMetropolitanMuseumofArt,Starbucks,andBoo(the WorldsCutestDog),aswellasmillionsoflocalbusinesses. 96
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Table of Contents ProductsforDevelopers TheFacebookPlatformisasetoftoolsandAPIsthatdeveloperscanusetobuildsocialappsonFacebookortointegrate theirwebsiteswithFacebook.AsofMarch31,2012,morethanninemillionappsandwebsiteswereintegratedwithFacebook. OurgoalistomakeiteasyforPlatformdeveloperstointegratewithFacebookandbuildvaluableproductsandbusinesses. KeyelementsoftheFacebookPlatforminclude: OpenGraph.OurOpenGraphisasetofAPIsthatdeveloperscanusetobuildappsandwebsitesthatenableusersto sharetheiractivitieswithfriendsonFacebook.Forexample,auserwhoislisteningtomusicthroughadevelopers apporwebsitecanpublishhisorhermusicselectionstoFacebookwherethemusiccanbesharedwithfriends. Social Plugins. Social plugins are social features that developers can easily integrate with their websites by incorporating a single line of HTML code. For example, a developer can put a box on its website that shows FacebookuserswhattheirfriendshaveLikedandrecommendedonthesite.Socialpluginsalsoallowuserstoeasily shareinterestingcontentbacktoFacebookthatcanbedistributedtotheirfriendsthroughNewsFeed,Timeline,and Ticker.Thefollowingfeaturesareexamplesoffunctionalityprovidedthroughsocialplugins: LikeButton.AllowsuserstosharecontentfromathirdpartywebsitetoFacebookandtheirfriendswithone click. Recommendations.AllowsawebsitetodisplaytoFacebookuserswhattheirfriendshaverecommended. SingleSignOnRegistrationandLogIn.Allowsuserstoeasilysignupforaccesstothirdpartywebsiteswith theirFacebookaccounts,eliminatingtheneedforuserstocreateanotherusernameandpassword. Comments.Allowsuserstoposttheirviews,questions,andcritiquesonanypieceofcontentonawebsite.
Payments.Facebookprovidesanonlinepaymentsinfrastructurethatenablesdeveloperstoreceivepaymentsfrom usersthroughanefficientandsecuresystem.Developerscanfocusoncreatingengagingappsandcontentratherthan spendingtimeandresourcestobuildpaymentprocessingandfraudmanagementcapabilities.Ouruserscanstore theirpaymentcredentialswithFacebookinatrustedandsafeenvironment,facilitatingeasyandfastpurchasesacross theFacebookPlatformratherthanhavingtoreauthenticateandreenterpaymentinformationforeachdeveloper. WedesignedourPaymentsinfrastructuretostreamlinethebuyingprocessbetweenourusersanddevelopers.Our Paymentssystemenablesuserstopurchasevirtualordigitalgoodsfromdevelopersandthirdpartywebsitesbyusing debit and credit cards, PayPal, mobile phone payments, gift cards or other methods. We have also extended our Paymentsinfrastructuretosupportmobilewebappsoncertainmobileplatforms.Currently,substantiallyallofour Paymentsrevenueisfromuserspurchasesofvirtualgoodsusedinsocialgames.Wereceiveafeeofupto30%when usersmakesuchpurchasesfromourPlatformdevelopersusingourPaymentsinfrastructure.Inthefuture,ifweextend Paymentsoutsideofgames,thepercentagefeewereceivefromdevelopersmayvary. Zynga is the largest Platform developer, in terms of revenue generated for Facebook, using our Payments infrastructure. In May 2010, we entered into an addendum to our standard terms and conditions with Zynga that govern the promotion, distribution, and operation of Zynga games on the Facebook Platform, pursuant to which ZyngaagreedtouseFacebookPaymentsastheprimarymeansofpaymentwithinitsgamesplayedontheFacebook Platform.Underthisaddendum,weretainafeeofupto30%ofthefacevalueofuserpurchasesinZyngasgameson theFacebookPlatform.ThisaddendumexpiresinMay2015. 97
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Table of Contents DevelopershaveusedtheFacebookPlatformtobuildavarietyofuserexperiences,includingappsonFacebook,desktop apps, mobile apps, and Platformintegrated websites, each of which can take advantage of the capabilities of the Facebook Platform. Apps on Facebook. Apps on Facebook run within the Facebook website. Social games are currently the most successfulappsonFacebook.TheFacebookPlatformhasalsoenablednewtypesofsocialappsonFacebookbeyond gamestofacilitatesocialsharinganddiscoveryofmusic,news,televisionprogramming,andeverydayinterestssuch ascooking,fitness,andtravel.Forexample,TheWashingtonPostSocialReaderisanapponFacebookthatoffersa personalizednewsreadingexperienceinwhicheachuserseesauniquesetofstoriestailoredtotheusersinterests andbasedonwhathisorherfriendsarereading.Assumingtheuserhasgiventheapppermission,storiesreadbya userareinstantlysharedwithfriends,creatingasociallypowerednewswireofrelevantarticles.AppsonFacebook generallyhaveFacebookadsvisibleontherightsideofthepageandcanintegratewithFacebookPayments. DesktopApps.Developerscanalsobuilddesktopappsthatrunontheoperatingsystemofapersonalcomputerand offer experiences that are integrated with the Facebook Platform. For example, Spotify, an online music service, providesadesktopappintegratedwithFacebookthatoffersasociallisteningexperiencebygivinguserstheability tosharetheirplaylists,listentosongswithfriends,andexplorenewmusicthroughtheirfriends. Mobile Apps. The Facebook Platform for mobile has enabled developers to create engaging mobile apps that integratewithFacebookssocialandpersonalizationcapabilities. PlatformIntegratedWebsites.WebsitescanintegratewithFacebookusingsimplesocialpluginssuchastheLike button or design more deeply integrated social experiences built around users and their friends. For example, by tappingintoourrichsocialdata,TripAdvisorconnectsuserstotheirfriendsandsharesrelevantcontentaboutwhere theirfriendshavetraveledandwheretheywouldliketovisitinthefuture.WhileontheTripAdvisorwebsite,friends candiscusstheirtravelplansandrecommendationsandbuildoutpersonalprofilesofplacestheyhavebeen.
ExampleofPlatformIntegratedThirdPartyWebsite:TripAdvisor
Userscanlogin withtheirFacebook accountandreceive personalizedreviews andrecommendations basedontheactivitiesof theirFacebookfriends
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Table of Contents ProductsforAdvertisersandMarketers Facebookoffersproductsthatenableadvertisersandmarketerstoleverageouruniquecombinationofreach,relevance, socialcontext,andengagement.Customerscanpurchaseadvertisinginventorythroughourselfserviceadplatformorthrough acontractbasedprocessfromourglobalsalesforce.Advertisersusingourselfserviceadplatformlaunchandmanagetheir advertisingcampaignsonline.Ourcontractbasedcustomersworkwithourglobalsalesforce,whichisfocusedonattracting andretainingadvertisersandprovidingsupporttothemthroughoutthestagesoftheadvertisingcampaigncycle.Advertising purchasedthrougheithersalesmechanismisservedthroughtheFacebookadsystemdescribedbelow. FacebookAds.WhencreatingaFacebookad,advertiserscanspecifyatitle,content,image,anddestinationweb pageorFacebookPagetowhichauserisdirectedifheorsheclicksonthead.Becausewehaveastandardformatfor Facebookads,ourusersbenefitfromaconsistentadexperience,andouradvertisersareabletodeployandadjust campaigns rapidly. Advertisers can further engage their intended audiences by incorporating social context with theirmarketingmessages.Socialcontextincludesactionsausersfriendshavetaken,suchasLikingtheadvertisers FacebookPage.Adswithsocialcontextareshownonlytoausersfriends,andtheusersprivacysettingsapplyto socialads.Weofferarangeofadswithsocialcontext,fromanadwithasingleLikebuttontoourPremiumAdpaired withsocialcontext,whichallowsadvertiserstohighlighttheinteractionsofausersfriendswithabrandorproduct. SponsoredStories.SponsoredstoriesenablemarketerstopromotethestoriestheypublishfromtheirFacebookPage touserswhohaveconnectedwiththePageortoamplifythedistributionofstoriesusersarealreadysharingthatare relevanttotheirmarketingefforts.Forexample,whenauserLikesRedBull,RedBullcanpaytoamplifythereach, frequencyofdistribution,andprominencewithwhichthestoryisshowntofriendsofthatuser.
ExamplesofFacebookProductsforAdvertisersandMarketers
FacebookAdSystem.WhenadvertiserscreateanadcampaignwithFacebook,theyspecifythetypesofusersthey would like to reach based on information that users chose to share about their age, location, gender, relationship status,educationalhistory,workplace,andinterests.Forexample,aselfstoragecompanyranacampaigntoreach studentsoncollegecampusespriortosummerbreak.Additionally,advertisersindicatethemaximumpricetheyare willingtopayfortheiradandtheirmaximumbudget.Advertiserschoosetopayfortheiradsbasedoneithercostper thousandimpressions(CPM)onafixedorbiddedbasisorcostperclick(CPC)onabiddedbasis.Oursystemalso supportsguaranteeddeliveryofafixednumberofadimpressionsforafixedprice.Facebooksadservingtechnology dynamically determines the best available ad to show each user based on the combination of the users unique attributesandtherealtimecomparisonofbidsfromeligibleads. 99
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ExamplesofHowOurAdSystemMatchesRelevantAdstoInformationaUserhasChosentoShare
Informationuser choosestoshare
Potentialadsdisplayed basedoninformationthe userhasshared
Ad Analytics and Facebook Insights. Advertisers can use our analytics platform to track and optimize the performanceoftheircampaignsinrealtime.Facebookadanalyticsenableadvertiserstogaininsightsintowhichads weredisplayedandclickedon.Theseanalyticshelpadvertisersmakemodificationstotheiradcampaignsinorderto maximizeresults.ForadvertiserswithFacebookPages,FacebookInsightsalsoprovidesrealtimeinformationabout the performance of their Page and related posts whether through paid or organic channels. The data include the numberofuserswhoLikedandCommentedonthePageaswellasametric,PeopleTalkingAboutThis,which showshowmanystoriesabouttheadvertisersbrandarebeingcreatedandshared.
BuildingandMaintainingUserTrust Trust is a cornerstone of our business. We dedicate significant resources to the goal of building user trust through developingandimplementingprogramsdesignedtoprotectuserprivacy,promoteasafeenvironment,andassurethesecurity of user data. The resources we dedicate to this goal include engineers, analysts, lawyers, policy experts, and operations specialists,aswellashardwareandsoftwarefromleadingvendorsandsolutionswehavedesignedandbuilt. PrivacyandSharing.PeoplecometoFacebooktoconnectandshare.Protectinguserprivacyisanimportantpartof ourproductdevelopmentprocess.Ourobjectiveistogiveuserschoiceoverwhattheyshareandwithwhomthey shareit.Thiseffortisfundamentaltoourbusinessandfocusesoncontrol,transparency,andaccountability. 100
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Table of Contents Control. We believe that by providing our users with clear and easytouse controls, we will continue to promotetrustinourproducts.Forexample,whenauserpostsastatusupdateoruploadsaphototoFacebook, ourinlinecontrolsallowtheusertoselecthisorheraudienceatthesametimethatheorsheispublishingthe post.Inaddition,wehaveintroducedotherpersonalinformationcontroltoolsandtechniques.ActivityLog wasrecentlyintroducedandisaunifiedtoolthatuserscanusetoreviewandmanagethecontenttheyhave postedandtheactionstheyhavetakenonFacebook.Forexample,usingtheActivityLog,ausercanviewhis or her activity with a particular app, delete a specific post, change who can see a photo, or remove an app completely. Additionally, our Download Your Information tool enables users to remove or store their personalinformationoffofFacebook. Transparency.OurDataUsePolicydescribesinplainlanguageourdatausepracticesandhowprivacyworks onFacebook.Wealsoofferanumberoftoolsandfeaturesthatprovideuserswithtransparencyabouttheir informationonFacebook.Ourapplicationsettingsfeatureenablesuserstovieweachoftheappstheyhave chosentouse,theinformationneededbyeachapp,andtheaudiencewithwhomtheuserhaschosentoshare hisorherinteractionswitheachapp.Webelievethatthistransparencyenablesuserstomakemoreinformed decisionsabouttheiractivitiesonFacebook. Accountability. We continue to build new procedural safeguards as part of our comprehensive privacy program.Theseincludeadedicatedteamofprivacyprofessionalswhoareinvolvedinnewproductandfeature development from design through launch ongoing review and monitoring of the way data is handled by existingfeaturesandappsandrigorousdatasecuritypractices.Weregularlyworkwithonlineprivacyand safetyexpertsandregulatorsaroundtheworld.InNovember2011,weannounceda20yearagreementwith the Federal Trade Commission to enhance our privacy program. We made a clear and formal longterm commitmenttogivinguserstoolstocontrolhowtheyshareonFacebook.Wealsohaveundergoneanauditby the Office of the Irish Data Protection Commissioner. The audit comprehensively reviewed our compliance withIrishdataprotectionlaw,whichisgroundedinEuropeandataprotectionprinciples.Aspartoftheaudit process,weagreedtoenhancevariousdataprotectionandprivacypracticestoensurecompliancewiththelaw andadherencetoindustrybestpractices.
Safety.Wedesignourproductstoincluderobustsafetytools.Thesetoolsarecoupledwitheducationalresourcesand partnershipswithonlinesafetyexpertstoofferprotectionsforallusers,particularlyteenagers.Wetakeintoaccount theuniqueneedsofteenagerswhouseourserviceandemployageappropriatesettingsthatrestricttheirvisibility, limittheaudiencewithwhomtheycanshare,andhelppreventunwantedcontactfromstrangers. Our abuse reporting infrastructure allows anyone on Facebook to report inappropriate, offensive, or dangerous contentthroughreportlinksfoundonnearlyeverypageofoursite.Wehaveenhancedthisreportingsystemto includeSocialReporting,whichgivesuserstheoptiontoreportcontenttous,toreportcontenttoatrustedfriend, ortoblockthepersonwhopostedthecontentwithoneeasytousetool.OurSafetyAdvisoryBoard,comprisedof fiveleadingonlinesafetyorganizationsfromaroundtheworld,advisesusonproductdesignandhelpsustocreate comprehensivesafetyresourcesforeveryonewhousesourservice.Theseresourcesarelocatedinourmultimedia Family Safety Center on our website, which also offers special information for parents, educators, teenagers, and membersofthelawenforcementcommunity.Additionally,weworkwithlawenforcementtohelppromotethesafety ofourusersasrequiredbylaw.
Security. We invest in technology, processes, and people as part of our commitment to safeguarding our users information.Weuseavarietyoftechniquestoprotectthedatathatweareentrustedwith,andwerelyonmultiple layers of network segregation using firewalls to protect against attacks or unauthorized access. We also employ proprietary technologies to protect our users. For example, if we suspect that a users account may have been compromised,wemayuseaprocessthatwerefertoassocialauthenticationtovalidatethatthepersonaccessing theaccountistheactualaccount 101
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Table of Contents holder.Theprocessofsocialauthenticationmayincludeaskingthepersonaccessingtheaccounttoidentifyphotos oftheaccountholdersfriends.Oursecurityteamactivelyscansforsecurityvulnerabilitiesusingcommercialtools, penetrationtests,codesecurityreviews,andinternalandexternalaudits.Wealsohaveanetworkofgeographically distributedsingletenantdatacenters,andwetakemeasurestoprotecttheinformationstoredinthesedatacenters. Competition We face significant competition in almost every aspect of our business, including from companies such as Google, Microsoft,andTwitter,whichofferavarietyofInternetproducts,services,content,andonlineadvertisingofferings,aswellas from mobile companies and smaller Internet companies that offer products and services that may compete with specific Facebookfeatures.Wealsofacecompetitionfromtraditionalandonlinemediabusinessesforashareofadvertisersbudgets andinthedevelopmentofthetoolsandsystemsformanagingandoptimizingadvertisingcampaigns.Wecompetebroadly withGooglessocialnetworkingofferings,includingGoogle+,whichithasintegratedwithcertainofitsproducts,including search and Android. In addition, we compete with other, largely regional, social networks that have strong positions in particularcountries,includingCyworldinKorea,MixiinJapan,Orkut(ownedbyGoogle)inBrazilandIndia,andvKontakte inRussia.Asweintroducenewproducts,asourexistingproductsevolve,orasothercompaniesintroducenewproductsand services,wemaybecomesubjecttoadditionalcompetition. Theareasinwhichwecompeteinclude: UsersandEngagement.Wecompetetoattract,engage,andretainusers.Becauseourproductsforusersarefreeof charge,wecompetebasedontheutility,easeofuse,performance,andqualityofourproducts. Advertising.Wecompetetoattractandretainadvertisers.Wedistinguishourproductsbyprovidingreach,relevance, socialcontext,andengagementtoamplifytheeffectivenessofadvertisersmessages. Platform.We compete to attract and retain developers to build compelling apps and websites that integrate with Facebook.WecompeteinthisareaprimarilybasedonthevalueofthetoolsandAPIsweprovidetodevelopersto enablethemtoaccessourlargeglobalbaseofengagedusersandtheirconnectionsandtodrivetraffictotheirapps andwebsites. Talent.Wecompetetoattractandretainhighlytalentedindividuals,especiallysoftwareengineers,designers,and productmanagers.CompetitionforemployeetalentisparticularlyintenseintheSanFranciscoBayArea,wherewe are headquartered. We compete for these potential employees by providing a work environment that fosters and rewardscreativityandinnovationandbyprovidingcompensationpackagesthatwebelievewillenableustoattract andretainkeyemployees.
Whileourindustryisevolvingrapidlyandisbecomingincreasinglycompetitive,webelievethatwecompetefavorably on the factors described above. For additional information, see Risk FactorsOur business is highly competitive. Competitionpresentsanongoingthreattothesuccessofourbusiness. Technology Wehaveassembledateamofhighlyskilledengineersandcomputerscientistswhoseexpertisespansabroadrangeof technicalareas.Wemakesignificantinvestmentsinproductandfeaturedevelopment,datamanagementandpersonalization technologies,largescalesystemsandscalableinfrastructure,andadvertisingtechnologies,asfollows: Product and Feature Development. We aim to continuously improve our existing products and to develop new productsforourusers,developers,andadvertisers.Ourproductdevelopmentphilosophyiscenteredoncontinuous innovationincreatingproductsthataresocialbydesign,whichmeansthatourproductsaredesignedtoplaceour usersandtheirsocialinteractionsatthecoreoftheproductexperience. 102
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Table of Contents Data Management and Personalization Technologies. To provide each user with a personalized Facebook experience,wemustprocessandanalyzeavastandgrowingamountofcontentsharedbyourusers,developers,and advertisers and surface the most relevant content in real time. For example, loading a users home page typically requiresaccessinghundredsofservers,processingtensofthousandsofindividualpiecesofdata,anddeliveringthe informationselectedinlessthanonesecond.Inaddition,thedatarelationshipshavegrownexponentiallyandare constantly changing. As such, we have invested extensively in developing technologies and analytics in areas including: Contentoptimizationanddelivery.Weuseaproprietarydistributedsystemthatisabletoquerythousandsof piecesofcontentthatmaybeofinteresttoanindividualusertodeterminethemostrelevantandtimelystories anddeliverthemtotheuserinmilliseconds. Graphquery.OurgraphquerytechnologyenablesustoefficientlyprocesssubjectivequeriesabouttheSocial Graphbyutilizingaproprietarysetofsearchindices,queryprocessors,andcachingsystems. Mediastorageandserving.Westoremorethan100petabytes(100quadrillionbytes)ofphotosandvideos. Wehavebuiltanumberofstorageandservingtechnologies,suchasHaystack,whichallowustoefficiently serveandstorethedata. Largescaledatamanagement.We developed Apache Hive, a data warehouse infrastructure built on top of Hadoop,toprovidetoolstoenableeasydatasummarization,adhocquerying,andanalysisoflargedatasets. Software performance. Facebook.com is largely written in PHP, or Hypertext Preprocessor, a widely used, generalpurpose scripting language. We developed HipHop, which programmatically transforms PHP source code into highly optimized C++ code. HipHop offers significant performance gains when compared to traditionalPHP.
LargeScaleSystemsandScalableInfrastructure.Ourproductsarebuiltonasharedcomputinginfrastructure.We use a combination of offtheshelf and custom software running on clusters of commodity computers to amass substantial computing capability. Our infrastructure has enabled the storage and processing of large datasets and facilitatedthedeploymentofourproductsonaglobalscale.Asouruserbasegrows,andthelevelofengagementand sharing from our users continues to increase, our computing needs continue to expand. We aim to provide our productsrapidlyandreliablytoallusersaroundtheworld,includingincountrieswherewedonotexpectsignificant shortterm monetization. We expect to benefit if and as the perunit pricing for computing power, memory and storagecapacitycontinuestodecrease.Wealsointendtocontinuetodevelopdatacenterandserverarchitectures thatareoperationallyefficient,scalable,andreliable.Bybuildingcustomserversandconstructingourowneddata centers in Prineville, Oregon and Forest City, North Carolina, we introduced numerous technology advancements thataredesignedto: eliminatenonessentialcomponents,therebyreducingthecostandimprovingtheserviceabilityofservers improveservercoolingandpowerdistributionacrossboththedatacenterandserverstominimizepowerloss and optimizethepowerdistributionsystemandserverpowersuppliestooperateatsignificantlyhigherefficiency andfurtherreducepowerloss.
Together, our custom server and data center designs resulted in a significant increase in energy efficiency while significantlyreducingourcostscomparedtotheusageoftraditionalserversandleaseddatacenterfacilities.Weare a founding member of the Open Compute Project through which we make our proprietary data center, server hardware,andcertainsoftwaredesignsavailabletotheopensourcecommunity.Thisinitiativeaimstoaccelerate datacenterandserverinnovationandincreasecomputingefficiencythroughcollaborationonrelevantbestpractices andtechnicalspecifications. 103
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Table of Contents AdvertisingTechnologies.We believe that a more valuable advertiser and user experience is created through our ability to match the most relevant ads to each of our users based on his or her connections, demographics, and expressed interests. Our advertising technology serves billions of ad impressions every day, each of which is displayedtoselectedusersbasedupontheinformationthattheyhavechosentoshare. Advertisersspecifyabid,whichishowmuchtheyarewillingtopayforclicksorimpressionsoftheirads.Theactual pricepaidforeachclickorimpressioniscomputedusinganauctionmechanismthatautomaticallycalculatesthe minimum price an advertiser must pay to win the auction and have its ad shown. We believe that our specific auction mechanism encourages advertisers to bid the maximum price they are willing to pay, understanding that because of the way our auction works they will be charged a marketdetermined price that is never higher and typicallylowerthantheirbid.Oursystemalsosupportsguaranteeddeliveryofafixednumberofadimpressionsfora fixedprice. Oursystemmanagesourentiresetofads,theselectedaudiences,andtheadvertisersbidstodeterminewhichadsto showeachuserandhowtodisplaythemforeverypageonFacebook.Weuseanadvancedclickpredictionsystem thatweighsmanyrealtimeupdatedfeaturesusingautomatedlearningtechniques.Ourtechnologyincorporatesthe estimatedclickthroughratewithboththeadvertisersbidandauserrelevancysignaltoselecttheoptimaladsto show. Ourresearchanddevelopmentexpenseswere$87million,$144million,$388million,$57million,and$153millionin 2009,2010,and2011andthefirstquarterof2011and2012,respectively. SalesandOperations Manyofouradvertisersuseourselfserviceadplatformtoestablishaccountsandtolaunchandmanagetheiradvertising campaigns.Wealsohaveaglobalsalesforcethatisfocusedonattractingandretainingadvertisersandprovidingsupportto themthroughoutthestagesoftheadvertisingcampaigncyclefromprepurchasedecisionmakingtorealtimeoptimizationsto postcampaignanalytics.Wecurrentlyoperatemorethan30salesofficesaroundtheglobe. Wehaveoperationsteamstoprovidesupportforourusers,developers,andadvertisersinfourregionalcenterslocatedin MenloPark,CaliforniaAustin,TexasDublin,IrelandandHyderabad,India.Wealsoinvestinandrelyonselfservicetools toprovidecustomersupporttoourusers,developers,andadvertisers. Marketing Todate,theFacebookusercommunityhasgrownvirallywithusersinvitingtheirfriendstoconnectwiththem,supported byinternaleffortstostimulateuserawarenessandinterest.Wehavebeenabletobuildourbrandanduserbasearoundthe worldwithrelativelylowmarketingcosts.Weleveragetheutilityofourproductsandoursocialdistributionchannelsasour most effective marketing tools. In addition, we undertake various user acquisition efforts and regularly host events and conferencestoengagewithdevelopersandadvertisers. IntellectualProperty Oursuccessdependsinpartuponourabilitytoprotectourcoretechnologyandintellectualproperty.Toestablishand protectourproprietaryrights,werelyonacombinationofpatents,patentapplications,trademarks,copyrights,tradesecrets, includingknowhow,licenseagreements,confidentialityprocedures,nondisclosureagreementswiththirdparties,employee disclosureandinventionassignmentagreements,andothercontractualrights. As of March 31, 2012, we had 774 issued patents and 546 filed patent applications in the United States and 96 correspondingpatentsand194filedpatentapplicationsinforeigncountriesrelatingtosocialnetworking,web 104
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Table of Contents technologiesandinfrastructure,andothertechnologies.Ourissuedpatentsexpirebetween2014and2030.Wecannotassure youthatanyofourpatentapplicationswillresultintheissuanceofapatentorwhethertheexaminationprocesswillrequireus tonarrowourclaims.Inaddition,anypatentsmaybecontested,circumvented,foundunenforceableorinvalid,andwemay not be able to prevent third parties from infringing them. In April 2012, we entered into an agreement with Microsoft CorporationpursuanttowhichwewillbeassignedMicrosoftsrightstoacquireapproximately615U.S.patentsandpatent applicationsandtheirforeigncounterparts,consistingofapproximately170foreignpatentsandpatentapplications,thatare subjecttotheagreementbetweenAOLInc.andMicrosoftenteredintoonApril5,2012.Thesepatentsrelatetoadvertising, search,ecommerce,mobile,andothertechnologies.Aspartofthistransaction,wewillobtainanonexclusivelicensetothe otherAOLpatentsandpatentapplicationsbeingpurchasedbyMicrosoftandwewillgrantMicrosoftanonexclusivelicense to the AOL patents and patent applications that we are acquiring. The nonexclusive license requires no ongoing royalty payments,andextendsforthelifeofthepatents. Wegenerallycontrolaccesstoanduseofourproprietarytechnologyandotherconfidentialinformationthroughtheuse ofinternalandexternalcontrols,includingcontractualprotectionswithemployees,contractors,customers,andpartners,and our software is protected by U.S. and international copyright laws. Despite our efforts to protect our trade secrets and proprietaryrightsthroughintellectualpropertyrights,licenses,andconfidentialityagreements,unauthorizedpartiesmaystill copyorotherwiseobtainanduseoursoftwareandtechnology.Inaddition,weintendtoexpandourinternationaloperations, and effective patent, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries. CompaniesintheInternet,technology,andmediaindustriesownlargenumbersofpatents,copyrights,trademarks,and tradesecretsandfrequentlyenterintolitigationbasedonallegationsofinfringement,misappropriation,orotherviolationsof intellectualpropertyorotherrights.Fromtimetotime,weface,andweexpecttofaceinthefuture,allegationsthatwehave infringedthetrademarks,copyrights,patents,tradesecretsandotherintellectualpropertyrightsofthirdparties,includingour competitorsandnonpracticingentities.Aswefaceincreasingcompetitionandasourbusinessgrows,wewilllikelyfacemore claimsofinfringement.Forexample,onMarch12,2012,YahoofiledalawsuitagainstusintheU.S.DistrictCourtforthe NorthernDistrictofCaliforniathatallegesthatanumberofourproductsinfringetheclaimsoftenofYahoospatents,andon April27,2012Yahooaddedtwopatentstothelawsuit.Foradditionalinformation,seeRiskFactorsWearecurrently,and expecttobeinthefuture,partytopatentlawsuitsandotherintellectualpropertyrightsclaimsthatareexpensiveandtime consuming, and, if resolved adversely, could have a significant impact on our business, financial condition, or results of operationsandLegalProceedings. GovernmentRegulation WearesubjecttoanumberofU.S.federalandstate,andforeignlawsandregulationsthataffectcompaniesconducting businessontheInternet,manyofwhicharestillevolvingandbeingtestedincourts,andcouldbeinterpretedinwaysthat couldharmourbusiness.Thesemayinvolveuserprivacy,rightsofpublicity,dataprotection,content,intellectualproperty, distribution,electroniccontractsandothercommunications,competition,protectionofminors,consumerprotection,taxation andonlinepaymentservices.Inparticular,wearesubjecttofederal,state,andforeignlawsregardingprivacyandprotectionof userdata.Foreigndataprotection,privacy,andotherlawsandregulationsareoftenmorerestrictivethanthoseintheUnited States.U.S.federalandstateandforeignlawsandregulationsareconstantlyevolvingandcanbesubjecttosignificantchange. Inaddition,theapplicationandinterpretationoftheselawsandregulationsareoftenuncertain,particularlyinthenewand rapidlyevolving industry in which we operate. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies, and foreign governments concerning data protection which could affect us. For example,arevisiontothe1995EuropeanUnionDataProtectionDirectiveiscurrentlybeingconsideredbylegislativebodies thatmayincludemorestringentoperationalrequirementsfordataprocessorsandsignificantpenaltiesfornoncompliance. In November 2011, we reached a 20year settlement agreement with the FTC to resolve an investigation into various practices,byenteringintoanagreementthat,amongotherthings,requiresustoestablishandrefine 105
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Table of Contents certain practices with respect to treatment of user data and privacy settings and also requires we complete biannual independentprivacyaudits.Violationofexistingorfutureregulatoryordersorconsentdecreescouldsubjectustosubstantial monetaryfinesandotherpenaltiesthatcouldnegativelyaffectourfinancialconditionandresultsofoperations. VariouslawsandregulationsintheUnitedStatesandabroad,suchastheBankSecrecyAct,theDoddFrankAct,theUSA PATRIOTAct,andtheCreditCARDActimposecertainantimoneylaunderingrequirementsoncompaniesthatarefinancial institutionsorthatprovidefinancialproductsandservices.Undertheselawsandregulations,financialinstitutionsarebroadly definedtoincludemoneyservicesbusinessessuchasmoneytransmitters,checkcashers,andsellersorissuersofstoredvalue. Requirementsimposedonfinancialinstitutionsundertheselawsincludecustomeridentificationandverificationprograms, record retention policies, and procedures and transaction reporting. We do not believe that we are a financial institution subjecttotheselawsandregulations.However,itispossiblethatPaymentsontheFacebookPlatformcouldbeconsidereda financialproductandthatwecouldbedeemedafinancialinstitutionsubjecttoapplicableU.S.,state,orforeignregulation undercertaininterpretationsoflawsgoverningbusinessessuchasmoneytransmitters,checkcashers,andsellersorissuersof storedvalue.ToincreaseflexibilityinhowouruseofPaymentsmayevolveandtomitigateregulatoryuncertainty,wehave applied or expect to apply through a subsidiary for certain money transmitter licenses in the United States, which will generallyrequireustoshowcompliancewithmanydomesticlawsrelatingtomoneytransmission,giftcardsandotherprepaid access instruments, electronics funds transfers, antimoney laundering, counterterrorist financing, gambling, banking and lending,andimportandexportrestrictions. ChinaisalargepotentialmarketforFacebook,butusersaregenerallyrestrictedfromaccessingFacebookfromChina.We donotknowifwewillbeabletofindanapproachtomanagingcontentandinformationthatwillbeacceptabletousandto the Chinese government. It is also possible that governments of one or more other countries may seek to censor content available on our website, restrict access, block our website, or impose other restrictions that may affect the accessibility of Facebookforanextendedperiodoftimeorindefinitely. We communicate with lawmakers and regulators in the countries and regions in which we do business. We have a dedicatedpolicyteamthatmonitorslegalandregulatorydevelopmentsandworkswithpolicymakersandregulatorsaround theworldtohelpensurethatourperspectiveisheardinmattersofimportancetous. LegalProceedings PaulD.CegliafiledsuitagainstusandMarkZuckerbergonoraboutJune30,2010,intheSupremeCourtoftheStateof NewYorkfortheCountyofAlleghenyclaimingsubstantialownershipofourcompanybasedonapurportedcontractbetween Mr.CegliaandMr.ZuckerbergallegedlyenteredintoinApril2003.WeremovedthecasetotheU.S.DistrictCourtforthe Western District of New York, where the case is now pending. In his first amended complaint, filed on April 11, 2011, Mr.CegliarevisedhisclaimstoincludeanallegedpartnershipwithMr.Zuckerberg,herevisedhisclaimsforrelieftoseeka substantialshareofMr.Zuckerbergsownershipinus,andheincludedquotationsfromsupposedemailsthatheclaimstohave exchanged with Mr. Zuckerberg in 2003 and 2004. On June 2, 2011, we filed a motion for expedited discovery based on evidencewesubmittedtothecourtshowingthattheallegedcontractandemailsuponwhichMr.Cegliabaseshiscomplaint arefraudulent.OnJuly1,2011,thecourtgrantedourmotionandorderedMr.Cegliatoproduce,amongotherthings,allhard copy and electronic versions of the purported contract and emails. On January 10, 2012, the court granted our request for sanctionsagainstMr.Cegliaforhisdelayincompliancewiththatorder.OnMarch26,2012,wefiledamotiontodismissMr. Ceglias complaint and a motion for judgment on the pleadings. We continue to believe that Mr. Ceglia is attempting to perpetrateafraudonthecourtandweintendtocontinuetodefendthecasevigorously. On March 12, 2012, Yahoo filed a lawsuit against us in the U.S. District Court for the Northern District of California, claimingthatweinfringetenofYahoospatentsthatYahooclaimsrelatetoadvertising,social 106
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Table of Contents networking,privacy,customization,andmessaging,andonApril27,2012Yahooaddedtwopatentstothelawsuitthat Yahoo claims relate to advertising. Yahoo is seeking unspecified damages, a damage multiplier for alleged willful infringement,andaninjunction.Weintendtovigorouslydefendthislawsuit,andonApril3,2012,wefiledouranswerwith respecttothiscomplaintandassertedcounterclaimsthatYahoosproductsinfringetenofourpatents.Thislitigationisstillin itsearlystagesandthefinaloutcome,includingourliability,ifany,withrespecttoYahoosclaims,isuncertain.Atpresent, weareunabletoestimateareasonablypossiblerangeofloss,ifany,thatmayresultfromthismatter.Ifanunfavorableoutcome weretooccurinthislitigation,theimpactcouldbematerialtoourbusiness,financialcondition,orresultsofoperations.Asis commoninintellectualpropertylitigation,Yahoocouldinthefutureassertadditionalpatentorotherclaimsagainstusinthis orinotherproceedings.Forexample,wereceivedaletterdatedApril23,2012fromYahooindicatingthattheybelieve16 patents they claim to hold may be relevant to open source technology they allege is being used in our data centers and servers.Yahoohasnotthreatenedorinitiatedlitigationwithrespecttomattersdescribedinthisletterbutitmaydosointhe future. Wearealsocurrentlypartiestomultipleotherlawsuitsrelatedtoourproducts,includingpatentinfringementlawsuits broughtbybothothercompaniesandnonpracticingentitiesaswellasclassactionlawsuitsbroughtbyusersandadvertisers, andwemayinthefuturebesubjecttoadditionallawsuitsanddisputes.Wearealsoinvolvedinotherclaims,government investigations,andproceedingsarisingfromtheordinarycourseofourbusiness.Althoughtheresultsoftheseotherlawsuits, claims,governmentinvestigations,andproceedingsinwhichweareinvolvedcannotbepredictedwithcertainty,wedonot believethatthefinaloutcomeoftheseothermatterswillhaveamaterialadverseeffectonourbusiness,financialcondition,or resultsofoperations. Regardlessofthefinaloutcome,defendinglawsuits,claims,governmentinvestigations,andproceedingsinwhichweare involved is costly and can impose a significant burden on management and employees, we may receive unfavorable preliminaryorinterimrulingsinthecourseoflitigation,andtherecanbenoassurancesthatfavorablefinaloutcomeswillbe obtained. CultureandEmployees Our employees and our culture are critical to our success. We value our hacker culture, which we define as a work environment that rewards creative problem solving and rapid decision making. We try to move fast in developing new productsandthencontinuallyiterateandoptimizetofurtherimproveourproducts.Weseekemployeeswhoaremotivatedby theabilitytohaveadirectimpactonhowhundredsofmillionsofpeoplearoundtheworldconnect,discover,andexpress themselves. Weencourageouremployeestothinkboldly.Wealsohavepostedthephrasethisjourneyis1%finishedacrossmany ofourofficewalls,toremindemployeesthatwebelievethatwehaveonlybegunfulfillingourmissiontomaketheworldmore openandconnected. Wehavegrownrapidly,butataratethatwebelievewillallowustopreserveacultureofcollaboration,excellence,and movingfast.Wehad1,218fulltimeemployees,2,127fulltimeemployees,3,200fulltimeemployees,and3,539fulltime employeesattheendof2009,2010,2011,andthefirstquarterof2012,respectively. Facilities As of March 31, 2012, we leased office facilities around the world totaling approximately 2.2 million square feet, includingonemillionsquarefeetforourcorporateheadquartersinMenloPark,California.WehavedatacentersintheUnited States,includingdatacenterfacilitiesthatweowninNorthCarolinaandOregonandleaseddatacenterfacilitiesinCalifornia andVirginia.Webelievethatourfacilitiesareadequateforourcurrentneeds. 107
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Table of Contents MANAGEMENT ExecutiveOfficersandDirectors ThefollowingtableprovidesinformationregardingourexecutiveofficersanddirectorsasofMarch31,2012:

Name Age Position(s)
MarkZuckerberg SherylK.Sandberg DavidA.Ebersman DavidB.Fischer MikeSchroepfer TheodoreW.Ullyot MarcL.Andreessen (1)(3) ErskineB.Bowles(1) JamesW.Breyer(2) DonaldE.Graham* (2)(3) ReedHastings(3) PeterA.Thiel(1)
* (1) (2) (3) LeadIndependentDirector. Memberoftheauditcommittee. Memberofthecompensationcommittee. Memberofthegovernancecommittee.
27 ChairmanandCEO 42 ChiefOperatingOfficer 42 ChiefFinancialOfficer 39 VicePresident,MarketingandBusinessPartnerships 37 VicePresidentofEngineering 44 VicePresident,GeneralCounsel,andSecretary 40 Director 66 Director 50 Director 66 Director 51 Director 44 Director
MarkZuckerbergisourfounderandhasservedasourCEOandasamemberofourboardofdirectorssinceJuly2004. Mr. Zuckerberg has served as Chairman of our board of directors since January 2012. Mr. Zuckerberg attended Harvard University where he studied computer science. We believe that Mr. Zuckerberg should serve as a member of our board of directors due to the perspective and experience he brings as our founder, Chairman, and CEO, and as our largest and controllingstockholder. SherylK.SandberghasservedasourChiefOperatingOfficersinceMarch2008.FromNovember2001toMarch2008, Ms.SandbergservedinvariouspositionsatGoogle,Inc.,mostrecentlyasVicePresident,GlobalOnlineSales&Operations. Ms. Sandberg also is a former Chief of Staff of the U.S. Treasury Department and previously served as a consultant with McKinsey&Company,amanagementconsultingcompany,andasaneconomistwithTheWorldBank.Inadditiontoserving asourChiefOperatingOfficer,Ms.SandberghasbeenamemberoftheboardofdirectorsoftheWaltDisneyCompanysince December 2009. Ms. Sandberg holds an A.B. in economics from Harvard University and an M.B.A. from Harvard Business School. DavidA.EbersmanhasservedasourChiefFinancialOfficersinceSeptember2009.Priortojoiningus,Mr.Ebersman servedinvariouspositionsatGenentech,Inc.,abiotechnologycompany,includingasitsChiefFinancialOfficerfromMarch 2005 and as an Executive Vice President from January 2006 until April 2009, following Genentechs acquisition by F. HoffmannLaRocheLtd.inMarch2009.PriortojoiningGenentech,Mr.EbersmanwasaresearchanalystatOppenheimer& Company,Inc.,aninvestmentcompany.InadditiontoservingasourChiefFinancialOfficer,Mr.Ebersmanhasbeenamember oftheboardofdirectorsofIronwoodPharmaceuticals,Inc.sinceJuly2009.Mr.EbersmanholdsanA.B.ineconomicsand internationalrelationsfromBrownUniversity. 108
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Table of Contents DavidB.FischerjoinedusinApril2010andservesasourVicePresident,MarketingandBusinessPartnerships.From July2002toMarch2010,Mr.FischerservedinvariouspositionsatGoogle,includingmostrecentlyasitsVicePresident, GlobalOnlineSales&Operations.PriortojoiningGoogle,Mr.FischerservedasDeputyChiefofStaffoftheU.S.Treasury DepartmentandwasanassociateeditorattheU.S.NewsWorldReport,L.P.,anewsmagazinecompany.Mr.Fischerholdsa B.A.ingovernmentfromCornellUniversityandanM.B.A.fromtheStanfordUniversityGraduateSchoolofBusiness. MikeSchroepferhasservedasourVicePresidentofEngineeringsinceSeptember2008.FromDecember2005toAugust 2008,Mr.SchroepferservedasVicePresidentofEngineeringatMozillaCorporation,anInternetcompany.PriortoMozilla, Mr.SchroepferservedinvariouspositionsatSunMicrosystems,Inc.,aninformationtechnologycompany,includingasChief Technology Officer of its data center automation division. He also cofounded CenterRun, Inc., a developer of application provisioningsoftware,whichwasacquiredbySunMicrosystems.InadditiontoservingasourVicePresidentofEngineering, Mr.SchroepferhasbeenamemberoftheboardofdirectorsofAncestry.comInc.sinceJanuary2011.Mr.Schroepferholdsa B.S.andanM.S.incomputersciencefromStanfordUniversity. TheodoreW.UllyothasservedasourVicePresident,GeneralCounsel,andSecretarysinceOctober2008.FromMay2008 toOctober2008,Mr.UllyotwasapartneratKirkland&EllisLLP,alawfirm.FromOctober2005toApril2008,Mr.Ullyot servedasExecutiveVicePresidentandGeneralCounselofESLInvestments,Inc.,aprivateinvestmentfirm.Priortojoining ESLInvestments,Mr.UllyotservedinthefederalexecutivebranchunderPresidentGeorgeW.Bush,includingasChiefof StaffattheU.S.JusticeDepartmentandasaDeputyAssistanttothePresident.Earlierinhiscareer,Mr.Ullyotwasanassociate generalcounselatAOLTimeWarner,Inc.andservedasalawclerkforU.S.SupremeCourtJusticeAntoninScaliaandfor JudgeMichaelLuttigoftheU.S.CourtofAppealsfortheFourthCircuit.Mr.UllyotholdsanA.B.inHistoryfromHarvard UniversityandaJ.D.fromtheUniversityofChicago. MarcL.AndreessenhasservedasamemberofourboardofdirectorssinceJune2008.Mr.Andreessenisacofounderand hasbeenaGeneralPartnerofAndreessenHorowitz,aventurecapitalfirm,sinceJuly2009.Previously,Mr.Andreessenco foundedandservedastheChairmanoftheboardofdirectorsofOpsware,Inc.(formerlyknownasLoudcloudInc.),asoftware company.HealsoservedasChiefTechnologyOfficerofAmericaOnline,Inc.,anInternetservicescompany.Mr.Andreessen wasacofounderofNetscapeCommunicationsCorporation,asoftwarecompany,servinginvariouspositions,includingChief TechnologyOfficerandExecutiveVicePresidentofProducts.Inadditiontoservingonourboardofdirectors,Mr.Andreessen currentlyservesasamemberoftheboardsofdirectorsofeBayInc.andtheHewlettPackardCompany.Mr.Andreessenholdsa B.S.incomputersciencefromtheUniversityofIllinoisatUrbanaChampaign.WebelievethatMr.Andreessenshouldserveas a member of our board of directors due to his extensive experience as an Internet entrepreneur, venture capitalist, and technologist. Erskine B. Bowles has served as a member of our board of directors since September 2011. Mr. Bowles is President EmeritusoftheUniversityofNorthCarolinaandservedasPresidentfromJanuary2006throughDecember2010.Mr.Bowles hasalsobeenaSeniorAdvisorofBDTCapitalPartners,LLC,aprivateinvestmentfirm,sinceJanuary2012.FromFebruary 2010 until December 2010, he served as CoChair of the National Commission on Fiscal Responsibility and Reform. Mr.BowleshasbeenaSeniorAdvisorsince2001andwasManagingDirectorfrom1999to2001ofCarouselCapitalLLC,a privateinvestmentfirm.HewasalsoapartnerofForstmannLittle&Co.,aninvestmentfirm,from1999to2001.Mr.Bowles beganhiscareerincorporatefinanceatMorganStanleyandsubsequentlyhelpedfoundandultimatelyservedasChairman andChiefExecutiveOfficerofBowlesHollowellConnor&Co.,aninvestmentbankingfirm.HealsowasafounderofKitty HawkCapital,aventurecapitalfirm.Mr.BowlesservedasWhiteHouseChiefofStafffrom1996to1998andDeputyWhite HouseChiefofStafffrom1994to1995.Inadditiontoservingonourboardofdirectors,Mr.Bowlescurrentlyservesasa member of the boards of directors of Morgan Stanley, Belk, Inc., Cousins Properties Incorporated, and Norfolk Southern Corporation.Mr.BowleshaselectednottostandforreelectionatCousinsProperties2012annualmeeting.Mr.Bowlesalso servedasamemberoftheboardofdirectorsof 109
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Table of Contents GeneralMotorsCompanyfromJune2005toApril2009.Mr.BowlesholdsaB.S.inbusinessfromtheUniversityofNorth CarolinaatChapelHillandanM.B.A.fromColumbiaUniversityGraduateSchoolofBusiness.WebelievethatMr.Bowles should serve as a member of our board of directors due to his extensive experience in the financial services industry and academiaaswellashisdistinguishedpublicservice. JamesW.BreyerhasservedasamemberofourboardofdirectorssinceApril2005.Mr.BreyerhasbeenaPartnerofAccel Partners,aventurecapitalfirm,since1987,andcurrentlyservesasPresidentofAccelManagementCo.Inc.Mr.Breyerisalso thefounderandhasbeentheChiefExecutiveOfficerofBreyerCapital,aninvestmentfirm,sinceJuly2006.Mr.Breyerisalso acofounderandhasbeencoleadonthestrategicinvestmentcommitteesinceinceptionoftheIDGAccelChinaFunds.In additiontoservingonourboardofdirectors,Mr.BreyercurrentlyservesasamemberoftheboardsofdirectorsofBrightcove Inc., Dell, Inc., News Corporation, Prosper Marketplace, Inc., and WalMart Stores, Inc., where he is the lead/presiding independentdirector.Mr.BreyerpreviouslyservedasamemberoftheboardofdirectorsofMarvelEntertainmentInc.from June 2006 to December 2009 and RealNetworks, Inc. from October 1995 to June 2008. Mr. Breyer holds a B.S. in interdisciplinarystudiesfromStanfordUniversityandanM.B.A.fromHarvardUniversity.WebelievethatMr.Breyershould serveasamemberofourboardofdirectorsduetohisextensiveexperiencewithsocialmediaandtechnologycompanies,asa venturecapitalist,andasoneofourearlyinvestors. DonaldE.Grahamhas served as a member of our board of directors since March 2009. Mr. Graham has served as the ChiefExecutiveOfficerofTheWashingtonPostCompany,aneducationandmediacompany,since1991andasChairmanof its board of directors since 1993. Mr. Graham holds an A.B. in English history and literature from Harvard University. We believe that Mr. Graham should serve as a member of our board of directors due to his extensive experience in the media industry,includingservinginavarietyofseniorleadershiproleswithTheWashingtonPostCompany. ReedHastingshasservedasamemberofourboardofdirectorssinceJune2011.Mr.HastingshasservedastheChief Executive Officer and Chairman of the board of directors of Netflix, Inc., a provider of an Internet subscription service for movies and television shows, since 1999. Prior to Netflix, Mr. Hastings served as Chief Executive Officer of Technology Network,apoliticalserviceorganizationforthetechnologyindustry.Mr.HastingsservedasChiefExecutiveOfficerofPure AtriaSoftware,amakerofsoftwaredevelopmenttools,from1991untilitwasacquiredbyRationalSoftwareCorporation,a softwarecompany,in1997.Inadditiontoservingonourboardofdirectors,Mr.Hastingscurrentlyservesasamemberofthe boardofdirectorsofMicrosoftCorporation.Mr.HastingsholdsaB.A.inmathematicsfromBowdoinCollegeandanM.S.C.S. incomputersciencefromStanfordUniversity.WebelievethatMr.Hastingsshouldserveasamemberofourboardofdirectors duetohisextensiveexperiencewithtechnologycompanies. PeterA.ThielhasservedasamemberofourboardofdirectorssinceApril2005.Since2005,Mr.ThielhasbeenaPartner ofFoundersFund,aventurecapitalfirm.Mr.ThielhasalsoservedasPresidentofClariumCapitalManagement,LLC,aglobal macroinvestmentmanager,since2002.In1998,Mr.ThielcofoundedPayPal,Inc.,anonlinepaymentcompany,wherehe servedasChiefExecutiveOfficer,PresidentandasChairmanofitsboardofdirectorsfrom2000untilitsacquisitionbyeBay in 2002. Prior to that, Mr. Thiel worked for Credit Suisse, an investment firm, and Sullivan & Cromwell LLP, a law firm. Mr.ThielholdsaB.A.inPhilosophyfromStanfordUniversityandaJ.D.fromStanfordLawSchool.WebelievethatMr.Thiel shouldserveasamemberofourboardofdirectorsduetohisextensiveexperienceasanentrepreneurandventurecapitalist, andasoneofourearlyinvestors. ElectionofOfficers Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no family relationshipsamonganyofourdirectorsorexecutiveofficers. 110
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Table of Contents BoardComposition Ourboardofdirectorsmayestablishtheauthorizednumberofdirectorsfromtimetotimebyresolution.Ourboardof directors currently consists of seven members. Our current certificate of incorporation and amended and restated voting agreementsprovideforcertainmembersofourboardofdirectorstobeelectedasdesigneesbyMr.Zuckerberg,theboardof directors,orbycertainclassesofourcapitalstock.Thecurrentmembersoftheboardofdirectorswereelectedasfollows: Messrs.Andreessen,Graham,andZuckerbergwereelectedasdesigneesofMr.Zuckerberg,theholderofthemajority ofthevotingpoweroftheoutstandingsharesofClassAcommonstockandClassBcommonstock Mr.Bowleswaselectedasthedesigneeoftheboardofdirectors Mr.HastingswaselectedasthedesigneeofMr.Zuckerberg,theholderofthemajorityofthevotingpowerofthe outstandingsharesofourcapitalstock Mr.ThielwaselectedasthedesigneeofstockholdersholdingamajorityoftheoutstandingsharesofourSeriesA preferredstock,however,pursuanttotheamendedandrestatedvotingagreement,amajorityofthemembersofour boardofdirectorsmaydesignateonememberoftheboardofdirectorstofillthisseatifitbecomesvacantand Mr.BreyerwaselectedasthedesigneeofstockholderswhoholdamajorityoftheoutstandingsharesofourSeriesB preferredstock.
Theamendedandrestatedvotingagreementandtheprovisionsofourcertificateofincorporationbywhichthedirectors wereelectedwillterminateinconnectionwithourinitialpublicoffering,and,exceptasdescribedinDescriptionofCapital StockVoting Agreements, there will be no further contractual obligations regarding the election of our directors. Our current directors will continue to serve as directors until their resignations or until their successors are duly elected by the holdersofourcommonstock. ClassifiedBoard SolongastheoutstandingsharesofourClassBcommonstockrepresentamajorityofthecombinedvotingpowerof commonstock,wewillnothaveaclassifiedboardofdirectors,andalldirectorswillbeelectedforannualterms. WhentheoutstandingsharesofourClassBcommonstockrepresentlessthanamajorityofthecombinedvotingpowerof commonstock,wewillhaveaclassifiedboardofdirectorsconsistingofthreeclassesofapproximatelyequalsize,eachserving staggeredthreeyearterms.Ourdirectorswillbeassignedbythethencurrentboardofdirectorstoaclass. Uponexpirationofthetermofaclassofdirectors,directorsforthatclasswillbeelectedforthreeyeartermsattheannual meetingofstockholdersintheyearinwhichthattermexpires.Asaresult,onlyoneclassofdirectorswillbeelectedateach annualmeetingofourstockholders,withtheotherclassescontinuingfortheremainderoftheirrespectivethreeyearterms. Each directors term continues until the election and qualification of his or her successor, or his or her earlier death, resignation,orremoval. Solongasourboardofdirectorsisclassified,onlyourboardofdirectorsmayfillvacanciesonourboard.Anyadditional directorshipsresultingfromanincreaseinthenumberofdirectorswillbedistributedamongthethreeclassessothat,asnearly aspossible,eachclasswillconsistofonethirdofthetotalnumberofdirectors. The classification of our board of directors may have the effect of delaying or preventing changes in our control or management.SeeDescriptionofCapitalStockAntiTakeoverProvisionsRestatedCertificateofIncorporationandBylaw Provisions. 111
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Table of Contents DirectorIndependence The rules of the NASDAQ Stock Market LLC (NASDAQ) generally require that a majority of the members of a listed companysboardofdirectorsbeindependentwithinspecifiedperiodsfollowingtheclosingofaninitialpublicoffering.In addition, the listing rules generally require that, subject to specified exceptions, each member of a listed companys audit, compensation,andgovernancecommitteesbeindependent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A3 under the Securities Exchange Act of 1934, as amended (Exchange Act). In order to be considered independent for purposes of Rule 10A3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee,theboardofdirectors,oranyotherboardcommittee:accept,directlyorindirectly,anyconsulting,advisory,or othercompensatoryfeefromthelistedcompanyoranyofitssubsidiariesorbeanaffiliatedpersonofthelistedcompanyor anyofitssubsidiaries. Ourboardofdirectorshasdeterminedthatnoneofournonemployeedirectorshasarelationshipthatwouldinterferewith the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is independent as that term is defined under the rules of NASDAQ. Our board of directors has also determined that Messrs. Andreessen, Bowles, and Thiel, who comprise our audit committee, Messrs. Breyer and Graham, who comprise our compensationcommittee,andMessrs.Andreessen,Graham,andHastings,whocompriseourgovernancecommittee,satisfythe independencestandardsforthosecommitteesestablishedbyapplicableSECrulesandtherulesofNASDAQ. ControlledCompany BecauseMr.Zuckerbergcontrolsamajorityofouroutstandingvotingpower,weareacontrolledcompanyunderthe corporate governance rules of NASDAQ. Therefore, we are not required to have a majority of our board of directors be independent,norarewerequiredtohaveacompensationcommitteeoranindependentnominatingfunction.Inlightofour statusasacontrolledcompany,ourboardofdirectorshasdeterminednottohaveanindependentnominatingfunctionandto havethefullboardofdirectorsbedirectlyresponsiblefornominatingmembersofourboard.Additionally,asdescribedinthe sectionentitledDescriptionofCapitalStockAntiTakeoverProvisionsRestatedCertificateofIncorporationandBylaw Provisions,solongastheoutstandingsharesofourClassBcommonstockrepresentamajorityofthecombinedvotingpower ofourcommonstock,Mr.Zuckerbergwillbeabletoeffectivelycontrolallmatterssubmittedtoourstockholdersforavote,as wellastheoverallmanagementanddirectionofourcompany. BoardCommittees Ourboardofdirectorshasestablishedanauditcommittee,acompensationcommittee,andagovernancecommittee,each of which will have the composition and responsibilities described below as of the closing of our initial public offering. Membersserveonthesecommitteesuntiltheirresignationsoruntilotherwisedeterminedbyourboardofdirectors. AuditCommittee Our audit committee is comprised of Messrs. Andreessen, Bowles, and Thiel. Mr. Bowles is the chairman of our audit committee, is our audit committee financial expert, as that term is defined under SEC rules and possesses financial sophisticationasdefinedundertherulesofNASDAQ.ThedesignationdoesnotimposeonMr.Bowlesanyduties,obligations orliabilitiesthataregreaterthanaregenerallyimposedonmembersofourauditcommitteeandourboardofdirectors.Our auditcommitteeisdirectlyresponsiblefor,amongotherthings: selectingtheindependentregisteredpublicaccountingfirmtoauditourfinancialstatements 112
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Table of Contents ensuringtheindependenceoftheindependentregisteredpublicaccountingfirm discussingthescopeandresultsoftheauditwiththeindependentregisteredpublicaccountingfirm,andreviewing, withmanagementandthatfirm,ourinterimandyearendoperatingresults developingprocedurestoenablesubmissionofanonymousconcernsaboutaccountingorauditmatters consideringtheadequacyofourinternalaccountingcontrolsandauditprocedures reviewingrelatedpartytransactions approving or, as permitted, preapproving all audit and nonaudit services to be performed by the independent registeredpublicaccountingfirmand overseeingourinternalauditfunction.
CompensationCommittee OurcompensationcommitteeiscomprisedofMessrs.BreyerandGraham.Mr.Breyeristhechairmanofourcompensation committee.Eachmemberofthiscommitteeisanonemployeedirector,asdefinedpursuanttoRule16b3promulgatedunder the Exchange Act, and an outside director, as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended.Ourcompensationcommitteeisresponsiblefor,amongotherthings: reviewingandapproving,orrecommendingthatourboardofdirectorsapprove,thecompensationofourexecutive officers reviewingandrecommendingtoourboardofdirectorsthecompensationofourdirectors reviewingandapprovingthetermsofanycompensatoryagreementswithourexecutiveofficers administeringourstockandequityincentiveplans reviewingandmakingrecommendationstoourboardofdirectorswithrespecttoincentivecompensationandequity plansand establishingandreviewingouroverallcompensationphilosophy.
GovernanceCommittee OurgovernancecommitteeiscomprisedofMessrs.Andreessen,Graham,andHastings.Mr.Grahamisthechairmanofour governancecommittee.Ourgovernancecommitteeisresponsiblefor,amongotherthings: reviewingdevelopmentsincorporategovernancepractices developingandrecommendingourcorporategovernanceguidelinesandpolicies,andevaluatingtheirsufficiency reviewingproposedwaiversofthecodeofconduct overseeingtheprocessofevaluatingtheperformanceofourboardofdirectorsand advisingourboardofdirectorsoncorporategovernancematters.
Each of the above committees has a written charter approved by our board of directors. Following the closing of our initialpublicoffering,copiesofeachcharterwillbepostedontheInvestorRelationssectionofourwebsite. CompensationCommitteeInterlocksandInsiderParticipation During2011,ourcompensationcommitteeconsistedofMessrs.BreyerandGraham.Neitherofthemhasatanytimeinthe lastfiscalyearbeenoneofourofficersoremployees.During2009,2010,2011,andthefirstquarterof2012,TheWashington PostCompanyanditsrelatedcompaniespurchased$0.6million,$4.8million,$4.2million,and$0.8million,respectively,of advertisementsonourwebsite.Mr.GrahamistheChiefExecutiveOfficerofTheWashingtonPostCompany.Thepurchasesby TheWashingtonPostCompanyanditsrelatedentitiesweremadeintheordinarycourseofbusinesspursuanttoourstandard onlinetermsandconditionsandwereallmadethroughourselfserviceadsystem.
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Table of Contents Noneofourexecutiveofficershasservedasamemberoftheboardofdirectors,orasamemberofthecompensationor similarcommittee,ofanyentitythathasoneormoreexecutiveofficerswhoservedonourboardofdirectorsorcompensation committeeduring2011. CodeofBusinessConductandEthics Ourboardofdirectorshasadoptedacodeofbusinessconductandethicsthatappliestoallofouremployees,officers,and directors. The full text of our code of business conduct and ethics will be posted on the Investor Relations section of our website.Weintendtodisclosefutureamendmentstocertainprovisionsofourcodeofbusinessconductandethics,orwaivers oftheseprovisions,onourwebsiteorinfilingsundertheExchangeAct. DirectorCompensation In September 2011, our board of directors approved an annual retainer fee of $50,000 for each of our nonemployee directors. Our nonemployee directors received a prorated fee during 2011. In addition, starting on January 1, 2012, the chairmanofourauditcommitteewillreceiveanannualretainerfeeof$20,000.Priortoourinitialpublicoffering,therewasno formalpolicyinplacetoprovideourdirectorswithequitycompensationfortheirservicesasmembersofourboardofdirectors oranycommitteeofourboardofdirectors.InJune2011,ourboardofdirectorsapprovedthegrantof20,000restrictedstock units(RSUs)toMr.Hastings,ascompensationforMr.Hastingsserviceasamemberofourboardofdirectors.InSeptember 2011,ourboardofdirectorsapprovedthegrantof20,000RSUstoMr.Bowles,ascompensationforMr.Bowlesserviceasa member of our board of directors. The RSUs granted to Messrs. Bowles and Hastings are subject to vesting based on their continuedservicestousthrougheachvestingdate,whichismorefullydescribedbelow. Althoughtherewasnoformalpolicyinplacerelatingtothegrantingofequityawardstoourdirectors,thefollowingtable presentsthetotalcompensationforeachpersonwhoservedasamemberofourboardofdirectorsduring2011.Otherthanas setforthinthetableanddescribedmorefullybelow,in2011wedidnotpayanyfeesto,makeanyequityawardsornon equity awards to, or pay any other compensation to the members of our board of directors. Mr. Zuckerberg, our founder, Chairman,andCEO,receivesnocompensationforhisserviceasadirector,andisnotincludedinthetablebelow.
FeesEarnedor Paid inCash($) Stock Awards ($)(1)(2)
DirectorName
Total($)
MarcL.Andreessen (3) ErskineB.Bowles(4) JamesW.Breyer DonaldE.Graham(5) ReedHastings(6) PeterA.Thiel
16,667 16,667 16,667 16,667 16,667 16,667
601,400 593,400
16,667 618,067 16,667 16,667 610,067 16,667
(1) Amounts reported represent the aggregate grant date fair value of RSUs without regards to forfeitures granted to the independent members of our board of directors during 2011 under our 2005 Stock Plan, computed in accordance with ASC 718. The valuation assumptions used in calculating the fair value of the RSUs is set forth in Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and EstimatesSharebased Compensation.Thisamountdoesnotreflecttheactualeconomicvaluerealizedbythedirector. (2) Messrs.AndreessenandGrahamholdRSUsgrantedpriortoJanuary1,2011(Pre2011RSUs).Pre2011RSUsonlyvestuponthesatisfactionofboth(i)aservice basedvestingconditionand(ii)aliquiditybasedvestingcondition.TheliquiditybasedvestingconditionforPre2011RSUsis:(a)thedatethatissixmonthsafter theeffectivedateofourinitialpublicofferingor(b)achangeofcontrol(asdefinedinour2005StockPlan).TheservicebasedvestingconditionforthePre2011 RSUsheldbyMessrs.AndreessenandGrahamarefurtherdescribedinfootnotes(3)and(5)below.RSUsgrantedonorafterJanuary1,2011(Post2011RSUs)vest basedoncontinuousservicetous,asfurtherdescribedinfootnotes(4)and(6)below. (3) As of December 31, 2011, Mr. Andreessen held 5,247,490 RSUs. The servicebased vesting condition was satisfied as to 1/48th of the total shares underlying the RSUs on July 30, 2008. The remaining shares underlying the RSUs vest at a rate of 1/48th of the total number of shares underlying the RSUs on each month thereafter,subjecttocontinuedservicetousthrougheachvestingdate.
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(4) As of December 31, 2011, Mr. Bowles held 20,000 RSUs. The vesting condition will be satisfied as to 13/48 of the total shares underlying the RSUs on October 15, 2012. The remaining shares underlying the RSUs vest at a rate of 1/16th of the total number of shares underlying the RSUs in quarterly installments thereafter, not to exceed eleven quarterly installments, and 2/48th on October 15, 2015, subject to continued service to us through each vesting date. None of Mr. Bowles RSUs will settle until the earliest to occur of: (i) December 31, 2013 (ii) an earlier date between January 1, 2013 and December 31, 2013 that is specifiedbyusand(iii)thedateofachangeofcontrol(asdefinedinour2005StockPlan). (5) AsofDecember31,2011,Mr.Grahamheld1,000,000RSUs.Theservicebasedvestingconditionwassatisfiedasto1/4thofthetotalsharesunderlyingtheRSUs on April 1, 2010. The remaining shares underlying the RSUs vest at a rate of 1/48th of the total number of shares underlying the RSUs on each month thereafter, subjecttocontinuedservicetousthrougheachvestingdate. (6) As of December 31, 2011, Mr. Hastings held 20,000 RSUs. The vesting condition will be satisfied as to 1/4 of the total shares underlying the RSUs on July 15, 2012. The remaining shares underlying the RSUs vest at a rate of 1/16th of the total number of shares underlying the RSUs in quarterly installments thereafter, subject to continued service to us through each vesting date. None of Mr. Hastings RSUs will settle until the earliest to occur of: (i) December 31, 2013 (ii) an earlierdatebetweenJanuary1,2013andDecember31,2013thatisspecifiedbyusand(iii)thedateofachangeofcontrol(asdefinedinour2005StockPlan).
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Table of Contents EXECUTIVECOMPENSATION CompensationDiscussionandAnalysis Overview Thissectionexplainsourexecutivecompensationphilosophy,objectives,anddesignourcompensationsettingprocess ourexecutivecompensationprogramcomponentsandthedecisionsmadein2011withrespecttothecompensationofeachof ournamedexecutiveofficers.Ournamedexecutiveofficersfor2011,whichconsistoftheexecutiveofficerswhoappearin 2011SummaryCompensationTablebelow,are: MarkZuckerberg,ourfounder,ChairmanandChiefExecutiveOfficer(CEO) SherylK.Sandberg,ourChiefOperatingOfficer(COO) DavidA.Ebersman,ourChiefFinancialOfficer MikeSchroepfer,ourVicePresident,Engineeringand TheodoreW.Ullyot,ourVicePresident,GeneralCounsel,andSecretary.
ExecutiveCompensationPhilosophy,ObjectivesandDesign Philosophy.Wearefocusedonourmissiontomaketheworldmoreopenandconnected.WebelievethatFacebookisat thebeginningofthisjourneyandthatforustobesuccessfulwemusthireandretainpeoplewhocancontinuetodevelopour strategy,quicklyinnovateandbuildnewproducts,bolsterthegrowthofouruserbaseanduserengagement,andconstantly enhanceourbusinessmodel.Toachievetheseobjectives,weneedahighlytalentedteamcomprisedofengineering,product, sales, and general and administrative professionals. We also expect our executive team to possess and demonstrate strong leadershipandmanagementcapabilities. Objectives.Ourcompensationprogramsforournamedexecutiveofficersarebuilttosupportthefollowingobjectives: attract the top talent in our leadership positions and motivate our executives to deliver the highest level of individualandteamimpactandresults encourage our executives to model the important aspects of our culture, which include moving fast, being bold, communicatingopenlyandbuildingtrustwitheachotherandouremployees ensureeachoneofournamedexecutiveofficersreceivesatotalcompensationpackagethatencourageshisorher longtermretention rewardhighlevelsofperformancewithcommensuratelevelsofcompensationand align the interests of our executives with those of our stockholders in the overall success of Facebook by emphasizinglongtermincentives.
Design.Asaprivatelyheldcompany,ourexecutivecompensationprogramisheavilyweightedtowardsequity,including stock options and restricted stock units (RSUs), with cash compensation that is considerably below market relative to executive compensation at our peer companies. We believe that equity compensation offers the best vehicle to focus our executive officers on our mission and the achievement of our longterm strategic and financial objectives and to align our executiveofficerswiththelongterminterestsofourstockholders. Forourexecutiveofficerswhoreceivedasubstantialinitialequityawardinconnectionwiththecommencementoftheir employment, we have granted additional equity awards with servicebased vesting conditions where the commencement of vestingisdeferreduntiladatesomeyearsinthefuture,asdiscussedfurtherinElementsofExecutiveCompensation Equity Compensation below. When combined with the executives initial equity awards, we believe that these additional grantsrepresentastronglongtermretentiontoolandprovidetheexecutiveofficerswithlongtermequityincentives. 116
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Table of Contents As we transition from being a privatelyheld company to a publiclytraded company, we will evaluate our executive compensation programs, including our mix of cash and equity compensation, at least annually or as circumstances require basedonourbusinessobjectivesandthecompetitiveenvironmentfortalent.Weanticipatecontinuingouremphasisonpay forperformanceandlongtermincentivecompensationforourexecutiveofficers. CompensationSettingProcess Role of Our Compensation Committee. The compensation committee is responsible for overseeing all aspects of our executivecompensationprograms,includingexecutivesalaries,payoutsunderourannualbonusplan,thesizeandstructureof equity awards, and any executive perquisites. The compensation committee is solely responsible for determining the compensationofourCEOandreviewsandapprovescompensationofotherexecutiveofficers. RoleofCompensationConsultant.Thecompensationcommitteehastheauthoritytoengageitsownadvisorstoassistin carrying out its responsibilities. The compensation committee did not retain the services of an outside compensation consultant to provide advice with respect to our executive compensation programs for 2011. In January 2012, the compensationcommitteeengagedtheservicesofCompensia,Inc.,anationalcompensationconsultingfirm.Compensiamay provide the compensation committee and the board of directors with guidance regarding the amount and types of compensationthatweprovidetoourexecutives,howourcompensationpracticescomparetothecompensationpracticesof other companies, and other compensationrelated matters. Compensia reports directly to the compensation committee, although Compensia may meet with members of management for the purposes of gathering information on proposals that management may make to the compensation committee. The compensation committee may replace Compensia or hire additional advisors at any time. Compensia does not provide any services to us other than the services provided to the compensationcommittee. RoleofManagement.Insettingcompensationfor2011,ourCEO,ourCOO,andourVicePresident,HumanResources, workedcloselywiththecompensationcommitteeinmanagingourexecutivecompensationprogramandattendedmeetingsof thecompensationcommittee.Fromtimetotime,ourChiefFinancialOfficerandourGeneralCounselattendedmeetingsofthe compensationcommitteetopresentinformationandanswerquestions.OurCEOmaderecommendationstothecompensation committee regarding compensation for our executive officers other than himself because of his daily involvement with our executiveteam.Noexecutiveofficerparticipateddirectlyinthefinaldeliberationsordeterminationsregardinghisorherown compensationpackage. Ourmanagementteamandthecompensationcommitteeeachplayaroleinevaluatingandmitigatinganyriskthatmay existrelatingtoourcompensationplans,practicesandpoliciesforallemployees,includingournamedexecutiveofficers,as furtherdescribedinCompensationRiskAssessmentbelow. UseofComparativeMarketData.Weaimtocompensateourexecutiveofficersatlevelsthatareatleastcommensurate withthemostcompetitivelevelsofcompensationofexecutiveofficerswithexecutivesinsimilarpositionsatagroupofpeer companies set forth below with whom we compete for hiring and retaining executive talent (our Peer Group). The compensation committee also considered the scope of responsibility of each executive officer, our current practice of maintaining minimal differentiation between the cash packages of our executive officers, the unvested balances of stock awardsforeachexecutiveofficer,aswellasthecompensationcommitteesassessmentofeachexecutiveofficersperformance andimpacttotheorganization.Indetermining2011compensation,wedidnotuseaformulafortakingintoaccountthese differentfactors. ManagementprovidesthecompensationcommitteewithbothcashandequitycompensationdataforourPeerGroup.We analyzemarketdataforexecutivecompensationatleastannuallyusingthemostrelevantpublishedsurveysourcesandpublic filings.For2011,ourmarketanalysisfocusedontechnologycompanieswith$1billionto$3billioninannualrevenueinthe RadfordGlobalTechnologyandGlobalSalesSurvey 117
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Table of Contents publishedbyAON(RadfordSurvey).Inthefirstquarterof2011,thecompensationcommitteealsoreviewedcompensation datafromthepublicfilingsforthefollowingPeerGroup,withannualrevenuerangingfrom$1.7billionto$108.3billionin fiscal2011: Accenture AdobeSystems Amazon.com AOL Apple CiscoSystems eBay ElectronicArts Google Intuit Microsoft NetApp Oracle salesforce.com VMware Yahoo!
ThecompensationcommitteeexpectstoperiodicallyreviewandupdatethisPeerGroup. Inthefirstquarterof2011,ourcompensationcommitteereviewedourexecutivecompensationagainstthisPeerGroup,to ensure that our executive officer compensation is competitive and sufficient to recruit and retain our executive officers. Managementprovidedthecompensationcommitteewithtotalcashcompensationdata(basesalariesandcashbonusawardsat target) at various percentiles and total compensation data (total cash compensation and equity compensation) at the 90th percentile.However,whilethecompensationcommitteeconsideredthisdataindeterminingexecutiveofficercompensation, we did not seek to benchmark our executive compensation to any particular level. The total compensation for our named executiveofficerswasnotdeterminedbasedonanypresettargetpercentileofmarket.Rather,wesoughttocompensateour executiveofficersatalevelwhichwouldallowustosuccessfullyrecruitandretainthebestpossibletalentforourexecutive team.Wereliedheavilyontheknowledgeandexperienceofthecompensationcommitteeandourmanagementindetermining the appropriate compensation levels for our executive officers. Overall, based on our Peer Group analysis, total cash compensationforourexecutiveofficerswasbelowthe25thpercentileofourpeers.Whenequitycompensationwasfactored in,withouttakingintoaccounttheeffectoftheservicebasedvestingconditionsthatbeginseveralyearsinthefutureandthat areapplicabletotheequitycompensationofourexecutiveofficers,totalcompensationforournamedexecutiveofficers,other thanourCEO,approximatedthe99thpercentilerelativetothecompaniesintheRadfordSurvey. In the second quarter of 2011, the compensation committee further refined our approach to reviewing market compensationdataforournamedexecutiveofficersandapprovedasetofselectioncriteriafordeterminingourpeergroup companiesaslistedbelow,withtheunderstandingthatthecriteriawillberevisitedasourbusinessandmarketenvironment change.Goingforward,companiesmustmeetallorsomeofthefollowingcriteriatobeincludedinourcompensationpeer group: hightechnologyormediacompany keytalentcompetitor minimumrevenueof$4billionor minimummarketcapitalizationof$50billion.
Thissetofselectioncriterialedustorevisethepeergroupagainstwhomwebenchmarkourexecutivecompensation.We plantousethefollowingcompaniesinourpeergroupforthe2012executivecompensationprocess:Amazon.comApple CiscoSystemseBayGoogleLinkedInMicrosoftNetflixOraclesalesforce.comVMwareYahoo!andZynga. 118
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Table of Contents ElementsofExecutiveCompensation Ourexecutiveofficercompensationpackagesgenerallyinclude: basesalary performancebasedcashincentivesand equitybasedcompensationintheformofRSUsorothersharebasedcompensation.
We believe that our compensation mix supports our objective of focusing on atrisk compensation having significant financialupsidebasedoncompanyandindividualperformance.Weexpecttocontinuetoemphasizeequityawardsbecauseof the direct link that equity compensation provides between stockholder interests and the interests of our executive officers, therebymotivatingourexecutiveofficerstofocusonincreasingourvalueoverthelongterm. BaseSalary.The compensation committee believes base salaries are a necessary element of compensation in order to attractandretainhighlyqualifiedexecutiveofficers.Historically,ourexecutiveofficershavereceivedbasesalarieswithina very narrow range that was established when we were a smaller company with cash constraints and based on our desire to maintaininternalpayequitybetweenexecutiveofficersandalsorelativetootherkeyemployees.Aswehavegrown,wehave gradually increased base salaries for our executive officers with the goal of bringing salaries closer to market over time. In 2011,wecontinuedtopayexecutivebasesalariesthatwerebelowmarketrelativetoourPeerGroup,bothtoretaintheethosof astartupcompanyandbecauseofouremphasisonequitybasedcompensation.Asnotedabove,in2011,basedonourPeer Groupanalysis,ourtotalcashcompensationforourexecutiveofficerswasbelowthe25thpercentileofthePeerGroup. Thecompensationcommitteereviewsbasesalariesforourexecutiveofficersatleastannuallyandmayadjustthemfrom timetotime,ifneeded,toreflectchangesinmarketconditionsorotherfactors.Inthefirstquarterof2011,thecompensation committeedecidedtoincreasethebasesalariesofourexecutiveofficersinordertocontinuetobringtheirsalariescloserto thosepaidbyourPeerGroupcompaniesforsimilarpositions.Accordingly,ourcompensationcommitteeincreasedthebase salary of our CEO by $100,000 and of each other executive officer by $25,000. Following this 2011 salary increase, our executive officer salaries were still below the 25th percentile of the salaries provided by our Peer Group companies for executivesinsimilarpositions. Inthefirstquarterof2012,ourcompensationcommitteediscussedandapprovedarequestbyourCEOtoreducehisbase salaryto$1peryear,effectiveJanuary1,2013.
NamedExecutiveOfficer 2011BaseSalary
MarkZuckerberg SherylK.Sandberg DavidA.Ebersman MikeSchroepfer TheodoreW.Ullyot
$500,000 300,000 300,000 275,000 275,000
CashBonuses.Our2011Bonus/RetentionPlan(BonusPlan)providesvariablecashincentives,payablesemiannually, thataredesignedtomotivateourexecutiveofficerstofocusoncompanywideprioritiesandtorewardthemforindividual resultsandachievements.AllofourexecutiveofficersparticipateintheBonusPlan. For2011,thereweretwosixmonthperformanceperiodsunderourBonusPlan,whichwerefertoasFirstHalf2011and Second Half 2011. For each performance period in 2011, the compensation committee approved a set of companywide prioritiesinordertofocusourexecutiveofficersonkeyareasofperformancefortheperiodinquestion.TheFirstandSecond Half2011companyprioritiesreflectoperationalandnonoperationalobjectivesestablishedbyourcompensationcommittee, inconsultationwithourCEOandChiefFinancialOfficer.Thecompanywideprioritiesdonothavespecifictargetsassociated with them for purposes of determining performance under the Bonus Plan, and our compensation committee has complete discretiontodeterminethelevelofbonuspayoutforeachperformanceperiod. 119
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Table of Contents 2011 Goals and Company Performance Multipliers (Bonus Plan Pools). Our First Half 2011 companywide priorities wereasfollows:growouruserbaseanduserengagement,improveoursitequalityandefficiency,expandtheimpactofour Platform,continuestrongrevenuegrowth,improveourProfileproduct,buildourmobileplatform,expandourpartnerships, andcontinueourinternationalexpansion.Noneoftheseprioritieswereassignedanyspecificweightingordollaramountof bonus.Thecompensationcommitteeapplieddiscretionindeterminingthecompanyperformancemultiplieronaqualitative basis, taking into account our delivery of results in the areas identified by the companywide priorities approved by the compensation committee, as well as our overall business, engineering, and product development achievements. The compensation committee also did not determine any preset ranges for the company performance multiplier. The First Half 2011companyperformancemultiplierapprovedbythecompensationcommitteewas105%.Inparticular,thecompensation committeefocusedonourstrongusergrowthandrevenuegrowthforFirstHalf2011. Our Second Half 2011 companywide priorities were as follows: grow our user base and user engagement, increase distributionofourPlatform,andcontinuestrongrevenuegrowth.Noneoftheseprioritieswereassignedanyspecificweighting or dollar amount of bonus. The compensation committee applied discretion in determining the company performance multiplier on a qualitative basis, taking into account our delivery of results in the areas identified by the companywide prioritiesapprovedbythecompensationcommittee,aswellasouroverallbusiness,engineering,andproductdevelopment achievements.Thecompensationcommitteealsodidnotdetermineanypresetrangesforthecompanyperformancemultiplier. The Second Half 2011 company performance multiplier approved by the compensation committee was 100%. The compensationcommitteefocusedonourperformanceinalloftheareasidentifiedbythecompanywidepriorities,aswellas ourintroductionofTimelineandothernewproductsinSecondHalf2011. BonusPlanPayouts.WecalculateBonusPlanpayoutstoeachparticipantusingthefollowingformula: Base Salary($)
Individual Bonus Target(%)
Individual Performance Multiplier(%)
Company Performance Multiplier(%)
Individual Bonus Payout($)
Inthefirstquarterof2011,thecompensationcommitteedecidedtoincreaseindividualbonustargetsforeachexecutive officerfrom30%to45%inordertocontinuetomovebonusesclosertomarketratespaidbyourPeerGroup.Evenfollowing thisbonustargetincrease,in2011,ourexecutiveofficerbonusesandtotalcashcompensationwasstillgenerallybelowthose providedbyourPeerGroupcompaniesforexecutivesinsimilarpositions. Individual Performance Multiplier. The individual performance multiplier is based upon each executives individual performanceassessmentfortheperformanceperiodunderconsideration.Inlinewithourpayforperformancephilosophy,a higherperformanceassessmentdrivesahigherindividualmultiplier(andviceversa)suchthatitispossibleforanexecutive withalowassessmenttogetlessthantheirtargetbonuspayout,ornobonuspayoutwhatsoever.In2011,potentialindividual performancemultipliersunderourBonusPlanwere0%,85%,100%,125%,200%,or300%.Executivesmeetingourexpected highlevelofperformanceexpectationsreceivinganindividualbonusmultiplierof100%. Individual performance assessments for each executive officer were determined at the discretion of the compensation committeeincloseconsultationwithourCEOandourCOO(exceptineachcasewhentheirownperformanceassessmentis being determined). The CEOs and COOs executive officer performance assessment recommendations were based on an overallsubjectiveassessmentofeachofficersperformanceandnosinglefactorwasdeterminativeinsettingbonuslevels,nor wastheimpactofanyindividualfactoronthebonusquantifiable.Weoperateinarapidlyevolvingandhighlycompetitive industry and we set a high bar for performance expectations for each one of our executive officers. The compensation committee evaluates our executive officers based on their overall performance, impact and results, as well as their demonstrationofstrong 120
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Table of Contents leadership,longtermvision,effectiveexecutionandmanagementcapabilities.FirstHalf2011andSecondHalf2011payout levelsandachievementsandconsiderationsforeachexecutivewereasfollows: MarkZuckerberg. Mr. Zuckerberg received $220,500 for the First Half 2011 bonus, which reflected the impact of his performanceinleadingourproductdevelopmentefforts,oursuccessingrowingFacebooksglobaluserbaseanddeveloping developerandcommercialrelationships.Mr.Zuckerbergreceived$225,000fortheSecondHalf2011bonus,whichreflected theimpactofhisleadershipandproductvision,whichcontributedtothedevelopmentandlaunchofnewproducts,including OpenGraphandTimeline. SherylK.Sandberg.Ms.Sandbergreceived$86,133fortheFirstHalf2011bonus,whichreflectedhercontributionto growingrevenue,buildingcommercialanddeveloperrelationships,growingtheFacebookteamandexcellenceinexecution inallbusinessrelatedmatters.Ms.Sandbergreceived$84,375fortheSecondHalf2011bonus,whichreflectedherleadership ingrowingourrevenueyearoveryearandherstrategicguidanceonkeypolicyissuesbothdomesticallyandabroad. DavidA.Ebersman.Mr.Ebersmanreceived$86,133fortheFirstHalf2011bonus,whichreflectedhiscontributionsin completingour2010financialstatements,completingourprivateplacementfinancing,andpreparingourfinancialoperations for this offering. Mr. Ebersman received $84,375 for the Second Half 2011 bonus, which reflected his contributions in managingpreparationsforourinitialpublicofferingandhisstrategicleadershipinbuildingastrongfinancialfoundationfor ourbusiness. Mike Schroepfer. Mr. Schroepfer received $63,000 for the First Half 2011 bonus, which reflected his contribution in developingandoverseeingourengineeringteam,softwaredevelopmentefforts,andengineeringinfrastructure.Mr.Schroepfer received$77,344fortheSecondHalf2011bonus,whichreflectedhisstrongleadershipoftheengineeringteam,resultingin developmentofnewproductsforusers,developers,andadvertisers. TheodoreW.Ullyot.Mr.Ullyotreceived$78,750fortheFirstHalf2011bonusand$123,750forhisSecondHalf2011 bonus,bothofwhichreflectedhisroleincertainkeylitigationandregulatorymattersinvolvingourcompany. Thefollowingtablesummarizesthecalculationsthatwereusedindeterminingthecashbonuspaidtoeachofournamed executiveofficers:
Individual BonusTarget (%) Individual Bonus Multiplier(%) Company Bonus Multiplier (%) Individual Bonus Payout($)
Performance Period
BaseSalary ($)(1)
MarkZuckerberg
FirstHalf2011 SecondHalf2011 FirstHalf2011 SecondHalf2011 FirstHalf2011 SecondHalf2011 FirstHalf2011 SecondHalf2011 FirstHalf2011 SecondHalf2011
233,333 250,000 145,833 150,000 145,833 150,000 133,333 137,500 133,333 137,500
45 45 45 45 45 45 45 45 45 45
200 200 125 125 125 125 100 125 125 200
105 100 105 100 105 100 105 100 105 100
220,500 225,000 445,500 86,133 84,375 170,508 86,133 84,375 170,508 63,000 77,344 140,344 78,750 123,750 202,500
SherylK.Sandberg
DavidA.Ebersman
MikeSchroepfer
TheodoreW.Ullyot
(1) Reflectsactualearningsfor2011whichmaydifferfromapproved2011basesalaryduetotheMarch1,2011effectivedateofthesalaryincrease.
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Table of Contents RetentionBonus.AspartofournegotiationofhisinitialemploymentarrangementandasaninducementforMr.Ullyotto becomeourVicePresidentandGeneralCounsel,weagreedtopayhimanannualretentionbonusintheamountof$400,000 peryearforeachofhisfirstfiveyearsofemployment.Hewillcontinuetoreceivethisbonusuntil2013,pursuanttotheterms ofhisamendedandrestatedemploymentagreement. EquityCompensation.Mostofourexecutiveofficerscompensationisdeliveredthroughequityawards.Weuseequity compensationtoalignourexecutiveofficersfinancialinterestswiththoseofourstockholders,toattractindustryleadersof thehighestcaliber,andtoretainthemforthelongterm.Inadditiontotheequitygrantthateachexecutivereceivesaspartof hisorhernewhirepackage,thecompensationcommitteehasgrantedourexecutivesadditionalequityawardsincertainofthe years after they joined. Additional equity grants for each of our executive officers are determined on a discretionary basis takingintoaccountthefollowingfactors: delivering equity values that are highly competitive when compared against those our peers would grant to executiveswithsimilarresponsibility eachexecutiveofficersindividualperformanceassessment,theresultsandcontributionsdeliveredduringtheyear, aswellastheanticipatedpotentialfutureimpactofeachindividualexecutive the size and vesting schedule of existing equity grants in order to maximize the longterm retentive power of all additionalgrantsand thesizeofeachexecutiveofficerstotalcashcompensation(basesalarypluscashbonusawardsattarget),whichis generallylowerthanthecashcompensationforexecutiveswithsimilarresponsibilitiesatourpeercompanies.
Basedontheforegoingfactors,in2011,ourcompensationcommitteeawardedeachofourexecutiveofficers(otherthan ourCEO)agrantofRSUswithaspecificinitialequityvaluebasedonanestimatedtotalvalueforeachgrantbeforetaking into account the deferred vesting considerations described below. The compensation committee applied discretion in determiningthespecificindividualequityvaluesanddeferredvestingstartdates.Basedonthesequalitativedecisions,the compensation committee then calculated the exact number of RSUs to be granted by dividing this initial equity value by $20.85pershare,whichwasthefairvalueofourClassBcommonstockasoftheendof2010. Deferred Vesting of 2011 RSU Grants. The compensation committee deferred the vesting start dates of all 2011 RSU grantsmadetoourexecutiveofficerstoafuturedatedeterminedindividuallyforeachexecutive.Asaresult,the2011RSU grants will not begin to vest unless the recipient remains continuously employed by Facebook through future dates as describedin2011GrantsofPlanBasedAwardsTablebelow.Thecompensationcommitteereviewedthesizeandvesting schedulefortheremainingunvestedportionofalloutstandingequityawardholdingsofeachofourexecutiveofficersand agreedwiththerecommendationofourCEOandCOO(exceptthatourCOOdidnotparticipateindiscussionsregardingher own equity compensation) that the existing equity awards appropriately satisfied our retention and incentive goals for the immediatefutureforeachofourexecutiveofficers.Accordingly,theadditionalequityawardsgrantedin2011startvesting onlyafterasignificantportionofeachexecutivesoutstandingequityawardshavevested,andthesevestingstartdatesrange from the fourth quarter of 2013 to the fourth quarter of 2014. These grants have fouryear vesting schedules that result in vestingenddatesrangingfromthefourthquarterof2017tothefourthquarterof2018.Thecompensationcommitteebelieves thatthesevestingschedulesmaketheequityawardsmorevaluableforretainingourexecutiveofficersforthelongterm.For more information relating to the vesting schedules of these RSU grants, see 2011 Grants of PlanBased Awards Table below. 2011EquityGrants. Mr. Zuckerberg did not receive any additional equity grants in 2011 because our compensation committeebelievedthathisexistingequityownershippositionsufficientlyalignshisinterestswiththoseofourstockholders. 122
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Table of Contents OurothernamedexecutiveofficersreceivedthefollowingRSUgrantsin2011: SherylK.Sandberg.Ms.Sandbergreceivedanadditionalequitygrantintheamountof1,199,041RSUs.Thisgranthad aninitialequityvalueof$25.0million.TheseRSUsaresubjecttoquarterlyvestingbasedoncontinuedemploymentoverfour yearswithadeferredvestingstartdateofOctober15,2013. DavidA.Ebersman.Mr.Ebersmanreceivedanadditionalequitygrantintheamountof719,424RSUs.Thisgranthadan initialequityvalueof$15.0million.TheseRSUsaresubjecttoquarterlyvestingbasedoncontinuedemploymentoverfour yearswithadeferredvestingstartdateofOctober15,2014. MikeSchroepfer.Mr.Schroepferreceivedanadditionalequitygrantintheamountof959,233RSUs.Thisgranthadan initialequityvalueof$20.0million.TheseRSUsaresubjecttoquarterlyvestingbasedoncontinuedemploymentoverfour yearswithadeferredvestingstartdateofOctober15,2013. TheodoreW.Ullyot.Mr.Ullyotreceivedanadditionalequitygrantintheamountof239,808RSUs.Thisgranthadan initialequityvalueof$5.0million.TheseRSUsaresubjecttoquarterlyvestingbasedoncontinuedemploymentoverfour yearswithadeferredvestingstartdateofJuly15,2014. CompensationGovernance The compensation committee seeks to ensure sound executive compensation practices to adhere to our payfor performance philosophy while appropriately managing risk and aligning our compensation programs with longterm stockholderinterests.Thefollowingpracticeswereineffectduring2011: thecompensationcommitteeiscomprisedsolelyofindependentdirectors the compensation committee conducts an annual review and approval of our compensation strategy, including a review of our compensationrelated risk profile to ensure that our compensationrelated risks are not reasonably likelytohaveamaterialadverseeffectonourcompany thecompensationcommitteeretainsdiscretiononbonuspayoutstoenableittorespondtounforeseeneventsand adjustbonuspayoutsasappropriate wedonotofferpostemploymentbenefits,exceptinthecaseofcertainnewhiresinprioryearsand ourcompensationphilosophyandrelatedgovernancefeaturesarecomplementedbyseveralspecificpracticesthat aredesignedtoalignourexecutivecompensationwithlongtermstockholderinterests,includingthefollowing: weofferlimitedperquisitesthatareforbusinessrelatedpurposesornecessaryforthesecurityofourCEOand our executives participate in broadbased companysponsored health and welfare benefits programs on the samebasisasourotherfulltime,salariedemployees.
PostEmploymentCompensation The material terms of postemployment compensation for Ms. Sandberg and Mr. Ullyot are described below in EmploymentAgreementsandOfferLettersandPotentialPaymentsuponTerminationorChangeinControl. PerquisitesandOtherBenefits Consistent with the practices of many companies in our Peer Group, we provide perquisites to our named executive officersforthereasonsdescribedbelow. 123
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Table of Contents Because of the high visibility of our company we have implemented a comprehensive security program for Mr.Zuckerbergtoaddresssafetyconcernsresultingfromhispositionasourfounder,Chairman,andCEO.Werequirethese securitymeasuresforthecompanysbenefitbecauseoftheimportanceofMr.ZuckerbergtoFacebook,andwebelievethatthe costsofthiscomprehensivesecurityprogramareappropriateandnecessary.Wepaidfortheinitialprocurement,installation and maintenance of security measures for Mr. Zuckerbergs personal residence, and we pay for the annual costs of security personnel,neitherofwhichconstitutestaxableincometoMr.Zuckerberg. OurcompensationcommitteehasalsoauthorizedourCEOandCOOtouseprivateaircraftforbusinesspurposes.This practicemaximizessuchexecutivesproductivetimeandensurestheirquickavailability.Inaddition,Mr.Zuckerbergmayuse private aircraft for personal purposes in connection with his comprehensive security program. On certain occasions, Mr.Zuckerbergmaybeaccompaniedbyfamilymembersorotherswhenusingprivateaircraft.Forflightsinvolvingpassengers flying for personal purposes, the aggregate incremental cost of such personal usage is reported as other compensation to Mr.Zuckerberg.Thereportedaggregateincrementalcostisbasedoncostsprovidedbytheapplicablechartercompany,and includes passenger fees, fuel, crew and catering costs. The incremental cost attributable to Mr. Zuckerbergs use of private aircraftin2011isdisclosedintheAllOtherCompensationcolumnin2011SummaryCompensationTablebelow. In addition, we have historically paid for certain of our named executive officers to receive financial, tax and estate planning advice to assist them in obtaining professional advice on managing the compensation they receive. We have discontinuedthispracticeforperiodsafterApril15,2012. 162(m)TaxDeductibility Section162(m)oftheInternalRevenueCodeof1986,asamended(Code),limitstheamountthatwemaydeductfromour federal income taxes for remuneration paid to our named executive officers (other than our Chief Financial Officer) to $1 milliondollarsperexecutiveofficerperyear,unlesscertainrequirementsaremet.Section162(m)providesanexceptionfrom thisdeductionlimitationforcertainformsofperformancebasedcompensation,aswellasforthegainrecognizedbycovered executive officers upon the exercise of qualifying compensatory stock options. In addition, grandfather provisions may applytocertaincompensationarrangementsthatwereenteredintobyacorporationbeforeitwaspubliclyheld.Todate,allof our compensation that has been granted has been exempt from the Section 162(m) deduction limitation. While our compensationcommitteeismindfulofthebenefittousofthefulldeductibilityofcompensation,ourcompensationcommittee believes that it should not be constrained by the requirements of Section 162(m) where those requirements would impair flexibilityincompensatingourexecutiveofficersinamannerthatcanbestpromoteourcorporateobjectives.Therefore,our compensation committee has not adopted a policy that requires that all compensation be deductible. Our compensation committee intends to continue to compensate our executive officers in a manner consistent with the best interests of our companyandourstockholders. CompensationRiskAssessment Ourmanagementteamandthecompensationcommitteeeachplayaroleinevaluatingandmitigatinganyriskthatmay existrelatingtoourcompensationplans,practicesandpoliciesforallemployees,includingournamedexecutiveofficers.In connectionwiththisoffering,Compensia,thecompensationcommitteesindependentcompensationconsultant,performedan assessment,inconjunctionwithmanagement,ofourcompensationplansandpracticesandconcludedthatourcompensation programsdonotcreaterisksthatarereasonablylikelytohaveamaterialadverseeffectonthecompany.Thecompensation committee has reviewed this report and agreed with the conclusion. The objective of the assessment was to identify any compensationplansorpracticesthatmayencourageemployeestotakeunnecessaryriskthatcouldthreatenthecompany.No suchplansorpracticeswereidentified.Theriskassessmentprocessincluded,amongotherthings,areviewofourcashand equity incentivebased compensation plans to ensure that they are aligned with our company performance goals and the overallcompensationtoensureanappropriatebalancebetweenfixedandvariablepaycomponentsandbetweenshortand longtermincentives. 124
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Table of Contents 2011SummaryCompensationTable Thefollowingtablepresentssummaryinformationregardingthetotalcompensationawardedto,earnedby,orpaidto eachofthenamedexecutiveofficersforservicesrenderedtousfortheyearendedDecember31,2011.

Fiscal Year Salary ($) Bonus ($)(1) Stock Awards ($)(2) AllOther Compensation ($) Total ($)
NameandPrincipalPosition
MarkZuckerberg, CEO SherylK.Sandberg, ChiefOperatingOfficer DavidA.Ebersman, ChiefFinancialOfficer MikeSchroepfer, VicePresidentofEngineering TheodoreW.Ullyot, VicePresident,GeneralCounseland Secretary
2011 483,333 445,500 2011 295,833 170,508 2011 295,833 170,508 2011 270,833 140,344
783,529 (3) 1,712,362 30,957,954 18,761,293 24,804,472
30,491,613 18,294,952 24,393,295
2011 270,833 602,500 (4) 6,098,317
110,644 (5) 7,082,294
(1) The amounts reported in the bonus column represent discretionary bonuses earned pursuant to our Bonus Plan. For more information about our executive officers discretionarybonuses,seeCompensationDiscussionandAnalysisElementsofExecutiveCompensationCashBonusesabove. (2) Amounts reflect the aggregate grant date fair value of the RSUs without regards to forfeitures, computed in accordance with ASC 718. The valuation assumptions usedincalculatingthegrantdatefairvalueoftheseRSUsaresetforthinManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations CriticalAccountingPoliciesandEstimatesSharebasedCompensation.Thisamountdoesnotreflecttheactualeconomicvaluerealizedbythenamedexecutive officer.TheRSUsissuedtoourexecutiveofficersduring2011provideforquarterlyvestingbasedoncontinuedemploymentoverfouryearswithadeferredvesting startdateofOctober15,2013forMs.Sandberg,October15,2014forMr.Ebersman,October15,2013forMr.Schroepfer,andJuly15,2014forMr.Ullyot. (3) The amount reported represent approximately $692,679 for costs related to personal use of aircraft chartered in connection with his comprehensive security program andonwhichfamilyandfriendsflewduring2011.Forpurposesofreportingthevalueofsuchpersonalusageinthistable,weusecostsprovidedbytheapplicable charter company, which include passenger fees, fuel, crew and catering costs. The amount reported also represents approximately $90,850 for costs related to estate andfinancialplanningduring2011. (4) ConsistsofadiscretionarybonusunderourBonusPlanasdescribedinfootnote(1)aboveandanannualretentionbonusintheamountof$400,000.Mr.Ullyots retentionbonusismorefullydescribedinCompensationDiscussionandAnalysisElementsofExecutiveCompensationRetentionBonusabove. (5) Consistsofrelocationreimbursements,includingarelatedgrossupfortaxes,paidtoMr.UllyotpursuanttohisemploymentagreementineffectasofDecember31, 2011.FormoreinformationaboutMr.Ullyotsamendedandrestatedemploymentagreement,seeEmploymentAgreementsandOfferLettersbelow.
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Table of Contents 2011GrantsofPlanBasedAwardsTable Thefollowingtablepresents,foreachofthenamedexecutiveofficers,informationconcerningeachgrantofanequity awardmadeduringtheyearendedDecember31,2011.Thisinformationsupplementstheinformationabouttheseawardsset forthinthe2011SummaryCompensationTable.

AllOtherStock Awards:Number ofSharesof StockorUnits(#)(1) GrantDate FairValue ofStockAwards ($)(2)(3)
Name
Grant Date
3/25/2011 3/25/2011 3/25/2011 3/25/2011
1,199,041 719,424 959,233 239,808
30,491,613 18,294,952 24,393,295 6,098,317
(1) Theseawardsaresubjecttovesting,asdescribedindetailin2011OutstandingEquityAwardsatYearEndTablebelow. (2) Amounts reflect the grant date fair value of the RSUs without regards to forfeitures, computed in accordance with ASC 718. The valuation assumptions used in calculating the grant date fair value of these awards are set forth in Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and EstimatesSharebased Compensation. This amount does not reflect the actual economic value realized by the named executive officer. (3) TheRSUsissuedtoourexecutiveofficersduring2011provideforquarterlyvestingbasedoncontinuedemploymentoverfouryearswithadeferredvestingstartdate ofOctober15,2013forMs.Sandberg,October15,2014forMr.Ebersman,October15,2013forMr.Schroepfer,andJuly15,2014forMr.Ullyot.
OnMay3,2012,wegrantedRSUstoournamedexecutiveofficersasfollows:SherylK.Sandberg691,085DavidA. Ebersman459,572 Mike Schroepfer545,957 and Theodore W. Ullyot145,128. These RSUs provide for quarterly vesting based on continued employment over four years with a deferred vesting start date of November 15, 2013 for Ms. Sandberg,November15,2014forMr.Ebersman,August15,2014forMr.Schroepfer,andNovember15,2013forMr.Ullyot. 126
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Table of Contents 2011OutstandingEquityAwardsatYearEndTable Thefollowingtablepresents,foreachofthenamedexecutiveofficers,informationregardingoutstandingstockoptions andRSUsheldasofDecember31,2011.

Numberof Securities Underlying Unexercised Options(#) Exercisable OptionAwards Numberof Securities Underlying Unexercised Option Options(#) Exercise Unexercisable Price($)(2) StockAwards Numberof Shares MarketValueof orUnitsof SharesorUnits StockThat ofStockThat HaveNot HaveNotVested Vested(#)(3) ($)(4)
Name
GrantDate(1)
Option Expiration Date
MarkZuckerberg 11/8/2005 SherylK. Sandberg 8/1/2008 7/23/2010 10/18/2010 3/25/2011 10/26/2009 10/26/2009 3/25/2011 1/12/2009 (14) 1/12/2009 1/12/2009 1/12/2009 8/19/2009 8/26/2009 8/26/2010 3/25/2011 1/12/2009 (23) 1/12/2009 2/26/2010 3/25/2011
120,000,000 (5)
0.06 11/7/2015
3,500,000 (7) 1,200,000 (8)
10.39 7/22/2020 15.00 (9) 10/17/2020
38,122,000 (6) 1,199,041 (10)
1,200,843,000 37,769,792
DavidA. Ebersman
2,025,000 2,475,000 (11) 1,141,160 290,307 543,750 1,720,331 570,585 (15) 353,048 (16) 581,250 (19) 1,184,990 (24)
3.23 10/25/2019 6,750,000 (12) 212,625,000 719,424 (13) 22,661,856 1.85 1.85 2.95 1.85 1/11/2019 1/11/2019 1,497,775 (17) 1,176,825 (18) 8/18/2019 1,125,000 (20) 1,385,355 (21) 959,233 (22) 1/11/2019 3,231,780 (25) 311,230 (26) 239,808 (27) 47,179,913 37,069,988 35,437,500 43,638,683 30,215,840
MikeSchroepfer TheodoreW. Ullyot
101,801,070 9,803,745 7,553,952
(1) (2) (3) (4) (5) (6) (7) (8)
With theexceptionofthestock optiongranted toMr. Zuckerberg described in footnote (5) below, which was granted under our 2005 Officers Stock Plan, all of theoutstandingequityawardsdescribedbelowweregrantedunderour2005StockPlan. With the exception of the stock option granted to Ms. Sandberg described in footnote (9) below, this column represents the fair value of a share of Class B commonstockonthedateofgrant,asdeterminedbyourboardofdirectors. RSUs granted prior to January 1, 2011 (Pre2011 RSUs) issued to our executive officers only vest upon the satisfaction of both (i) a servicebased vesting conditionand(ii)aliquiditybasedvestingcondition.TheliquiditybasedvestingconditionforPre2011RSUsis:(a)thedatethatissixmonthsaftertheeffective dateofourinitialpublicofferingor(b)achangeofcontrol(asdefinedinour2005StockPlan). The market price for our Class B common stock is based on the assumed initial public offering price of the Class A common stock of $31.50 per share, the midpointofthepricerangeonthecoverpageofthisprospectus. ThesharessubjecttothisoptionwerefullyvestedasofNovember1,2010.Inconnectionwithourinitialpublicoffering,Mr.Zuckerbergwillexercisethisstock optionwithrespectto60,000,000sharesofClassBcommonstockandwillthenoffer30,200,000ofthosesharesasClassAcommonstockinourinitialpublic offering. Theservicebasedvestingconditionwassatisfiedasto57%ofthetotalsharesunderlyingtheRSUsonApril1,2011.BetweenApril1,2011andApril1,2012, an additional 1.75% of the total number of shares underlying the RSUs will vest per month, subject to continued service to us through each vesting date. The servicebasedvestingconditionwillbesatisfiedastoallofthesharesunderlyingtheRSUsonApril1,2013. 1/48thofthe totalnumber of sharessubject to the option will vest on May 1, 2013 and the remaining shares subject to the option vest at a rate of 1/48th ofthe totalnumberofsharessubjecttotheoptiononeachmonththereafter,subjecttocontinuedservicetousthrougheachvestingdate. 260,000ofthetotalnumberofsharessubjecttotheoptionwillvestonMay1,2013inequalmonthlyinstallmentsforaperiodof48months,and,thereafter,the remainingsharessubjecttotheoptionwillvestinequalmonthlyinstallmentsforaperiodof12months,subjecttocontinuedservicetousthrougheachvesting date.
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(9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) The compensation committee set the option exercise price for this grant at $15.00 per share, a premium to the fair market value of a share of Class B common stockonthedateofgrantwhichwasdeterminedbyourcompensationcommitteetobe$12.56pershare. Thevestingconditionwillbesatisfiedasto1/16thofthetotalsharesunderlyingtheRSUsonJanuary15,2014.TheremainingsharesunderlyingtheRSUsvest atarateof1/16thofthetotalnumberofsharesunderlyingtheRSUsoneachquarterthereafter,subjecttocontinuedservicetousthrougheachvestingdate. 1/5thofthetotalnumberofsharessubjecttotheoptionvestedonSeptember8,2010andtheremainingsharessubjecttotheoptionvestatarateof1/60thofthe totalnumberofsharessubjecttotheoptiononeachmonththereafter,subjecttocontinuedservicetousthrougheachvestingdate. Theservicebasedvestingconditionwassatisfiedasto1/5thofthetotalsharesunderlyingtheRSUsonSeptember15,2010.Theremainingsharesunderlyingthe RSUsvestatarateof1/60thofthetotalnumberofsharesunderlyingtheRSUsoneachmonththereafter,subjecttocontinuedservicetousthrougheachvesting date. Thevestingconditionwillbesatisfiedasto1/16thofthetotalsharesunderlyingtheRSUsonJanuary15,2015.TheremainingsharesunderlyingtheRSUsvest atarateof1/16thofthetotalnumberofsharessubjecttotheRSUsoneachquarterthereafter,subjecttocontinuedservicetousthrougheachvestingdate. InJune2011,inconnectionwithcertainestateplanning,Mr.Schroepfertransferredoptionstopurchase400,000sharesofClassBcommonstocktoeachoftwo familytrusts. 1/5thofthetotalnumberofsharessubjecttotheoptionvestedonAugust25,2009andtheremainingsharessubjecttotheoptionvestatarateof1/60thofthe totalnumberofsharessubjecttotheoptiononeachmonththereafter,subjecttocontinuedservicetousthrougheachvestingdate. 1/5thofthetotalnumberofsharessubjecttotheoptionvestedonOctober29,2009andtheremainingsharessubjecttotheoptionvestatarateof1/60thofthe totalnumberofsharessubjecttotheoptiononeachmonththereafter,subjecttocontinuedservicetousthrougheachvestingdate. Theservicebasedvestingconditionwassatisfiedasto1/5thofthetotalsharesunderlyingtheRSUsonSeptember1,2009.Theremainingsharesunderlyingthe RSUsvestatarateof1/60thofthetotalnumberofsharesunderlyingtheRSUsoneachmonththereafter,subjecttocontinuedservicetousthrougheachvesting date. Theservicebasedvestingconditionwassatisfiedasto1/5thofthetotalsharesunderlyingtheRSUsonNovember1,2009.Theremainingsharesunderlyingthe RSUsvestatarateof1/60thofthetotalnumberofsharesunderlyingtheRSUsoneachmonththereafter,subjecttocontinuedservicetousthrougheachvesting date. 1/5thofthetotalnumberofsharessubjecttotheoptionvestedonJuly15,2010andtheremainingsharessubjecttotheoptionvestatarateof1/60thofthetotal numberofsharessubjecttotheoptiononeachmonththereafter,subjecttocontinuedservicetousthrougheachvestingdate. Theservicebasedvestingconditionwassatisfiedasto1/5thofthetotalsharesunderlyingtheRSUsonJuly15,2010.TheremainingsharesunderlyingtheRSUs vestatarateof1/60thofthetotalnumberofsharesunderlyingtheRSUsoneachmonththereafter,subjecttocontinuedservicetousthrougheachvestingdate. Theservicebasedvestingconditionwillbesatisfiedasto1/16thofthetotalsharesunderlyingtheRSUsonAugust15,2014.Theremainingsharesunderlyingthe RSUsvestatarateof1/16thofthetotalnumberofsharesunderlyingtheRSUsoneachquarterthereafter,subjecttocontinuedservicetousthrougheachvesting date. Thevestingconditionwillbesatisfiedasto1/16thofthetotalsharesunderlyingtheRSUsonJanuary15,2014.TheremainingsharesunderlyingtheRSUsvest atarateof1/16thofthetotalnumberofsharesunderlyingtheRSUsoneachquarterthereafter,subjecttocontinuedservicetousthrougheachvestingdate. In December 2011, in connection with certain estate planning, Mr. Ullyot transferred options to purchase 400,000 shares of Class B common stock to a family trust. 1/5thofthetotalnumberofsharessubjecttotheoptionvestedonOctober20,2009andtheremainingsharessubjecttotheoptionvestatarateof1/60thofthe totalnumberofsharessubjecttotheoptiononeachmonththereafter,subjecttocontinuedservicetousthrougheachvestingdate. Theservicebasedvestingconditionwassatisfiedasto1/5thofthetotalsharesunderlyingtheRSUsonNovember1,2009.Theremainingsharesunderlyingthe RSUsvestatarateof1/60thofthetotalnumberofsharesunderlyingtheRSUsoneachmonththereafter,subjecttocontinuedservicetousthrougheachvesting date. Theservicebasedvestingconditionwillbesatisfiedasto1/4thofthetotalsharesunderlyingtheRSUsonAugust15,2014.Theremainingsharesunderlyingthe RSUsvestatarateof1/16thofthetotalnumberofsharesunderlyingtheRSUsoneachquarterthereafter,subjecttocontinuedservicetousthrougheachvesting date. Thevestingconditionwillbesatisfiedasto1/16thofthetotalsharesunderlyingtheRSUsonOctober15,2014.TheremainingsharesunderlyingtheRSUsvest atarateof1/16thofthetotalnumberofsharesunderlyingtheRSUsoneachquarterthereafter,subjecttocontinuedservicetousthrougheachvestingdate.
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Table of Contents 2011OptionExercises The following table presents, for each of the named executive officers, the number of shares of our common stock acquiredupontheexercisesofstockoptionsduring2011andtheaggregatevaluerealizedupontheexercises.NoRSUsvested in2011.
OptionAwards NumberofShares Acquiredon ValueRealizedon Exercise(#) Exercise($)(1)
Name
319,500 326,459
7,417,512 7,579,072
(1) These options were exercised in connection with the sale by Messrs. Schroepfer and Ullyot of certain of these shares to third parties. The aggregate value realized upontheexerciseoftheoptionsrepresentstheamountbywhich$25.07,whichwasthepricepershareatwhichMessrs.SchroepferandUllyotsoldcertainofthese shares,exceededtheaggregateexercisepriceoftheoptions,whichwas$1.854pershare.
EmploymentAgreementsandOfferLetters Wehaveenteredintoemploymentagreementsorofferletterswitheachofthenamedexecutiveofficers.Theseagreements provide for atwill employment and generally include the named executive officers initial base salary, an indication of eligibilityforanannualcashincentiveawardopportunity,and,insomecases,arrangementswithrespecttotheaccelerated vestingofequityawards.Inaddition,eachofournamedexecutiveofficershasexecutedaformofourstandardconfidential informationandinventionassignmentagreement.Anypotentialpaymentsandbenefitsdueuponaterminationofemployment orachangeincontrolofusarefurtherdescribedandquantifiedbelowinPotentialPaymentsuponTerminationorChange inControl. MarkZuckerberg We entered into an amended and restated offer letter with Mr. Zuckerberg, our founder, Chairman, and CEO, in January2012.Thisofferletteragreementhasnospecifictermandconstitutesatwillemployment.Mr.Zuckerbergscurrent annual base salary is $500,000 and he is eligible to receive annual bonus compensation under our Bonus Plan. Effective January1,2013,Mr.Zuckerbergsannualbasesalarywillbereducedto$1. SherylK.Sandberg We entered into an amended and restated employment agreement with Ms. Sandberg, our Chief Operating Officer, in January2012.Theemploymentagreementhasnospecifictermandconstitutesatwillemployment.Ms.Sandbergscurrent annualbasesalaryis$300,000,andsheiseligibletoreceiveannualbonuscompensationunderourBonusPlan.Intheevent Ms.Sandbergiseitherinvoluntarilyterminatedwithoutcause(otherthanasaresultofdeathordisability)orisconstructively terminated, in either case within one month prior to or six months following a change in control, she will be entitled to acceleratedvestingof100%oftheunvestedRSUsinherinitialgrant,subjecttoexecutingareleaseofclaims.Inaddition,the employmentagreementprovidesthatintheeventofachangeincontrolwheretheRSUsarenotassumedorsubstitutedforan equivalent award, any unvested RSUs will vest immediately prior to the consummation of the change in control. The employment agreement also provides that if Ms. Sandberg is terminated without cause (other than as a result of death or disability),andotherthaninconnectionwithachangeincontrol,shewillbeentitledtoacceleratedvestingoftheunvested RSUsinherinitialgrantinanamountequaltothenumberofRSUsthatwouldhavevestedhadheremploymentcontinuedfor thefirsthalfofthemonthsremainingbetweenthedateofherterminationandApril1,2013,subjecttoexecutingareleaseof claims,andifsheisterminatedasaresultofdeathordisability,shewillbeentitledtocontinuedvestingofherunvestedRSUs foroneyear. 129
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Table of Contents DavidA.Ebersman WeenteredintoanamendedandrestatedofferletterwithMr.Ebersman,ourChiefFinancialOfficer,inJanuary2012.The offerletteragreementhasnospecifictermandconstitutesatwillemployment.Mr.Ebersmanscurrentannualbasesalaryis $300,000,andheiseligibletoreceiveannualbonuscompensationunderourBonusPlan. MikeSchroepfer We entered into an amended and restated offer letter with Mr. Schroepfer, our Vice President, Engineering, in January 2012.Theofferletteragreementhasnospecifictermandconstitutesatwillemployment.Mr.Schroepferscurrentannualbase salaryis$275,000,andheiseligibletoreceiveannualbonuscompensationunderourBonusPlan. TheodoreW.Ullyot WeenteredintoanamendedandrestatedemploymentagreementwithMr.Ullyot,ourVicePresident,GeneralCounsel, and Secretary, in January 2012. The employment agreement has no specific term and constitutes atwill employment. Mr.Ullyotscurrentannualbasesalaryis$275,000,andheiseligibletoreceiveannualbonuscompensationunderourBonus Plan.Inaddition,theemploymentagreementprovidesthatMr.Ullyotisentitledtoanannualretentionbonusof$400,000for thefirstfiveyearsofhisemployment(Mr.UllyotsemploymentcommencedinOctober2008).IntheeventthatMr.Ullyotis eitherinvoluntarilyterminatedwithoutcause(otherthanasaresultofdeathordisability)orisconstructivelyterminated,in eithercasewithinonemonthpriortoorsixmonthsfollowingachangeincontrol,hewillbeentitledtoacceleratedvestingof 100% of the unvested RSUs and options in his initial grants, subject to executing a release of claims. In addition, the employmentagreementprovidesthatintheeventthatif,inconnectionwithachangeincontrol,theRSUsandsharessubject tooptionsarenotassumedorsubstitutedforequivalentawards,thenanyunvestedRSUsorsharessubjecttooptionswillvest immediatelypriortotheconsummationofthechangeincontrol.TheemploymentagreementalsoprovidesthatifMr.Ullyotis involuntarilyterminatedinthefourthorfifthyearsofhisemploymenteitherwithoutcause(otherthanasaresultofdeathor disability)orisconstructivelyterminated,otherthaninconnectionwithachangeincontrol,hewillbeentitledtoaccelerated vesting of 50% of the remaining unvested RSUs and shares subject to options in his initial grants, subject to executing a releaseofclaims.Theemploymentagreementalsoprovidesthathewillbeentitledtoaseverancepaymentequaltooneyearof basesalaryandhisannualretentionbonusifheisinvoluntarilyterminatedeitherwithoutcause(otherthanasaresultofdeath or disability) or is constructively terminated, in connection with a change in control or otherwise, subject to executing a releaseofclaims. PotentialPaymentsuponTerminationorChangeinControl Underthetermsandconditionsoftheirindividualagreements,asdescribedindetailabove,Ms.SandbergandMr.Ullyot are eligible to receive certain benefits in connection with his or her termination of employment, depending on the circumstances,includingfollowingachangeincontrolofus(suchasasaleofallorsubstantiallyallofourassetsoramerger involvingthesaleofamajorityoftheoutstandingsharesofourvotingcapitalstock). Theactualamountsthatwouldbepaidordistributedtothesenamedexecutiveofficersasaresultofaterminationevent occurringinthefuturemaybedifferentthanthosepresentedbelowasmanyfactorswillaffecttheamountofanypaymentsand benefitsuponaterminationofemployment.Forexample,someofthefactorsthatcouldaffecttheamountspayableincludethe namedexecutiveofficersbasesalaryandthemarketpriceofourcommonstock.Althoughwehave,insomeinstances,entered intowrittenarrangementstoprovidebenefitstothenamedexecutiveofficersinconnectionwithaterminationofemployment underparticularcircumstances,we,oranacquirer,maymutuallyagreewiththenamedexecutiveofficersonseveranceterms thatvaryfromthoseprovidedinthesepreexistingarrangements.Formoreinformationaboutthenamedexecutiveofficers outstandingequityawardsasofDecember31,2011,see2011OutstandingEquityAwardsatYearEndTableabove. 130
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Table of Contents ForpurposesofthetablesbelowastoMs.SandbergandMr.Ullyot,aninvoluntaryterminationgenerallymeansthe termination of the executives employment by us without cause or such individuals voluntary resignation following a materialadversechangeinhisorhercompensation,responsibility,orthelocationofhisorherservices.Causeisgenerally definedtoincludeactsofmaterialdishonestyorgrossnegligence,failurestocomplywithourpoliciesoragreements,orany convictionofafelonyorcrimeofmoralturpitude. SherylK.Sandberg ThetablebelowsummarizesthevalueofthevestingaccelerationtowhichMs.Sandbergwouldbeentitled,assuminga qualifyingterminationasofDecember31,2011.
NoChange inControl(3) Involuntary Termination ChangeinControl(4) Involuntary NoTermination Termination
Benefit
VestingAcceleration (1)(2)
$172,104,786
$348,244,470
$348,244,470
(1) Calculatedbasedontheassumedinitialpublicofferingpriceof$31.50pershare,themidpointofthepricerangeonthecoverpageofthisprospectus. (2) As of December 31, 2011, the servicebased vesting condition on 8,258,748 shares underlying Ms. Sandbergs initial RSUs would be accelerated if she was terminated as a result of her death or disability, which is the number of initial RSUs that would have vested if Ms. Sandberg had remained employed for an additionaltwelvemonthsfromthedateofherdeathordisability.Thevalueofthisvestingaccelerationwas$260,150,562asofDecember31,2011whencalculated asdescribedinfootnote(1)above. (3) As of December 31, 2011, the servicebased vesting condition on 5,463,644 shares underlying Ms. Sandbergs initial RSUs would be accelerated if she was terminatedwithoutcause,otherthanasaresultofherdeathordisability,whichisthenumberofinitialRSUsthatwouldhavevestedifMs.Sandberghadremained employedforthefirsthalfofthemonthsremainingbetweenthedateofterminationandApril1,2013. (4) AsofDecember31,2011,11,055,380sharesunderlyingMs.SandbergsinitialRSUswouldbeacceleratedifshewaseitherinvoluntarilyterminated,otherthanasa resultofherdeathordisability,withinonemonthpriortoorwithinsixmonthsfollowingachangeincontrol,orherinitialRSUswerenotassumedorsubstituted foranequivalentaward,suchthat100%ofthesharesunderlyingMs.SandbergsinitialRSUswouldbevested.
TheodoreW.Ullyot The table below summarizes the value of vesting acceleration and severance payments to which Mr. Ullyot would be entitled,assumingaqualifyingterminationasofDecember31,2011.
NoChange inControl(2) Involuntary Termination ChangeinControl(3) No Involuntary Termination Termination
Benefit
Severance VestingAcceleration (1) TotalValue
$ 675,000 37,079,364 $37,754,364
$ 74,158,729 $74,158,729
$ 675,000 74,158,729 $74,833,729
(1) CalculatedbasedontheassumedinitialpublicofferingpriceoftheClassAcommonstockof$31.50pershare,themidpointofthepricerangeonthecoverpageof thisprospectus. (2) AsofDecember31,2011,592,495sharessubjecttoMr.Ullyotsinitialoptionandtheservicebasedvestingconditionon619,425sharesunderlyingMr.Ullyots initialRSUswouldbeacceleratedifhewasinvoluntarilyterminated,otherthanasaresultofhisdeathordisability,whichis50%oftheremainingunvestedshares underlyingMr.UllyotsinitialoptionandRSUs.Inaddition,Mr.Ullyotwouldbeentitledtoseveranceequaltohisbasesalaryof$275,000andhisretentionbonus of$400,000. (3) AsofDecember31,2011,1,184,990sharessubjecttoMr.Ullyotsinitialoptionand1,238,850sharesunderlyingMr.UllyotsinitialRSUswouldbeacceleratedif hewasinvoluntarilyterminated,otherthanasaresultofhisdeathordisability,withinonemonthpriortoorwithinsixmonthsfollowingachangeincontrol,orif hisinitialoptionandRSUswerenotassumedorsubstitutedforanequivalentaward,suchthat100%ofthesharesunderlyingMr.UllyotsinitialoptionandRSUs wouldbevested.
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Table of Contents EmployeeBenefitPlans 2005StockPlan Ourboardofdirectorsadoptedour2005StockPlanonJanuary7,2005,whichourstockholdersapprovedonJanuary14, 2005.Our2005StockPlanprovidesforthegrantofincentivestockoptions,withinthemeaningofSection422oftheCode,to our employees or any parent or subsidiarys employees, and for the grant of nonstatutory stock options to our employees, directors, and consultants and any parent, subsidiary, or affiliate corporations employees and consultants. Stock purchase rightsandrestrictedstockunitsmayalsobegrantedunderthe2005StockPlan.Wewillceaseissuingawardsunderthe2005 StockPlanupontheimplementationofthe2012EquityIncentivePlan,whichisdescribedbelow.Likewise,wewillnotgrant anyadditionalawardsunderour2005StockPlanfollowingourinitialpublicoffering.Instead,wewillgrantequityawards underour2012EquityIncentivePlan. ShareReserve. As of March 31, 2012, we had reserved 971,314,985 shares of our Class B common stock for issuance underour2005StockPlan.AsofMarch31,2012,optionstopurchase441,023,978oftheseshareshadbeenexercised,options topurchase116,756,442ofthesesharesremainedoutstandingand52,466,293ofthesesharesremainedavailableforfuture grant.TheoptionsoutstandingasofMarch31,2012hadaweightedaverageexercisepriceof$0.94pershare.Inaddition,as of March 31, 2012, we had 378,429,048 RSUs outstanding under the 2005 Stock Plan. However, any outstanding awards grantedunderthe2005StockPlanwillremainoutstanding,subjecttothetermsofour2005StockPlanandapplicableaward agreements,untiltheyareexercisedorsettledoruntiltheyterminateorexpirebytheirterms.SharesofClassBcommonstock availableforissuancepursuanttothe2005StockPlanwillberolledintoour2012EquityIncentivePlanonthedateofthis prospectusasfurtherdescribedbelow. Administration.Ourcompensationcommitteecurrentlyadministersour2005StockPlan.Ourcompensationcommittee hascompletediscretiontomakealldecisionsimplementingthe2005StockPlan,includingthepowerto(1)determinewho willreceivetheawards,(2)determinethefairmarketvalueoftheClassBcommonstock,(3)interpretthetermsofthe2005 StockPlanandtheawardsthereunder,and(4)specifythetermsandconditionsofsuchawards,suchastheexerciseprice,the number of shares subject to each award, the vesting schedule and exercisability of awards and the form of consideration payableuponexercise. StockOptions.TheexercisepriceofincentivestockoptionsmustbeatleastequaltothefairmarketvalueofourClassB common stock on the date of grant and the term of the incentive stock options may not exceed ten years. With respect to incentivestockoptionsgrantedtoanyemployeewhoowns10%ormoreofthevotingpowerofallclassesofouroutstanding stockasofthegrantdate,thetermmustnotexceedfiveyearsandtheexercisepricemustequalatleast110%ofthefairmarket valueonthegrantdate. When an employee ceases to provide continuous services to us (or any parent, subsidiary, or affiliate), he or she may exercisehisorherincentivestockoptionfortheperiodoftimestatedintheincentivestockoptionagreement,totheextenthis orherincentivestockoptionisvestedonthedateoftermination.Subjecttotherequirementsofallapplicablelaws,rulesor regulations, each nonstatutory stock option agreement shall contain provisions relating to early termination of the nonstatutorystockoptionbaseduponterminationoftheholdersservicetousasdeterminedbyourcompensationcommittee. In the event of a termination of a service provider for cause, all options held by such service provider will immediately terminate.Inaddition,anyvestedsharesthatwereacquiredupontheexerciseofastockoptionmayberepurchasedbyus.A stockoptionmayneverbeexercisedlaterthantheexpirationofitsterm. StockPurchaseRights.ThecompensationcommitteemayofferrightstopurchasesharesofourClassBcommonstock underthe2005 StockPlan and, to theextent permitted by applicable law, shalldeterminethe purchaseprice of the shares subjecttoeachstockpurchaseright.Theoffertopurchasesharesunderlyingthisstockpurchaserightshallbeacceptedbythe offerees execution of a restricted stock purchase agreement, in the form prescribed by the compensation committee. This restrictedstockpurchaseagreementmaysubjectthe 132
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Table of Contents acquired shares to a repurchase option, which we could exercise upon the voluntary or involuntary termination of the purchasers services for any reason. In addition, in the event of a termination of a service provider for cause, vested stock purchasedtoastockpurchaserightmayalsoberepurchasedbyus. RestrictedStockUnits.Our2005StockPlanalsopermitstheissuanceofRSUs,toourserviceproviders.RSUsgranted underour2005StockPlanrepresenttherighttoreceivesharesofourClassBcommonstockorcashpaymentataspecified futuredateandmaybesubjecttovestingrequirements. Transferability.Incentivestockoptionsmaynotbetransferred,exceptbywillorbythelawsofdescentordistribution. However, the compensation committee may, in its sole discretion, grant nonstatutory stock options or RSUs that may be transferredintheeventofdeathordisability,ortoimmediatefamilymembers. EffectofCertainCorporateTransactions. In the event we experience a sale of all or substantially all of our assets, a merger or certain other corporate transactions including a change in control, all awards granted under the 2005 Stock Plan shallbesubjecttotheagreementevidencingsuchmergerorconsolidationandsuchagreementshallprovideforoneormoreof thefollowing: thecontinuationorassumptionofsuchoutstandingawardsbythesurvivingcorporationoritsparent thesubstitutionbythesurvivingcorporationoritsparentofequivalentawardsforsuchoutstandingawardsor terminationoftheoutstandingawardsuponconsummationofthecorporatetransaction.
The 2005 Stock Plan provides for proportional adjustment of awards in the event of a stock split, stock dividend and certainothersimilarcorporateevents. Payment.Thecompensationcommitteemaypermitanyofthefollowingmethodsofpaymentsfortheexerciseofoptions: cashorcashequivalents a promissory note having such recourse, interest, redemption and security provisions as determined by the compensationcommittee sharesofClassBcommonstockthattheoptioneealreadyowns cancellationofindebtednessor animmediatesaleoftheoptionsharesthroughabrokerdesignatedbyusinacashlessexercise,providedthatsucha programisadoptedbyourcompensationcommittee.
AdditionalProvisions. Our compensation committee has the authority to amend, suspend or terminate the 2005 Stock Plan,providedthatnoamendmentmaymateriallyoradverselyaffectawardsalreadygrantedwithoutthewrittenconsentofthe holder of the affected award. Our stockholders approve actions that require stockholder approval under applicable law and approveanyincreaseinthenumberofsharesreservedforissuanceunderthe2005StockPlan. 2005OfficersStockPlan OnNovember8,2005,ourboardofdirectorsadoptedthe2005OfficersStockPlan(OfficersPlan).TheOfficersPlan permitstheissuanceofsharesofourClassBcommonstockoroptionstopurchasesuchsharestocertainofouremployeesand officers.ThetotalnumberofsharesofourClassBcommonstockthatmaybesoldundertheOfficersPlanis120,000,000.All sharesunderthisplanaresubjecttoanoutstandingawardheldbyourfounder,Chairman,andCEO.Wewillnotgrantany additionalawardsundertheOfficersPlanfollowingourinitialpublicoffering. 133
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Table of Contents Ourboardofdirectors,oracommitteedesignatedbytheboard,determineswhowillreceivegrantsunderthisOfficers Planandthetermsandconditionsofsuchgrants.TherightsoroptionstopurchasesharesundertheOfficersPlanshallbe nontransferable,otherthanbywillorbythelawsofdescentordistribution.PursuanttothetermsoftheOfficersPlan,andif requiredbyapplicablelaw,wemustprovideannualfinancialstatementstoeachgrantee,unlesssuchgranteehasaccessto equivalentinformationthroughothermeans.SharesissuedpursuanttothisOfficersPlanaresubjecttoourrightofrepurchase. 2012EquityIncentivePlan Ourboardofdirectorsandstockholdersadoptedour2012EquityIncentivePlan,whichwillbecomeeffectiveonthedate ofthisprospectusandwillserveasthesuccessortoour2005StockPlan. ShareReserve.Wehavereserved25,000,000sharesofourClassAcommonstockforissuanceunderour2012Equity IncentivePlanplusanadditionalnumberofsharesofClassAcommonstockequaltoanysharesreservedbutnotissuedor subjecttooutstandingawardsunderour2005StockPlanonthedateofthisprospectus,plus,onandafterthedateofthis prospectus, (i) shares that are subject to outstanding awards under the 2005 Stock Plan which cease to be subject to such awards, (ii) shares issued under the 2005 Stock Plan which are forfeited or repurchased at their original issue price, and (iii)sharessubjecttoawardsunderthe2005StockPlanthatareusedtopaytheexercisepriceofanoptionorwithheldto satisfythetaxwithholdingobligationsrelatedtoanyaward,includingPre2011RSUsandPost2011RSUs.Thenumberof sharesreservedforissuanceunderour2012EquityIncentivePlanwillincreaseautomaticallyonthefirstdayofJanuaryof each of 2013 through 2022 by a number of shares of Class A common stock equal to (i) the lesser of 2.5% of the total outstandingsharesourcommonstockasoftheimmediatelyprecedingDecember31stor(ii)anumberofsharesdeterminedby the board of directors. In addition, the following shares of our Class A common stock will again be available for grant or issuanceunderour2012EquityIncentivePlan: sharessubjecttooptionsgrantedunderour2012EquityIncentivePlanthatceasetobesubjecttotheoptionforany reasonotherthanexerciseoftheoption sharessubjecttoawardsgrantedunderour2012EquityIncentivePlanthataresubsequentlyforfeitedorrepurchased byusattheoriginalissueprice sharessubjecttoawardsgrantedunderour2012EquityIncentivePlanthatotherwiseterminatewithoutsharesbeing issuedand sharessurrendered,cancelled,orexchangedforcash.
Term.We anticipate that our 2012 Equity Incentive Plan will terminate ten years from the date our board of directors approvestheplan,unlessitisterminatedearlierbyourboardofdirectors. Eligibility.Weanticipatethatour2012EquityIncentivePlanwillauthorizetheawardofstockoptions,restrictedstock awards,stockappreciationrights,restrictedstockunits,performancesharesandstockbonuses.Nopersonwillbeeligibleto receivemorethan2,500,000sharesinanycalendaryearunderour2012EquityIncentivePlanotherthananewemployeeof ours,whowillbeeligibletoreceivenomorethan5,000,000sharesundertheplaninthecalendaryearinwhichtheemployee commencesemployment. Administration.Our2012EquityIncentivePlanwillbeadministeredbyourcompensationcommittee,allofthemembers ofwhicharenonemployeedirectorsunderapplicablefederalsecuritieslawsandoutsidedirectorsasdefinedunderapplicable federal tax laws. The compensation committee will have the authority to construe and interpret our 2012 Equity Incentive Plan,grantawardsandmakeallotherdeterminationsnecessaryoradvisablefortheadministrationoftheplan.Awardsunder the 2012 Equity Incentive Plan may be made subject to performance factors and other terms in order to qualify as performancebasedcompensationforthepurposesof162(m)oftheCode. 134
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Table of Contents StockOptions.Our2012EquityIncentivePlanwillprovideforthegrantofincentivestockoptionsthatqualifyunder Section 422 of the Code only to our employees. All awards other than incentive stock options may be granted to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors andadvisorsrenderservicesnotinconnectionwiththeofferandsaleofsecuritiesinacapitalraisingtransaction.Theexercise priceofeachstockoptionmustbeatleastequaltothefairmarketvalueofourClassAcommonstockonthedateofgrant.The exercisepriceofincentivestockoptionsgrantedto10%stockholdersmustbeatleastequalto110%ofthatvalue. Ourcompensationcommitteemayprovideforoptionstobeexercisedonlyastheyvestortobeimmediatelyexercisable withanysharesissuedonexercisebeingsubjecttoourrightofrepurchasethatlapsesasthesharesvest.Ingeneral,optionswill vestoverafouryearperiod.Themaximumtermofoptionsgrantedunderour2012EquityIncentivePlanistenyears. Restricted Stock. A restricted stock award is an offer by us to sell shares of our Class A common stock subject to restrictions.Theprice(ifany)ofarestrictedstockawardwillbedeterminedbythecompensationcommittee.Unlessotherwise determined by the compensation committee at the time of award, vesting will cease on the date the participant no longer providesservicestousandunvestedshareswillbeforfeitedtoorrepurchasedbyus. StockAppreciationRights.Stockappreciationrightsprovideforapayment,orpayments,incashorsharesofourClassA commonstock,totheholderbaseduponthedifferencebetweenthefairmarketvalueofourClassAcommonstockonthedate ofexerciseandthestatedexercisepriceuptoamaximumamountofcashornumberofshares.Stockappreciationrightsmay vestbasedontimeorachievementofperformanceconditions. RestrictedStockUnits.AnRSUisanawardthatcoversanumberofsharesofourClassAcommonstockthatmaybe settleduponvestingincash,bytheissuanceoftheunderlyingsharesoracombinationofboth.Theseawardsaresubjectto forfeiturepriortosettlementbecauseofterminationofemploymentorfailuretoachievecertainperformanceconditions. PerformanceShares.AperformanceshareisanawardthatcoversanumberofsharesofourClassAcommonstockthat may be settled upon achievement of the preestablished performance conditions in cash or by issuance of the underlying shares.Theseawardsaresubjecttoforfeiturepriortosettlementbecauseofterminationofemploymentorfailuretoachievethe performanceconditions. StockBonusAwards.Stockbonusawardsmaybegrantedasadditionalcompensationforservicesorperformance,and therefore,maynotbeissuedinexchangeforcash. AdditionalProvisions.Awardsgrantedunderour2012EquityIncentivePlanmaynotbetransferredinanymannerother thanbywillorbythelawsofdescentanddistribution,orasdeterminedbyourcompensationcommittee.Unlessotherwise restrictedbyourcompensationcommittee,awardsthatarenonstatutorystockoptionsmaybeexercisedduringthelifetimeof theoptioneeonlybytheoptionee,theoptioneesguardianorlegalrepresentative,orafamilymemberoftheoptioneewhohas acquiredtheoptionbyapermittedtransfer.Awardsthatareincentivestockoptionsmaybeexercisedduringthelifetimeofthe optionee only by the optionee or the optionees guardian or legal representative. Options granted under our 2012 Equity IncentivePlangenerallymaybeexercisedforaperiodofthreemonthsaftertheterminationoftheoptioneesservicetous, exceptinthecaseofdeathorpermanentdisability,inwhichcasetheoptionsmaybeexercisedforupto12monthsorsix months,respectively,followingterminationoftheoptioneesservicetous. Ifweexperienceachangeincontroltransaction,outstandingawards,includinganyvestingprovisions,maybeassumed or substituted by the successor company. Outstanding awards that are not assumed or substituted will be exercisable for a period of time and will expire upon the closing of a change in control transaction. In the discretion of our compensation committee,thevestingoftheseawardsmaybeacceleratedupontheoccurrenceofthesetypesoftransactions. 135
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Table of Contents LimitationsonLiabilityandIndemnificationMatters Our restated certificate of incorporation that will be in effect at the closing of our initial public offering contains provisionsthatlimittheliabilityofourdirectorsformonetarydamagestothefullestextentpermittedbytheDelawareGeneral CorporationLaw.Consequently,ourdirectorswillnotbepersonallyliabletousorourstockholdersformonetarydamagesfor anybreachoffiduciarydutiesasdirectors,exceptliabilityfor: anybreachofthedirectorsdutyofloyaltytousorourstockholders anyactoromissionnotingoodfaithorthatinvolvesintentionalmisconductoraknowingviolationoflaw unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DelawareGeneralCorporationLawor anytransactionfromwhichthedirectorderivedanimproperpersonalbenefit.
Our restated certificate of incorporation and restated bylaws that will be in effect at the closing of our initial public offering require us to indemnify our directors, executive officers and other key employees to the maximum extent not prohibitedbytheDelawareGeneralCorporationLaworanyotherapplicablelawandallowustoindemnifyotherofficers, employeesandotheragentsassetforthintheDelawareGeneralCorporationLaworanyotherapplicablelaw. Wehaveentered,andintendtocontinuetoenter,intoseparateindemnificationagreementswithourdirectors,executive officersandotherkeyemployees,inadditiontotheindemnificationprovidedforinourrestatedbylaws.Theseagreements, amongotherthings,requireustoindemnifyourdirectors,executiveofficersandotherkeyemployeesforcertainexpenses, includingattorneysfees,judgments,penaltiesfinesandsettlementamountsactuallyandreasonablyincurredbyadirectoror executiveofficerinanyactionorproceedingarisingoutoftheirservicesasoneofourdirectorsorexecutiveofficers,oranyof oursubsidiariesoranyothercompanyorenterprisetowhichthepersonprovidesservicesatourrequest,includingliability arisingoutofnegligenceoractiveorpassivewrongdoingbytheofficerordirector.Webelievethatthesecharterprovisions and indemnification agreements are necessary to attract and retain qualified persons such as directors, officers and key employees.Wealsomaintaindirectorsandofficersliabilityinsurance. Thelimitationofliabilityandindemnificationprovisionsinourrestatedcertificateofincorporationandrestatedbylaws maydiscouragestockholdersfrombringingalawsuitagainstourdirectorsandofficersforbreachoftheirfiduciaryduty.They mayalsoreducethelikelihoodofderivativelitigationagainstourdirectorsandofficers,eventhoughanaction,ifsuccessful, mightbenefitusandotherstockholders.Further,astockholdersinvestmentmaybeadverselyaffectedtotheextentthatwe paythecostsofsettlementanddamageawardsagainstdirectorsandofficersasrequiredbytheseindemnificationprovisions. Atpresent,thereisnopendinglitigationorproceedinginvolvinganyofourdirectorsorexecutiveofficersastowhich indemnificationisrequiredorpermitted,andwearenotawareofanythreatenedlitigationorproceedingthatmayresultina claimforindemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (Securities Act), may be permittedtodirectors,executiveofficersorpersonscontrollingus,wehavebeeninformedthatintheopinionoftheSECsuch indemnificationisagainstpublicpolicyasexpressedintheSecuritiesActandisthereforeunenforceable. 136
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Table of Contents RELATEDPARTYTRANSACTIONS In addition to the executive officer and director compensation arrangements discussed in Executive Compensation, belowwedescribetransactionssinceJanuary1,2009,towhichwehavebeenaparticipant,inwhichtheamountinvolvedin thetransactionexceedsorwillexceed$120,000andinwhichanyofourdirectors,executiveofficersorholdersofmorethan 5%ofourcapitalstock,oranyimmediatefamilymemberof,orpersonsharingthehouseholdwith,anyoftheseindividuals, hadorwillhaveadirectorindirectmaterialinterest. AmendedandRestatedInvestorsRightsAgreement Wehaveenteredintoaninvestorsrightsagreementwithcertainholdersofourconvertiblepreferredstockandcommon stock,includingentitiesaffiliatedwithMr.Andreessen,Mr.Thiel,Mr.BreyerandAccelPartners,andDSTGlobalLimited. CertainholdersofsharesofourClassAcommonstockandClassBcommonstockareentitledtorightswithrespecttothe registrationoftheirsharesfollowingourinitialpublicofferingundertheSecuritiesAct.Foradescriptionoftheseregistration rights,seeDescriptionofCapitalStockRegistrationRights. SeriesEPreferredStockFinancing InMay2009,wesoldanaggregateof44,037,540shares(aftergivingeffecttoa5for1stockspliteffectedinOctober 2010)ofourSeriesEpreferredstocktoMail.ruGroupLimited(f/k/aDigitalSkyTechnologiesLimited),atapurchaseprice per share of $4.54 (after giving effect to a 5for1 stock split effected in October 2010), for an aggregate purchase price of approximately$200million.Followingthissale,andthepurchaseofadditionalsharesfromourexistingstockholders,Mail.ru Group Limited and its affiliates beneficially owned more than 5% of our outstanding capital stock. We have no ongoing obligationsundertheSeriesEpreferredstockpurchaseagreement. ConversionAgreement InconnectionwiththeirpurchaseofsharesfromcertainexistingstockholdersinFebruary2010,Mail.ruGroupLimited andDSTGlobalLimitedandtheirrespectiveaffiliatesenteredintoaconversionagreementwithusbecauseweandtheother partieshadagreedsuchpartiesaggregatevotingpowerwouldbemaintainedatlessthan10%ofourtotaloutstandingvoting power.Theconversionagreementcontainsthefollowingprovisions: Lockup Pursuanttothisagreement,Mail.ruGroupLimitedandDSTGlobalLimitedandtheirrespectiveaffiliateshaveagreednot tosellsharesofourcapitalstock,otherthananysharestheymaysellinourinitialpublicoffering,forcertainperiodsoftime followingthedateofthisprospectus.Astosharesheldbythemasofthedateofthisprospectus,thisagreementwasamended inApril2012toprovidethatthetransferrestrictionswillexpireasfollows:(1)asto43,155,333oftheshares91daysafterthe dateofthisprospectus,(2)astoanadditional13,134,236oftheshares211daysafterthedateofthisprospectus,and(3)asto theremainderoftheshares366daysafterthedateofthisprospectus,suchthatallofthesharesheldbyMail.ruGroupLimited andDSTGlobalLimitedandtheirrespectiveaffiliateswillbefreelytradable366daysafterthedateofthisprospectus. AutomaticConversionofSharesupontheOccurrenceofCertainEvents Inaddition,Mail.ruGroupLimitedandDSTGlobalLimitedhaveagreed,pursuanttotheconversionagreement,thatif eitheroftheirrespectivevotingagreementswithMr.Zuckerbergisterminatedbecauseofhisdeathorhisfailuretobeactively engagedinourmanagement,thattheyandtheirrespectiveaffiliatesshallautomaticallyconverttheirClassBcommonstockto Class A common stock pursuant to the optional conversion provision of our restated certificate of incorporation. For informationregardingMr.Zuckerbergsvotingagreements,seeDescriptionofCapitalStockVotingAgreements. 137
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Table of Contents Mail.ruGroupLimited,whichwasaffiliatedwithDSTGlobalLimitedonthedatethepartiesenteredintotheconversion agreement,underwentacorporaterestructuringinNovember2010inconnectionwithitsinitialpublicofferingontheLondon Stock Exchange. Following the corporate restructuring, Mail.ru Group Limited was no longer affiliated with DST Global LimitedanditsaffiliatesDSTGlobalII,L.P.,DSTGlobalIII,L.P.,DSTUSALimited,andDSTUSAIILimited.Mail.ruGroup Limited no longer beneficially owns more than 5% of our outstanding capital stock. For additional information regarding beneficialownershipofourcapitalstockasofMarch31,2012,seePrincipalandSellingStockholders. ClassBCommonStockRestrictionAgreement In2004and2005,Mr.Zuckerbergsfatherprovideduswithinitialworkingcapital.Inconsiderationforthisassistance, we issued him an option to purchase 2,000,000 shares, as adjusted for splits and reclassifications, of our Class B common stock.Theoptioninitiallyexpiredbyitstermsoneyearfollowingthedateofgrantwithouthavingbeenexercised.Ourboard ofdirectors(withoutMr.Zuckerberg)determinedthattheoptiondidnotreflecttheintentofthepartieswithrespecttothe equitytobeissuedtohiminconsiderationofthefinancialassistanceandareleasefrompotentialrelatedclaims.Accordingly, inDecember2009,weissuedanaggregateof2,000,000sharesofourClassBcommonstocktoGlateLLC,anentityownedby Mr.Zuckerbergsfather.Wehavenoongoingobligationsunderthisagreement. RightofFirstRefusal Pursuant to our bylaws and certain agreements with our stockholders, we or our assignees have the right to purchase shares of our capital stock, including shares of Class B common stock issued under our 2005 Stock Plan, which these stockholdersproposetoselltootherparties.Theserightsarecustomaryforventurecapitalbackedcompaniesinourindustry andwillterminateuponthecompletionofourinitialpublicoffering.In2009and2010,inconnectionwithproposedsalesby certain stockholders, we assigned our right to purchase 28,403,845 shares of our Class B common stock to certain entities affiliatedwithMail.ruGroupLimitedandDSTGlobalLimited.Mail.ruGroupLimitedandDSTGlobalLimitedpurchased 27,182,595sharesofourClassBcommonstockinconnectionwithsuchassignments.Foradditionalinformationregarding beneficialownershipofourcapitalstockasofMarch31,2012,seePrincipalandSellingStockholders. ClassACommonStockFinancing InDecember2010,wesoldanaggregateof2,398,081sharesofourClassAcommonstocktoDSTGlobalLimitedata purchasepricepershareof$20.85,foranaggregatepurchasepriceofapproximately$50million. EquityAwards,EmploymentAgreementsandOfferLetters We have granted stock options or RSUs to our executive officers and our directors. For a description of these equity awards, see Executive Compensation2011 Outstanding Equity Awards at YearEnd Table and ManagementDirector Compensation. We have entered into employment agreements or offer letters with each of our named executive officers. For more informationregardingtheseagreements,seeExecutiveCompensationEmploymentAgreementsandOfferLetters. EmploymentArrangementsWithImmediateFamilyMembersofOurExecutiveOfficersandDirectors MollyGraham,thedaughterofDonaldE.Graham,amemberofourboardofdirectors,isemployedbyus.During2009, 2010,and2011,Ms.Grahamhadtotalcashcompensation,includingbasesalary,bonusandothercompensation,of$98,058, $133,620,and$189,168. RandiZuckerberg,thesisterofMarkZuckerberg,ourfounder,Chairman,andCEO,wasemployedbyusuntilAugust 2011. During 2009, 2010, and 2011, Ms. Zuckerberg had total cash compensation, including base salary, bonus and other compensation,of$128,750,$139,578,and$89,536. 138
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Table of Contents ThecompensationlevelsofMmes.GrahamandZuckerbergwerebasedonreferencetoexternalmarketpracticeofsimilar positions or internal pay equity when compared to the compensation paid to employees in similar positions that were not related to our executive officers and directors. They were also eligible for equity awards on the same general terms and conditionsasapplicabletootheremployeesinsimilarpositionswhowerenotrelatedtoourexecutiveofficersanddirectors. IndemnificationAgreements Wehaveenteredintoindemnificationagreementswitheachofourdirectors,executiveofficersandotherkeyemployees. Theindemnificationagreementsandouramendedandrestatedbylawswillrequireustoindemnifyourdirectorstothefullest extent permitted by Delaware law. For more information regarding these agreements, see Executive Compensation LimitationsonLiabilityandIndemnificationMatters. CommercialAgreements During 2009, 2010, 2011, and the first quarter of 2012, The Washington Post Company and its related companies purchased $0.6 million, $4.8 million, $4.2 million, and $0.8 million, respectively, of advertisements on our website. Mr. Graham, a member of our board of directors, is the Chief Executive Officer of The Washington Post Company. The purchasesbyTheWashingtonPostCompanyanditsrelatedentitiesweremadeintheordinarycourseofbusinesspursuantto ourstandardonlinetermsandconditionsandwereallmadethroughourselfserviceadsystem.Inaddition,SocialCodeLLC, awhollyownedsubsidiaryofTheWashingtonPostCompany,isanadvertisingagencythathasclientsthatdobusinesswith us. During2009,2010,2011,andthefirstquarterof2012,Netflixpurchased$1.9million,$1.6million,$3.8million,and $1.2million,respectively,ofadvertisementsonourwebsite.Mr.Hastings,amemberofourboardofdirectors,istheChief ExecutiveOfficerofNetflix.ThepurchasesbyNetflixweremadeintheordinarycourseofbusinesspursuanttoourstandard termsandconditions. During2010and2011,wemadepaymentstoGMGLifestyleEntertainmentInc.(GMG)of$0.9millionand$0.7million, respectively,forcertainsalesandmarketingservices.RobGoldberg,thefounderandChiefExecutiveOfficerofGMG,isthe brotherinlawofMs.Sandberg,ourChiefOperatingOfficer.TheGMGrelationshipwasenteredintointheordinarycourseof businesspursuanttoanegotiatedagreementafterweevaluatedothercommercialalternativesandconcludedthatGMGwas themostsuitablealternative.Ms.SandbergdidnotparticipateinthedecisiontonegotiatewithGMGorinthenegotiations themselves.GMGwasacquiredbyTheToppsCompanyinJuly2011. Review,ApprovalorRatificationofTransactionswithRelatedParties Wehaveadoptedarelatedpartytransactionspolicyunderwhichourexecutiveofficers,directors,nomineesforelection asadirector,beneficialownersofmorethan5%ofanyclassofourcommonstock,andanymembersoftheimmediatefamily ofanyoftheforegoingpersonsarenotpermittedtoenterintoarelatedpartytransactionwithuswithouttheconsentofour audit committee. If the related party is, or is associated with, a member of our audit committee, the transaction must be reviewedandapprovedbyanotherindependentbodyofourboardofdirectors,suchasourgovernancecommittee.Anyrequest forustoenterintoatransactionwitharelatedpartyinwhichtheamountinvolvedexceeds$120,000andsuchpartywould have a direct or indirect interest must first be presented to our audit committee for review, consideration and approval. If advance approval of a relatedparty transaction was not feasible or was not obtained, the relatedparty transaction must be submittedtotheauditcommitteeassoonasreasonablypracticable,atwhichtimetheauditcommitteeshallconsiderwhether toratifyandcontinue,amendandratify,orterminateorrescindsuchrelatedpartytransaction.Allofthetransactionsdescribed abovewerereviewedandconsideredby,andwereenteredintowiththeapprovalof,orratificationby,ourboardofdirectors. 139
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Table of Contents PRINCIPALANDSELLINGSTOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March31,2012,andasadjustedtoreflectthesaleofClassAcommonstockofferedbyusandthesellingstockholdersinour initialpublicoffering,for: each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of Class A commonstockorClassBcommonstock eachofourdirectors eachofournamedexecutiveofficers allofourdirectorsandexecutiveofficersasagroupand allsellingstockholders.
WehavedeterminedbeneficialownershipinaccordancewiththerulesoftheSEC.Exceptasindicatedbythefootnotes below,webelieve,basedontheinformationfurnishedtous,thatthepersonsandentitiesnamedinthetablebelowhavesole voting and investment power with respect to all shares of Class A common stock or Class B common stock that they beneficiallyown,subjecttoapplicablecommunitypropertylaws.Unlessotherwiseindicatedinthefootnotesbelow,basedon the information provided to us by or on behalf of the selling stockholders, no selling stockholder is a brokerdealer or an affiliateofabrokerdealer. Applicablepercentageownershipisbasedon117,549,393sharesofClassAcommonstockand1,780,535,644sharesof ClassBcommonstockoutstandingatMarch31,2012,assumingconversionofalloutstandingsharesofpreferredstockinto anaggregateof545,401,443sharesofourClassBcommonstock.Forpurposesofcomputingpercentageownershipafterour initialpublicoffering,wehavealsoassumedthat180,000,000sharesofClassAcommonstockwillbeissuedbyusinour initialpublicoffering,that60,000,000sharesofClassBcommonstockwillbeissuedbyusinconnectionwiththepartial exerciseofanoutstandingstockoptionbyMarkZuckerberg,ourfounder,Chairman,andCEO,thatcertainofourexisting stockholders will convert an aggregate of 179,058,237 shares of our Class B common stock into an equivalent number of sharesofourClassAcommonstockinconnectionwithourinitialpublicoffering,andthattheunderwriterswillnotexercise theirrighttopurchase50,612,302additionalsharestocoveroverallotments.Incomputingthenumberofsharesofcommon stockbeneficiallyownedbyapersonandthepercentageownershipofthatperson,wedeemedtobeoutstandingallsharesof common stock subject to options, RSUs or other convertible securities held by that person or entity that are currently exercisableorreleasableorthatwillbecomeexercisableorreleasablewithin60daysofMarch31,2012.Wedidnotdeem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwiseindicated,theaddressofeachbeneficialownerlistedinthetablebelowisc/oFacebook,Inc.,1601WillowRoad, MenloPark,California94025. 140
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SharesBeneficiallyOwned PriortothisOffering ClassA ClassB NameofBeneficialOwner NamedExecutiveOfficers andDirectors: MarkZuckerberg(3) Sharessubjecttovoting proxy(5) Total(3)(5) SherylK.Sandberg(6) DavidA.Ebersman(7) MikeSchroepfer(8) TheodoreW.Ullyot(9) MarcL.Andreessen(10) ErskineB.Bowles(11) JamesW.Breyer(12) DonaldE.Graham(14) ReedHastings(15) PeterA.Thiel(16) Allexecutiveofficersand directorsasagroup (12persons)(18) Other5%Stockholders: EntitiesaffiliatedwithAccel Partners(12) EntitiesaffiliatedwithDST GlobalLimited(19) DustinMoskovitz(21) Entitiesaffiliatedwith GoldmanSachs(22) T.RowePriceAssociates, Inc. (24) OtherSelling Stockholders: Entitiesaffiliatedwith ElevationPartners(25) Entitiesaffiliatedwith GreylockPartners(27) Mail.ruGroupLimited(29) MarkPincus(30) Entitiesaffiliatedwith MeritechCapital Partners(32) MicrosoftCorporation(34) EntitiesAffiliatedwithReid Hoffman(35) SeanParker(37) EntitiesaffiliatedwithTiger GlobalManagement(38) ValiantCapital Opportunities,LLC (40) Allotherselling stockholders(41) * (1) (2) (3) Shares % Shares(1) % %ofTotal Voting PowerBefore OurInitial Public Offering(2) SharesBeneficially OwnedAfterthisOffering ClassA ClassB Shares(1) % Shares(1) % %ofTotal Voting PowerAfter OurInitial Public Offering(2) 30.3 29.5 58.8 * * * * * 1.6 * 61.2 1.6 5.7 8.4 * *
Numberof Shares Being Offered
533,801,850 28.1 36.1 36.1 541,994,071 1,075,795,921 1,899,986 2,399,999 2,291,849 2,025,244 6,607,131 201,378,349 44,724,100 30.4 56.6 * * * * * 11.3 2.5
27.9 30,200,000(4) 30.5 56.5 * * * * * 11.2 2.5 40,888,562 71,088,562 38,189,423(13) 7,748,385(17)
503,601,850 31.5 3.3 3.3 25.5 4.4 470,409,565 974,011,415 1,899,986 2,399,999 2,291,849 2,025,244 6,607,131 10,431,225 10,675,179 30.6 60.9 * * * * * * *
42,395,203 42,395,203
19,957,787 19,957,787 152,757,701 26,300,536
42,395,203 36.1 1,326,579,470 69.6 201,378,349 11.3
69.4 117,026,370
199,016,024 33.3 999,798,919 62.2 *
11.2 38,189,423(13) 152,757,701 25.5 10,431,225
36,711,928 31.2 94,567,945 5.3 133,698,645 7.5 65,947,241 56.1 6,033,630 5.1 12,158,743 *
5.5 26,255,972(20) 15,600,287 2.6 89,423,614 5.8 7.5 133,698,645 8.7 * 13,189,447(23) 52,757,794 8.8 * *
6,033,630 1.0 12,158,743
40,109,645 2.3 36,656,372 2.1 55,026,235 3.1 5,313,920 * 40,355,223 2.3 32,784,626 1.8 4,713,920 * 69,653,657 3.9 49,630,486 2.8 36,335,590 2.0 352,522 *
2.2
4,622,496(26)
35,487,149 2.3 29,657,609 1.9 45,081,608 2.9 4,304,637 * 33,356,443 2.2 26,227,701 1.7 3,771,136 * 69,653,657 4.5 4,207,500 * 46,268,298 3.0
2.2 1.9 2.8 * 2.1 1.6 * 4.4 2.9 2.3 *
1,325,775 1.1
2.0 6,998,763(28) 3.1 11,270,402 * 1,009,283(31) 2.3 1.8 * 3.9 2.8 2.0 * 6,998,780(33) 6,556,925 942,784(36) 3,362,188(39)
4,207,500 3.6
36,335,590 2.4 282,018 *
70,504(42)
Lessthan1%. TherearecurrentlynoRSUswhichwillbecomereleasablewithin60daysofMarch31,2012tothebenefitoftheindividualsandentitieslistedinthetableabove. PercentageoftotalvotingpowerrepresentsvotingpowerwithrespecttoallsharesofourClassAandClassBcommonstock,asasingleclass.Theholdersofour ClassBcommonstockareentitledtotenvotespershare,andholdersofourClassAcommonstockareentitledtoonevotepershare.Formoreinformationabout thevotingrightsofourClassAandClassBcommonstock,seeDescriptionofCapitalStockCommonStock. Consistsof(i)632,765sharesofClassBcommonstockheldofrecordbyMr.Zuckerberg(ii)3,416,823sharesofClassBcommonstockheldofrecordbyMark Zuckerberg,TrusteeofTheMarkZuckerberg2008AnnuityTrustdatedMarch13,2008(iii)409,752,262sharesofClassB
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common stock held of record by Mark Zuckerberg, Trustee of The Mark Zuckerberg Trust dated July 7, 2006 and (iv) 120,000,000 shares of Class B common stockissuableuponexerciseofanoptionthatisexercisablewithin60daysofMarch31,2012,whichwillbepartiallyexercisedbyMr.Zuckerbergasdescribedin footnote(4)below. MarkZuckerberg,ourfounder,Chairman,andCEO,willofferandsell30,200,000sharesinourinitialpublicoffering.Thesubstantialmajorityofthenetproceeds Mr.Zuckerbergwillreceiveuponsuchsalewillbeusedtosatisfytaxesthathewillincuruponthereceiptof60,000,000sharesofourClassBcommonstockasa resultofthepartialexerciseofanoutstandingstockoptiontopurchase120,000,000sharesofourClassBcommonstock. ConsistsofsharesofourClassAandClassBcommonstockheldbyotherstockholdersoverwhich,exceptunderlimitedcircumstances,Mr.Zuckerbergholdsan irrevocableproxy,pursuanttovotingagreementsbetweenMr.Zuckerberg,usandsuchstockholders,includingcertainofourdirectorsandholdersofmorethan5% ofourcapitalstockwithrespecttocertainmatters,asindicatedinthefootnotesbelow.Wedonotbelievethatthepartiestothesevotingagreementsconstitutea groupunderSection13oftheSecuritiesExchangeActof1934,asamended,asMr.Zuckerbergexercisesvotingcontrolovertheseshares.Thesharestobesold inourinitialpublicofferingthatarecurrentlysubjecttoavotingagreementinfavorofMr.Zuckerbergwillnolongerbesubjecttothevotingagreementfollowing ourinitialpublicoffering.Formoreinformationaboutthevotingagreements,seeDescriptionofCapitalStockVotingAgreements. Consists of 1,899,986 shares of Class B common stock held of record by Sheryl K. Sandberg, Trustee of the Sheryl K. Sandberg 2008 Annuity Trust dated April15,2008.Ms.Sandbergalsoholds39,321,041RSUswhicharesubjecttovestingconditionsnotexpectedtooccurwithin60daysofMarch31,2012. Consistsof2,399,999sharesofClassBcommonstockissuableuponexerciseofoptionsexercisablewithin60daysofMarch31,2012.Mr.Ebersmanalsoholds 7,469,424RSUswhicharesubjecttovestingconditionsnotexpectedtooccurwithin60daysofMarch31,2012. Consistsof2,291,849sharesofClassBcommonstockissuableuponexerciseofoptionsexercisablewithin60daysofMarch31,2012.Mr.Schroepferalsoholds 6,144,188RSUswhicharesubjecttovestingconditionsnotexpectedtooccurwithin60daysofMarch31,2012. Consistsof(i)35,600sharesofClassBcommonstockheldofrecordbyMr.Ullyotand(ii)1,989,644sharesofClassBcommonstockissuableuponexerciseof optionsexercisablewithin60daysofMarch31,2012.Mr.Ullyotalsoholds3,782,818RSUswhicharesubjecttovestingconditionsnotexpectedtooccurwithin 60daysofMarch31,2012. Consists of 3,571,431 shares of Class B common stock held of record by Andreessen Horowitz Fund II, L.P., as nominee (AH Fund), and 3,035,700 shares of ClassBcommonstockheldofrecordbyFBAH,L.P.(FBAH).Doesnotincludeupto1,783,084sharesofourcommonstockissuabletoAndreessenHorowitz Fund I, L.P. upon the closing of our acquisition of Instagram, Inc., including 178,308 shares to be held in escrow. AH Equity Partners I, L.L.C. (AHEP) is the general partner of AH Fund and has sole voting and investment power over the securities held by AH Fund and FBAH. Mr. Andreessen is one of the Managing MembersofAHEP,and,therefore,maybedeemedtosharevotingandinvestmentpoweroverthesecuritiesheldinAHFundandFBAH.TheaddressofAHEP, AHFund,andFBAHis2865SandHillRoad,Suite101,MenloPark,California94025.Mr.Andreessenalsoholds5,247,490RSUswhicharesubjecttovesting conditionsnotexpectedtooccurwithin60daysofMarch31,2012. Mr.Bowlesholds20,000RSUswhicharesubjecttovestingconditionsnotexpectedtooccurwithin60daysofMarch31,2012. Consists of (i) 11,703,132 shares of Class B common stock held of record by James W. Breyer, Trustee of James W. Breyer 2005 Trust dated March 25, 2005 (Breyer 2005 Trust) (ii) 149,527,730 shares of Class B common stock held of record by Accel IX L.P. (Accel IX) (iii) 15,931,653 shares of Class B common stockheldofrecordbyAccelIXStrategicPartnersL.P.(AccelSP)(iv)13,939,214sharesofClassBcommonstockheldofrecordAccelInvestors2005L.L.C. (Accel2005)(v)9,949,820sharesofClassBcommonstockheldofrecordbyAccelGrowthFundL.P.(AccelGrowth)(vi)194,230sharesofClassBcommon stockheldofrecordbyAccelGrowthFundStrategicPartnersL.P.(AccelGrowthSP)and(vii)132,570sharesofClassBcommonstockheldofrecordbyAccel Growth Fund Investors 2009 L.L.C. (Accel Growth 2009). We have received notices of conversion from the holders of record, which provide that in connection withourinitialpublicoffering11,548,527ofthesharesofourClassBcommonstockheldofrecordbytheBreyer2005Trust,149,527,730ofthesharesofour Class B common stock held of record by Accel IX, 15,931,653 of the shares of our Class B common stock held of record by Accel SP, and 13,939,214 of the sharesofourClassBcommonstockheldofrecordbyAccel2005willbeconvertedintoanequivalentnumberofsharesofourClassAcommonstock.AccelIX Associates L.L.C. (A9A) is the general partner of Accel IX and Accel SP and has sole voting and investment power over the shares held by these limited partnerships. Accel Growth Fund Associates L.L.C. (AGFA) is the general partner of Accel Growth and Accel Growth SP and has sole voting and investment poweroverthesharesheldbytheselimitedpartnerships.Mr.BreyerisoneofthemanagingmembersofA9A,AGFA,Accel2005,andAccelGrowth2009,and, therefore, may be deemed to share voting and investment power over the securities held by these entities. The address of A9A and AGFA and their affiliated entities is 428 University Avenue, Palo Alto, California 94301. Mr. Breyer is trustee of the Breyer 2005 Trust. Prior to our initial public offering, 10,431,225 shares of Class B common stock are, and after our initial public offering, 10,431,225 shares of Class B common stock will be, subject to a voting agreement in favorofMr.Zuckerbergreferredtoinfootnote(5)above. Consistsof(i)2,309,705sharestobesoldbytheBreyer2005Trust(ii)29,905,446sharestobesoldbyAccelIX(iii)3,186,230sharestobesoldbyAccelSP (iv)2,787,742sharestobesoldbyAccel2005(v)100sharestobesoldbyAccelGrowth(vi)100sharestobesoldbyAccelGrowthSPand(vii)100sharesto besoldbyAccelGrowth2009. Mr.Grahamholds1,000,000RSUswhicharesubjecttovestingconditionsnotexpectedtooccurwithin60daysofMarch31,2012. Mr.Hastingsholds20,000RSUswhicharesubjecttovestingconditionsnotexpectedtooccurwithin60daysofMarch31,2012. Consists of (i) 32,875,670 shares of Class B common stock held of record by Rivendell One LLC (Rivendell) (ii) 5,978,140 shares of Class B common stock heldofrecordbyTheFoundersFund,LP(FF)(iii)740,960sharesofClassBcommonstockheldofrecordbyTheFounders
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FundII,LP(FFII)(iv)36,640sharesofClassBcommonstockheldofrecordbyTheFoundersFundIIPrincipalsFund,LP(FFPF)(v)22,400sharesofClass BcommonstockheldofrecordbyTheFoundersFundIIEntrepreneursFund,LP(FFEF)and(vi)5,070,290sharesofClassBcommonstockheldofrecordby Lembas, LLC (Lembas). We have received a notice of conversion from Rivendell, which provides that in connection with our initial public offering all of the sharesofourClassBcommonstockheldofrecordbyRivendellwillbeconvertedintoanequivalentnumberofsharesofourClassAcommonstock.Mr.Thielis the beneficial owner of Rivendell and has voting and investment power over the securities held by Rivendell. Mr. Thiel is a managing member of the general partner of each of FF, FF II, FFPF, and FFEF, and, therefore, may be deemed to have voting and investment power over the securities held by these entities. Mr. Thiel is the managing member of Lembas and has voting and investment power over the securities held by Lembas. Prior to our initial public offering, 111,884sharesofClassBcommonstockare,andafterourinitialpublicoffering,111,884sharesofClassBcommonstockwillbe,subjecttoavotingagreement infavorofMr.Zuckerbergreferredtoinfootnote(5)above. Consistsof(i)6,575,134sharestobesoldbyRivendelland(ii)1,173,251sharestobesoldbyFF. Consists of (i) 42,395,203 shares of Class A common stock (ii) 1,199,897,978 shares of Class B common stock and (iii) 126,681,492 shares of Class B commonstockissuableuponexerciseofoptionsexercisablewithin60daysofMarch31,2012. Consistsof(i)17,213,540sharesofClassBcommonstockheldofrecordbyDSTGlobalLimited(ii)5,995,203sharesofClassAcommonstockheldofrecord byDSTGlobalII,L.P.(iii)1,697,217sharesofClassAcommonstockheldofrecordbyDSTGlobalIII,L.P.(iv)3,945,582sharesofClassAcommonstock and 24,290,447 shares of Class B common stock held of record by DST USA Limited and (v) 25,073,926 shares of Class A common stock and 53,063,958 sharesofClassBcommonstockheldofrecordbyDSTUSAIILimited.YuriMilnerholdsultimatevotingandinvestmentpoweroverthesecuritiesheldbythese entities.TheaddressofDSTGlobalLimited,DSTGlobalII,L.P.,DSTGlobalIII,L.P.,DSTUSALimited,andDSTUSAIILimitedisc/oTulloch&Co.,4 HillStreet,LondonW1J5NE,UnitedKingdom.Priortoourinitialpublicoffering,36,711,928sharesofClassAcommonstockand94,567,945sharesofClass Bcommonstockare,andafterourinitialpublicoffering,15,600,287sharesofClassAcommonstockand89,423,614sharesofClassBcommonstockwillbe, subject to a voting agreement in favor of Mr. Zuckerberg referred to in footnote (5) above. DST Global Limited and its affiliates are no longer affiliated with Mail.ruGroupLimited(f/k/aDigitalSkyTechnologiesLimited).Formoreinformation,seeRelatedPartyTransactionsConversionAgreement. Consists of (i) 3,442,708 shares to be sold by DST Global Limited (ii) 1,199,040 shares to be sold by DST Global II, L.P. (iii) 339,443 shares to be sold by DSTGlobalIII,L.P.(iv)5,647,205sharestobesoldbyDSTUSALimitedand(v)15,627,576sharestobesoldbyDSTUSAIILimited. Consists of (i) 174,165 shares of Class B common stock held of record by Dustin A. Moskovitz, Trustee of The Justin M. Rosenstein 2009 Trust, a trust established pursuant to the Justin M. Rosenstein 2009 Trust Agreement (ii) 114,256,629 shares of Class B common stock held of record by Dustin Moskovitz, Trustee of The Dustin A. Moskovitz Trust dated December 27, 2005 (iii) 14,404,516 shares of Class B common stock held of record by Dustin Moskovitz, Trustee of The Dustin Moskovitz 2008 Annuity Trust dated March 10, 2008 and (iv) 4,863,335 shares of Class B common stock held of record by Justin M. Rosenstein, Trustee of The Dustin A. Moskovitz 2009 Trust, a trust established pursuant to the Dustin A. Moskovitz 2009 Trust Agreement dated January 1, 2009. Mr. Moskovitz is trustee or beneficiary of The Justin M. Rosenstein 2009 Trust, The Dustin A. Moskovitz Trust dated December 27, 2005, The Dustin Moskovitz2008AnnuityTrustdatedMarch10,2008,andTheDustinA.Moskovitz2009Trust.TheaddressofMr.MoskovitzisP.O.Box2929,SanFrancisco, California94126.Priortoourinitialpublicoffering,133,698,645sharesofClassBcommonstockare,andafterourinitialpublicoffering,133,698,645sharesof ClassBcommonstockwillbe,subjecttoavotingagreementinfavorofMr.Zuckerbergreferredtoinfootnote(5)above. Consists of (i) 14,214,807 shares of Class A common stock held of record by The Goldman Sachs Group, Inc. (ii) 2,598,652 shares of Class A common stock held of record by Goldman Sachs Investment Partners Master Fund, L.P. (iii) 1,010,587 shares of Class A common stock held of record by Goldman Sachs Investment Partners Private Opportunities Holdings, L.P. and (iv) 48,123,195 shares of Class A common stock held of record by FBDC Investors Offshore Holdings, L.P. ((ii)(iv), collectively, the Goldman Sachs Limited Partnerships). Affiliates of The Goldman Sachs Group, Inc. are the general partners of the Goldman Sachs Limited Partnerships. GS Investment Strategies, LLC is the investment manager of the Goldman Sachs Limited Partnerships. GS Investment Strategies,LLCisawhollyownedsubsidiaryofTheGoldmanSachsGroup,Inc.Decisionsregardingthevotingordispositionofthesharesin(i)aboveheldby The Goldman Sachs Group, Inc. are made by an investment committee (or an authorized subcommittee or designee thereof). The current voting members of this committee are: Craig Broderick, David Solomon, Gary Cohn, Liz (Beshel) Robinson, Michael S. Sherwood, Sarah Smith, Esta Stecher, and David Viniar. GS Investment Strategies, LLC exercises voting and investment power with respect to the shares in (ii)(iv) above held by the Goldman Sachs Limited Partnerships. The investment committee within GS Investment Strategies, LLC that advises the Goldman Sachs Limited Partnerships currently includes the following voting members: Raanan Agus, Kenneth Eberts, Hideki Kinuhata, Gaurav Bhandari, Terence Ting, Nick Advani, Sabrina Liak, and Joel Schwartz. The address of The GoldmanSachsGroup,Inc.,GSInvestmentStrategies,LLC,andtheGoldmanSachsLimitedPartnershipsis200WestStreet,NewYork,NY10282. Consists of (i) 2,842,961 shares to be sold by The Goldman Sachs Group, Inc. (ii) 519,730 shares to be sold by Goldman Sachs Investment Partners Master Fund,L.P.(iii)202,117sharestobesoldbyGoldmanSachsInvestmentPartnersPrivateOpportunitiesHoldings,L.P.and(iv)9,624,639sharestobesoldby FBDCInvestorsOffshoreHoldings,L.P.TheGoldmanSachsGroup,Inc.andtheGoldmanSachsLimitedPartnershipsareaffiliatesofaregisteredbrokerdealer. These entities have purchased the securities to be sold in our initial public offering in the ordinary course of business and, at the time of such purchase, had no agreementsorunderstandings,directlyorindirectlywithanypersontodistributethesecurities. Consistsof(i)6,033,630sharesofClassAcommonstockheldofrecordby80fundsandaccountsadvisedorsubadvisedbyT.RowePriceAssociates,Inc.and (ii)12,158,743sharesofClassBcommonstockheldofrecordby76fundsandaccountsadvisedorsubadvisedbyT.RowePriceAssociates,Inc.T.RowePrice Associates,Inc.servesasinvestmentadviserwithpowertodirect
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investmentsand/orsolepowertovotethesecuritiesownedbythesefundsandaccounts.TheT.RowePriceProxyCommitteedevelopsthefirmspositionsonall major proxy voting issues, creates guidelines, and oversees the voting process. The funds and accounts that hold our securities are each managed by a T. Rowe Priceportfoliomanager.Ultimately,theT.RowePriceportfoliomanagerofeachfundoraccounthassoleorsharedvotingpower(sharedwithanaccount)andsole investmentpowerinrespectofcompaniesinhisportfolio.TheT.RowePriceportfoliomanagersofthefundsandaccountsthatholdoursecuritiesarecollectively listed as follows: Joseph Milano, Paul R. Bartolo, Robert Sharps, Daniel Martino, David Eiswert, Kennard Allen, Donald Peters, Thomas Huber, Larry Puglia, and Robert Gensler. For purposes of reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price Associates, Inc. may be deemed to be the beneficialownerofalltheshareslisted.T.RowePriceAssociates,Inc.isthewhollyownedsubsidiaryofT.RowePriceGroup,Inc.,whichisapubliclytraded financial services holding company. The address for T. Rowe Price Associates, Inc. is 100 East Pratt Street, Baltimore, MD 21202. T. Rowe Price Investment Services,Inc.(TRPIS),aregisteredbrokerdealer,isasubsidiaryofT.RowePriceAssociates,Inc.TRPISwasformedprimarilyforthelimitedpurposeofacting astheprincipalunderwriterofsharesofthefundsintheT.RowePricefundfamily.TRPISdoesnotengageinunderwritingormarketmakingactivitiesinvolving individualsecurities. Consists of (i) 40,098,990 shares of Class B common stock held of record by Elevation Partners, L.P. (Elevation Partners) and (ii) 10,655 shares of Class B common stock held of record by Elevation Employee Side Fund, LLC (Side Fund). The general partner of Elevation Partners is Elevation Associates, L.P. The generalpartnerofElevationAssociates,L.P.isElevationAssociates,LLC.ThemanagingmemberofSideFundisElevationManagement,LLC.FredAnderson, Paul Hewson, Roger McNamee, and Bret Pearlman are the managers of Elevation Associates, LLC and Elevation Management, LLC and may be deemed to beneficiallyownthesecuritiesheldbyElevationPartnersandSideFund.Priortoourinitialpublicoffering,40,109,645sharesofClassBcommonstockare,and after our initial public offering, 40,109,645 shares of Class B common stock will be, subject to a voting agreement in favor of Mr. Zuckerberg referred to in footnote(5)above. Consistsof(i)4,621,111sharestobesoldbyElevationPartnersand(ii)1,385sharestobesoldbySideFund. Consistsof(i)31,341,221sharesofClassBcommonstockheldofrecordbyGreylockXIILimitedPartnership(ii)3,482,349sharesofClassBcommonstock held of record by Greylock XIIA Limited Partnership and (iii) 1,832,802 shares of Class B common stock held of record by Greylock XII Principals LLC. Greylock XII GP Limited Liability Company is the sole general partner of each of Greylock XII Limited Partnership and Greylock XIIA Limited Partnership. William W. Helman and Aneel Bhusri are the managing members of Greylock XII GP Limited Liability Company and are members of Greylock XII Principals LLC.Theaddressfortheseentitiesis2550SandHillRoad,MenloPark,CA94025.DavidSze,amanagingmemberofGreylockXIIGPLLCandGreylockXII PrincipalsLLC,hasheldobservationrightsonourboardofdirectors.Priortoourinitialpublicoffering,1,662,550sharesofClassBcommonstockare,andafter ourinitialpublicoffering,1,662,550sharesofClassBcommonstockwillbe,subjecttoavotingagreementinfavorofMr.Zuckerbergreferredtoinfootnote(5) above. Does not include up to 530,485 shares of our common stock issuable to Greylock XIII Limited Partnership, Greylock XIII Principals LLC, and Greylock XIIIALimitedPartnershipupontheclosingofouracquisitionofInstagram,including53,047sharestobeheldinescrow. Consists of (i) 5,983,951 shares to be sold by Greylock XII Limited Partnership (ii) 664,879 shares to be sold by Greylock XIIA Limited Partnership and (iii) 349,933sharestobesoldbyGreylockXIIPrincipalsLLC. Consistsof1,325,775sharesofClassAcommonstockand55,026,235sharesofClassBcommonstockheldofrecordbyMail.ruGroupLimited.Mail.ruGroup LimitedisapubliclyheldentitylistedontheLondonStockExchange.TheaddressforMail.ruGroupLimitedisOffice3307,ShathaTower,DubaiMediaCity, Dubai,U.A.E.Priortoourinitialpublicoffering,1,325,775sharesofClassAcommonstockand55,026,235sharesofClassBcommonstockare,andafterour initial public offering, 45,081,608 shares of Class B common stock will be, subject to a voting agreement in favor of Mr. Zuckerberg referred to in footnote (5) above. Consistsof(i)3,863,701sharesofClassBcommonstockheldofrecordbyMarkPincusand(ii)1,450,219sharesofClassBcommonstockheldofrecordby OgdenEnterprisesLLC(Ogden).Mr.PincusisthemanagerofOgdenandholdssolevotingandinvestmentpoweroverthesharesheldbyOgden.Mr.Pincusis theChiefExecutiveOfficerofZyngaInc.,ourlargestPlatformdeveloper.ForinformationonourrelationshipwithZynga,seeBusinessProductsforDevelopers Payments.DoesnotreflectthesalebyMr.Pincusof537,500sharesofClassBcommonstockinprivatetransferssubsequenttoMarch31,2012. Consistsof(i)719,240sharestobesoldbyMr.Pincus,inhisindividualcapacityand(ii)290,043sharestobesoldbyOgden. Consistsof(i)39,632,823sharesofClassBcommonstockheldofrecordbyMeritechCapitalPartnersIIIL.P.and(ii)722,400sharesofClassBcommonstock heldofrecordbyMeritechCapitalAffiliatesIIIL.P.MeritechCapitalAssociatesIIIL.L.C.isthegeneralpartnerofMeritechCapitalPartnersIIIL.P.andMeritech Capital Affiliates III L.P. and has sole voting power with respect to the shares held by Meritech Capital Partners III L.P. and Meritech Capital Affiliates III L.P. MeritechManagementAssociatesIIIL.L.C.isthemanagingmemberofMeritechCapitalAssociatesIIIL.L.C.GeorgeBischof,MikeGordon,PaulMadera,and RobWardarethemanagingmembersofMeritechManagementAssociatesIIIL.L.C.andmaybedeemedtosharevotinganddispositivepowerwithrespecttothe sharesheldbyMeritechCapitalPartnersIIIL.P.andMeritechCapitalAffiliatesIIIL.P.Priortoourinitialpublicoffering,2,530,580sharesofClassBcommon stockare,andafterourinitialpublicoffering,2,530,580sharesofClassBcommonstockwillbe,subjecttoavotingagreementinfavorofMr.Zuckerbergreferred toinfootnote(5)above. Consistsof(i)6,873,496sharestobesoldbyMeritechCapitalPartnersIIIL.P.and(ii)125,284sharestobesoldbyMeritechCapitalAffiliatesIIIL.P. Consistsof32,784,626sharesofClassBcommonstockheldofrecordbyBooth&Co.(FBOMicrosoftCorporation).MicrosoftCorporationisapubliclyheld entitylistedontheNASDAQStockMarketLLC.TheaddressforMicrosoftisOneMicrosoftWay,Redmond,Washington98052.InApril2012,weenteredinto anagreementwithMicrosoftpursuanttowhichwewillbeassignedMicrosoftsrightstoacquirecertainpatentassetsofAOLInc.,aswellastheentityholdinga portionoftheassets,inexchangeforapproximately$550millionincash.
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(35) Consists of (i) 400,000 shares of Class B common stock held of record by Reid Hoffman, Trustee of the Reid Hoffman 2011 Annuity Trust Agreement dated 6/7/2011(ii)3,913,920sharesofClassBcommonstockheldofrecordbyAufklarungLLC(Aufklarung)and(iii)400,000sharesofClassBcommonstockheld ofrecordbyMichelleYee,TrusteeoftheMichelleYee2011AnnuityTrustAgreementdated6/7/2011.Mr.HoffmanisthemanagerofAufklarungandholdssole votingandinvestment powerover the sharesheldbyAufklarung. Does not reflect the sale by Aufklarung of 600,000 shares of Class B common stock in private transferssubsequenttoMarch31,2012. (36) Consistsof(i)80,000sharestobesoldbyReidHoffman,TrusteeoftheReidHoffman2011AnnuityTrustAgreementdated6/7/2011(ii)782,784sharestobe soldbyAufklarungand(iii)80,000sharestobesoldbyMichelleYee,TrusteeoftheMichelleYee2011AnnuityTrustAgreementdated6/7/2011. (37) Consistsof(i)68,153,657sharesofClassBcommonstockheldofrecordbySeanParker(ii)300,000sharesofClassBcommonstockheldofrecordbySeanN. Parker,TrusteeofTheSeanN.Parker2011AnnuityTrustNo.1u/a/d2/22/2011(iii)450,000sharesofClassBcommonstockheldofrecordbySeanN.Parker, Trustee of The Sean N. Parker 2011 Annuity Trust No. 2 u/a/d 2/22/2011 and (iv) 750,000 shares of Class B common stock held of record by Sean N. Parker, Trustee of The Sean N. Parker 2011 Annuity Trust No. 3 u/a/d 2/22/2011. Prior to our initial public offering, 69,653,657 shares of Class B common stock are, and after our initial public offering, 69,653,657 shares of Class B common stock will be, subject to a voting agreement in favor of Mr. Zuckerberg referred to in footnote(5)above.DoesnotreflectthesalebyMr.Parkerof3,655,000sharesofClassBcommonstockinprivatetransferssubsequenttoMarch31,2012. (38) Consistsof(i)4,207,500sharesofClassAcommonstockand43,108,746sharesofClassBcommonstockheldofrecordbyTigerGlobalFBHoldings,LLC and (ii) 6,521,740 shares of Class B common stock held by Tiger Global FB Holdings II LLC. Each of Tiger Global FB Holdings, LLC and Tiger Global FB Holdings II LLC is ultimately controlled by Charles P. Coleman III. The business address of Tiger Global FB Holdings, LLC and Tiger Global FB Holdings II LLCisc/oTigerGlobalManagement,LLC,101ParkAvenue,48thFloor,NewYork,NewYork.Priortoourinitialpublicoffering,4,207,500sharesofClassA common stock and 43,108,746 shares of Class B common stock are, and after our initial public offering, 4,207,500 shares of Class A common stock and 39,746,558sharesofClassBcommonstockwillbesubjecttoavotingagreementinfavorofMr.Zuckerbergreferredtoinfootnote(5)above. (39) Consistsof3,362,188sharestobesoldbyTigerGlobalFBHoldings,LLC. (40) Consists of 36,335,590 shares of Class B common stock held of record by Valiant Capital Opportunities, LLC. The manager of Valiant Capital Opportunities, LLCisValiantCapitalManagement,L.P.ThegeneralpartnerofValiantCapitalManagement,L.P.isValiantCapitalManagement,LLC.Thecontrollingowner ofValiantCapitalManagement,LLCisChristopherR.Hansen.Priortoourinitialpublicoffering,6,358,717sharesofClassBcommonstockare,andafterour initial public offering, 6,358,717 shares of Class B common stock will be, subject to a voting agreement in favor of Mr. Zuckerberg referred to in footnote (5) above. (41) Consistsof352,522sharesofClassBcommonstockheldofrecordbyonesellingstockholdernotlistedabovewhoownedlessthan1%ofoursharesofClassA andClassBcommonstockpriortoourinitialpublicoffering. (42) Consistsof70,504sharestobesoldbytheothersellingstockholdersdescribedabove.
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Table of Contents The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March31,2012,asadjustedtoreflectthesaleofClassAcommonstockbyusandthesellingstockholdersinourinitialpublic offeringassumingexerciseinfulloftheunderwritersoptiontopurchaseadditionalshares. Beneficialownershipisdeterminedonthesamebasisasdescribedintheintroductoryparagraphsfor,andthefootnotes to,theprevioustable.
Numberof Additional SharestobeSold ifthe Underwriters Optionis ExercisedinFull 23,633,288 23,633,288 5,728,415(2) 1,162,258(3) 30,523,961 5,728,415(2) 3,938,399(4) 7,500,000(5) 1,978,419(6) 693,374(7) 1,049,816(8) 1,690,560 151,393(9) 1,049,818(10) 983,539 141,418(11) 10,000,000(12) 504,329(13) 8,000,000 10,576(14) SharesBeneficially OwnedAfterthisOfferingifthe UnderwritersOptionis ExercisedinFull ClassA ClassB Shares 17,382,876 17,382,876 147,029,286 25,138,278 189,550,440 147,029,286 13,025,376 50,779,375 6,033,630 4,207,500 % 2.7 2.7 22.8 3.9 29.4 22.8 2.0 7.9 * * Shares 503,601,850 449,351,188 952,953,038 1,899,986 2,399,999 2,291,849 2,025,244 6,607,131 10,431,225 10,675,179 978,740,542 10,431,225 88,060,126 126,198,645 12,158,743 34,793,775 28,607,793 43,391,048 4,153,244 32,306,625 25,244,162 3,629,718 59,653,657 45,763,969 28,335,590 271,442 % 32.3 30.0 61.1 * * * * * * * 60.2 * 5.9 8.4 * 2.3 1.9 2.9 * 2.2 1.7 * 4.0 3.1 1.9 * %ofTotal Voting PowerAfter OurInitial Public Offering(1) 31.0 28.8 58.8 * * * * * 1.6 * 61.2 1.6 5.7 8.1 * * 2.2 1.8 2.8 * 2.1 1.6 * 3.8 3.0 1.8 *
NameofBeneficialOwner NamedExecutiveOfficersandDirectors: MarkZuckerberg Sharessubjecttovotingproxy Total SherylK.Sandberg DavidA.Ebersman MikeSchroepfer TheodoreW.Ullyot MarcL.Andreessen ErskineB.Bowles JamesW.Breyer DonaldE.Graham ReedHastings PeterA.Thiel Allexecutiveofficersanddirectors asagroup(12persons) Other5%Stockholders: EntitiesaffiliatedwithAccelPartners EntitiesaffiliatedwithDSTGlobalLimited DustinMoskovitz EntitiesaffiliatedwithGoldmanSachs T.RowePriceAssociates,Inc. OtherSellingStockholders: EntitiesaffiliatedwithElevationPartners EntitiesaffiliatedwithGreylockPartners Mail.ruGroupLimited MarkPincus EntitiesaffiliatedwithMeritechCapitalPartners MicrosoftCorporation EntitiesAffiliatedwithReidHoffman SeanParker EntitiesaffiliatedwiththeTigerGlobalManagement ValiantCapitalOpportunities,LLC Allothersellingstockholders * (1) (2) (3)
Lessthan1%. Any additional shares of Class B common stock sold by the selling stockholders upon exercise of the underwriters overallotment option will be automatically converted into shares of Class A common stock. In addition, any such shares, to the extent subject to a voting agreement in favor of Mr. Zuckerberg, will no longerbesubjecttothevotingagreement. Consistsof(i)346,456sharestobesoldbytheBreyer2005Trust(ii)4,485,832sharestobesoldbyAccelIX(iii)477,950sharestobesoldbyAccelSPand (iv)418,177sharestobesoldbyAccel2005. Consistsof(i)986,270sharestobesoldbyRivendelland(ii)175,988sharestobesoldbyFF.
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(4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) Consists of (i) 516,406 shares to be sold by DST Global Limited (ii) 179,857 shares to be sold by DST Global II, L.P. (iii) 50,917 shares to be sold by DST GlobalIII,L.P.(iv)847,082sharestobesoldbyDSTUSALimitedand(v)2,344,137sharestobesoldbyDSTUSAIILimited. Consistsof7,500,000sharestobesoldbyDustinMoskovitz,TrusteeoftheDustinA.MoskovitzTrustdatedDecember27,2005. Consistsof(i)426,445sharestobesoldbyTheGoldmanSachsGroup,Inc.(ii)77,960sharestobesoldbyGoldmanSachsInvestmentPartnersMasterFund, L.P. (iii) 30,318 shares to be sold by Goldman Sachs Investment Partners Private Opportunities Holdings L.P. and (iv) 1,443,696 to be sold by FBDC InvestorsOffshoreHoldings,L.P. Consistsof(i)693,166sharestobesoldbyElevationPartnersand(ii)208sharestobesoldbySideFund. Consists of (i) 897,590 shares to be sold by Greylock XII Limited Partnership (ii) 52,493 shares to be sold by Greylock XII Principals LLC and (iii) 99,733 sharestobesoldbyGreylockXIIALimitedPartnership. Consistsof(i)107,886sharestobesoldbyMr.Pincus,inhisindividualcapacityand(ii)43,507sharestobesoldbyOgden. Consistsof(i)1,031,025sharestobesoldbyMeritechCapitalPartnersIIIL.P.and(ii)18,793sharestobesoldbyMeritechCapitalAffiliatesIIIL.P. Consistsof(i)12,000sharestobesoldbyReidHoffman,TrusteeoftheReidHoffman2011AnnuityTrustAgreementdated6/7/2011,(ii)117,418sharestobe soldbyAufklarungLLCand(iii)12,000sharestobesoldbyMichelleYee,TrusteeoftheMichelleYee2011AnnuityTrustAgreementdated6/7/2011. Consistsof10,000,000sharestobesoldbyMr.Parker,inhisindividualcapacity. Consistsof504,329sharestobesoldbyTigerGlobalFBHoldings,LLC. Consistsof10,576sharestobesoldbytheothersellingstockholdersdescribedabove.
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Table of Contents DESCRIPTIONOFCAPITALSTOCK Uponthecompletionofourinitialpublicoffering,ourauthorizedcapitalstockwillconsistof5,000,000,000sharesof ClassAcommonstock,$0.000006parvaluepershare,4,141,000,000sharesofClassBcommonstock,$0.000006parvalue pershare,and100,000,000sharesofundesignatedpreferredstock,$0.000006parvaluepershare.Adescriptionofthematerial termsandprovisionsofourrestatedcertificateofincorporationandrestatedbylawsthatwillbeineffectattheclosingour initialpublicofferingandaffectingtherightsofholdersofourcapitalstockissetforthbelow.Thedescriptionisintendedasa summary,andisqualifiedinitsentiretybyreferencetotheformofourrestatedcertificateofincorporationandtheformofour restatedbylawstobeadoptedinconnectionwithourinitialpublicofferingthathavebeenfiledwiththeregistrationstatement relatingtothisprospectus. AsofMarch31,2012,andaftergivingeffecttotheautomaticconversionofallofouroutstandingpreferredstockinto ClassBcommonstockinconnectionwithourinitialpublicoffering,therewereoutstanding: 117,549,393sharesofourClassAcommonstockheldbyapproximately115stockholders 1,780,535,644sharesofourClassBcommonstockheldbyapproximately1,305stockholders 236,756,442sharesissuableuponexerciseofoutstandingstockoptionsand 378,429,048sharessubjecttooutstandingrestrictedstockunits(RSUs).
CommonStock DividendRights Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and only then at the times and in the amounts that our board of directors may determine.SeeDividendPolicyformoreinformation. VotingRights TheholdersofourClassBcommonstockareentitledtotenvotespershare,andholdersofourClassAcommonstockare entitledtoonevotepershare.TheholdersofourClassAcommonstockandClassBcommonstockvotetogetherasasingle class,unlessotherwiserequiredbylaw.DelawarelawcouldrequireeitherholdersofourClassAcommonstockorourClassB commonstocktovoteseparatelyasasingleclassinthefollowingcircumstances: ifweweretoseektoamendourcertificateofincorporationtoincreasetheauthorizednumberofsharesofaclassof stock,ortoincreaseordecreasetheparvalueofaclassofstock,thenthatclasswouldberequiredtovoteseparately toapprovetheproposedamendmentand ifweweretoseektoamendourcertificateofincorporationinamannerthataltersorchangesthepowers,preferences orspecialrightsofaclassofstockinamannerthataffecteditsholdersadversely,thenthatclasswouldberequiredto voteseparatelytoapprovetheproposedamendment.
Stockholders do not have the ability to cumulate votes for the election of directors. Our restated certificate of incorporationandrestatedbylawsthatwillbeineffectattheclosingofourinitialpublicofferingwillprovideforaclassified boardofdirectorsconsistingofthreeclassesofapproximatelyequalsize,eachservingstaggeredthreeyearterms,whenthe outstandingsharesofourClassBcommonstockrepresentlessthanamajorityofthecombinedvotingpowerofourcommon stock.OurdirectorswillbeassignedbythethencurrentboardofdirectorstoaclasswhentheoutstandingsharesofourClassB commonstockrepresentlessthanamajorityofthecombinedvotingpowerofourcommonstock. 148
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Table of Contents NoPreemptiveorSimilarRights Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions. RighttoReceiveLiquidationDistributions Upon our dissolution, liquidation or windingup, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock. Conversion TheoutstandingsharesofClassBcommonstockareconvertibleatanytimeasfollows:(1)attheoptionoftheholder,a shareofClassBcommonstockmaybeconvertedatanytimeintooneshareofClassAcommonstockor(2)upontheelection oftheholdersofamajorityofthethenoutstandingsharesofClassBcommonstock,alloutstandingsharesofClassBcommon stockmaybeconvertedintosharesofClassAcommonstock.Inaddition,eachshareofClassBcommonstockwillconvert automaticallyintooneshareofClassAcommonstockuponanytransfer,whetherornotforvalue,exceptforcertaintransfers describedinourrestatedcertificateofincorporation,includingtransferstofamilymembers,trustssolelyforthebenefitofthe stockholderortheirfamilymembers,andpartnerships,corporations,andotherentitiesexclusivelyownedbythestockholder ortheirfamilymembers,andcertaintransferstoorganizationsthatareexemptfromtaxationunderSection501(c)(3)ofthe InternalRevenueCodeof1986,asamended.OnceconvertedortransferredandconvertedintoClassAcommonstock,the ClassBcommonstockwillnotbereissued. PreferredStock Upontheclosingofourinitialpublicoffering,nosharesofpreferredstockwillbeoutstanding,butwewillbeauthorized, subjecttolimitationsprescribedbyDelawarelaw,toissuepreferredstockinoneormoreseries,toestablishfromtimetotime thenumberofsharestobeincludedineachseriesandtofixthedesignation,powers,preferencesandrightsofthesharesof each series and any of its qualifications, limitations or restrictions. Our board of directors also can increase or decrease the numberofsharesofanyseries,butnotbelowthenumberofsharesofthatseriesthenoutstanding,withoutanyfurthervoteor action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rightsthatcouldadverselyaffectthevotingpowerorotherrightsoftheholdersofthecommonstock.Theissuanceofpreferred stock,whileprovidingflexibilityinconnectionwithpossibleacquisitionsandothercorporatepurposes,could,amongother things,havetheeffectofdelaying,deferringorpreventingachangeincontrolofourcompanyandmayadverselyaffectthe marketpriceofourClassAcommonstockandthevotingandotherrightsoftheholdersofourcommonstock.Wehaveno currentplantoissueanysharesofpreferredstock. Options AsofMarch31,2012,wehadoptionstopurchase236,756,442sharesofourClassBcommonstockoutstandingpursuant toour2005StockPlanandtheOfficersPlan. RSUs AsofMarch31,2012,wehad378,429,048sharesofClassBcommonstocksubjecttoRSUsoutstandingpursuanttoour 2005StockPlan. 149
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Table of Contents VotingAgreements OurCEOhasenteredintovotingagreementswithcertainofourstockholders,whichvotingagreementswillremainin effect after the completion of this offering. These voting agreements cover approximately 19,957,787 shares of Class A common stock and 470,409,565 shares of Class B common stock, which will represent approximately 29.5% of the outstandingvotingpowerofourcapitalstockafterourinitialpublicoffering. Underonetypeofvotingagreement(whichisfiledasanexhibittotheregistrationstatementofwhichthisprospectusisa partasaType1HolderVotingAgreement),stockholdersagreedtovotealloftheirsharesasdirectedby,andgrantedan irrevocable proxy to, Mr. Zuckerberg at his discretion on all matters to be voted upon by stockholders. The following individualsandentitiesholdsharesofourcapitalstockthataresubjecttothistypeofvotingagreement:ARPI2,LLCMatt Cohler and certain affiliated entities Gregory Druckman Michael Druckman Richard Druckman Steven Druckman The Founders Fund, LP Glynn Partners Hommels Holding GmbH Adam Moskovitz Dustin Moskovitz and certain affiliated entitiesNancyandRichardMoskovitzandcertainaffiliatedentitiesSeanParkerandcertainaffiliatedentitiesCara&Robert Scudder certain entities affiliated with Technology Crossover Ventures Valiant Capital Opportunities, LLC and VHPI 2, LLC. Under a second type of voting agreement (which is filed as an exhibit to the registration statement of which this prospectusisapartasaType2HolderVotingAgreement),Mr.Zuckerberghastheauthority(andirrevocableproxy)tovote theseinvestorssharesathisdiscretiononallmatterstobevoteduponbystockholders,exceptforissuancesofcapitalstock byusinexcessof20%ofourthenoutstandingstockandmatterswhichwoulddisproportionately,materiallyandadversely affectsuchstockholder.Thistypeofvotingagreementalsoprovidesthattheinvestorshallnot:(1)acquireanyownershipof anyofourassetsorbusiness,(2)makeanysolicitationofproxieswithrespecttothevotingofanyofoursecurities,(3)form any group within the meaning of Section 13(d) of the Exchange Act, (4) nominate any person as director who is not nominatedbythethenincumbentdirectors,proposeanymattertobevoteduponbyourstockholdersorinitiateorvotein favor of or call for a special meeting of the stockholders, or (5) publicly announce an intention to do any of the above. Following the completion of our initial public offering, a transferee of the shares currently subject to this type of voting agreementshallnolongerbesubjecttothetermsofthevotingagreementifwehaveatwoclasscapitalstockstructureanda partytotheagreementistransferringClassBcommonstockthat,uponcompletionofthetransfer,becomesClassAcommon stockoristransferringClassAcommonstock.DSTGlobalLimitedandcertainaffiliatedentitiesandMail.ruGroupLimited holdsharesofourcapitalstockthataresubjecttothistypeofvotingagreement. Thethirdtypeofvotingagreement(whichisfiledasanexhibittotheregistrationstatementofwhichthisprospectusisa partasaType3HolderVotingAgreement)containsthesamesubstantiveprovisionsasthesecondtypeofagreement.For some of the parties to this type of voting agreement, the provisions of the agreement do not apply to shares held by the investorspriortotheirsecondarypurchases.Thefollowingentitiesholdsharesofourcapitalstockthataresubjecttothistype ofvotingagreement:certainentitiesaffiliatedwithAccelPartnersandJamesW.Breyer,amemberofourboardofdirectors certainentitiesaffiliatedwithElevationPartnersFelarmonGroupLimitedcertainentitiesaffiliatedwithGreylockPartners Li Ka Shing (Canada) Foundation certain entities affiliated with Meritech Capital Partners certain entities affiliated with AnandRajaramanTigerGlobalFBHoldings,LLCandcertainentitiesaffiliatedwithVenkateshHarinarayan. Underafourthtypeofvotingagreement(whichisfiledasanexhibittotheregistrationstatementofwhichthisprospectus is a part as a Type 4 Holder Voting Agreement), Mr. Zuckerberg has the authority (and irrevocable proxy) to vote these investorssharesathisdiscretiononallmatterstobevoteduponbystockholders,exceptforissuancesofcapitalstockbyusin excessof20%ofourthenoutstandingstockandmatterswhichwoulddisproportionately,materiallyandadverselyaffectsuch stockholder.Thistypeofvotingagreementdoesnotcontaintherestrictiveprovisionscontainedinthesecondandthirdtypes of voting agreements with respect to acquiring ownership of our assets or business, making a solicitation of proxies with respect to voting of any of our securities, forming a group within the meaning of Section 13(d) of the Exchange Act, or nominatinganypersonasadirectorwhoisnotnominatedbythethenincumbentdirectorsorproposing 150
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Table of Contents anymatterstobevoteduponbyourstockholdersorinitiatingorvotinginfavoroforcallingforaspecialmeetingofthe stockholders.Thefollowingindividualsandentitiesholdsharesofourcapitalstockthataresubjecttothistypeofvoting agreement: Galium Special Situations LLC, Glynn Partners, L.P., entities affiliated with Invesco, Li Ka Shing (Canada) Foundation, Montecito Ventures VI, LLC, Profectus QP Opportunity Fund LLC, Silicon Valley Community Foundation, WilliamShea,SocialMediaPartnersIILLC,andValiantCapitalOpportunities,LLC. UntilMr.Zuckerbergsdeath,232,542,558sharesofourClassBcommonstockwillremainsubjecttotheprovisionsofa voting agreement regardless of any sale, transfer, assignment, pledge, or other disposition of the shares, provided, that 8,473,633 of these shares will no longer be subject to the provisions of a voting agreement if an investor sells, transfers, assigns,pledges,orotherwisedisposesoforencumbersthesharesafterthedatethatissixmonthsfollowingourinitialpublic offering.Exceptforthe232,542,558sharesdescribedintheprecedingsentence,anysharessubjecttoavotingagreementwill no longer be subject to the provisions of the voting agreement if an investor sells, transfers, assigns, pledges, or otherwise disposes of or encumbers the shares subject to the voting agreements after the completion of our initial public offering. In addition,votingagreementscovering19,957,787sharesofourClassAcommonstockand237,932,007sharesofourClassB commonstockwillterminateifMr.Zuckerbergisnolongeradirector,nolongerdevotingsubstantiallyallofhisbusiness effortstoourcompany,andheholdslessthan210,758,960sharesofourcapitalstock. WedonotbelievethatthepartiestothesevotingagreementsconstituteagroupunderSection13oftheExchangeAct, asMr.Zuckerbergexercisesvotingcontroloverthesharesheldbythesestockholders. RegistrationRights Afterourinitialpublicoffering,holdersofuptoapproximately546,026,920sharesofourcommonstockoutstandingwill beentitledtocertainrightswithrespecttoregistrationofsuchsharesundertheSecuritiesAct.Thesesharesarereferredtoas registrablesecurities.TheholdersoftheseregistrablesecuritiespossessregistrationrightspursuanttothetermsofourSixth Amended and Restated Investors Rights Agreement dated as of December 27, 2010 (IRA) and are described in additional detailbelow.We,alongwithentitiesaffiliatedwithMr.Andreessen,Mr.Thiel,Mr.BreyerandAccelPartners,andDSTGlobal Limited,aswellascertainotherparties,arepartiestotheIRA.WeoriginallyenteredintotheIRAinconnectionwithourSeries Afinancingin2005anditwasamendedineachofourfuturepreferredstockfinancingrounds.TheIRAwasmostrecently amendedinMay2012. DemandRegistrationRights UnderourIRA,uponthewrittenrequestoftheholdersofamajorityoftheregistrablesecuritiesthenoutstandingthatwe filearegistrationstatementundertheSecuritiesActwithananticipatedaggregatepricetothepublicofatleast$10million, wewillbeobligatedtouseourcommerciallyreasonableeffortstoregisterthesaleofallregistrablesecuritiesthatholdersmay request in writing to be registered within 20 days of the mailing of a notice by us to all holders of such registration. The demandregistrationrightsmaynotbeexerciseduntilsixmonthsafterourinitialpublicoffering.Wearerequiredtoeffectno morethanthreeregistrationstatementswhicharedeclaredororderedeffective.Wemaypostponethefilingofaregistration statementforupto120daysonceina12monthperiodifinthegoodfaithjudgmentofourboardofdirectorssuchregistration wouldbedetrimentaltous,andwearenotrequiredtoeffectthefilingofaregistrationstatementduringtheperiodbeginning 60dayspriortoourgoodfaithestimateofthedateofthefilingof,andendingonadate90daysfollowingtheeffectivedate of,aregistrationinitiatedbyus(unlesssuchofferingisourinitialpublicoffering,inwhichcasesuchendingdateis180days followingsuchregistration). PiggybackRegistrationRights Ifweregisteranyofoursecuritiesforpublicsale,wewillhavetouseallcommerciallyreasonableeffortstoregisterall registrablesecuritiesthattheholdersofsuchsecuritiesrequestinwritingberegisteredwithin20daysofmailingofnoticeby ustoallholdersoftheproposedregistration.However,thisrightdoesnotapplytoa 151
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Table of Contents registration relating to any of our stock plans, the offer and sale of debt securities, a corporate reorganization or other transactionunderRule145oftheSecuritiesAct,oraregistrationonanyregistrationformthatdoesnotincludesubstantially the same information as would be required to be included in a registration statement covering the sale of the registrable securities.Themanagingunderwriterofanyunderwrittenofferingwillhavetherighttolimit,duetomarketingreasons,the number of shares registered by these holders to 30% of the total shares covered by the registration statement, unless such offeringisourinitialpublicoffering,inwhichcase,theseholdersmaybeexcludediftheunderwritersdeterminethatthesale oftheirsharesmayjeopardizethesuccessoftheoffering. FormS3RegistrationRights Theholdersofatleast30%oftheregistrablesecuritiescanrequestthatweregisteralloraportionoftheirsharesonForm S3ifweareeligibletofilearegistrationstatementonFormS3andtheaggregatepricetothepublicofthesharesofferedisat least$2million.WearerequiredtofilenomorethantworegistrationstatementsonFormS3uponexerciseoftheserightsper 12monthperiod.Wemaypostponethefilingofaregistrationstatementforupto120daysonceina12monthperiodifinthe goodfaithjudgmentofourboardofdirectorssuchregistrationwouldbedetrimentaltous. RegistrationExpenses Wewillpayallexpensesincurredinconnectionwitheachoftheregistrationsdescribedabove,exceptforunderwriting discountsandcommissions.However,wewillnotpayforanyexpensesofanydemandorFormS3registrationiftherequestis subsequently withdrawn at the request of a majority of the holders of the registrable securities to be registered, subject to limitedexceptions. ExpirationofRegistrationRights Theregistrationrightsdescribedabovewillsurviveourinitialpublicofferingandwillterminateastoanystockholderat suchtimeasallofsuchstockholderssecurities(togetherwithanyaffiliateofthestockholderwithwhomsuchstockholder mustaggregateitssales)couldbesoldwithoutcompliancewiththeregistrationrequirementsoftheSecuritiesActpursuantto Rule144orfollowingadeemedliquidationeventunderourcurrentrestatedcertificateofincorporation,butinanyeventno laterthanthefiveyearanniversaryofourinitialpublicoffering. AntiTakeoverProvisions SolongastheoutstandingsharesofourClassBcommonstockrepresentamajorityofthecombinedvotingpowerof commonstock,MarkZuckerbergwilleffectivelycontrolallmatterssubmittedtoourstockholdersforavote,aswellasthe overallmanagementanddirectionofourcompany,whichwillhavetheeffectofdelaying,deferringordiscouraginganother personfromacquiringcontrolofourcompany. AftersuchtimeasthesharesofourClassBcommonstocknolongerrepresentamajorityofthecombinedvotingpowerof ourcommonstock,theprovisionsofDelawarelaw,ourrestatedcertificateofincorporationandourrestatedbylawsmayhave theeffectofdelaying,deferringordiscouraginganotherpersonfromacquiringcontrolofourcompany. DelawareLaw Section203oftheDelawareGeneralCorporationLawpreventssomeDelawarecorporationsfromengaging,undersome circumstances,inabusinesscombination,whichincludesamergerorsaleofatleast10%ofthecorporationsassetswithany interestedstockholder,meaningastockholderwho,togetherwithaffiliates 152
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Table of Contents andassociates,ownsor,withinthreeyearspriortothedeterminationofinterestedstockholderstatus,didown15%ormoreof thecorporationsoutstandingvotingstock,unless: the transaction is approved by the board of directors prior to the time that the interested stockholder became an interestedstockholder uponconsummationofthetransactionwhichresultedinthestockholdersbecominganinterestedstockholder,the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transactioncommenced,excludingstockownedbydirectorswhoarealsoofficersofthecorporationor subsequenttosuchtimethatthestockholderbecameaninterestedstockholderthebusinesscombinationisapproved bytheboardofdirectorsandauthorizedatanannualorspecialmeetingofstockholdersbyatleasttwothirdsofthe outstandingvotingstockwhichisnotownedbytheinterestedstockholder.
A Delaware corporation may opt out of these provisions with an express provision in its original certificate of incorporationoranexpressprovisioninitscertificateofincorporationorbylawsresultingfromastockholdersamendment approvedbyatleastamajorityoftheoutstandingvotingshares.Wehaveoptedoutoftheseprovisions. RestatedCertificateofIncorporationandBylawProvisions Ourrestatedcertificateofincorporationandourrestatedbylawswillincludeanumberofprovisionsthatmayhavethe effectofdeterringhostiletakeoversordelayingorpreventingchangesincontrolofourcompany,evenaftersuchtimeasthe shares of our Class B common stock no longer represent a majority of the combined voting power of our common stock, includingthefollowing: SeparateClassBVoteforCertainTransactions.UntilthefirstdateonwhichtheoutstandingsharesofourClassB common stock represent less than 35% of the combined voting power of our common stock, any transaction that wouldresultinachangeincontrolofourcompanywillrequiretheapprovalofamajorityofouroutstandingClassB commonstockvotingasaseparateclass.Thisprovisioncoulddelayorpreventtheapprovalofachangeincontrol that might otherwise be approved by a majority of outstanding shares of our Class A and Class B common stock votingtogetheronacombinedbasis. Dual Class Stock. As described above in Common StockVoting Rights, our restated certificate of incorporation provides for a dual class common stock structure, which provides Mark Zuckerberg, our founder, Chairman,andCEO,withtheabilitytocontroltheoutcomeofmattersrequiringstockholderapproval,evenifhe owns significantly less than a majority of the shares of our outstanding Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our companyoritsassets. SupermajorityApprovals.Ourrestatedcertificateofincorporationandrestatedbylawsdonotprovidethatcertain amendmentstoourrestatedcertificateofincorporationorrestatedbylawsbystockholderswillrequiretheapproval oftwothirdsofthecombinedvoteofourthenoutstandingsharesofClassAandClassBcommonstock.However, when the outstanding shares of our Class B common stock represent less than a majority of the combined voting powerofourcommonstock,certainamendmentstoourrestatedcertificateofincorporationorrestatedbylawsby stockholderswillrequiretheapprovaloftwothirdsofthecombinedvoteofourthenoutstandingsharesofClassA and Class B common stock. This will have the effect of making it more difficult to amend our certificate of incorporationorrestatedbylawstoremoveormodifycertainprovisions. BoardofDirectorsVacancies.Ourrestatedcertificateofincorporationandrestatedbylawsprovidethatstockholders may fill vacant directorships. When the outstanding shares of our Class B common stock represent less than a majorityofthecombinedvotingpowerofourcommonstock,ourrestatedcertificateofincorporationandrestated bylawsauthorizeonlyourboardofdirectorstofillvacant 153
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Table of Contents directorships. In addition, the number of directors constituting our board of directors is set only by resolution adoptedbyamajorityvoteofourentireboardofdirectors.Theseprovisionsrestrictingthefillingofvacancieswill preventastockholderfromincreasingthesizeofourboardofdirectorsandgainingcontrolofourboardofdirectors byfillingtheresultingvacancieswithitsownnominees. ClassifiedBoard.Ourboardofdirectorswillnotinitiallybeclassified.Ourrestatedcertificateofincorporationand restatedbylawsprovidethatwhentheoutstandingsharesofourClassBcommonstockrepresentlessthanamajority ofthecombinedvotingpowerofourcommonstock,ourboardofdirectorswillbeclassifiedintothreeclassesof directorseachofwhichwillholdofficeforathreeyearterm.Inaddition,thereafter,directorsmayonlyberemoved from the board of directors for cause and only by the affirmative vote of the holders of at least a majority of the votingpowerofthethenoutstandingsharesofourClassAandClassBcommonstock.Theexistenceofaclassified board could delay a successful tender offeror from obtaining majority control of our board of directors, and the prospectofthatdelaymightdeterapotentialofferor. Stockholder Action Special Meeting of Stockholders. Our restated certificate of incorporation provides that stockholderswillbeabletotakeactionbywrittenconsent.WhentheoutstandingsharesofourClassBcommon stockrepresentlessthanamajorityofthecombinedvotingpowerofourcommonstock,ourstockholderswillno longerbeabletotakeactionbywrittenconsent,andwillonlybeabletotakeactionatannualorspecialmeetingsof ourstockholders.Stockholderswillnotbepermittedtocumulatetheirvotesfortheelectionofdirectors.Ourrestated bylawsfurtherprovidethatspecialmeetingsofourstockholdersmaybecalledonlybyamajorityofourboardof directors,thechairmanofourboardofdirectors,ourchiefexecutiveofficerorourpresident. Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our restated bylaws provide advancenoticeproceduresforstockholdersseekingtobringbusinessbeforeourannualmeetingofstockholders,or to nominate candidates for election as directors at any meeting of stockholders. Our restated bylaws also specify certainrequirementsregardingtheformandcontentofastockholdersnotice.Theseprovisionsmayprecludeour stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directorsatourmeetingsofstockholders. IssuanceofUndesignatedPreferredStock. Our board of directors has the authority, without further action by the stockholders, to issue up to 100,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the board of directors. The existence of authorized but unissuedsharesofpreferredstockenablesourboardofdirectorstorendermoredifficultortodiscourageanattempt toobtaincontrolofusbymeansofamerger,tenderoffer,proxycontestorotherwise.
ChoiceofForum Our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusiveforumforanyderivativeactionorproceedingbroughtonourbehalfanyactionassertingabreachoffiduciaryduty anyactionassertingaclaimagainstusarisingpursuanttotheDelawareGeneralCorporationLaw,ourrestatedcertificateof incorporationorourrestatedbylawsanyactiontointerpret,apply,enforce,ordeterminethevalidityofourrestatedcertificate of incorporation orbylaws or any action assertinga claim against us that isgovernedby theinternal affairsdoctrine. The enforceabilityofsimilarchoiceofforumprovisionsinothercompaniescertificatesofincorporationhasbeenchallengedin legalproceedings,anditispossiblethatacourtcouldfindthesetypesofprovisionstobeinapplicableorunenforceable. Listing WehaveappliedtolistourcommonstockontheNASDAQGlobalSelectMarketunderthesymbolFB. TransferAgentandRegistrar ThetransferagentandregistrarforourcommonstockisComputershareTrustCompany,N.A. 154
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Table of Contents SHARESELIGIBLEFORFUTURESALE Beforeourinitialpublicoffering,therehasnotbeenapublicmarketforsharesofourClassAcommonstock.Futuresales ofsubstantialamountsofsharesofourcommonstock,includingsharesissueduponthesettlementofrestrictedstockunits (RSUs)andexerciseofoutstandingoptions,inthepublicmarketafterourinitialpublicoffering,orthepossibilityofthese sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capitalinthefuture. After our initial public offering, we will have outstanding 598,396,119 shares of our Class A common stock and 1,539,688,918sharesofourClassBcommonstock,basedonthenumberofsharesoutstandingasofMarch31,2012.This includes337,415,352sharesthatweandthesellingstockholdersaresellinginourinitialpublicoffering,whichsharesmaybe resold in the public market immediately following our initial public offering, and assumes no additional exercise of outstandingoptions(otherthanthepartialexerciseofanoutstandingstockoptiontopurchase120,000,000sharesofClassB common stock held by Mr. Zuckerberg, resulting in the issuance of 60,000,000 shares of our Class B common stock as described elsewhere in this prospectus). Shares of our Class B common stock are convertible into an equivalent number of sharesofourClassAcommonstockandgenerallyconvertintosharesofourClassAcommonstockupontransfer. The1,800,669,685sharesofcommonstockthatwerenotofferedandsoldinourinitialpublicofferingaswellasshares underlyingoutstandingRSUsandsharessubjecttoemployeestockoptionswillbeuponissuance,restrictedsecurities,as thattermisdefinedinRule144undertheSecuritiesAct.Theserestrictedsecuritiesareeligibleforpublicsaleonlyiftheyare registeredundertheSecuritiesActoriftheyqualifyforanexemptionfromregistrationunderRule144orRule701underthe SecuritiesAct,whicharesummarizedbelow. Asaresultofthelockupagreementsandmarketstandoffprovisionsdescribedbelowandsubjecttotheprovisionsof Rules144and701undertheSecuritiesAct,theserestrictedsecuritieswillbeavailableforsaleinthepublicmarketasfollows: onthedateofthisprospectus,noneoftheserestrictedsecuritieswillbeavailableforsaleinthepublicmarket 91 days after the date of this prospectus, 171,797,666 shares held by the selling stockholders other than Mr.Zuckerberg 151to180daysafterthedateofthisprospectus,approximately137millionsharesunderlyingnetsettledPre2011 RSUs held by our directors and then current employees and approximately 55 million outstanding shares and approximately55millionsharessubjecttostockoptionsheldbythencurrentemployeesotherthanMr.Zuckerberg 181daysafterthedateofthisprospectus,1,338,453,216outstandingsharesandapproximately18millionshares underlyingothernetsettledPre2011RSUs 211 days after the date of this prospectus, 141,776,569 shares held by the selling stockholders other than Mr.Zuckerbergand 366daysafterthedateofthisprospectus,93,815,940sharesheldbyMail.ruGroupLimitedandDSTGlobalLimited andtheirrespectiveaffiliates.
In addition, as of March 31, 2012, options to purchase 49,390,599 shares of Class B common stock held by former employeeswereoutstandingandfullyvestedandtheClassBcommonstockunderlyingsuchoptionswillbeeligibleforsale 181daysafterthedateofthisprospectus.Furthermore,followingourinitialpublicoffering,theremaining60,000,000shares subjecttothepartiallyexercisedstockoptionheldbyMr.Zuckerbergwillbeeligibleforsale181daysafterthedateofthis prospectus.Weexpectanadditionalapproximately2millionsharesofClassBcommonstocktobedelivereduponthenet settlementofRSUsbetweenthedateoftheinitialsettlementofRSUsdescribedaboveandDecember31,2012willbeeligible forsaleinthepublicmarketimmediatelyfollowingsettlement. 155
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Table of Contents Rule144 Ingeneral,underRule144ascurrentlyineffect,oncewehavebeensubjecttopubliccompanyreportingrequirementsfor atleast90days,apersonwhoisnotdeemedtohavebeenoneofouraffiliatesforpurposesoftheSecuritiesActatanytime duringthe90daysprecedingasaleandwhohasbeneficiallyownedthesharesproposedtobesoldforatleastsixmonths, includingtheholdingperiodofanypriorownerotherthanouraffiliates,isentitledtosellthoseshareswithoutcomplying withthemannerofsale,volumelimitationornoticeprovisionsofRule144,subjecttocompliancewiththepublicinformation requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares withoutcomplyingwithanyoftherequirementsofRule144. In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon the expiration of the lockup agreements described below, within any threemonth period beginning 90daysafterthedateofthisprospectus,anumberofsharesthatdoesnotexceedthegreaterof: 1%ofthenumberofsharesofcommonstockthenoutstanding,whichwillequalapproximately21,380,850shares immediatelyafterourinitialpublicoffering,or theaverageweeklytradingvolumeofthecommonstockduringthefourcalendarweeksprecedingthefilingofa noticeonForm144withrespecttosuchsale.
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain mannerofsaleprovisionsandnoticerequirementsandtotheavailabilityofcurrentpublicinformationaboutus. Rule701 Ingeneral,underRule701ascurrentlyineffect,anyofouremployees,consultantsoradvisorswhopurchasesharesfrom usinconnectionwithacompensatorystockoroptionplanorotherwrittenagreementinatransactionbeforetheeffectivedate ofourinitialpublicofferingthatwascompletedinrelianceonRule701andcompliedwiththerequirementsofRule701will, subjecttothelockuprestrictionsdescribedbelow,beeligibletoresellsuchshares90daysafterthedateofthisprospectusin relianceonRule144,butwithoutcompliancewithcertainrestrictions,includingtheholdingperiod,containedinRule144. LockUpAgreementsandMarketStandoffProvisions Ourofficers,directors,employees,andsubstantiallyallofourstockholdershaveagreedwiththeunderwritersorus,notto dispose of any of our common stock or securities convertible into or exchangeable for shares of our common stock for specifiedperiodsoftimeafterthedateofthisprospectus,exceptwiththepriorwrittenconsentofMorganStanley&Co.LLC orus,asapplicable.Underthetermsoftheirlockupagreementswiththeunderwriters,thesellingstockholders,otherthan Mr.Zuckerberg,areeligibletosellupto171,797,666sharesofourcommonstockintheaggregateonthedatethatis91days afterthedateofthisprospectus,upto839,647,187sharesofourcommonstockintheaggregateonthedatethatis181days afterthedateofthisprospectus,andtheremainingsharesofourcommonstockheldbythem211daysafterthedateofthis prospectus.Underthetermsoftheirlockupagreementwiththeunderwriters,ourdirectors,ourexecutiveofficers,andcertain stockholdersnotsellingsharesinthisofferingareeligibletosellsharesofourcommonstock181daysafterthedateofthis prospectus,subjecttocertainexceptionsasdescribedinUnderwriting.Allotherholdersofourcommonstock,RSUsand optionshavepreviouslyenteredintomarketstandoffagreementswithusnottosellorotherwisetransferanyoftheircommon stockorsecuritiesconvertibleintoorexchangeableforsharesofcommonstockforaperiodthatextendsthrough180days afterthedateofthisprospectus.Weintendtowaivethisprovisiontoallowourdirectorsandthencurrentemployeestosell sharesheldbythemor 156
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Table of Contents shares subject to RSUs or stock options on a date that is between 151 and 180 days after the date of this prospectus. In addition,Mail.ruGroupLimitedandDSTGlobalLimitedandtheirrespectiveaffiliateshaveenteredintoanagreementwithus tonotselltheirsharesforcertainperiodsoftimerangingfrom90daysto365daysfollowingthedateofthisprospectus.See RelatedPartyTransactionsConversionAgreementforadditionalinformationaboutthisagreement. Inaddition,wehaveagreedwithourunderwritersnottosellanysharesofourcommonstockorsecuritiesconvertibleinto orexchangeableforsharesofourcommonstockforaperiodof180daysafterthedateofthisprospectus,subjecttocertain exceptions, including an exception that would permit us to raise capital in an underwritten offering to fund our tax withholdingandremittanceobligationsinconnectionwiththeinitialsettlementofRSUsgrantedpriortoJanuary1,2011. MorganStanley&Co.LLCmay,withourpriorwrittenconsent,atanytime,waivetheserestrictions. See Underwriting for a more complete description of the lockup agreements that we and our directors, executive officers,andthesellingstockholdershaveenteredintowiththeunderwriters. RegistrationRights Upontheclosingofourinitialpublicoffering,certainholdersofsharesofourClassAcommonstock(includingsuch sharesofClassAcommonstockissuableuponconversionofourClassBcommonstock)willbeentitledtorightswithrespect to the registration of the sale of these shares under the Securities Act. Registration of the sale of these shares under the SecuritiesActwouldresultinthesesharesbecomingfullytradablewithoutrestrictionundertheSecuritiesActimmediately upon the effectiveness of the registration, except for shares purchased by affiliates. See Description of Capital Stock RegistrationRightsforadditionalinformation. RegistrationStatement WeintendtofilearegistrationstatementonFormS8undertheSecuritiesActcoveringallofthesharesofcommonstock subjecttoRSUsandoptionsoutstanding,aswellasreservedforfutureissuance,underourstockplans.Weexpecttofilethis registrationstatementassoonaspracticableafterourinitialpublicoffering.However,noneofthesharesregisteredonFormS 8willbeeligibleforresaleuntiltheexpirationofthelockupagreementstowhichtheyaresubject. 157
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Table of Contents MATERIALU.S.FEDERALTAXCONSIDERATIONS FORNONU.S.HOLDERSOFCLASSACOMMONSTOCK This section summarizes the material U.S. federal income and estate tax considerations relating to the acquisition, ownershipanddispositionofourcommonstockbynonU.S.holders(definedbelow)pursuanttothisoffering.Thissummary doesnotprovideacompleteanalysisofallpotentialU.S.federalincometaxconsiderationsrelatingthereto.Theinformation providedbelowisbaseduponprovisionsoftheCode,Treasuryregulationspromulgatedthereunder,administrativerulings, and judicial decisions currently in effect. These authorities may change at any time, possibly retroactively, or the Internal RevenueService(IRS),mightinterprettheexistingauthoritiesdifferently.Ineithercase,thetaxconsiderationsofowningor disposingofourcommonstockcoulddifferfromthosedescribedbelow. Forpurposesofthissummary,anonU.S.holderisanyholderofourClassAcommonstock,otherthanapartnership, thatisnot: anindividualwhoisacitizenorresidentoftheUnitedStates acorporation,orotherentitytaxableasacorporation,createdororganizedunderthelawsoftheUnitedStates,any statethereinortheDistrictofColumbia atrustifit(1)issubjecttotheprimarysupervisionofaU.S.courtandoneofmoreU.S.personshaveauthorityto control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulationstobetreatedasaU.S.personor anestatewhoseincomeissubjecttoU.S.incometaxregardlessofsource.
Ifyouareanindividual,youmay,inmanycases,bedeemedtobearesidentalien,asopposedtoanonresidentalien,by virtueofbeingpresentintheUnitedStatesforatleast31daysinthecalendaryearandforanaggregateofatleast183days duringathreeyearperiodendinginthecurrentcalendaryear.Forthesepurposes,allthedayspresentinthecurrentyear,one thirdofthedayspresentintheimmediatelyprecedingyear,andonesixthofthedayspresentinthesecondprecedingyearare counted.ResidentaliensaresubjecttoU.S.federalincometaxasiftheywereU.S.citizens.Suchanindividualisurgedto consulthisorherowntaxadvisorregardingtheU.S.federalincometaxconsequencesoftheownershipordispositionofour commonstock.Ifapartnershiporotherpassthroughentityisabeneficialownerofourcommonstock,thetaxtreatmentofa partnerinthepartnershiporanowneroftheentitywilldependuponthestatusofthepartnerorotherownerandtheactivities ofthepartnershiporotherentity.Anypartnerinapartnershiporownerofapassthroughentityholdingsharesofourcommon stockshouldconsultitsowntaxadvisor. ThisdiscussionassumesthatanonU.S.holderwillholdourcommonstockasacapitalasset(generally,propertyheldfor investment).Thesummarygenerallydoesnotaddresstaxconsiderationsthatmayberelevanttoparticularinvestorsbecauseof their specific circumstances, or because they are subject to special rules, including, without limitation, if the investor is a former citizen or longterm resident of the United States, controlled foreign corporation, passive foreign investment company, corporation that accumulates earnings to avoid U.S. federal income tax, real estate investment trust, regulated investment company, dealer in securities or currencies, financial institution, taxexempt entity, insurance company, person holdingourcommonstockaspartofahedging,integrated,conversionorconstructivesaletransactionorastraddle,traderin securitiesthatelectstouseamarktomarketmethodofaccounting,personliableforthealternativeminimumtax,personwho acquired our common stock as compensation for services, or partner in a partnership or beneficial owner of a passthrough entitythatholdsourcommonstock.Finally,thesummarydoesnotdescribetheeffectsofanyapplicableforeign,stateorlocal laws,or,excepttotheextentdiscussedbelow,theeffectsofanyapplicablegiftorestatetaxlaws. INVESTORS CONSIDERING THE PURCHASE OF OUR CLASS A COMMON STOCK SHOULD CONSULT THEIROWNTAXADVISORSREGARDINGTHEAPPLICATIONOFTHEU.S. 158
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Table of Contents FEDERALINCOMEANDESTATETAXLAWSTOTHEIRPARTICULARSITUATIONSANDTHECONSEQUENCES OFFOREIGN,STATEORLOCALLAWS,ANDTAXTREATIES. Dividends WedonotexpecttodeclareorpayanydividendsonourClassAcommonstockintheforeseeablefuture.Ifwedopay dividends on shares of our Class A common stock, however, such distributions will constitute dividends for U.S. federal incometaxpurposestotheextentpaidfromourcurrentoraccumulatedearningsandprofits,asdeterminedunderU.S.federal incometaxprinciples.Distributionsinexcessofourcurrentandaccumulatedearningsandprofitswillconstituteareturnof capitalthatisappliedagainstandreduces,butnotbelowzero,anonU.S.holdersadjustedtaxbasisinsharesofourcommon stock.AnyremainingexcesswillbetreatedasgainrealizedonthesaleorotherdispositionofourClassAcommonstock.See SaleofClassACommonStock. AnydividendpaidtoanonU.S.holderonourClassAcommonstockwillgenerallybesubjecttoU.S.withholdingtaxat a30%rate.Thewithholdingtaxmightnotapply,however,ormightapplyatareducedrate,underthetermsofanapplicable income tax treaty between the United States and the nonU.S. holders country of residence. You should consult your tax advisorsregardingyourentitlementtobenefitsunderarelevantincometaxtreaty.Generally,inorderforusorourpaying agenttowithholdtaxatalowertreatyrate,anonU.S.holdermustcertifyitsentitlementtotreatybenefits.AnonU.S.holder generally can meet this certification requirement by providing a Form W8BEN (or any successor form) or appropriate substituteformtousorourpayingagent.IfthenonU.S.holderholdsthestockthroughafinancialinstitutionorotheragent acting on the holders behalf, the holder will be required to provide appropriate documentation to the agent. The holders agentwillthenberequiredtoprovidecertificationtousorourpayingagent,eitherdirectlyorthroughotherintermediaries. Forpaymentsmadetoapartnershiporotherpassthroughentity,thecertificationrequirementsgenerallyapplytothepartners orotherownersratherthantothepartnershiporotherentity,andthepartnershiporotherentitymustprovidethepartnersor otherownersdocumentationtousorourpayingagent.IfyouareeligibleforareducedrateofU.S.federalwithholdingtax underanincometaxtreaty,youmayobtainarefundorcreditofanyexcessamountswithheldbyfilinganappropriateclaim forarefundwiththeIRSinatimelymanner. DividendsreceivedbyanonU.S.holderthatareeffectivelyconnectedwithaU.S.tradeorbusinessconductedbythe nonU.S. holder, and if required by an applicable income tax treaty between the United States and the nonU.S. holders countryofresidence,areattributabletoapermanentestablishmentmaintainedbythenonU.S.holderintheUnitedStates,are notsubjecttosuchwithholdingtax.Toobtainthisexemption,anonU.S.holdermustprovideuswithanIRSFormW8ECI properlycertifyingsuchexemption.Sucheffectivelyconnecteddividends,althoughnotsubjecttowithholdingtax,aretaxed atthesamegraduatedratesapplicabletoU.S.persons,netofcertaindeductionsandcredits.Inadditiontothegraduatedtax describedabove,dividendsreceivedbycorporatenonU.S.holdersthatareeffectivelyconnectedwithaU.S.tradeorbusiness of the corporate nonU.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specifiedbyanapplicabletaxtreaty. SaleofClassACommonStock NonU.S.holderswillgenerallynotbesubjecttoU.S.federalincometaxonanygainsrealizedonthesale,exchangeor otherdispositionofourClassAcommonstockunless: thegain(1)iseffectivelyconnectedwiththeconductbythenonU.S.holderofaU.S.tradeorbusinessand(2)if required by an applicable income tax treaty between the United States and the nonU.S. holders country of residence, is attributable to a permanent establishment (or, in certain cases involving individual holders, a fixed base)maintainedbythenonU.S.holderintheUnitedStates(inwhichcasethespecialrulesdescribedbelowapply) 159
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Table of Contents thenonU.S.holderisanindividualwhoispresentintheUnitedStatesfor183daysormoreinthetaxableyearof thesale,exchangeorotherdispositionofourcommonstock,andcertainotherrequirementsaremet(inwhichcase thegainwouldbesubjecttoaflat30%tax,orsuchreducedrateasmaybespecifiedbyanapplicableincometax treaty,whichmaybeoffsetbyU.S.sourcecapitallosses,eventhoughtheindividualisnotconsideredaresidentof theUnitedStates)or therulesoftheForeignInvestmentinRealPropertyTaxAct(FIRPTA)treatthegainaseffectivelyconnectedwitha U.S.tradeorbusiness.
TheFIRPTArulesmayapplytoasale,exchangeorotherdispositionofourcommonstockifweare,orwerewithinthe shorter of the fiveyear period preceding the disposition and the nonU.S. holders holding period, a U.S. real property holdingcorporation,orUSRPHC.Ingeneral,wewouldbeaUSRPHCifinterestsinU.S.realestatecomprisedatleasthalfof ourbusinessassets.WedonotbelievethatweareaUSRPHCandwedonotanticipatebecomingoneinthefuture.Evenifwe becomeaUSRPHC,aslongasourcommonstockisregularlytradedonanestablishedsecuritiesmarket,suchcommonstock willbetreatedasU.S.realpropertyinterestsonlyifbeneficiallyownedbyanonU.S.holderthatactuallyorconstructively ownedmorethan5%ofouroutstandingcommonstockatsometimewithinthefiveyearperiodprecedingthedisposition. Ifanygainfromthesale,exchangeorotherdispositionofourClassAcommonstock,(1)iseffectivelyconnectedwitha U.S. trade or business conducted by a nonU.S. holder and (2) if required by an applicable income tax treaty between the UnitedStatesandthenonU.S.holderscountryofresidence,isattributabletoapermanentestablishment(or,incertaincases involvingindividuals,afixedbase)maintainedbysuchnonU.S.holderintheUnitedStates,thenthegaingenerallywillbe subjecttoU.S.federalincometaxatthesamegraduatedratesapplicabletoU.S.persons,netofcertaindeductionsandcredits. IfthenonU.S.holderisacorporation,undercertaincircumstances,thatportionofitsearningsandprofitsthatiseffectively connectedwithitsU.S.tradeorbusiness,subjecttocertainadjustments,generallywouldbesubjectalsotoabranchprofits tax.Thebranchprofitstaxrateisgenerally30%,althoughanapplicableincometaxtreatybetweentheUnitedStatesandthe nonU.S.holderscountryofresidencemightprovideforalowerrate. U.S.FederalEstateTax TheestatesofnonresidentalienindividualsgenerallyaresubjecttoU.S.federalestatetaxonpropertywithaU.S.situs. BecauseweareaU.S.corporation,ourClassAcommonstockwillbeU.S.situspropertyandthereforewillbeincludedinthe taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedentscountryofresidenceprovidesotherwise. BackupWithholdingandInformationReporting TheCodeandtheTreasuryregulationsrequirethosewhomakespecifiedpaymentstoreportthepaymentstotheIRS. Amongthespecifiedpaymentsaredividendsandproceedspaidbybrokerstotheircustomers.Therequiredinformationreturns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforcedbybackupwithholdingrules.Theserulesrequirethepayorstowithholdtaxfrompaymentssubjecttoinformation reportingiftherecipientfailstocooperatewiththereportingregimebyfailingtoprovidehistaxpayeridentificationnumber tothepayor,furnishinganincorrectidentificationnumber,orfailingtoreportinterestordividendsonhisreturns.Thebackup withholding tax rate is currently 28%. The backup withholding rules do not apply to payments to corporations, whether domesticorforeign. Payments to nonU.S. holders of dividends on Class A common stock generally will not be subject to backup withholding,solongasthenonU.S.holdercertifiesitsnonresidentstatus(andweorourpayingagentdonothaveactual knowledgeorreasontoknowtheholderisaU.S.personorthattheconditionsofanyotherexemptionarenot,infact,satisfied) orotherwiseestablishesanexemption.ThecertificationprocedurestoclaimtreatybenefitsdescribedinDividendswill satisfythecertificationrequirementsnecessarytoavoidthe 160
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Table of Contents backupwithholdingtaxaswell.WemustreportannuallytotheIRSanydividendspaidtoeachnonU.S.holderandthetax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the countrywherethenonU.S.holderresides. UndertheTreasuryregulations,thepaymentofproceedsfromthedispositionofsharesofourClassAcommonstockbya nonU.S.holdermadetoorthroughaU.S.officeofabrokergenerallywillbesubjecttoinformationreportingandbackup withholdingunlessthebeneficialownercertifies,underpenaltiesofperjury,amongotherthings,itsstatusasanonU.S.holder (and the broker does not have actual knowledge or reason to know the holder is a U.S. person) or otherwise establishes an exemption.ThepaymentofproceedsfromthedispositionofsharesofourClassAcommonstockbyanonU.S.holdermadeto orthroughanonU.S.officeofabrokergenerallywillnotbesubjecttobackupwithholdingandinformationreporting,except asnotedbelow.Informationreporting,butnotbackupwithholding,willapplytoapaymentofproceeds,evenifthatpayment ismadeoutsideoftheUnitedStates,ifyousellourcommonstockthroughanonU.S.officeofabrokerthatis: aU.S.person(includingaforeignbranchorofficeofsuchperson) acontrolledforeigncorporationforU.S.federalincometaxpurposes aforeignperson50%ormoreofwhosegrossincomefromcertainperiodsiseffectivelyconnectedwithaU.S.tradeor businessor aforeignpartnershipifatanytimeduringitstaxyear(a)oneormoreofitspartnersareU.S.personswho,inthe aggregate,holdmorethan50%oftheincomeorcapitalinterestsofthepartnershipor(b)theforeignpartnershipis engagedinaU.S.tradeorbusiness
unlessthebrokerhasdocumentaryevidencethatthebeneficialownerisanonU.S.holderandcertainotherconditionsare satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no actual knowledge or reason to knowtothecontrary). Backupwithholdingisnotanadditionaltax.AnyamountswithheldfromapaymenttoaholderofClassAcommonstock underthebackupwithholdingrulescanbecreditedagainstanyU.S.federalincometaxliabilityoftheholderandmayentitle theholdertoarefund,providedthattherequiredinformationisfurnishedtotheIRSinatimelymanner. Recentlegislationandadministrativeguidancegenerallyimposeswithholdingatarateof30%onpaymentstocertain foreignentitiesofdividendsonandthegrossproceedsofdispositionsofU.S.commonstock,unlessvariousU.S.information reportingandduediligencerequirements(generallyrelatingtoownershipbyU.S.personsofinterestsinoraccountswiththose entities)havebeensatisfied.Thesewithholdingrequirementsareexpectedtobephasedinfordividendpaymentsmadeonor afterJanuary1,2014,andforpaymentsofgrossproceedsofdispositionsofU.S.commonstockmadeonorafterJanuary1, 2015. NonU.S. holders should consult their tax advisors regarding the possible implications of this legislation on their investmentinourcommonstock. THEPRECEDINGDISCUSSIONOFU.S.FEDERALTAXCONSIDERATIONSISFORGENERALINFORMATION ONLY.ITISNOTTAXADVICE.EACHPROSPECTIVEINVESTORSHOULDCONSULTITSOWNTAXADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR CLASS A COMMON STOCK, INCLUDING THE CONSEQUENCESOFANYPROPOSEDCHANGEINAPPLICABLELAWS. 161
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Table of Contents UNDERWRITING Underthetermsandsubjecttotheconditionscontainedinanunderwritingagreementdatedthedateofthisprospectus, the underwriters named below, for which Morgan Stanley & Co. LLC is acting as representative, have severally agreed to purchase,andweandthesellingstockholdershaveagreedtoselltothem,severally,thenumberofsharesindicatedbelow:
Name Numberof Shares
MorganStanley&Co.LLC J.P.MorganSecuritiesLLC Goldman,Sachs&Co. MerrillLynch,Pierce,Fenner&Smith Incorporated BarclaysCapitalInc. Allen&CompanyLLC CitigroupGlobalMarketsInc. CreditSuisseSecurities(USA)LLC DeutscheBankSecuritiesInc. RBCCapitalMarkets,LLC WellsFargoSecurities,LLC BlaylockRobertVanLLC BMOCapitalMarketsCorp. C.L.King&Associates,Inc. CabreraCapitalMarkets,LLC CastleOakSecurities,L.P. CowenandCompany,LLC. E*TRADESecuritiesLLC ItaBBAUSASecurities,Inc. LazardCapitalMarketsLLC Lebenthal&Co.,LLC LoopCapitalMarketsLLC M.R.Beal&Company MacquarieCapital(USA)Inc. MurielSiebert&Co.,Inc. Oppenheimer&Co.Inc. PacificCrestSecuritiesLLC PiperJaffray&Co. RaymondJames&Associates,Inc. SamuelA.Ramirez&Company,Inc. Stifel,Nicolaus&Company,Incorporated TheWilliamsCapitalGroup,L.P. WilliamBlair&Company,L.L.C. Total:
337,415,352
The underwriters and the representative are collectively referred to as the underwriters and the representative, respectively.TheunderwritersareofferingthesharesofClassAcommonstocksubjecttotheiracceptanceofthesharesfromus andsubjecttopriorsale.Theunderwritingagreementprovidesthattheobligationsoftheseveralunderwriterstopayforand acceptdeliveryofthesharesofClassAcommonstockofferedbythisprospectusaresubjecttotheapprovalofcertainlegal mattersbytheircounselandtocertainotherconditions,includingthelistingofourClassAcommonstockontheNASDAQ GlobalSelectMarket.TheunderwritersareobligatedtotakeandpayforallofthesharesofClassAcommonstockofferedby this 162
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Table of Contents prospectusifanysuchsharesaretaken.However,theunderwritersarenotrequiredtotakeorpayforthesharescoveredbythe underwritersoverallotmentoptiondescribedbelow.Ifanunderwriterdefaults,theunderwritingagreementprovidesthatthe purchasecommitmentsofthenondefaultingunderwritersmaybeincreased. TheunderwritersinitiallyproposetoofferpartofthesharesofClassAcommonstockdirectlytothepublicattheinitial public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concessionnotinexcessof$ashareunderthepublicofferingprice.AftertheinitialofferingofthesharesofClassA commonstock,theofferingpriceandothersellingtermsmayfromtimetotimebevariedbytherepresentative. Weandthesellingstockholdershavegrantedtotheunderwritersanoption,exercisablefor30daysfromthedateofthis prospectus,topurchaseupto50,612,302additionalsharesofcommonstockatthepublicofferingpricelistedonthecover pageofthisprospectus,lessunderwritingdiscountsandcommissions.Theunderwritersmayexercisethisoptionsolelyforthe purpose of covering overallotments, if any, made in connection with the offering of the shares of Class A common stock offeredbythisprospectus.Totheextenttheoptionisexercised,eachunderwriterwillbecomeobligated,subjecttocertain conditions,topurchaseaboutthesamepercentageoftheadditionalsharesofClassAcommonstockasthenumberlistednext totheunderwritersnameintheprecedingtablebearstothetotalnumberofsharesofClassAcommonstocklistednexttothe namesofallunderwritersintheprecedingtable. The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us and the selling stockholders. These amounts are shown assuming both no exercise and full exerciseoftheunderwritersoptiontopurchaseuptoanadditionalsharesofcommonstock.
PerShare NoExercise Total FullExercise
Publicofferingprice Underwritingdiscountsandcommissionstobepaidby: Us Thesellingstockholders Proceeds,beforeexpenses,tous Proceeds,beforeexpenses,tothesellingstockholders
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
The underwriters have agreed to reimburse us for certain expenses in connection with our initial public offering. The estimatedofferingexpensespayablebyus,exclusiveoftheunderwritingdiscountsandcommissions,areapproximately$7 million,whichincludeslegal,accounting,andprintingcostsandvariousotherfeesassociatedwiththeregistrationandlisting ofourClassAcommonstock. The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total numberofsharesofClassAcommonstockofferedbythem. We have applied to have our Class A common stock quoted on the NASDAQ Global Select Market under the trading symbolFB. We,allofourdirectorsandexecutiveofficers,andthesellingstockholdershaveagreedthat,withoutthepriorwritten consentofMorganStanley&Co.LLConbehalfoftheunderwriters,weandtheywillnot,duringspecifiedperiodsoftime afterthedateofthisprospectus: offer,pledge,sell,contracttosell,sellanyoptionorcontracttopurchase,purchaseanyoptionorcontracttosell, grantanyoption,rightorwarranttopurchaselendorotherwisetransferordisposeof, 163
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Table of Contents directlyorindirectly,anysharesofcommonstockorothersecuritiesconvertibleintoorexercisableorexchangeable forcommonstock enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequencesofownershipofthecommonstockor makeademandfor,orinourcasefile,aregistrationstatementwiththeSECrelatingtotheofferingofanysharesof commonstockoranysecuritiesconvertibleintoorexercisableorexchangeableforcommonstock.
Therestrictionsdescribedintheimmediatelyprecedingparagraphdonotapplyto: thesaleofsharesofcommonstockpursuanttotheunderwritingagreement transactionsbyadirector,officer,orstockholderrelatingtosharesofcommonstockorothersecuritiesacquiredin open market transactions after the completion of our initial public offering, provided that no filing under Section16(a)oftheExchangeActisrequiredorvoluntarilymadeinconnectionwithsubsequentsalesofcommon stockorothersecuritiesacquiredinsuchopenmarkettransactions transfersofsharesofcommonstockoranysecuritiesconvertibleintoorexercisableorexchangeableforcommon stockbyadirector,officer,orstockholder(i)asabonafidegiftorgifts,(ii)toanimmediatefamilymemberoratrust forthedirectorindirectbenefitofthedirector,officer,stockholderorimmediatefamilymember,or(iii)bywillor intestacy transfersordistributionsofsharesofcommonstockoranysecuritiesconvertibleintoorexercisableorexchangeable for common stock by a (i) stockholder that is a corporation, partnership, or other business entity (A) to another corporation,partnership,orotherbusinessentitythatcontrols,iscontrolledbyormanagedbyorisundercommon control with the director, officer, or other stockholder or (B) as part of a distribution to an equity holder of such stockholderortotheestateofanysuchequityholder,or(ii)inthecaseofastockholderwhichisatrust,transfersof shares of common stock or any securities convertible into or exercisable or exchangeable for common stock to a trustororbeneficiaryofthetrustortotheestateofsuchbeneficiary theexerciseofoptionsgrantedunderourequityincentiveplans,ineachcasebyadirector,officer,orstockholder, providedthatthesharesofcommonstockdelivereduponsuchexercisearesubjecttotherestrictionsdescribedinthe immediatelyprecedingparagraph transferofsharesofcommonstocktous(i)asforfeituresofcommonstocktosatisfytaxwithholdingandremittance obligationsofourstockholdersinconnectionwiththevestingorexerciseofequityawardsbystockholderspursuant toourequityincentiveplans,or(ii)pursuanttoanetexerciseorcashlessexercisebyastockholderofoutstanding equityawardspursuanttoourequityincentiveplans thetransferofsharesofcommonstockdeliveredtoastockholderdirectlyfromusuponthevestingandsettlementor exerciseofoutstandingequityawardsgrantedpursuanttoourequityincentiveplansifpriortosuchtransferwehave waivedforouremployeesthetransferrestrictionscontainedintheirawards thesaleofsharesofcommonstockbyusorourstockholdersinanunderwrittenpublicofferingnoearlierthan150 daysafterthedateofthisprospectuswheretheproceedstousareusedtofundtaxliabilitiesrelatedtothesettlement ofRSUs the establishment of a trading plan pursuant to Rule 10b51 under the Exchange Act for the transfer of shares of common stock, provided that such plan does not provide for the transfer of common stock during the restricted period and that no public filing or other public announcement of such plan by us or such holders regarding the establishmentofsuchplanisrequiredtobeorvoluntarilymadeduringtheapplicablerestrictedperiod theissuancebyusofsharesofcommonstockinconnectionwithouracquisitionofoneormorebusinesses,products ortechnologies,jointventures,orotherstrategiccorporatetransactions,provided 164
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Table of Contents therecipientsofsuchsharesagreetobeboundbytherestrictionsdescribedintheimmediatelyprecedingparagraph and thefilingbyusofaregistrationstatementonFormS8inrespectofanysharesissuedunderorthegrantofanyaward pursuanttoanemployeebenefitplanineffectonthedateofthisprospectus
providedthatinthecaseofanytransferordistributionpursuanttothethirdandfourthbulletsabove,itshallbeaconditionof thetransferordistributionthateachtransferee,donee,ordistributeeshallagreetotherestrictionsdescribedintheimmediately precedingparagraphpriortooruponsuchtransferandnofilingunderSection16(a)oftheExchangeActreportingareduction in beneficial ownership of shares of common stock shall be required or shall be made voluntarily during the applicable restrictedperiod.AnywaiverbyMorganStanley&Co.LLCoftheaboverestrictionsforourdirectors,executiveofficers,or stockholdersrequiresourconsent. InordertofacilitateourinitialpublicofferingoftheClassAcommonstock,theunderwritersmayengageintransactions thatstabilize,maintainorotherwiseaffectthepriceoftheClassAcommonstock.Specifically,theunderwritersmaysellmore sharesthantheyareobligatedtopurchaseundertheunderwritingagreement,creatingashortposition.Ashortsaleiscovered iftheshortpositionisnogreaterthanthenumberofsharesavailableforpurchasebytheunderwritersundertheoverallotment option.Theunderwriterscancloseoutacoveredshortsalebyexercisingtheoverallotmentoptionorpurchasingsharesinthe openmarket.Indeterminingthesourceofsharestocloseoutacoveredshortsale,theunderwriterswillconsider,amongother things,theopenmarketpriceofsharescomparedtothepriceavailableundertheoverallotmentoption.Theunderwritersmay alsosellsharesinexcessoftheoverallotmentoption,creatinganakedshortposition.Theunderwritersmustcloseoutany naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwritersareconcernedthattheremaybedownwardpressureonthepriceofthecommonstockintheopenmarketafter pricingthatcouldadverselyaffectinvestorswhopurchaseinourinitialpublicoffering.Asanadditionalmeansoffacilitating ourinitialpublicoffering,theunderwritersmaybidfor,andpurchase,sharesofClassAcommonstockintheopenmarket.The underwritingsyndicatealsomayreclaimsellingconcessionsallowedtoanunderwriteroradealerfordistributingtheClassA commonstockintheoffering,ifthesyndicaterepurchasespreviouslydistributedClassAcommonstocktocoversyndicate shortpositionsortostabilizethepriceofthecommonstock.Theseactivitiesmayraiseormaintainthemarketpriceofthe Class A common stock above independent market levels or prevent or retard a decline in the market price of the common stock.Theunderwritersarenotrequiredtoengageintheseactivitiesandmayendanyoftheseactivitiesatanytime. We, the selling stockholders, and the underwriters have agreed to indemnify each other against certain liabilities, includingliabilitiesundertheSecuritiesAct. Aprospectusinelectronicformatmaybemadeavailableonwebsitesmaintainedbyoneormoreunderwriters,orselling groupmembers,ifany,participatinginourinitialpublicoffering.Therepresentativemayagreetoallocateanumberofshares ofcommonstocktounderwritersforsaletotheironlinebrokerageaccountholders.Internetdistributionswillbeallocatedby therepresentativetounderwritersthatmaymakeInternetdistributionsonthesamebasisasotherallocations. Theunderwritersandtheirrespectiveaffiliatesarefullservicefinancialinstitutionsengagedinvariousactivities,which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment,hedging,financingandbrokerageactivities.Certainoftheunderwritersandtheirrespectiveaffiliateshave,from timetotime,performed,andmayinthefutureperform,variousfinancialadvisoryandinvestmentbankingservicesforusor ouraffiliates,forwhichtheyreceivedorwillreceivecustomaryfeesandexpenses. From October 2010 through March 2012, 18 mutual funds and two other discretionary client accounts managed by MorganStanleyInvestmentManagementInc.,anaffiliateofMorganStanley&Co.LLC,purchasedanaggregateof6,585,563 sharesofourClassBcommonstockfromcertainexistingstockholdersforanaggregatepurchasepriceofapproximately$139 million.Inaddition,ErskineB.Bowles,amemberofourboardofdirectors,alsoservesasamemberoftheboardofdirectorsof MorganStanley. 165
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Table of Contents InFebruary2011,weenteredintoacreditagreementwithfivelenders,includingaffiliatesofMorganStanley&Co.LLC, J.P.MorganSecuritiesLLC,Goldman,Sachs&Co.,MerrillLynch,Pierce,Fenner&SmithIncorporated,andBarclaysCapital Inc.,toborrowupto$1,500millioninrevolvingloans.InSeptember2011,thecreditagreementwasamendedtoincreasethe borrowingcapacityto$2,500million.InFebruary2012,weterminatedthecreditfacilityprovidedforbythisagreementand weenteredintoanewagreementforanunsecuredfiveyearrevolvingcreditfacilitywiththeselenders,aswellasaffiliatesof CitigroupGlobalMarketsInc.,CreditSuisseSecurities(USA)LLC,DeutscheBankSecuritiesInc.,RBCCapitalMarkets,LLC, andWellsFargoSecurities,LLC,thatallowsustoborrowupto$5,000millionforgeneralcorporatepurposes.Concurrentwith ourenteringintothenewrevolvingcreditfacility,weenteredintoabridgecreditfacilitywiththelendersthatarepartiesto ournewrevolvingcreditfacility.Thisbridgecreditfacilityallowsustoborrowupto$3,000milliontofundtaxwithholding and remittance obligations related to the settlement of RSUs in connection with our initial public offering. For additional information on our credit facilities, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidityandCapitalResources. InDecember2010andJanuary2011,affiliatesofGoldman,Sachs&Co.,oneoftheunderwriters,purchasedanaggregate of 69,544,363 shares of our Class A common stock for an aggregate purchase price of $1,450 million. As part of the transaction,theaffiliatesenteredintotheSixthAmendedandRestatedInvestorsRightsAgreement.Pursuanttothepurchase agreement,oneoftheaffiliateshadanoptiontosell3,597,122sharesofClassAcommonstocktoDSTGlobalLimitedatthe sameprice,andonthesameterms,setforthinthepurchaseagreement.TheaffiliateexerciseditsoptioninJanuary2011. Intheordinarycourseoftheirvariousbusinessactivities,theunderwritersandtheirrespectiveaffiliatesmaymakeorhold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments(includingbankloans)fortheirownaccountandfortheaccountsoftheircustomersandmayatanytimehold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommendtoclientsthattheyacquire,longorshortpositionsinsuchsecuritiesandinstruments. Lazard Frres & Co. LLC referred this transaction to Lazard Capital Markets LLC and will receive a referral fee from LazardCapitalMarketsLLCinconnectiontherewith. PricingoftheOffering Prior to our initial public offering, there has been no public market for our Class A common stock. The initial public offering price will be determined by negotiations among us, the selling stockholders, and the representative of the underwriters.Amongthefactorsconsideredindeterminingtheinitialpublicofferingpricewereourfutureprospectsandthose ofourindustryingeneral,oursales,earningsandcertainotherfinancialandoperatinginformationinrecentperiods,andthe priceearnings ratios, pricesales ratios, market prices of securities, and certain financial and operating information of companiesengagedinactivitiessimilartoours.Theestimatedinitialpublicofferingpricerangesetforthonthecoverpageof this preliminary prospectus is subject to change as a result of market conditions and other factors. Neither we nor the underwriterscanassureinvestorsthatanactivetradingmarketfortheshareswilldevelop,orthataftertheofferingtheshares willtradeinthepublicmarketatorabovetheinitialpublicofferingprice. 166
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Table of Contents SellingRestrictions EuropeanEconomicArea InrelationtoeachMemberStateoftheEuropeanEconomicAreawhichhasimplementedtheProspectusDirective,with effect from and including the date on which the Prospectus Directive is implemented in that Member State, an offer of securitiesmaynotbemadetothepublicinthatMemberState,otherthan: (a)toanylegalentitythatisaqualifiedinvestorasdefinedintheProspectusDirective (b) to fewer than 100 or, if that Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtainingthepriorconsentoftherepresentativeor (c)inanyothercircumstancesthatdonotrequirethepublicationofaprospectuspursuanttoArticle3oftheProspectus Directive providedthatnosuchofferofsecuritiesshallrequireusoranyunderwritertopublishaprospectuspursuanttoArticle3ofthe ProspectusDirective. Forthepurposesoftheabove,theexpressionanofferofsecuritiestothepublicinrelationtoanysecuritiesinany MemberStatemeansthecommunicationinanyformandbyanymeansofsufficientinformationonthetermsoftheofferand thesecuritiestobeofferedsoastoenableaninvestortodecidetopurchaseorsubscribeforthesecurities,asthesamemaybe variedinthatMemberStatebyanymeasureimplementingtheProspectusDirectiveinthatMemberState(andamendments thereto, including the 2010 PD Amending Directive, to the extent implemented in that Member State), and the expression ProspectusDirectivemeansDirective2003/71/ECandincludesanyrelevantimplementingmeasureinthatMemberState, andtheexpression2010PDAmendingDirectivemeansDirective2010/73/EU. UnitedKingdom Thisprospectusandanyothermaterialinrelationtothesharesdescribedhereinisonlybeingdistributedto,andisonly directedat,personsintheUnitedKingdomthatarequalifiedinvestorswithinthemeaningofArticle2(1)(e)oftheProspective Directive (qualified investors) that also (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, (ii)whofallwithinArticle49(2)(a)to(d)oftheOrderor(iii)towhomitmayotherwiselawfullybecommunicated(allsuch persons together being referred to as relevant persons). The shares are only available to, and any invitation, offer or agreementtopurchaseorotherwiseacquiresuchshareswillbeengagedinonlywith,relevantpersons.Thisprospectusandits contentsareconfidentialandshouldnotbedistributed,publishedorreproduced(inwholeorinpart)ordisclosedbyrecipients toanyotherpersonintheUnitedKingdom.AnypersonintheUnitedKingdomthatisnotarelevantpersonshouldnotactor relyonthisprospectusoranyofitscontents. HongKong Thesharesmaynotbeofferedorsoldbymeansofanydocumentotherthan(i)incircumstanceswhichdonotconstitute anoffertothepublicwithinthemeaningoftheCompaniesOrdinance(Cap.32,LawsofHongKong),or(ii)toprofessional investors within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder,or(iii)inothercircumstanceswhichdonotresultinthedocumentbeingaprospectuswithinthemeaningofthe CompaniesOrdinance(Cap.32,LawsofHongKong),andnoadvertisement,invitationordocumentrelatingtothesharesmay beissuedormaybeinthepossessionofanypersonforthepurposeofissue(ineachcasewhetherinHongKongorelsewhere), whichisdirectedat,or 167
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Table of Contents thecontentsofwhicharelikelytobeaccessedorreadby,thepublicinHongKong(exceptifpermittedtodosounderthelaws ofHongKong)otherthanwithrespecttoshareswhichareorareintendedtobedisposedofonlytopersonsoutsideHong KongoronlytoprofessionalinvestorswithinthemeaningoftheSecuritiesandFuturesOrdinance(Cap.571LawsofHong Kong)andanyrulesmadethereunder. Singapore This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectusandanyotherdocumentormaterialinconnectionwiththeofferorsale,orinvitationforsubscriptionorpurchase, ofthesharesmaynotbecirculatedordistributed,normaythesharesbeofferedorsold,orbemadethesubjectofaninvitation forsubscriptionorpurchase,whetherdirectlyorindirectly,topersonsinSingaporeotherthan(i)toaninstitutionalinvestor underSection274oftheSecuritiesandFuturesAct,Chapter289ofSingapore(SFA),(ii)toarelevantperson,oranyperson pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuantto,andinaccordancewiththeconditionsof,anyotherapplicableprovisionoftheSFA. WherethesharesaresubscribedorpurchasedunderSection275byarelevantpersonwhichis:(a)acorporation(whichis notanaccreditedinvestor)thesolebusinessofwhichistoholdinvestmentsandtheentiresharecapitalofwhichisownedby oneormoreindividuals,eachofwhomisanaccreditedinvestoror(b)atrust(wherethetrusteeisnotanaccreditedinvestor) whosesolepurposeistoholdinvestmentsandeachbeneficiaryisanaccreditedinvestor,shares,debenturesandunitsofshares anddebenturesofthatcorporationorthebeneficiariesrightsandinterestinthattrustshallnotbetransferableforsixmonths after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions,specifiedinSection275oftheSFA(2)wherenoconsiderationisgivenforthetransferor(3)byoperationoflaw. Japan ThesecuritieshavenotbeenandwillnotberegisteredundertheFinancialInstrumentsandExchangeLawofJapan(the Financial Instruments and Exchange Law) and may not be offered or sold, directly or indirectly, in Japan or to, or for the benefitof,anyresidentofJapan(whichtermasusedhereinmeansanypersonresidentinJapan,includinganycorporationor otherentityorganizedunderthelawsofJapan),ortoothersforreofferingorresale,directlyorindirectly,inJapanortoa residentofJapan,exceptpursuanttoanexemptionfromtheregistrationrequirementsof,andotherwiseincompliancewith,the FinancialInstrumentsandExchangeLawandanyotherapplicablelaws,regulationsandministerialguidelinesofJapan. NoticetoProspectiveInvestorsinSwitzerland ThesharesmaynotbepubliclyofferedinSwitzerlandandwillnotbelistedontheSIXSwissExchange(SIX)oronany other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosurestandardsforissuanceprospectusesunderart.652aorart.1156oftheSwissCodeofObligationsorthedisclosure standardsforlistingprospectusesunderart.27ff.oftheSIXListingRulesorthelistingrulesofanyotherstockexchangeor regulatedtradingfacilityinSwitzerland.Neitherthisdocumentnoranyotherofferingormarketingmaterialrelatingtothe sharesortheofferingmaybepubliclydistributedorotherwisemadepubliclyavailableinSwitzerland. Neitherthisdocumentnoranyotherofferingormarketingmaterialrelatingtotheoffering,theCompany,ortheshares havebeenorwillbefiledwithorapprovedbyanySwissregulatoryauthority.Inparticular,thisdocumentwillnotbefiled with,andtheofferofshareswillnotbesupervisedby,theSwissFinancialMarketSupervisoryAuthorityFINMA(FINMA),and theofferofshareshasnotbeenandwillnotbeauthorizedunder 168
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Table of Contents theSwissFederalActonCollectiveInvestmentSchemes(CISA).Theinvestorprotectionaffordedtoacquirersofinterestsin collectiveinvestmentschemesundertheCISAdoesnotextendtoacquirersoftheshares. NoticetoProspectiveInvestorsintheDubaiInternationalFinancialCentre ThisprospectusrelatestoanExemptOfferinaccordancewiththeOfferedSecuritiesRulesoftheDubaiFinancialServices Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities RulesoftheDFSA.Itmustnotbedeliveredto,orreliedonby,anyotherperson.TheDFSAhasnoresponsibilityforreviewing orverifyinganydocumentsinconnectionwithExemptOffers.TheDFSAhasnotapprovedthisprospectusnortakenstepsto verifytheinformationsetforthhereinandhasnoresponsibilityfortheprospectus.Thesharestowhichthisprospectusrelates maybeilliquidand/orsubjecttorestrictionsontheirresale.Prospectivepurchasersofthesharesofferedshouldconducttheir ownduediligenceontheshares.Ifyoudonotunderstandthecontentsofthisprospectusyoushouldconsultanauthorized financialadvisor. 169
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Table of Contents LEGALMATTERS ThevalidityofthesharesofClassAcommonstockofferedherebywillbepasseduponforusbyFenwick&WestLLP, MountainView,California.SimpsonThacher&BartlettLLP,PaloAlto,Californiaisactingascounseltotheunderwriters. EXPERTS Ernst&YoungLLP,independentregisteredpublicaccountingfirm,hasauditedourconsolidatedfinancialstatementsat December 31, 2010 and 2011, and for each of the three years in the period ended December 31, 2011, as set forth in their report.Wehaveincludedourfinancialstatementsintheprospectusandelsewhereintheregistrationstatementinrelianceon Ernst&YoungLLPsreport,givenontheirauthorityasexpertsinaccountingandauditing. WHEREYOUCANFINDADDITIONALINFORMATION WehavefiledwiththeSECaregistrationstatementonFormS1undertheSecuritiesActwithrespecttothesharesof ClassAcommonstockofferedhereby.Thisprospectus,whichconstitutesapartoftheregistrationstatement,doesnotcontain alloftheinformationsetforthintheregistrationstatementortheexhibitsfiledtherewith.Forfurtherinformationaboutusand thecommonstockofferedhereby,referenceismadetotheregistrationstatementandtheexhibitsfiledtherewith.Statements containedinthisprospectusregardingthecontentsofanycontractoranyotherdocumentthatisfiledasanexhibittothe registrationstatementarenotnecessarilycomplete,andineachinstancewereferyoutothecopyofsuchcontractorother documentfiledasanexhibittotheregistrationstatement.WecurrentlydonotfileperiodicreportswiththeSEC.Uponclosing ofourinitialpublicoffering,wewillberequiredtofileperiodicreports,proxystatementsandotherinformationwiththeSEC pursuanttotheExchangeAct.Acopyoftheregistrationstatementandtheexhibitsfiledtherewithmaybeinspectedwithout chargeatthepublicreferenceroommaintainedbytheSEC,locatedat100FStreet,NE,Washington,DC20549,andcopiesof alloranypartoftheregistrationstatementmaybeobtainedfromthatoffice.PleasecalltheSECat1800SEC0330forfurther informationaboutthepublicreferenceroom.TheSECalsomaintainsawebsitethatcontainsreports,proxyandinformation statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov. 170
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Table of Contents FACEBOOK,INC. INDEXTOCONSOLIDATEDFINANCIALSTATEMENTS ReportofErnst&YoungLLP,IndependentRegisteredPublicAccountingFirm ConsolidatedFinancialStatements: ConsolidatedBalanceSheets ConsolidatedStatementsofIncome ConsolidatedStatementsofComprehensiveIncome ConsolidatedStatementsofStockholdersEquity ConsolidatedStatementsofCashFlows NotestoConsolidatedFinancialStatements F1 F3 F4 F5 F6 F8 F9 F2
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Table of Contents ReportofErnst&YoungLLP,IndependentRegisteredPublicAccountingFirm TheBoardofDirectorsandStockholders Facebook,Inc. WehaveauditedtheaccompanyingconsolidatedbalancesheetsofFacebook,Inc.asofDecember31,2010and2011, andtherelatedconsolidatedstatementsofincome,comprehensiveincome,stockholdersequity,andcashflowsforeachofthe three years in the period ended December 31, 2011. These financial statements are the responsibility of the Companys management.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits. WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidatedfinancialstatementsarefreeofmaterialmisstatement.WewerenotengagedtoperformanauditoftheCompanys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfordesigningauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinion ontheeffectivenessoftheCompanysinternalcontroloverfinancialreporting.Accordingly,weexpressnosuchopinion.An auditalsoincludesexaminingonatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements, assessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,andevaluatingtheoverallfinancial statementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion. Inouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedfinancial positionofFacebook,Inc.atDecember31,2010and2011,andtheconsolidatedresultsofitsoperationsanditscashflowsfor each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. /s/Ernst&YoungLLP SanFrancisco,California February1,2012, except for the retrospective adoption of amendments to the accounting standard relating to the reporting and display of comprehensiveincomeasdescribedinNote1,astowhichthedateis April23,2012 F2
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Table of Contents FACEBOOK,INC. CONSOLIDATEDBALANCESHEETS (Inmillions,exceptfornumberofsharesandparvalue)

December31, 2010 Assets Currentassets: Cashandcashequivalents Marketablesecurities Accountsreceivable,netofallowancesfordoubtfulaccountsof$11,$17and$16asofDecember31, 2010and2011andMarch31,2012,respectively Prepaidexpensesandothercurrentassets Totalcurrentassets Propertyandequipment,net Goodwillandintangibleassets,net Otherassets Totalassets Liabilitiesandstockholdersequity Currentliabilities: Accountspayable Platformpartnerspayable Accruedexpensesandothercurrentliabilities Deferredrevenueanddeposits Currentportionofcapitalleaseobligations Totalcurrentliabilities Capitalleaseobligations,lesscurrentportion Longtermdebt Otherliabilities Totalliabilities Commitmentsandcontingencies Stockholdersequity: Convertiblepreferredstock,$0.000006parvalue,issuableinseries:569millionsharesauthorized, 541millionsharesissuedandoutstandingatDecember31,2010and543millionsharesissuedand outstandingatDecember31,2011andMarch31,2012(unaudited)(aggregateliquidationpreference of$615millionasofDecember31,2011andMarch31,2012(unaudited))nosharesauthorized, issuedandoutstanding,proforma(unaudited) Commonstock,$0.000006parvalue:4,141millionClassAsharesauthorized,60millionshares issuedandoutstandingatDecember31,2010,117millionsharesissuedandoutstanding,including 1millionoutstandingsharessubjecttorepurchaseatDecember31,2011and118millionshares issuedandoutstanding,including1millionoutstandingsharessubjecttorepurchaseatMarch31, 2012(unaudited)andproforma(unaudited)4,141millionClassBsharesauthorized, 1,112million,1,213million,1,235millionand1,781millionsharesissuedandoutstanding, including5million,2million,2millionand2millionoutstandingsharessubjecttorepurchase,at December31,2010,2011,March31,2012(unaudited)andproforma(unaudited),respectively Additionalpaidincapital Accumulatedothercomprehensiveloss Retainedearnings Totalstockholdersequity Totalliabilitiesandstockholdersequity 2011 March ProForma 31, March31, 2012 2012 (unaudited)
$1,785 373 88 2,246 574 96 74 $2,990
$1,512 2,396 547 149 4,604 1,475 162 90 $6,331
$ 1,282 2,628 482 302 4,694 1,855 189 121 $ 6,859
$ $
1,282 2,628 482 627 5,019 1,855 189 121 7,184
$ 29 75 137 42 106 389 117 250 72 828
63 171 296 90 279 899
$ 129 178 337 93 302 1,039 404 144 1,587
129 178 337 93 302 1,039 404 144 1,587
398 135 1,432
615
615
615
947 (6) 606
2,684 (6) 1,606 4,899 $6,331
2,853 (7) 1,811 5,272 $ 6,859
4,433 (7) 1,171 5,597 7,184
2,162 $2,990
SeeNotestoConsolidatedFinancialStatements. F3
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Table of Contents FACEBOOK,INC. CONSOLIDATEDSTATEMENTSOFINCOME (Inmillions,exceptpershareamounts)

YearEndedDecember31, 2009 2010 2011 ThreeMonths EndedMarch31, 2011 2012 (unaudited)
Revenue Costsandexpenses: Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalcostsandexpenses Incomefromoperations Interestandotherincome(expense),net: Interestexpense Otherincome(expense),net Incomebeforeprovisionforincometaxes Provisionforincometaxes Netincome Netincomeattributabletoparticipatingsecurities NetincomeattributabletoClassAandClassBcommon stockholders EarningspershareattributabletoClassAandClassBcommon stockholders: Basic Diluted ProformaearningspershareattributabletoClassAandClassB commonstockholders(unaudited): Basic Diluted Sharebasedcompensationexpenseincludedincostsandexpenses: Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalsharebasedcompensationexpense
$777 $ 223 115 87 90 515 262 (10) 2 254 25 229 107
$1,974 493 184 144 121 942 1,032 (22) (2) 1,008 402 $ 606 234 $ 372
$3,711 860 427 388 280 1,955 1,756 (42) (19) 1,695 695 $1,000 332 $ 668
$ 731 167 68 57 51 343 388 (7) 17 398 165 $ 233 80 $ 153
$1,058 277 159 153 88 677 381
(13) 14 382 177 $ 205 68 $ 137
$ 122
$ 0.12 $ 0.10
$ 0.34 $ 0.28
$ 0.52 $ 0.46
$0.12 $0.11
$ 0.10 $ 0.09
$ 0.49 $ 0.43 $ $ 2 6 19 27 $ $ 2 9 9 20 $ 9 43 114 51 $ 217 $ 4 3 $ 7
$ 0.10 $ 0.09 $ 4 23 60 16 $ 103
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Table of Contents FACEBOOK,INC. CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOME (Inmillions)

YearEndedDecember31, 2009 2010 2011 ThreeMonths EndedMarch31, 2011 2012 (unaudited)
Netincome Othercomprehensiveincome(loss): Foreigncurrencytranslationadjustments Comprehensiveincome
$ 229 $229
$ 606 (6) $600
$1,000 $1,000
$ 233 1 $234
$ 205 (1) $204
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Table of Contents FACEBOOK,INC. CONSOLIDATEDSTATEMENTSOFSTOCKHOLDERSEQUITY (Inmillions)

ClassAand Accumulated Retained Convertible ClassB Additional Other Earnings Total PreferredStock CommonStock PaidIn Comprehensive (Accumulated Stockholders Shares Amount Shares ParValue Capital Loss Deficit) Equity 499 $ 415 1,007 $ $ 147 $ $ (229) $ 333 44 543 $ (2) 541 $ 200 57 2 4 $ $ 9 9 20 16 2 50 253 $ 500 6 60 3 17 1 107 947 $ $ (6) (6) $ 229 $ 606 606 $ 200 9 9 20 16 2 50 229 868 500 6 60 3 17 1 107 (6) 606 2,162 998 28 3 58 217 433 1,000 4,899
BalancesatDecember31,2008 IssuanceofSeriesEconvertiblepreferred stock,netofissuancecosts Issuanceofcommonstockforcashupon exerciseofstockoptions Issuanceofcommonstocktononemployees forpastservices Issuanceofcommonstockrelatedto acquisition Sharebasedcompensation,relatedto employeesharebasedawards Sharebasedcompensation,relatedto nonemployeesharebasedawards Excesstaxbenefitfromsharebasedaward activity Netincome BalancesatDecember31,2009 Issuanceofcommonstock,netofissuance costs Issuanceofcommonstockforcashupon exerciseofstockoptions Issuanceofcommonstockrelatedto acquisitions ConversionofSeriesApreferredstockto commonstock Reclassificationofoptionliabilityto additionalpaidincapital Sharebasedcompensation,relatedto employeesharebasedawards Sharebasedcompensation,relatedto nonemployeesharebasedawards Excesstaxbenefitfromsharebasedaward activity,netofdeferredtaximpact Othercomprehensiveincome Netincome BalancesatDecember31,2010 Issuanceofcommonstock,netofissuance costs Issuanceofcommonstockforcashupon exerciseofstockoptions Issuanceofcommonstocktononemployees forpastservices Issuanceofcommonstockrelatedto acquisitions Exerciseofpreferredstockwarrants ConversionofSeriesBpreferredstockto commonstock ConversionofSeriesCpreferredstockto commonstock. Sharebasedcompensation,relatedto employeesharebasedawards Excesstaxbenefitfromsharebasedaward activity Netincome BalancesatDecember31,2011
615 1,070 $ 615 24 70 6 2 $
1,172
8 (2) (4) 543 $
48 102 2 2 4
998 28 3 58 217 433 2,684 $
(6) $
1,000 1,606 $
615 1,330 $
F6
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Table of Contents FACEBOOK,INC. CONSOLIDATEDSTATEMENTSOFSTOCKHOLDERSEQUITY(CONTINUED) (Inmillions)

ClassAand Accumulated Retained Convertible ClassB Additional Other Earnings Total PreferredStock CommonStock PaidIn Comprehensive (Accumulated Stockholders Shares Amount Shares ParValue Capital Loss Deficit) Equity 543 $ 615 1,330 $ $ 2,684 $ (6) $ 1,606 $ 4,899 543 $ 615 22 $ $ 5 1 6 103 54 2,853 $ (1) (7) $ 205 1,811 $ 5 1 6 103 54 (1) 205 5,272
BalancesatDecember31,2011 Issuanceofcommonstockforcashuponexercise ofstockoptions(unaudited) Issuanceofcommonstocktononemployees forpastservices(unaudited) Issuanceofcommonstockrelatedtoasset acquisition(unaudited) Share basedcompensation,relatedtoemployeeshare basedawards(unaudited) Excesstaxbenefitfromsharebased awardactivity(unaudited) Othercomprehensiveincome(unaudited) Netincome(unaudited) BalancesatMarch31,2012(unaudited)
1,352
SeeNotestoConsolidatedFinancialStatements.
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Table of Contents FACEBOOK,INC. CONSOLIDATEDSTATEMENTSOFCASHFLOWS (Inmillions)

ThreeMonths Ended March31, 2011 2012 (unaudited) $ 233 51 1 7 69 (69) 27 (26) (10) (3) 24 6 17 18 345 $ 205 110 1 103 54 (54) 65 (28) (32) (3) 7 2 3 8 441
YearEndedDecember31, 2009 2010 2011 Cashflowsfromoperatingactivities Netincome Adjustmentstoreconcilenetincometonetcashprovidedbyoperatingactivities: Depreciationandamortization Lossonwriteoffofassets Sharebasedcompensation Taxbenefitfromsharebasedawardactivity Excesstaxbenefitfromsharebasedawardactivity Changesinassetsandliabilities: Accountsreceivable Prepaidexpensesandothercurrentassets Otherassets Accountspayable Platformpartnerspayable Accruedexpensesandothercurrentliabilities Deferredrevenueanddeposits Otherliabilities Netcashprovidedbyoperatingactivities Cashflowsfrominvestingactivities Purchasesofpropertyandequipment Purchasesofmarketablesecurities Maturitiesofmarketablesecurities Salesofmarketablesecurities Investmentsinnonmarketableequitysecurities Acquisitionsofbusiness,netofcashacquired,andpurchasesofintangibleandotherassets Changeinrestrictedcashanddeposits Netcashusedininvestingactivities Cashflowsfromfinancingactivities Netproceedsfromissuanceofconvertiblepreferredstock Netproceedsfromissuanceofcommonstock Proceedsfromexerciseofstockoptions Proceedsfrom(repaymentsof)longtermdebt Proceedsfromsaleandleasebacktransactions Principalpaymentsoncapitalleaseobligations Excesstaxbenefitfromsharebasedawardactivity Netcashprovidedbyfinancingactivities Effectofexchangeratechangesoncashandcashequivalents Netincrease(decrease)incashandcashequivalents Cashandcashequivalentsatbeginningofperiod Cashandcashequivalentsatendofperiod Supplementalcashflowdata Cashpaidduringtheperiodfor: Interest Incometaxes Noncashinvestingandfinancingactivities: Propertyandequipmentadditionsincludedinaccountspayableandaccruedexpensesand otherliabilities Propertyandequipmentacquiredundercapitalleases Fairvalueofsharesissuedrelatedtoacquisitionsofbusinessandotherassets
$229 $ 78 1 27 50 (51) (112) (30) (59) (7) 27 1 1 155 (33) 3 (32) (62) 200 9 31 (48) 51 243 336 297 633
$ 606 139 3 20 115 (115) (209) (38) 17 12 75 20 37 16 698 (293) (22) (9) (324) 500 6 250 (90) 115 781 (3) 1,152 633 $1,785
$ 1,000 323 4 217 433 (433)
(174) (31) (32) 6 96 38 49 53 1,549 (606) (3,025) 516 113 (3) (24) 6 (3,023) 998 28 (250) 170 (181) 433 1,198 3 (273) 1,785 $ 1,512
(153) (1) 1 (153) 998 9 (250) 1 (29) 69 798 1 991 1,785 $2,776
(453) (876) 567 69 (1) (25) (1) (720) 5 62 (71) 54 50 (1) (230) 1,512 $1,282
$ $
9 42
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28 197
$ 261
$ 103
$ 174
$ $ $
5 56 20
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47 60
$ $ $
135 473 58
$ $
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$ 110 $ $ 38 6
$ 217
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Note1.SummaryofSignificantAccountingPolicies OrganizationandDescriptionofBusiness FacebookwasincorporatedinDelawareinJuly2004.Ourmissionistomaketheworldmoreopenandconnected.We build products that support our mission by providing utility to Facebook users, Platform developers, and advertisers. We generate substantially all of our revenue from advertising and from fees associated with our Payments infrastructure that enablesuserstopurchasevirtualanddigitalgoodsfromourPlatformdevelopers. BasisofPresentation We prepared the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP).TheconsolidatedfinancialstatementsincludetheaccountsofFacebook,Inc.anditswhollyownedsubsidiaries.All intercompanybalancesandtransactionshavebeeneliminated. UnauditedInterimConsolidatedFinancialInformation TheaccompanyinginterimconsolidatedbalancesheetasofMarch31,2012,andtheconsolidatedstatementsofincome, comprehensiveincome,andcashflowsforthethreemonthsendedMarch31,2011and2012andtheconsolidatedstatementof stockholders equity for the three months ended March 31, 2012 and the related footnote disclosures are unaudited. These unauditedinterimconsolidatedfinancialstatementshavebeenpreparedinaccordancewithGAAP.Inmanagementsopinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statementsandincludealladjustments,whichincludeonlynormalrecurringadjustments,necessaryforthefairpresentationof ourstatementoffinancialpositionasofMarch31,2012andourconsolidatedresultsofoperationsandourcashflowsforthe three months ended March 31, 2011 and 2012. The results for the three months ended March 31, 2012 are not necessarily indicativeoftheresultsexpectedforthefullfiscalyear. UseofEstimates ConformitywithGAAPrequirestheuseofestimatesandjudgmentsthataffectthereportedamountsintheconsolidated financialstatementsandaccompanyingnotes.Theseestimatesformthebasisforjudgmentswemakeaboutthecarryingvalues of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition,collectabilityofaccountsreceivable,contingentliabilities,fairvalueofsharebasedawards,fairvalueoffinancial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment,andincometaxes.Theseestimatesarebasedonmanagementsknowledgeaboutcurrenteventsandexpectations aboutactionswemayundertakeinthefuture.Actualresultscoulddiffermateriallyfromthoseestimates. CashandCashEquivalents,andMarketableSecurities Weholdinvestmentsinshorttermandlongtermmarketablesecurities,consistingofU.S.governmentandgovernment agency securities. We classify our marketable securities as availableforsale investments in our current assets because they representinvestmentsofcashavailableforcurrentoperations.Ouravailableforsaleinvestmentsarecarriedatestimatedfair value with any unrealized gains and losses, net of taxes, included in accumulated other comprehensive income/(loss) in stockholdersequity.Unrealizedlossesarechargedagainst F9
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) otherincome(expense),netwhenadeclineinfairvalueisdeterminedtobeotherthantemporary.Wehavenotrecordedany suchimpairmentchargeinanyperiodpresented.Wedeterminerealizedgainsorlossesonsaleofmarketablesecuritiesona specificidentificationmethod,andrecordsuchgainsorlossesasotherincome(expense),net. We classify certain restricted cash balances within prepaid expenses and other current assets and other assets on the accompanyingconsolidatedbalancesheetsbaseduponthetermoftheremainingrestrictions. NonMarketableSecurities Weinvestincertaininvestmentfundsthatarenotpubliclytraded.Wecarrytheseinvestmentsatcostbecausewedonot have significant influence over the underlying investee. We assess for any otherthantemporary impairment at least on an annualbasis.Noimpairmentchargehasbeenrecordedtodateonournonmarketablesecurities. FairValueofFinancialInstruments We apply fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that wouldbereceivedfromsellinganassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsat the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recordedatfairvalue,weconsidertheprincipalormostadvantageousmarketinwhichwewouldtransactandthemarketbased riskmeasurementsorassumptionsthatmarketparticipantswoulduseinpricingtheassetorliability,suchasrisksinherentin valuationtechniques,transferrestrictionsandcreditrisk.Fairvalueisestimatedbyapplyingthefollowinghierarchy,which prioritizestheinputsusedtomeasurefairvalueintothreelevelsandbasesthecategorizationwithinthehierarchyuponthe lowestlevelofinputthatisavailableandsignificanttothefairvaluemeasurement: Level1Quotedpricesinactivemarketsforidenticalassetsorliabilities. Level2Observableinputsotherthanquotedpricesinactivemarketsforidenticalassetsandliabilities,quotedpricesfor identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observablemarketdataforsubstantiallythefulltermoftheassetsorliabilities. Level3Inputsthataregenerallyunobservableandtypicallyreflectmanagementsestimateofassumptionsthatmarket participantswoulduseinpricingtheassetorliability. Our valuation techniques used to measure the fair value of money market funds and marketable debt securities were derivedfromquotedpricesinactivemarketsforidenticalassetsorliabilities. ForeignCurrency Generally the functional currency of our international subsidiaries is the local currency. We translate the financial statementsofthesesubsidiariestoU.S.dollarsusingmonthendratesofexchangeforassetsandliabilities,andaverageratesof exchange for revenue, costs, and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders equity. Net losses resulting from foreign exchange transactions were insignificantfortheyearendedDecember31,2009,andwere$1millionand$29million,respectively,fortheyearsended December31,2010and2011.Netgainsresulting F10
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) from foreign exchange transactions were $16 million and $10 million, respectively, for the three months ended March 31, 2011and2012.Thesegainsandlosseswererecordedasotherincome(expense),net. PropertyandEquipment Property and equipment, which includes amounts recorded under capital leases, are stated at cost. Depreciation is computedusingthestraightlinemethodovertheestimatedusefullivesoftheassetsortheremainingleaseterm,inthecaseof acapitallease,whicheverisshorter. Theestimatedusefullivesofpropertyandequipmentaredescribedbelow:
PropertyandEquipment UsefulLife
Networkequipment Computersoftware,officeequipmentandother Buildings Leasedequipmentandleaseholdimprovements
Threetofouryears Twotofiveyears 15to20years Lesserofestimatedusefullifeorremainingleaseterm
Land and assets held within construction in progress are not depreciated. Construction in progress is related to the constructionordevelopmentofpropertyandequipmentthathavenotyetbeenplacedinservicefortheirintendeduse. Thecostofmaintenanceandrepairsisexpensedasincurred.Whenassetsareretiredorotherwisedisposedof,thecostand relatedaccumulateddepreciationandamortizationareremovedfromtheirrespectiveaccounts,andanygainorlossonsuch saleordisposalisreflectedinincomefromoperations. LongLivedAssets,IncludingGoodwillandOtherAcquiredIntangibleAssets We evaluate the recoverability of property and equipment and amortizable intangible assets for possible impairment whenevereventsorcircumstancesindicatethatthecarryingamountofsuchassetsmaynotberecoverable.Recoverabilityof theseassetsismeasuredbyacomparisonofthecarryingamountstothefutureundiscountedcashflowstheassetsareexpected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable,thecarryingamountofsuchassetsisreducedtofairvalue.Inaddition,wetestgoodwillforimpairmentatleast annually or more frequently if events or changes in circumstances indicate that this asset may be impaired. These tests are based on our single operating segment and reporting unit structure. No indications of impairment of goodwill were noted duringtheyearspresented. Acquired amortizable intangible assets, which are included in goodwill and intangible assets, net, are amortized on a straightlinebasisovertheestimatedusefullivesoftheassets.Theestimatedremainingusefullivesforintangibleassetsrange fromlessthanoneyearto16years. In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of property and equipmentandamortizableintangibleassets.Ifwereducetheestimatedusefullifeassumptionforanyasset,theremaining unamortizedbalancewouldbeamortizedordepreciatedovertherevisedestimatedusefullife. LeaseObligations We lease office space, data centers, and equipment under noncancelable capital and operating leases with various expirationdatesthrough2027.Certainoftheoperatingleaseagreementscontainrentholidays,rentescalationprovisions,and purchaseoptions.Rentholidaysandrentescalationprovisionsareconsideredindeterminingthestraightlinerentexpenseto berecordedovertheleaseterm.Theleasetermbeginsonthedateof F11
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) initialpossessionoftheleasedpropertyforpurposesofrecognizingleaseexpenseonastraightlinebasisoverthetermofthe lease. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assuredatleaseinception. UnauditedProFormaBalanceSheetInformation Uponthecompletionofourinitialpublicoffering,alloutstandingconvertiblepreferredstockwillautomaticallyconvert intosharesofourClassBcommonstock.Theunauditedproformabalancesheetinformationgiveseffecttotheconversionof theconvertiblepreferredstockasofMarch31,2012.Additionally,asdescribedindetailinSharebasedCompensation below,wegrantrestrictedstockunits(RSUs)thatgenerallyvestuponthesatisfactionofaservicecondition,andwithrespect toRSUsgrantedpriortoJanuary1,2011(Pre2011RSUs),sixmonthsafterthecompletionofourinitialpublicoffering.The vestingconditionthatwillbesatisfiedsixmonthsfollowingourinitialpublicofferingdoesnotaffecttheexpenseattribution periodfortheRSUsforwhichtheserviceconditionhasbeenmetasofthedateofourinitialpublicoffering.Accordingly,the unaudited pro forma balance sheet information at March 31, 2012, gives effect to sharebased compensation expense of approximately$965millionassociatedwithPre2011RSUs,forwhichtheserviceconditionwasmetasofMarch31,2012, whichweexpecttorecorduponthecompletionofourinitialpublicoffering.Thisproformaadjustmentrelatedtosharebased compensationexpenseofapproximately$965millionhasbeenreflectedasanincreasetoadditionalpaidincapitalandthe associated tax effect of $325 million has been netted against this charge, resulting in a net reduction of $640 million to retainedearnings.Theincometaxeffectshavebeenreflectedasanincreasetodeferredtaxassetsincludedinprepaidexpenses andothercurrentassets,toreflecttheanticipatedfuturetaxbenefitsuponsettlementoftheRSUs,asadjustedforanyRSUs thatwillnotresultinataxbenefitbecausetheyarerelatedtoforeignemployeesorforeignoperations.Payrolltaxexpenses and other withholding obligations have not been included in the pro forma adjustment. We estimate that an aggregate of approximately277millionsharesunderlyingPre2011RSUswillvestandsettleondatesthatare151to181daysafterthe pricingofourinitialpublicoffering.Theseshareshavenotbeenincludedinourproformabalancesheetdisclosuresofshares outstanding.RSUholdersgenerallywillrecognizetaxableincomebaseduponthevalueofthesharesonthedatetheyare settledandwearerequiredtowithholdtaxesonsuchvalueatapplicableminimumstatutoryrates.Wecurrentlyexpectthatthe averageofthesewithholdingrateswillbeapproximately45%.WeareunabletoquantifytheobligationsasofMarch31,2012 andwewillremainunabletoquantifythisamountuntilthesettlementoftheRSUs,asthewithholdingobligationswillbe basedonthevalueofthesharesapproximatelysixmonthsafterthedateofourinitialpublicoffering. SharebasedCompensation Weaccountforsharebasedemployeecompensationplansunderthefairvaluerecognitionandmeasurementprovisions ofGAAP.Thoseprovisionsrequireallsharebasedpaymentstoemployees,includinggrantsofstockoptionsandRSUs,tobe measuredbasedonthegrantdatefairvalueoftheawards,withtheresultingexpensegenerallyrecognizedinourconsolidated statementsofincomeovertheperiodduringwhichtheemployeeisrequiredtoperformserviceinexchangefortheaward. WeestimatethefairvalueofstockoptionsgrantedusingtheBlackScholesMertonsingleoptionvaluationmodel,which requiresinputssuchasexpectedterm,expectedvolatilityandriskfreeinterestrate.Further,theestimatedforfeiturerateof awards also affects the amount of aggregate compensation. These inputs are subjective and generally require significant analysisandjudgmenttodevelop. Weestimatetheexpectedtermbaseduponthehistoricalbehaviorofouremployeesforemployeegrants.Weestimate expectedvolatilitybasedonastudyofpubliclytradedindustrypeercompanies.Theforfeiturerateisderivedprimarilyfrom our historical data, and the riskfree interest rate is based on the yield available on U.S. Treasury zerocoupon issues. Our dividendyieldis0%,sincewehavenotpaid,anddonotexpecttopay,dividends. F12
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Thefairvaluesofemployeeoptionsgrantedduring2009and2010havebeenestimatedasofthedateofgrantusingthe followingweightedaverageassumptions.

Expectedtermfromgrantdate(inyears) Riskfreeinterestrate Expectedvolatility Dividendyield
5.04 2.01% 0.57
7.15 1.69% 0.46
The weightedaverage fair value of employee options granted during 2009 and 2010 was $1.12 and $5.26 per share, respectively.Therewerenooptionsgrantedin2011orinthethreemonthsendedMarch31,2012. WehavegrantedRSUstoouremployeesandmembersofourboardofdirectors.Pre2011RSUsgrantedunderour2005 Stock Plan vest upon the satisfaction of both a service condition and a liquidity condition. The service condition for the majorityoftheseawardsissatisfiedoverfouryears.Theliquidityconditionissatisfiedupontheoccurrenceofaqualifying event,definedasachangeofcontroltransactionorsixmonthsfollowingthecompletionofourinitialpublicoffering.Under settlementproceduresapplicabletotheseawards,wearepermittedtodelivertheunderlyingshareswithin30daysbeforeor afterthedateonwhichtheliquidityconditionissatisfied.Pre2011RSUsforwhichtheserviceconditionhasbeensatisfied arenotforfeitableshouldemploymentterminatepriortotheliquidityconditionbeingmet.AsofMarch31,2012,noshare basedcompensationexpensehadbeenrecognizedforPre2011RSUs,becausethequalifyingevents(describedabove)hadnot occurred. The vesting condition that will be satisfied six months following our initial public offering does not affect the expense attribution period for the RSUs for which the service condition has been met as of the date of our initial public offering.Thissixmonthperiodisnotasubstantiveserviceconditionand,accordingly,upontheeffectivenessofourinitial publicoffering,wewillrecognizeasignificantcumulativesharebasedcompensationexpensefortheportionoftheRSUsthat hadmettheserviceconditionasofthatdate,followingtheacceleratedattributionmethod(netofestimatedforfeitures).The remainingunrecognizedsharebasedcompensationexpenserelatedtothePre2011RSUswillberecordedovertheremaining requisiteserviceperiod,usingtheacceleratedattributionmethod(netofestimatedforfeitures).ForthePre2011RSUs,ifthe initialpublicofferinghadoccurredonMarch31,2012,wewouldhaverecognized$965millionofsharebasedcompensation expenseonthatdate,andwouldhaveapproximately$235millionofadditionalfutureperiodexpensetoberecognizedovera weightedaverageperiodofapproximatelyoneyear. RSUsgrantedonorafterJanuary1,2011(Post2011RSUs)arenotsubjecttoaliquidityconditioninordertovest,and compensationexpenserelatedtothesegrantsisbasedonthegrantdatefairvalueoftheRSUsandisrecognizedonastraight linebasisovertheapplicableserviceperiod.ThemajorityofPost2011RSUsareearnedoveraserviceperiodoffourtofive years. In 2011 and the three months ended March 31, 2012, we recognized $189 million and $97 million, respectively, of sharebasedcompensationexpenserelatedtothePost2011RSUs,andasofMarch31,2012weanticipate$1,119millionof future period expense related to such RSUs to be recognized over a weightedaverage period of approximately three years. TherewasnocapitalizedsharebasedemployeecompensationexpenseasofDecember31,2010andDecember31,2011. DuringtheyearsendedDecember31,2009,2010,and2011andthethreemonthsendedMarch31,2011and2012,we realizedtaxbenefitsfromsharebasedawardactivityof$50million,$115million,$433million,$69million,and$54million, respectively. These amounts reflect the extent that the total reduction to our income tax liability from sharebased award activitywasgreaterthantheamountofthedeferredtaxassetsthatwehadpreviouslyrecordedinanticipationofthesebenefits. Theseamountsaretheaggregateoftheindividualtransactionsinwhichthereductiontoourincometaxliabilitywasgreater thanthedeferredtaxassetsthatwerecorded,reducedbyanyindividualtransactionsinwhichthereductiontoourincometax liabilitywaslessthan F13
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) thedeferredtaxassetsthatwererecorded.Thesenetamountswererecordedasanadjustmenttostockholdersequityineach period, as an increase to cash flows from operating activities, and were not recognized in our consolidated statements of income. Inaddition,wereportedexcesstaxbenefitsthatdecreasedourcashflowsfromoperatingactivitiesandincreasedourcash flowsfromfinancingactivitiesfortheyearsendedDecember31,2009,2010,and2011andthethreemonthsendedMarch31, 2011and2012,by$51million,$115million,$433million,$69millionand$54million,respectively.Theamountsofthese excesstaxbenefitsreflectthetotaloftheindividualtransactionsinwhichthereductiontoourincometaxliabilitywasgreater than the deferred tax assets that were recorded, but were not reduced by any of the individual transactions in which the reductiontoourincometaxliabilitywaslessthanthedeferredtaxassetsthatwererecorded. AsofDecember31,2011,therewas$2,463millionofunrecognizedsharebasedcompensationexpense,ofwhich$2,396 millionisrelatedtoRSUs,and$67millionisrelatedtorestrictedsharesandstockoptions.AsofMarch31,2012,therewas $2,381 million of unrecognized sharebased compensation expense, of which $2,319 million is related to RSUs, and $62 million is related to restricted shares and stock options. This unrecognized compensation expense is expected to be recognizedoveraweightedaverageperiodofapproximatelytwoyears. IncomeTaxes Werecognizeincometaxesundertheassetandliabilitymethod.Werecognizedeferredincometaxassetsandliabilities for the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities.Thesedifferencesaremeasuredusingtheenactedstatutorytaxratesthatareexpectedtoapplytotaxableincomefor theyearsinwhichdifferencesareexpectedtoreverse.Werecognizetheeffectondeferredincometaxesofachangeintaxrates inincomeintheperiodthatincludestheenactmentdate. Werecordavaluationallowancetoreduceourdeferredtaxassetstothenetamountthatwebelieveismorelikelythan not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectationsandrisksassociatedwithestimatesoffuturetaxableincomeandongoingtaxplanningstrategiesinassessingthe needforavaluationallowance. We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax positionwillbesustainedonexaminationbythetaxingauthoritiesbasedonthetechnicalmeritsoftheposition.Wemake adjustmentstothesereserveswhenfactsandcircumstanceschange,suchastheclosingofataxauditortherefinementofan estimate.Theprovisionforincometaxesincludestheeffectsofanyreservesthatareconsideredappropriate,aswellasthe relatednetinterestandpenalties. RevenueRecognition Wegeneratesubstantiallyallofourrevenuefromadvertisingandpaymentprocessingfees.Werecognizerevenueonce allofthefollowingcriteriahavebeenmet: persuasiveevidenceofanarrangementexists deliveryofFacebooksobligationstoourcustomerhasoccurred thepriceisfixedordeterminableand collectabilityoftherelatedreceivableisreasonablyassured. F14
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) RevenuefortheyearsendedDecember31,2009,2010,and2011andthethreemonthsendedMarch31,2011and2012 consistsofthefollowing(inmillions):

YearEnded December31, 2010 ThreeMonthsEnded March31, 2011 2012 (unaudited)
2009
2011
Revenue Advertising Paymentsandotherfees Totalrevenue Advertising
$ 764 13 $ 777
$ 1,868 106 $ 1,974
$ 3,154 557 $ 3,711
$ 637 94 $ 731
$ 872 186 $ 1,058
Advertisingrevenueisgeneratedfromthedisplayofadvertisementsonourwebsite.Thearrangementsareevidencedby eitheronlineacceptanceoftermsandconditionsorcontractsthatstipulatethetypesofadvertisingtobedelivered,thetiming andthepricing.Thetypicaltermofanadvertisingarrangementisapproximately30dayswithbillinggenerallyoccurringafter thedeliveryoftheadvertisement. Werecognizerevenuefromthedisplayofimpressionbasedadvertisementsonourwebsiteinthecontractedperiodwhen theimpressionsaredelivered.Impressionsareconsidereddeliveredwhenanadvertisementappearsinpagesdeliveredtousers. Wealsorecognizerevenuefromthedeliveryofclickbasedadvertisementsonourwebsite.Revenueassociatedwiththese advertisementsisrecognizedintheperiodthatauserclicksonanadvertisement. PaymentsandOtherFees We enable Payments between our users and developers on the Facebook Platform. Our users can purchase virtual or digitalgoodsontheFacebookPlatformbyusingcreditcardsorotherpaymentmethodsavailableonourwebsite.Theprimary methodforuserstotransactwiththedevelopersontheFacebookPlatformisviathepurchaseofourvirtualcurrency,which enablesouruserstopurchasevirtualanddigitalgoodsingamesandapps.Upontheinitialsaleofourvirtualcurrency,we recordconsiderationreceivedfromauserasadeposit. Whenauserengagesinapaymenttransactionutilizingourvirtualcurrencyforthepurchaseofavirtualordigitalgood fromaPlatformdeveloper,wereducetheusersvirtualcurrencybalancebythepriceofthepurchase,whichisapricethatis solelydeterminedbythePlatformdeveloper.WeremittothePlatformdeveloperanamountthatisbasedonthetotalamount ofvirtualcurrencyredeemedlesstheprocessingfeethatwechargethePlatformdeveloperforthetransaction.Ourrevenueis thenetamountofthetransaction,representingourprocessingfeefortheserviceperformed.Werecordrevenueonanetbasis aswedonotconsiderourselvestobetheprincipalinthesaleofthevirtualordigitalgoodtotheuser. Otherfeeshavenotbeenmaterialinallperiodspresentedinourfinancialstatements. Allrevenueisrecognizednetofapplicablesalesandothertaxes,whereappropriate. CostofRevenue Ourcostofrevenueconsistsprimarilyofexpensesassociatedwiththedeliveryanddistributionofourproducts.These includeexpensesrelatedtotheoperationofourdatacenterssuchasfacilityandserver F15
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) equipment depreciation, facility and server equipment rent expense, energy and bandwidth costs, support and maintenance costs,andsalaries,benefitsandsharebasedcompensationforcertainpersonnelonouroperationsteams.Costofrevenuealso includescreditcardandothertransactionfeesrelatedtoprocessingcustomertransactions. DeferredRevenueandDeposits Deferredrevenueconsistsofbillingsinadvanceofrevenuerecognition.Depositsrelatetounusedvirtualcurrencyheld byourusers.Oncethisvirtualcurrencyisutilizedbyauser,approximately70%ofthisamountwouldthenbepayabletothe Platformdeveloperandthebalancewouldberecognizedasrevenue. Deferredrevenueanddepositsconsistsofthefollowing(inmillions):
December31, 2010 2011 March31, 2012 (unaudited)
Deferredrevenue Deposits Totaldeferredrevenueanddeposits CreditRiskandConcentration
$ 35 7 $ 42
$ 75 15 $ 90
$ $
77 16 93
Financialinstrumentsownedbythecompanythatarepotentiallysubjecttoconcentrationsofcreditriskconsistprimarily ofcash,cashequivalents,restrictedcash,marketablesecurities,andaccountsreceivable.Cashequivalentsconsistofshortterm money market funds and U.S. government and agency securities, which are deposited with reputable financial institutions. MarketablesecuritiesconsistofinvestmentsinU.S.governmentandgovernmentagencysecurities.Ourcashmanagementand investmentpolicylimitsinvestmentinstrumentstoinvestmentgradesecuritieswiththeobjectivetopreservecapitalandto maintainliquidityuntilthefundscanbeusedinbusinessoperations.BankaccountsintheUnitedStatesareinsuredbythe FederalDepositInsuranceCorporation(FDIC)upto$250,000.OuroperatingaccountssignificantlyexceedtheFDIClimits. Accounts receivable are typically unsecured and are derived from revenue earned from customers across different industriesandcountries.Wegenerated67%,62%,and56%ofourrevenuefortheyearsendedDecember31,2009,2010,and 2011,respectively,fromadvertisersandPlatformdevelopersbasedintheUnitedStates,withthemajorityofrevenueoutsideof theUnitedStatescomingfromcustomerslocatedinwesternEurope,Canada,andAustralia. We perform ongoing credit evaluations of our customers, and generally do not require collateral. An allowance for doubtfulaccountsisdeterminedusingthespecificidentificationmethodfordoubtfulaccountsandanagingofreceivables analysis based on invoice due dates. Uncollectible receivables are written off against the allowance for doubtful accounts whenalleffortstocollectthemhavebeenexhausted,andrecoveriesarerecognizedasanincreasetotheallowancewhenthey arereceived.DuringtheyearsendedDecember31,2009,2010,and2011,ourbaddebtexpenseswere$1million,$9million, and $8 million, respectively. In the event that accounts receivable collection cycles deteriorate, our operating results and financialpositioncouldbeadverselyaffected. Revenuefromonecustomer,Zynga,represented12%,13%,and11%oftotalrevenuefortheyearendedDecember31, 2011andthethreemonthsendedMarch31,2011and2012,respectively.Additionally,Zyngas F16
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) appsgeneratepagesonwhichwedisplayadsandearnrevenuefromotheradvertisers.Nocustomerrepresented10%ormoreof totalrevenueduringtheyearsendedDecember31,2009or2010. AdvertisingExpense Weexpenseourcostsofadvertisingintheperiodinwhichtheyareincurred.Advertisingexpense,whichisincludedin marketingandsalesexpenses,totaled$5million,$8million,and$28millionfortheyearsendedDecember31,2009,2010, and2011,respectively. Segments Our chief operating decisionmaker is our Chief Executive Officer who reviews financial information presented on a consolidatedbasis.Therearenosegmentmanagerswhoareheldaccountablebythechiefoperatingdecisionmaker,oranyone else,foroperations,operatingresults,andplanningforlevelsorcomponentsbelowtheconsolidatedunitlevel.Accordingly, wehavedeterminedthatwehaveasinglereportingsegmentandoperatingunitstructure. RecentAccountingPronouncement InMay2011,theFinancialAccountingStandardsBoardissuedguidancethatchangedtherequirementforpresenting ComprehensiveIncomeintheconsolidatedfinancialstatements.Theupdaterequiresanentitytopresentthecomponentsof other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The update is effective for fiscal years, and interim periods within those years, beginning after December15,2011andshouldbeappliedretrospectively.WeadoptedthisnewguidanceonJanuary1,2012. Note2.EarningsperShare We compute earnings per share (EPS) of Class A and Class B common stock using the twoclass method required for participatingsecurities.Ourparticipatingsecuritiesincludeallseriesofourconvertiblepreferredstockandrestrictedstock awards.Undistributedearningsallocatedtotheseparticipatingsecuritiesaresubtractedfromnetincomeindeterminingnet income attributable to common stockholders. Basic EPS is computed by dividing net income attributable to common stockholdersbytheweightedaveragenumberofsharesofourClassAandClassBcommonstockoutstanding,adjustedfor outstandingsharesthataresubjecttorepurchase. ForthecalculationofdilutedEPS,netincomeattributabletocommonstockholdersforbasicEPSisadjustedbytheeffect ofdilutivesecurities,includingawardsunderourequitycompensationplans.Inaddition,thecomputationofthedilutedEPS ofClassAcommonstockassumestheconversionfromClassBcommonstock,whilethedilutedEPSofClassBcommonstock doesnotassumetheconversionofthoseshares.DilutedEPSattributabletocommonstockholdersiscomputedbydividingthe resultingnetincomeattributabletocommonstockholdersbytheweightedaveragenumberoffullydilutedcommonshares outstanding. Dilutive securities in our diluted EPS calculation do not include Pre2011 RSUs. Vesting of these RSUs is dependent upon the satisfaction of both a service condition and a liquidity condition. The liquidity condition is satisfied upon the occurrenceofaqualifyingevent,definedasachangeofcontroltransactionorsixmonthsfollowingthecompletionofour initialpublicoffering.AsofMarch31,2012,suchaqualifyingeventhadnotoccurredanduntilitoccurs,theholdersofthese RSUshavenorightsinourundistributedearnings.Therefore,theyareexcludedfromtheeffectofdilutivesecurities.Post 2011RSUsarenotsubjecttoaliquidityconditionin F17
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) ordertovest,andarethusincludedinthecalculationofdilutedEPS.Weexcluded4millionand2millionsharesissuable uponexerciseofemployeestockoptionsfortheyearsendedDecember31,2009and2010,respectively,and3millionand 3millionPost2011RSUsfortheyearendedDecember31,2011andthethreemonthsendedMarch31,2011,respectively, becausetheimpactwouldbeantidilutive.NoshareswereexcludedfromthecalculationforthethreemonthsendedMarch31, 2012. BasicanddilutedEPSarethesameforeachclassofcommonstockbecausetheyareentitledtothesameliquidationand dividendrights. The numerators and denominators of the basic and diluted EPS computations for our common stock are calculated as follows(inmillions,exceptpershareamounts):
2009 Class Class A B YearEndedDecember31, 2010 2011 Class Class Class A B A ClassB ThreeMonthsEndedMarch31, 2011 2012 ClassA ClassB ClassA ClassB (unaudited) (unaudited)
BasicEPS: Numerator: Netincome $ $ 229 $ 18 $ 588 $ 85 $ 915 $ 18 $ 215 $ 18 $ 187 Less:Netincomeattributable toparticipatingsecurities 107 7 227 28 304 6 74 6 62 Netincomeattributable tocommon stockholders $ $ 122 $ 11 $ 361 $ 57 $ 611 $ 12 $ 141 $ 12 $ 125 Denominator: Weightedaverageshares outstanding Less:Sharessubjectto repurchase Numberofsharesused forbasicEPS computation BasicEPS
1,026 6
32 1,081 110 1,189 6 5
98 1,147 117 1,233 5 3
1,020
32 1,075 110 1,184
98 1,142 117 1,230
$ $ 0.12 $0.34 $ 0.34 $0.52 $ 0.52 $ 0.12 $ 0.12 $ 0.10 $ 0.10 F18
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited)

2009 Class A YearEndedDecember31, 2010 2011 Class Class Class Class B A B A ClassB ThreeMonthsEndedMarch31, 2011 2012 ClassA ClassB ClassA ClassB
DilutedEPS: Numerator: Netincomeattributableto commonstockholders Reallocationofnetincome attributableto participatingsecurities Reallocationofnetincome asaresultofconversion ofClassBtoClassA commonstock Reallocationofnetincome toClassBcommon stock Netincome attributableto common stockholdersfor dilutedEPS
(unaudited)
(unaudited)
$ 122 $
11 $ 361 $
57 $ 611 $
12 $ 141 $
12 $ 125
12
30
31
122
361
611
141
125
12
32
37
10
$ 134 $ 134 $ 402 $ 393 $ 699 $ 648 $ 162 $ 151 $ 142 $ 131
Denominator: Numberofsharesusedfor basicEPScomputation 1,020 32 1,075 110 1,184 98 1,142 117 1,230 ConversionofClassBto ClassAcommonstock 1,020 1,075 1,184 1,142 1,230 Weightedaverageeffectof dilutivesecurities: Employeestock options 334 334 295 295 204 204 240 240 169 169 RSUs 5 5 9 9 Sharessubjectto repurchase 5 5 4 4 3 3 4 4 2 2 Warrants 7 7 8 8 2 2 4 4 Numberof sharesused fordiluted EPS computation 1,366 1,366 1,414 1,382 1,508 1,398 1,488 1,390 1,526 1,410 DilutedEPS $ 0.10 $ 0.10 $ 0.28 $ 0.28 $ 0.46 $ 0.46 $ 0.11 $ 0.11 $ 0.09 $ 0.09 F19
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) ProFormaEPS(unaudited) The following unaudited calculation of the numerators and denominators of basic and diluted EPS gives effect to the automaticconversionofalloutstandingsharesofourconvertiblepreferredstock(usingtheasifconvertedmethod)intoClass Bcommonstockasthoughtheconversionhadoccurredasofthebeginningoftheperiodortheoriginaldateofissuance,if later. In addition, the pro forma share amounts give effect to Pre2011 RSUs that have satisfied the service condition as of December 31, 2011 and March 31, 2012. These RSUs will vest and settle upon the satisfaction of a qualifying event, as previouslydefined.SharebasedcompensationexpenseassociatedwiththesePre2011RSUsisexcludedfromthisproforma presentation.IfthequalifyingeventhadoccurredonMarch31,2012,wewouldhaverecorded$965millionofsharebased compensation expense on that date related to these RSUs, net of associated tax effect of $325 million, resulting in a net reductionof$640milliontonetincome.
YearEnded December31,2011 ClassA ClassB ThreeMonthsEnded March31,2012 ClassA ClassB
ProFormaBasicEPS: Numerator: Netincomeasreported Reallocationofnetincomeduetoproforma adjustments Netincomeattributabletoparticipating securities Netincomeattributabletocommon stockholdersforproformabasic EPScomputation Denominator: WeightedaveragesharesusedforbasicEPS computation Proformaadjustmenttoreflectassumed conversionofpreferredstocktoClassB commonstock Proformaadjustmenttoreflectassumed vestingofPre2011RSUs Numberofsharesusedforproforma basicEPScomputation ProformabasicEPS ProFormaDilutedEPS: Numerator: Netincomeattributabletocommon stockholdersforproformabasicEPS computation Reallocationofnetincomeattributableto participatingsecurities Reallocationofnetincomeasaresultof conversionofClassBtoClassAcommon stock ReallocationofnetincometoClassB commonstock Netincomeattributabletocommon stockholdersforproformadiluted
85 (31)
915 31 (2)
18 (6)
187 6
54
944
12
193
110
1,184
117
1,230
110 0.49
548 188 1,920 0.49
117 0.10
546 233 2,009 0.10
54 2
944
12
193
944
193
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EPScomputation
$ F20
1,000
953
205
194
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YearEnded December31,2011 ClassA ClassB ThreeMonthsEnded March31,2012 ClassA ClassB
Denominator: NumberofsharesusedforproformabasicEPS computation ConversionofClassBtoClassAcommon stock Weightedaverageeffectofdilutivesecurities: Employeestockoptions RSUs Sharessubjecttorepurchase Warrants Numberofsharesusedforpro formadilutedEPScomputation ProformadilutedEPS Note3.PropertyandEquipment
110 1,920 204 93 3 2 2,332 0.43
1,920 204 93 3 2 2,222 0.43
117 2,009 169 64 2 2,361 0.09
2,009 169 64 2 2,244 0.09
Propertyandequipmentconsistsofthefollowing(inmillions):
Networkequipment Land Buildings Leaseholdimprovements Computersoftware,officeequipmentandother Constructioninprogress Total Lessaccumulateddepreciationandamortization Propertyandequipment,net
$478 29 58 61 194 820 (246) $ 574
$1,016 34 355 120 73 327 1,925 (450) $1,475
$ 1,382 34 373 148 76 379 2,392 (537) $ 1,855
PropertyandequipmentatDecember31,2010and2011andMarch31,2012includes$298million,$881million,and $979 million, respectively, acquired under capital lease agreements. Accumulated amortization under capital leases totaled $85million,$210million,and$280millionatDecember31,2010and2011,andMarch31,2012,respectively.Amortization ofassetsundercapitalleasesisincludedindepreciationandamortizationexpense. Constructioninprogressincludescostsprimarilyrelatedtotheconstructionandnetworkequipmentofdatacentersin OregonandNorthCarolinaintheUnitedStatesandinSweden,andournewcorporateheadquartersinMenloPark,California. Interestcapitalizedduringtheyearspresentedwasnotmaterial. F21
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Note4.GoodwillandIntangibleAssets Goodwillandintangibleassetsconsistofthefollowing(inmillions):

Acquiredpatents Acquirednoncompeteagreements Acquiredtechnologyandother Accumulatedamortization Netacquiredintangibleassets Goodwill Goodwillandintangibleassets
$33 11 27 (12) 59 37 $ 96
$51 18 43 (32) 80 82 $ 162
$ $
83 18 43 (37) 107 82 189
Acquiredpatentshaveestimatedusefullivesrangingfromfourto18yearsatacquisition.Theaveragetermofacquired noncompeteagreementsisgenerallytwoyears.Acquiredtechnologyandotherhaveestimatedusefullivesoftwototenyears. AmortizationexpenseofintangibleassetsfortheyearsendedDecember31,2009,2010,and2011was$2million,$9million, and$20million,respectively. DuringtheyearendedDecember31,2011,wecompletedbusinessacquisitionsfortotalconsiderationof$68million. These acquisitions were not material to our consolidated financial statements individually or in the aggregate. Our acquisitions prior to 2011 were also not material individually or in the aggregate. There were no business combinations completedduringthethreemonthsendedMarch31,2012. The following table presents the aggregated estimated fair value of the assets acquired for all acquisitions completed duringtheyearendedDecember31,2011(inmillions): Acquiredtechnologyandother Acquirednoncompeteagreements Netassetsacquired Deferredincometaxliabilities Goodwill Total $16 7 4 (7) 48 $68
Proformaresultsofoperationsrelatedtoour2011acquisitionshavenotbeenpresentedbecausetheyarenotmaterialto ourconsolidatedstatementsofincome,eitherindividuallyorintheaggregate.Forallacquisitionscompletedduringtheyear endedDecember31,2011,acquiredtechnologyandotherhadaweightedaverageusefullifeofthreeyearsandthetermofthe noncompeteagreementsisgenerallytwoyears. F22
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) ThechangesincarryingamountofgoodwillfortheyearsendedDecember31,2010and2011areasfollows(inmillions): BalanceasofDecember31,2009 Goodwillacquired BalanceasofDecember31,2010 Goodwillacquired Effectofcurrencytranslationadjustment BalanceasofDecember31,2011 $11 26 37 48 (3) $82
AsofDecember31,2011,expectedamortizationexpensefortheunamortizedacquiredintangibleassetsforthenextfive yearsandthereafterisasfollows(inmillions): 2012 2013 2014 2015 2016 Thereafter Total Note5.LongtermDebt InMarch2010,weenteredintoaseniorunsecuredtermloanfacilitywithcertainlenders.Thisfacilityallowedforthe drawdownofupto$250millioninunsecuredseniorloanswithamaturityoffiveyears.InApril2010wedrewdownthefull amountavailableunderthefacilityataninterestrateof4.5%,payablequarterly.Theloancouldberepaidbyusatanytime withoutpenalty.Debtissuancecostsofapproximately$1millionwererecordedinothernoncurrentassetsandwerebeing amortizedtointerestexpenseoverthecontractualtermoftheloan.OnMarch2,2011,werepaidinfullthelongtermdebt balanceof$250million,andexpensedtheremainingunamortizeddebtissuancecosts. In2011,weenteredintoanagreementforanunsecuredfiveyearrevolvingcreditfacilitythatallowedustoborrowupto $2,500million,withinterestpayableonborrowedamountssetattheLondonInterbankOfferedRate(LIBOR)plus1.0%.No amountsweredrawndownunderthisagreementasofDecember31,2011.InFebruary2012,weterminatedthiscreditfacility and entered into a new agreement for an unsecured fiveyear revolving credit facility that allows us to borrow up to $5,000millionforgeneralcorporatepurposes,withinterestpayableontheborrowedamountssetatLIBORplus1.0%.Priorto ourinitialpublicoffering,wecanborrowupto$2,500millionunderthisfacility.Originationfeesareamortizedovertheterm ofthecreditfacility.Underthetermsofthenewagreement,weareobligatedtopayacommitmentfeeof0.10%perannumon thedailyundrawnbalance. Concurrentwithourenteringintothenewrevolvingcreditfacility,wealsoenteredintoabridgecreditfacilitythatallows ustoborrowupto$3,000milliontofundtaxwithholdingandremittanceobligationsrelatedtothesettlementofRSUsin connectionwithourinitialpublicoffering,withinterestpayableontheborrowedamountssetatLIBORplus1.0%,andan additional0.25%payableondrawnbalancesoutstandingfromandafterthe180thdayofborrowing.Wemaymakeasingle borrowingunderthisbridgefacilitybeginningontheclosing F23 $21 11 7 7 6 28 $80
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) dateofourinitialpublicofferingandendingonthedatethatis240daysafterthatdate.Anyamountsoutstandingunderthis facilitywillbedueoneyearafterthedatewedrawonthefacilitybutnolaterthanJune30,2014.Duringthetermofthis bridgefacility,thelenderscommitmentsaresubjecttoreductionandamountsborrowedthereunderaresubjecttorepayment intheeventweraisecapitalthroughcertainassetsales,debtissuances,orequityissuances.Originationfeesareamortizedover the term of the facility, and we are obligated to pay an additional upfront fee of 0.20% of the aggregate amount of the borrowingsrequestedonanyapplicablefundingdate.Underthetermsoftheagreement,weareobligatedtopayacommitment fee of 0.10% per annum on the daily undrawn balance from and after the 90th day following the date we entered into the bridgefacility. Note6.FairValueMeasurements Assetsmeasuredatfairvalueonarecurringbasisaresummarizedbelow(inmillions):
FairValueMeasurementat ReportingDateUsing Quoted Pricesin Active Significant Marketsfor Other Identical Observable Assets Inputs (Level1) (Level2) (unaudited)
Description
March31, 2012
Significant Unobservable Inputs (Level3)
Cashequivalents: Moneymarketfunds U.S.governmentsecurities U.S.governmentagencysecurities Totalcashequivalents Marketablesecurities: U.S.governmentsecurities U.S.governmentagencysecurities Totalcashequivalentsandmarketablesecurities
$ $
333 120 100 553 1,570 1,058 3,181
333 120 100 553
1,570 1,058 $ 3,181
FairValueMeasurementat ReportingDateUsing Quoted Pricesin Active Marketsfor Identical Assets (Level1) Significant Other Observable Inputs (Level2)
Description
December31, 2011
Cashequivalents: Moneymarketfunds U.S.governmentsecurities U.S.governmentagencysecurities Totalcashequivalents Marketablesecurities: U.S.governmentsecurities U.S.governmentagencysecurities Totalcashequivalentsandmarketablesecurities
$ $ F24
892 60 50 1,002 1,415 981 3,398
$ 892 60 50 1,002 1,415 981 $ 3,398
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FairValueMeasurementat ReportingDateUsing Quoted Pricesin Active Markets for Identical Assets (Level1)
Description
December31, 2010
Significant Other Observable Inputs (Level2)
Cashequivalents: Moneymarketfunds Totalcashequivalents
$ $
1,450 1,450
$1,450 $1,450
$ $
$ $
Gross unrealized gains or losses for cash equivalent and marketable securities as of December 31, 2010 and 2011 and March31,2012werenotmaterial. ThefollowingtableclassifiesourmarketablesecuritiesbycontractualmaturitiesasofDecember31,2011andMarch31, 2012(inmillions):
December31, 2011 March31, 2012 (unaudited)
Dueinoneyear Dueinonetofiveyears Total Note7.CommitmentsandContingencies Leases
$ $
1,964 432 2,396
$ $
1,818 810 2,628
Weenteredintovariouscapitalleasearrangementstoobtainpropertyandequipmentforouroperations.Additionally,on occasionwehavepurchasedpropertyandequipmentforwhichwehavesubsequentlyobtainedcapitalfinancingundersale leasebacktransactions.Theseagreementsaretypicallyforthreeyearsexceptforbuildingleaseswhicharefor15years,with interestratesrangingfrom2%to13%.Theleasesaresecuredbytheunderlyingleasedbuildings,leaseholdimprovements,and equipment.Wehavealsoenteredintovariousnoncancelableoperatingleaseagreementsforcertainofouroffices,equipment, landanddatacenterswithoriginalleaseperiodsexpiringbetween2012and2027.Wearecommittedtopayaportionofthe relatedactualoperatingexpensesundercertainoftheseleaseagreements.Certainofthesearrangementshavefreerentperiods orescalatingrentpaymentprovisions,andwerecognizerentexpenseundersucharrangementsonastraightlinebasis. F25
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Thefollowingisaschedule,byyears,ofthefutureminimumleasepaymentsrequiredundernoncancelablecapitaland operatingleasesasofDecember31,2011(inmillions):

Capital Leases Operating Leases
2012 2013 2014 2015 2016 Thereafter Totalminimumleasepayments Lessamountrepresentinginterestandtaxes Lesscurrentportionofthepresentvalueofminimumleasepayments Capitalleaseobligations,netofcurrentportion
322 228 109 17 11 130 817
$ $
180 130 113 102 95 325 945
(140) (279) $ 398
Operatingleaseexpensetotaled$69million,$178million,and$219millionfortheyearsendedDecember31,2009, 2010, and 2011, respectively. We also have $500 million of noncancelable contractual commitments as of December 31, 2011,primarilyrelatedtoequipmentandsuppliesforourdatacenteroperations,andtoalesserextent,constructionofourdata centersites.Themajorityofthesecommitmentsareduein2012. Contingencies LegalMatters On March 12, 2012, Yahoo filed a lawsuit against us in the U.S. District Court for the Northern District of California, claimingthatweinfringetenofYahoospatentsthatYahooclaimsrelatetoadvertising,socialnetworking,privacy, customization,andmessaging,andonApril27,2012YahooaddedtwopatentstothelawsuitthatYahooclaimsrelateto advertising.Yahooisseekingunspecifieddamages,adamagemultiplierforallegedwillfulinfringement,andaninjunction. We intend to vigorously defend this lawsuit, and on April 3, 2012, we filed our answer with respect to this complaint and assertedcounterclaimsthatYahoosproductsinfringetenofourpatents.Thislitigationisstillinitsearlystagesandthefinal outcome,includingourliability,ifany,withrespecttoYahoosclaims,isuncertain.Atpresent,weareunabletoestimatea reasonably possible range of loss, if any, that may result from this matter. If an unfavorable outcome were to occur in this litigation,theimpactcouldbematerialtoourbusiness,financialcondition,orresultsofoperations. Wearealsopartytovariouslegalproceedingsandclaimswhichariseintheordinarycourseofbusiness.Intheopinionof management,asofDecember31,2011andMarch31,2012,therewasnotatleastareasonablepossibilitythatwehadincurred amaterialloss,oramateriallossinexcessofarecordedaccrual,withrespecttosuchlosscontingencies. Indemnifications Inthenormalcourseofbusiness,tofacilitatetransactionsofservicesandproducts,wehaveagreedtoindemnifycertain partieswithrespecttocertainmatters.Wehaveagreedtoholdcertainpartiesharmlessagainstlossesarisingfromabreachof representationsorcovenants,oroutofintellectualpropertyinfringementorotherclaimsmadebythirdparties.Inaddition,we havealsoagreedtoindemnifycertaininvestorswithrespectto F26
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) representationsmadebyusinconnectionwiththeissuanceandsaleofpreferredstock.Theseagreementsmaylimitthetime within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnificationagreementswithourofficers,directors,andcertainemployees,andourcertificateofincorporationandbylaws containsimilarindemnificationobligations. Itisnotpossibletodeterminethemaximumpotentialamountundertheseindemnificationagreementsduetothelimited 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 position, results of operations or cash flows. In our opinion, as of December 31, 2011, there was not at least a reasonable possibilitywehadincurredamateriallosswithrespecttoindemnificationofsuchparties.Wehavenotrecordedanyliability forcostsrelatedtoindemnificationthroughDecember31,2011. Note8.StockholdersEquity ConvertiblePreferredStock Ourcertificateofincorporation,asamendedandrestated,authorizestheissuanceof569,001,400sharesof$0.000006par value convertible preferred stock. The following table summarizes the convertible preferred stock outstanding as of December31,2011,andtherightsandpreferencesoftherespectiveseries:
Shares Authorized (inthousands) Issuedand Outstanding (inthousands) Aggregate Liquidation Preference (inmillions) Dividend PerShare PerAnnum Conversion Ratio PerShare
SeriesA SeriesB SeriesC SeriesD SeriesE Total
134,747 226,032 95,768 67,454 45,000 569,001
133,055 224,273 91,410 50,590 44,038 543,366
$ $
1 13 26 375 200 615
$0.00036875 0.00456 0.02297335 0.593 0.3633264
1.000000 1.004910 1.004909 1.012561 1.000000
AsofDecember31,2011,therights,preferences,andprivilegesofthepreferredstockholderswereasfollows: Dividends The holders of shares of Series A, Series B, Series C, Series D, and Series E convertible preferred stock are entitled to receive noncumulative dividends, out of any assets legally available for such purpose, prior and in preference to any declarationorpaymentofanydividendontheClassAcommonstockorClassBcommonstock,payablequarterlywhen,as andif,declaredbyourboardofdirectors.Afterpaymentofsuchdividendtothepreferredstockholders,outstandingsharesof preferredstockshallparticipatewithsharesofClassAcommonstockandClassBcommonstockonanasconvertedtoClassB commonstockbasisastoanyadditionaldividends.AsofDecember31,2011,wehadnotdeclaredanydividends. Conversion EachshareofSeriesA,SeriesB,SeriesC,SeriesD,andSeriesEpreferredstockisconvertible,attheoptionoftheholder thereof,atanytimeafterthedateofissuanceofsuchshare,intosuchnumberoffullypaid F27
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) andnonassessablesharesofClassBcommonstockasisdeterminedbydividingtheapplicableoriginalissuepricebythe conversionpriceapplicabletosuchshareineffectonthedateofconversion. The conversion price of each series of preferred stock may be subject to adjustment from time to time under certain circumstances. The convertible preferred stock issued to date was sold at prices ranging from $0.004605 to $7.412454 per share,which,inallcases,exceededthethenmostrecentreassessedfairvalueofourClassBcommonstock.Accordingly,there wasnointrinsicvalueassociatedwiththeissuanceoftheconvertiblepreferredstockthroughDecember31,2011,andthere werenootherseparateinstrumentsissuedwiththeconvertiblepreferredstock,suchaswarrants.Therefore,wehaveconcluded thattherewasnobeneficialconversionoptionassociatedwiththeconvertiblepreferredstockissuances. Each share of Series A, Series B, Series C, Series D, and Series E convertible preferred stock shall automatically be convertedintofullypaid,nonassessablesharesofClassBcommonstockimmediatelyupontheearlierof:(i)thesalebyusof our Class A common stock or Class B common stock in a firm commitment underwritten public offering pursuant to a registrationstatementundertheSecuritiesActof1933,asamended(SecuritiesAct),thepublicofferingpriceofwhichresults inaggregatecashproceedstousofnotlessthan$100million(netofunderwritingdiscountsandcommissions),or(ii)thedate specifiedbywrittenconsentoragreementoftheholdersofamajorityofthethenoutstandingsharesofpreferredstock,voting together as a single class on an asconverted basis, provided, however, that if (a) the holders of a majority of the then outstandingsharesofSeriesDconvertiblepreferredstockdonotconsentoragreeor(b)theholdersofamajorityofthethen outstandingsharesofSeriesEconvertiblepreferredstockdonotconsentoragree,thenineithersuchcasetheconversionshall notbeeffectiveastoanysharesofpreferredstockuntil180daysafterthedateofthewrittenconsentofthemajorityofthe thenoutstandingsharesofpreferredstock. LiquidationPreferences In the event we liquidate, dissolve, or wind up our business, either voluntarily or involuntarily, the holders of our Series A, Series B, Series C, Series D, and Series E convertible preferred stock shall be entitled to receive, prior and in preference to any distribution of any of our assets to the holders of Class A common stock or Class B common stock, an amount per share equal to $0.004605, $0.0570025, $0.2871668, $7.412454, and $4.54158 per share (as adjusted for stock splits,stockdividends,reclassifications,andthelike),respectively,plusanydeclaredbutunpaiddividends. If,upontheoccurrenceofanyoftheseevents,theassetsandfundsdistributedamongtheholdersoftheSeriesA,SeriesB, SeriesC,SeriesD,andSeriesEconvertiblepreferredstockshallbeinsufficienttopermitthepaymenttosuchholdersofthe full aforesaid preferential amounts, then our entire assets and funds legally available for distribution shall be distributed ratablyamongtheholdersoftheSeriesA,SeriesB,SeriesC,SeriesD,andSeriesEconvertiblepreferredstockinproportionto thepreferentialamounteachsuchholderisotherwiseentitledtoreceive. IfthereareanyremainingassetsuponthecompletionoftheliquidatingdistributiontotheSeriesA,SeriesB,SeriesC, SeriesD,andSeriesEconvertiblepreferredstockholders,theholdersofourClassAcommonstockandClassBcommonstock willreceiveallourremainingassets.Themergerorconsolidationofusintoanotherentityinwhichourstockholdersownless than50%ofthevotingstockofthesurvivingcompany,orthesale,transfer,orleaseofsubstantiallyallourassets,shallbe deemed a liquidation, dissolution, or winding up of us. As the redemption events are within our control for all periods presented,allsharesofpreferredstockhavebeenpresentedaspartofpermanentequity. F28
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) VotingRights TheholderofeachshareofSeriesA,SeriesB,SeriesC,SeriesD,andSeriesEconvertiblepreferredstockshallhavethe samevotingrightsastheholdersofClassBcommonstock,isentitledtonoticeofanystockholdersmeetinginaccordance withourbylaws,andtogetherwiththeholdersofClassAcommonstockandClassBcommonstock,theSeriesA,SeriesB, SeriesC,SeriesD,andSeriesEconvertiblepreferredstockwillvotetogetherasasingleclassonallmatterswhichholdersof Class A common stock and Class B common stock have the right to vote, unless otherwise stated. Each holder of Class A commonstockisentitledtoonevoteforeachshareofClassAcommonstockheldeachholderofClassBcommonstockis entitledtotenvotesforeachshareofClassBcommonstockheldandeachholderofSeriesA,SeriesB,SeriesC,SeriesD,and SeriesEconvertiblepreferredstockisentitledtotenvotesforeachshareofClassBcommonstockintowhichsuchconvertible preferredstockcouldbeconverted. CommonStock Our certificate of incorporation authorizes the issuance of Class A common stock and Class B common stock. We are authorizedtoissue4,141,000,000sharesofClassAcommonstockand4,141,000,000sharesofClassBcommonstock,each with a par value of $0.000006 per share. Holders of our Class A common stock and Class B common stock are entitled to dividends when, as and if, declared by our board of directors, subject to the rights of the holders of all classes of stock outstandinghavingpriorityrightstodividends.AsofDecember31,2011,wehadnotdeclaredanydividends.Theholderof eachshareofClassAcommonstockisentitledtoonevote,whiletheholderofeachshareofClassBcommonstockisentitled totenvotes.Afterourinitialpublicoffering,atransferofsharesofClassBcommonstockwillgenerallyresultinthoseshares converting to Class A common stock. Class A common stock and Class B common stock are referred to as common stock throughoutthenotestothesefinancialstatements,unlessotherwisenoted. SharebasedCompensationPlans Wemaintaintwosharebasedemployeecompensationplans.InJanuary2005,ourboardofdirectorsandstockholders adoptedandapprovedthe2005StockPlan,asamended,whichprovidesfortheissuanceofincentiveandnonstatutorystock optionsandRSUstoqualifiedemployees,directors,andconsultants.InNovember2005,ourboardofdirectorsadoptedand approvedthe2005OfficersStockPlan(togetherwiththe2005StockPlan,theStockPlans),whichprovidesfortheissuance ofincentiveandnonstatutorystockoptionstocertainemployeesorofficers. Thetermofstockoptionsissuedunderthe2005StockPlanmaynotexceedtenyearsfromthedateofgrant.Underthe 2005StockPlan,incentivestockoptionsandnonstatutorystockoptionsaregrantedatanexercisepricethatisnottobeless than100%ofthefairmarketvalueofourClassBcommonstockonthedateofgrant,asdeterminedbyourcompensation committee. Stock options become vested and exercisable at such times and under such conditions as determined by our compensationcommitteeonthedateofgrant. The2005OfficersStockPlanprovidesfortheissuanceofupto120,000,000sharesofincentiveandnonstatutorystock optionstocertainofouremployeesorofficers.The2005OfficersStockPlanwillterminatetenyearsafteritsadoptionunless terminatedearlierbyourcompensationcommittee.Stockoptionsbecomevestedandexercisableatsuchtimesandundersuch conditionsasdeterminedbyourcompensationcommitteeonthedateofgrant.InNovember2005,weissuedanonstatutory stockoptiontoourCEOtopurchase120,000,000sharesofourClassBcommonstockunderthe2005OfficersStockPlan.At December31,2011,theoptionwasoutstandingandfullyvested,andnooptionswereavailableforfutureissuanceunderthe 2005OfficersStockPlan. F29
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) ThefollowingtablesummarizesthestockoptionandRSUawardactivityundertheStockPlansbetweenJanuary1,2009 andMarch31,2012:

SharesSubjecttoOptionsOutstanding Weighted Weighted Average Average Remaining Aggregate Numberof Exercise Contractual Intrinsic Shares Price Term Value(2) (inthousands) (inyears) (inmillions) OutstandingRSUs Weighted Average Grant Outstanding DateFair RSUs Value (inthousands)
Shares Available forGrant(1) (inthousands)
BalanceasofDecember31,2008 Increaseinsharesauthorized RSUsgranted Stockoptionsgranted Stockoptionsexercised Stockoptionsforfeited/cancelled RSUsforfeitedandcancelled BalanceasofDecember31,2009 Increaseinsharesauthorized RSUsgranted Stockoptionsgranted Stockoptionsexercised Stockoptionsforfeited/cancelled RSUsforfeitedandcancelled BalanceasofDecember31,2010 Increaseinsharesauthorized RSUsgranted Stockoptionsexercised Stockoptionsforfeited/cancelled RSUsforfeitedandcancelled BalanceasofDecember31,2011 RSUsgranted(unaudited) Stockoptionsexercised (unaudited) RSUsforfeitedandcancelled (unaudited) BalanceasofMarch31,2012 (unaudited) Stockoptionsvestedandexpectedto vestasofDecember31,2011 Stockoptionsexercisableasof December31,2011 Stockoptionsvestedandexpectedto vestasofMarch31,2012 (unaudited) Stockoptionsexercisableasof March31,2012(unaudited)
15,257 479,811 $ 0.17 251,969 (159,167) (13,885) 13,885 2.54 (57,459) 0.15 5,996 (5,996) 0.80 10,511 110,681 430,241 0.25 25,000 (68,058) (4,706) 4,706 11.57 (69,910) 0.09 2,066 (2,066) 0.22 11,399 76,382 362,971 0.42 10,000 (55,126) (101,872) 0.27 2,560 (2,560) 1.60 18,502 52,318 258,539 0.47 (1,947) 2,290 52,661 (21,783) 236,756 $ 0.49 258,468 $ 0.47 244,849 $ 0.19 0.22
6.39
1,780 7,415 7,360
136,833 159,167 (10,511) 285,489 68,058 (11,399) 342,148 55,126 (18,502) 378,772 1,947
$ 1.72 2.35
1.81 2.07
10.56
5.37
13.12 3.39 26.32
4.38
7.97 6.83 30.46
(2,290) 13.54 378,429 6.88
4.15 $ 4.38 $ 4.19 $
7,194 7,359 7,040
236,653 $ 0.49 224,185 $ 0.19
4.15 $ 3.97 $
7,191 6,879
(1) After excluding 195 thousand restricted stock awards not included in the table above, 52,123 and 52,466 thousand shares are available for grant under the Stock PlansasofDecember31,2011andMarch31,2012,respectively. (2) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the assessed fair value of our commonstockasofDecember31,2009,2010,and2011andMarch31,2012.
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) ThefollowingtablesummarizesadditionalinformationregardingoutstandingandexercisableoptionsundertheStock PlansatDecember31,2011:

OptionsOutstanding Weighted Average Remaining Life (inyears) OptionsExercisable Weighted Average Exercise Price Numberof Shares (inthousands) Weighted Average Exercise Price
Exercise Price(Range)
Numberof Shares (inthousands)
$0.000.04 0.06 0.100.18 0.290.33 1.78 1.85 2.95 3.23 10.39 15.00
27,694 135,863 34,186 37,665 5,328 5,715 2,888 4,500 3,500 1,200 258,539
3.14 3.85 4.38 5.30 6.58 7.03 7.63 7.82 8.56 8.80 4.38
$ 0.01 0.06 0.13 0.31 1.78 1.85 2.95 3.23 10.39 15.00 $ 0.47
27,694 135,863 34,186 37,665 2,637 3,423 1,356 2,025 244,849
$ 0.01 0.06 0.13 0.31 1.78 1.85 2.95 3.23 $ 0.19
TheaggregateintrinsicvalueoftheoptionsexercisedintheyearsendedDecember31,2009,2010,and2011andthe three months ended March 31, 2012, was $149 million, $492 million, $2,380 million, and $629 million, respectively. The totalgrantdatefairvalueofstockoptionsvestedduringtheyearsendedDecember31,2009,2010,and2011andthethree monthsendedMarch31,2012was$16million,$16million,$6million,and$1million,respectively.Thetotalnumberof unvestedsharessubjecttooptionsandRSUsoutstandingasofDecember31,2009,2010,and2011andMarch31,2012was 395million,374million,392million,and386millionrespectively. SharesReservedforFutureIssuance WehavethefollowingsharesofClassBcommonstockreservedforfutureissuanceasofDecember31,2011andMarch 31,2012(inthousands):
December31, 2011 March31, 2012 (unaudited)
2005StockPlan: Sharessubjecttooptionsoutstanding Restrictedstockunitsoutstanding Sharesavailableforfuturegrants 2005OfficersStockPlansharessubjecttooptionsoutstanding Convertiblepreferredstock,allseries
138,539 378,772 52,123 120,000 545,551 1,234,985
116,756 378,429 52,466 120,000 545,401 1,213,052
Inaddition,wehavereservedsharesofClassAcommonstockforfutureissuancepursuanttotheconversionofanyshares ofClassBcommonstockthatarecurrentlyoutstandingorthatmaybeissuedinthefuture. F31
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Note9.IncomeTaxes ThecomponentsofincomebeforeprovisionforincometaxesfortheyearsendedDecember31,2009,2010,and2011are asfollows(inmillions):

2009 YearEndedDecember31, 2010 2011
Domestic Foreign Totalincomebeforeprovisionforincometaxes Theprovisionforincometaxesconsistedofthefollowing(inmillions):
$ 260 (6) $ 254
$ 1,027 (19) $ 1,008
$ 1,819 (124) $ 1,695
2009
Current: Federal State Foreign Totalcurrenttaxexpense Deferred: Federal State Totaldeferredtaxexpense(benefit) Provisionforincometaxes
$ $
83 14 1 98 (60) (13) (73) 25
$ $
325 57 1 383 13 6 19 402
$ $
664 60 8 732 (34) (3) (37) 695
AreconciliationoftheU.S.federalstatutoryincometaxrateof35%tooureffectivetaxrateisasfollows(inpercentages):
YearEndedDecember31, 2009 2010 2011
U.S.federalstatutoryincometaxrate Stateincometaxes,netoffederalbenefit Researchtaxcredits Sharebasedcompensation Foreignlossesnotbenefited Changeinvaluationallowance Other Effectivetaxrate F32
35.0% 0.2 (1.2) 0.8 1.1 (25.6) (0.3) 10.0%
35.0% 4.0 (0.8) 0.3 0.8 0.6 39.9%
35.0% 1.9 (1.0) 1.5 3.3 0.3 41.0%
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Excesstaxbenefitsassociatedwithstockoptionexercisesandotherequityawardsarecreditedtostockholdersequity. Theincometaxbenefitsresultingfromstockawardsthatwerecreditedtostockholdersequitywere$50million,$107million, and$433millionfortheyearsendedDecember31,2009,2010,and2011. Ourdeferredtaxassets(liabilities)areasfollows(inmillions):

December31, 2010 2011
Deferredtaxassets: Netoperatinglosscarryforward Taxcreditcarryforward Sharebasedcompensation Accruedexpensesandotherliabilities Totaldeferredtaxassets Less:valuationallowance Deferredtaxassets,netofvaluationallowance Deferredtaxliabilities: Depreciationandamortization Purchasedintangibleassets Deferredforeigntaxes Totaldeferredtaxliabilities Netdeferredtaxassets
$ $
2 28 38 68 68 (21) (8) (29) 39
$ $
3 9 79 58 149 (9) 140 (69) (10) (1) (80) 60
Thevaluationallowancewasapproximately$9millionasofDecember31,2011,relatedtostatetaxcreditsthatwedo notbelievewillultimatelyberealized.TherewasnochangetothevaluationallowancefortheyearendedDecember31,2010. Thevaluationallowancedecreasedbyapproximately$76millionfortheyearendedDecember31,2009. As of December 31, 2011, we had U.S. federal and California net operating loss carryforwards of $7 million and $17 million,whichwillexpirein2027and2021,respectively,ifnotutilized.Wealsohavestatetaxcreditcarryforwardsof$9 million,whichcarryforwardindefinitely. Utilizationofournetoperatinglossandtaxcreditcarryforwardsmaybesubjecttosubstantialannuallimitationsdueto theownershipchangelimitationsprovidedbytheInternalRevenueCodeandsimilarstateprovisions.Suchannuallimitations couldresultintheexpirationofthenetoperatinglossandtaxcreditcarryforwardsbeforetheirutilization.Theeventsthatmay cause ownership changes include, but are not limited to, a cumulative stock ownership change of greater than 50% over a threeyearperiod. Ournetforeignpretaxlossesincludejurisdictionswithbothpretaxearningsandpretaxlosses.Ourconsolidatedfinancial statementsprovidetaxesforallrelatedtaxliabilitiesthatwouldariseuponrepatriationofearningsintheforeignjurisdictions wherewedonotintendtoindefinitelyreinvestthoseearningsoutsidetheUnitedStates,andtheamountoftaxesprovidedfor hasbeeninsignificant. F33
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Thefollowingtablereflectschangesinthegrossunrecognizedtaxbenefits(inmillions):

YearEndedDecember31, 2009 2010 2011
Grossunrecognizedtaxbenefitsbeginningofperiod Increaserelatedtoprioryeartaxpositions Decreasesrelatedtoprioryeartaxpositions Increasesrelatedtocurrentyeartaxpositions Grossunrecognizedtaxbenefitsendofperiod
$ $
3 6 9
$ $
9 1 (2) 10 18
$ $
18 5 (2) 42 63
Duringallyearspresented,werecognizedinterestandpenaltiesrelatedtounrecognizedtaxbenefitswithintheprovision forincometaxesontheconsolidatedstatementsofincome.FortheyearendedDecember31,2011,werecognizedinterestof $1millionandpenaltiesof$3million.TheamountofinterestandpenaltiesaccruedasofDecember31,2010and2011was$1 millionand$6million,respectively. Iftheremainingbalanceofgrossunrecognizedtaxbenefitsof$63millionasofDecember31,2011wasrealizedina futureperiod,thiswouldresultinataxbenefitof$51millionwithinourprovisionofincometaxesatsuchtime. WearesubjecttotaxationintheUnitedStatesandvariousotherstateandforeignjurisdictions.Thematerialjurisdictions in which we are subject to potential examination by taxing authorities include the United States and Ireland. In 2011, the Internal Revenue Service (IRS) commenced its examinations of our 2008 and 2009 tax years. We believe that adequate amountshavebeenreservedforanyadjustmentsthatmayultimatelyresultfromtheseexaminationsandwedonotanticipatea significantimpacttoourgrossunrecognizedtaxbenefitswithinthenext12monthsrelatedtotheseyears.Our2010and2011 taxyearsremainsubjecttoexaminationbytheIRSandalltaxyearsstartingin2008remainsubjecttoexaminationinIreland. Weremainsubjecttopossibleexaminationsorareundergoingauditsinvariousotherjurisdictionsthatarenotmaterialtoour financialstatements. Althoughthetimingoftheresolution,settlement,andclosureofanyauditsishighlyuncertain,itisreasonablypossible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the numberofyearsremainingthataresubjecttoexamination,weareunabletoestimatethefullrangeofpossibleadjustmentsto thebalanceofgrossunrecognizedtaxbenefits. ThreeMonthsEndedMarch31,2011and2012 Our effective tax rate for the three months ended March 31, 2012 increased compared to the same period in 2011 primarilyduetotheimpactofnondeductiblesharebasedcompensationexpense,lossesarisingoutsidetheUnitedStatesin jurisdictionswherewedonotreceiveataxbenefit,andtheexpirationofthefederaltaxcreditforresearchanddevelopment activitiesattheendof2011. F34
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Note10.GeographicalInformation RevenuebygeographyisbasedonthebillingaddressoftheadvertiserorPlatformdeveloper.Thefollowingtablesets forthrevenueandlonglivedassetsbygeographicarea(inmillions):

YearEnded December31, 2010 ThreeMonthsEnded March31, 2011 2012 (unaudited)
2009
2011
Revenue: UnitedStates Restoftheworld (1) Totalrevenue

(1) Noindividualcountryexceeded10%ofourtotalrevenueforanyperiodpresented.
$ 518 259 $ 777
$ 1,223 751 $ 1,974
$ 2,067 1,644 $ 3,711
$ 427 304 $ 731
$ 536 522 $ 1,058
December31, 2010 2011
March31, 2012 (unaudited)
Longlivedassets: UnitedStates Restoftheworld Totallonglivedassets Note11.RelatedPartyTransactions
$ 567 7 $ 574
$ 1,444 31 $ 1,475
$ $
1,781 74 1,855
During 2009, our board of directors authorized us to award two million shares of Class B common stock to a family memberofourCEO.Thisawardwasmadeinsatisfactionoffundsprovidedforourinitialworkingcapitalandpotentialrelated claims. We recorded sharebased compensation expense of $9 million related to this stock award for the year ended December31,2009. Note12.SubsequentEvents ForourconsolidatedfinancialstatementsasofDecember31,2010and2011,andforeachofthethreeyearsintheperiod ended December 31, 2011, we evaluated subsequent events through February 1, 2012, which is the date the financial statementswereavailabletobeissued. InJanuary2012,ourboardofdirectorsadoptedour2012EquityIncentivePlan,subjecttostockholderapproval,which planwillbecomeeffectiveontheeffectivedateofourinitialpublicoffering.The2012EquityIncentivePlanwillsucceedour 2005StockPlanandwewillceasegrantingawardsunderthe2005StockPlan.Wehavereserved25millionsharesofClassA commonstockforissuanceunderour2005StockPlan,plusanadditionalnumberofsharesofClassAcommonstockequalto anysharesreservedbutnotissuedorsubjecttooutstandingawardsunderour2005StockPlanontheeffectivedateofour initial public offering, plus, (i) shares that are subject to outstanding awards under the 2005 Stock Plan which cease to be subjecttosuchawards,(ii)sharesissuedunderthe2005StockPlanwhichareforfeitedorrepurchasedattheiroriginalissue price, and (iii) shares subject to awards under the 2005 Stock Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. The 2012 Equity Incentive Plan provides for automaticincreasesinthenumberofsharesreservedforissuanceonJanuary1ofeachyear. F35
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Table of Contents FACEBOOK,INC. NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(CONTINUED) (InformationasofMarch31,2012andforthethreemonthsendedMarch31,2011and2012isunaudited) Note13.SubsequentEvents(unaudited) ForourinterimconsolidatedfinancialstatementsasofMarch31,2012,andforthethreemonthsthenended,wehave evaluatedsubsequenteventsthroughMay3,2012,whichisthedatethefinancialstatementswereavailabletobeissued. In April 2012, we entered into an agreement to acquire Instagram, Inc., which has built a mobile phonebased photo sharingservice,forapproximately23millionsharesofourcommonstockand$300millionincash.Followingtheclosingof thisacquisition,weplantomaintainInstagramsproductsasindependentmobileapplicationstoenhanceourphotosproduct offeringsandtoenableuserstoincreasetheirlevelsofmobileengagementandphotosharing.Thisacquisitionissubjectto customaryclosingconditions,includingtheexpirationorearlyterminationofallapplicablewaitingperiodsundertheHart ScottRodinoAntitrustImprovementActof1976,asamended(HSR),andiscurrentlyexpectedtocloseinthesecondquarter of2012.WehaveagreedtopayInstagrama$200millionterminationfeeifgovernmentalauthoritiespermanentlyenjoinor otherwisepreventthecompletionofthemergerorifeitherpartyterminatestheagreementafterDecember10,2012.Thevalue oftheequitycomponentofthefinalpurchasepricewillbedeterminedforaccountingpurposesbasedonthefairvalueofour commonstockontheclosingdateoftheacquisition.Asofthatdate,theexcessofthefairvalueofpurchaseconsiderationover thefairvalueoftheidentifiableassetsandliabilitiesofInstagramwillberecordedasgoodwill.Wecurrentlyanticipatethat goodwillwillsignificantlyexceedthefairvalueofanyidentifiableassets.However,aswehavenotyetestablishedthefair valuesofassetsacquiredandliabilitiesassumed,thefinancialeffectsofthisplannedacquisitionhavenotbeendetermined. Also, in April 2012, we entered into an agreement with Microsoft Corporation pursuant to which we will be assigned Microsoftsrightstoacquireapproximately615U.S.patentsandpatentapplicationsandtheirforeigncounterparts,consisting of approximately 170 foreign patents and patent applications, that are subject to the agreement between AOL Inc. and MicrosoftenteredintoonApril5,2012,inexchangeforatotalcashpaymentofapproximately$550million.Aspartofthis transaction,wewillobtainalicensetotheotherAOLpatentsandpatentapplicationsbeingpurchasedbyMicrosoftandwill grantMicrosoftalicensetotheAOLpatentsandpatentapplicationsthatweareacquiring.Inaddition,wewillbeassigned Microsoftsrightstoacquiretheoutstandingsharesofawhollyowned,nonoperatingsubsidiaryofAOLthatholdsaportion oftheaforementionedpatentandpatentapplications.ThetransactionissubjecttotheclosingofMicrosoftstransactionwith AOLaswellascustomaryclosingconditions,includingtheexpirationorearlyterminationofallapplicablewaitingperiods under HSR. The majority of the acquisition price is expected to be recorded as acquired intangible assets, which will be amortizedovertheremainingusefullivesofthepatentrights.Aswehavenotyetcompletedadetailedanalysisoftheacquired patentrights,wecannotcurrentlyestimatetheweightedaverageperiodofamortization. OnMay3,2012,wegrantedanaggregateof25,257,815RSUs.Wewilldeterminethefairvalueofthesegrantsduringthe secondquarter.IfthefairvalueofourClassAcommonstockwas$31.50,themidpointofthepricerangesetforthonthecover pageoftheprospectusforourinitialpublicoffering,theaggregategrantdatefairvaluewouldbeapproximately$796million. Sharebasedcompensationexpenserelatedtothesegrantswillberecognizedovertheunderlyingserviceperiod. F36
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Table of Contents PARTII INFORMATIONNOTREQUIREDINPROSPECTUS Item13. OtherExpensesofIssuanceandDistribution ThefollowingtablesetsforthallexpensestobepaidbytheRegistrant,otherthanestimatedunderwritingdiscountsand commissions,inconnectionwithourinitialpublicoffering.AllamountsshownareestimatesexceptfortheSECregistration feeandtheFINRAfilingfee: SECregistrationfee FINRAfilingfee InitialNASDAQGlobalSelectMarketListingfee Printingandengraving Legalfeesandexpenses Accountingfeesandexpenses Blueskyfeesandexpenses(includinglegalfees) Transferagentandregistrarfees Miscellaneous Total Item14. IndemnificationofDirectorsandOfficers Section145oftheDelawareGeneralCorporationLawauthorizesacourttoaward,oracorporationsboardofdirectorsto grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended(theSecuritiesAct). AspermittedbytheDelawareGeneralCorporationLaw,theRegistrantsrestatedcertificateofincorporationthatwillbe in effect at the closing of the offering contains provisions that eliminate the personal liability of its directors for monetary damagesforanybreachoffiduciarydutiesasadirector,exceptliabilityforthefollowing: anybreachofthedirectorsdutyofloyaltytotheRegistrantoritsstockholders actsoromissionsnotingoodfaithorthatinvolveintentionalmisconductoraknowingviolationoflaw underSection174oftheDelawareGeneralCorporationLaw(regardingunlawfuldividendsandstockpurchases)or anytransactionfromwhichthedirectorderivedanimproperpersonalbenefit. $1,556,379 75,500 250,000 400,000 2,600,000 1,900,000 15,000 50,000 53,121 $6,900,000
As permitted by the Delaware General Corporation Law, the Registrants restated bylaws that will be in effect at the closingofourinitialpublicoffering,providethat: the Registrant is required to indemnify its directors and executive officers to the fullest extent permitted by the DelawareGeneralCorporationLaw,subjecttoverylimitedexceptions theRegistrantmayindemnifyitsotheremployeesandagentsassetforthintheDelawareGeneralCorporationLaw II1
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Table of Contents theRegistrantisrequiredtoadvanceexpenses,asincurred,toitsdirectorsandexecutiveofficersinconnectionwith alegalproceedingtothefullestextentpermittedbytheDelawareGeneralCorporationLaw,subjecttoverylimited exceptionsand therightsconferredinthebylawsarenotexclusive.
TheRegistranthasentered,andintendstocontinuetoenter,intoseparateindemnificationagreementswithitsdirectors andexecutiveofficerstoprovidethesedirectorsandexecutiveofficersadditionalcontractualassurancesregardingthescope of the indemnification set forth in the Registrants restated certificate of incorporation and restated bylaws and to provide additionalproceduralprotections.Atpresent,thereisnopendinglitigationorproceedinginvolvingadirectororexecutive officeroftheRegistrantregardingwhichindemnificationissought.Referenceisalsomadetotheunderwritingagreementfiled as Exhibit 1.1 to this registration statement, which provides for the indemnification of executive officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrants restated certificateofincorporation,restatedbylawsandtheindemnificationagreementsenteredintoortobeenteredintobetweenthe Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the RegistrantsdirectorsandexecutiveofficersforliabilitiesarisingundertheSecuritiesAct. TheRegistrantcurrentlycarriesliabilityinsuranceforitsdirectorsandofficers. Item15. RecentSalesofUnregisteredSecurities SinceFebruary1,2009,wehavemadethefollowingsalesofunregisteredsecurities(aftergivingeffecttoa5for1stock spliteffectedinOctober2010): PreferredStockIssuances OnMay26,2009,wesold44,037,540sharesofourSeriesEpreferredstocktooneaccreditedinvestoratapurchase priceof$4.54pershare. OnFebruary2,2011,weissued3,257,280sharesofourSeriesApreferredstockand2,960,240sharesofourSeriesB preferred stock to one accredited investor at per share purchase prices ranging from $0.00 to 0.06 pursuant to exercisesofwarrants. OnDecember29,2011,weissued1,750,827sharesofourSeriesBpreferredstocktooneaccreditedinvestorataper sharepurchasepriceof$0.06pursuanttoexerciseofawarrant.
PlanRelatedIssuances FromFebruary1,2009throughMay3,2012,wegrantedtoourdirectors,officers,employees,consultantsandother serviceprovidersoptionstopurchase14,263,370sharesofourClassBcommonstockwithpershareexerciseprices rangingfrom$1.78to$15.00underour2005StockPlan. FromFebruary1,2009throughMay3,2012,weissuedtoourdirectors,officers,employees,consultants,andother service providers an aggregate of 251,139,588 shares of our Class B common stock at per share purchase prices rangingfrom$0.00to$2.95pursuanttoexercisesofoptionsgrantedunderour2005StockPlan. FromFebruary1,2009throughMay3,2012,wegrantedtoourdirectors,officers,employees,consultants,andother serviceprovidersanaggregateof282,955,772RSUstobesettledinsharesofourClassBcommonstockunderour 2005StockPlan. FromFebruary1,2009throughMay3,2012,wesoldtoourdirectors,officers,employees,consultants,andother serviceprovidersanaggregateof214,724sharesofourClassBcommonstockatpersharepurchasepricesranging from$0.00to$30.03grantedunderour2005StockPlan. II2
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Table of Contents OtherCommonStockIssuances OnMay26,2009,weissued48,065sharesofourClassBcommonstocktooneexistinginvestorpursuanttothe antidilutiontermsofsuchinvestorsoriginalinvestment. OnDecember30,2009,weissued2,000,000sharesofourClassBcommonstocktoafamilymemberofourCEO. This award was made in satisfaction of funds provided for our initial working capital and a potential release of claims. OnJune2,2010,weissued5,000sharesofourClassBcommonstocktooneaccreditedinvestoratapurchaseprice of$7.27pershare. OnDecember27,2010,wesold21,582,733sharesofourClassAcommonstocktothreeaccreditedinvestorsata purchasepriceof$20.85pershare. On December 31, 2010, we sold 2,398,081 shares of our Class A common stock to one accredited investor at a purchasepriceof$20.85pershare. On January 21, 2011, we sold 47,961,630 shares of our Class A common stock to one accredited investor at a purchasepriceof$20.85pershare. OnSeptember15,2011,weissued29,640sharesofourClassBcommonstockasconsiderationtoaformeremployee forservicesprovided.
Acquisitions OnAugust14,2009,weissued11,052,955sharesofourClassBcommonstockasconsiderationtotenindividuals andoneentityinconnectionwithouracquisitionofalltheoutstandingsharesofacompany. On May 18, 2010, we issued 3,625,000 shares of our Class B common stock as consideration to a company in connectionwithourpurchaseofpatentsfromthecompany. On June 16, 2010, we issued 238,000 shares of our Class B common stock as consideration to a company in connectionwithourpurchaseofcertainassetsfromthecompany. On July 7, 2010, we issued 590,900 shares of our Class B common stock as consideration to a company in connectionwithourpurchaseofcertainassetsfromthecompany. OnAugust18,2010,weissued289,350sharesofourClassBcommonstockasconsiderationtotwoindividualsin connectionwithouracquisitionofalltheoutstandingsharesofacompany. OnOctober29,2010,weissued1,309,284sharesofourClassBcommonstockasconsiderationtoacompanyin connectionwithourpurchaseofcertainassetsfromthecompany. OnNovember12,2010,weissued350,000sharesofourClassBcommonstockasconsiderationtoacompanyin connectionwithourpurchaseofcertainassetsfromthecompany. OnDecember15,2010,weissued1,030,000sharesofourClassBcommonstockasconsiderationtotwoindividuals inconnectionwithouracquisitionofalltheoutstandingsharesofacompany. On February 28, 2011, we issued 681,357 shares of our Class A common stock as consideration to a company in connectionwithourpurchaseofcertainassetsfromthecompany. OnApril5,2011,weissued1,659,430sharesofourClassAcommonstockasconsiderationto13individualsand sixentitiesinconnectionwithouracquisitionofalltheoutstandingsharesofacompany. OnAugust1,2011,weissued75,426sharesofourClassAcommonstockasconsiderationtothreeindividualsin connectionwithouracquisitionofalltheoutstandingsharesofacompany. II3
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Table of Contents OnOctober7,2011,weissued360,883sharesofourClassAcommonstockasconsiderationto21individualsand eightentitiesinconnectionwithouracquisitionofalltheoutstandingsharesofacompany. OnOctober10,2011,weissued183,750sharesofourClassBcommonstockasconsiderationtoacompanyfora licenseofcertaintechnologyfromthecompany. OnJanuary3,2012,weissued90,000sharesofourClassAcommonstockasconsiderationtofourindividualsand 13entitiesinconnectionwithourpurchaseofcertainassetsfromacompany. OnFebruary1,2012,weissued212,250sharesofourClassAcommonstockaspartialconsiderationtotwoentities inconnectionwithourpurchaseofcertainassetsfromacompany. On April 13, 2012, we issued 40,000 shares of our Class A common stock as consideration to a company in connectionwithourpurchaseofcertainassetsfromthecompany.
Unlessotherwisestated,thesalesoftheabovesecuritiesweredeemedtobeexemptfromregistrationundertheSecurities ActinrelianceuponSection4(2)oftheSecuritiesAct(orRegulationDorRegulationSpromulgatedthereunder),orRule701 promulgatedunderSection3(b)oftheSecuritiesActastransactionsbyanissuernotinvolvinganypublicofferingorpursuant tobenefitplansandcontractsrelatingtocompensationasprovidedunderRule701.Therecipientsofthesecuritiesineachof thesetransactionsrepresentedtheirintentionstoacquirethesecuritiesforinvestmentonlyandnotwithaviewtoorforsalein connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. II4
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Table of Contents Item16. ExhibitsandFinancialStatementSchedules (a)Exhibits.Thefollowingexhibitsareincludedhereinorincorporatedhereinbyreference:

Exhibit Number Description
1.1 3.1# 3.2# 3.3# 3.4# 4.1# 4.2# 4.2A 4.3# 4.4# 4.5# 4.6# 5.1 10.1# 10.2# 10.3# 10.4# 10.5# 10.6# 10.7# 10.8# 10.9# 10.10# 10.11#
FormofUnderwritingAgreement. EleventhAmendedandRestatedCertificateofIncorporationofRegistrant. BylawsofRegistrant. FormofRestatedCertificateofIncorporationofRegistrant,tobeineffectattheclosingofRegistrantsinitial publicoffering. FormofAmendedandRestatedBylawsofRegistrant,tobeineffectattheclosingofRegistrantsinitialpublic offering. FormofRegistrantsClassAcommonstockcertificate. SixthAmendedandRestatedInvestorsRightsAgreement,datedDecember27,2010,byandamongRegistrant andcertainsecurityholdersofRegistrant. Amendment No. 1 to Sixth Amended and Restated Investors Rights Agreement, dated May 1, 2012, by and amongRegistrantandcertainsecurityholdersofRegistrant. FormofType1HolderVotingAgreement,betweenRegistrant,MarkZuckerberg,andcertainpartiesthereto. FormofType2HolderVotingAgreement,betweenRegistrant,MarkZuckerberg,andcertainpartiesthereto. FormofType3HolderVotingAgreement,betweenRegistrant,MarkZuckerberg,andcertainpartiesthereto. FormofType4HolderVotingAgreement,betweenRegistrant,MarkZuckerberg,andcertainpartiesthereto. OpinionofFenwick&WestLLP. FormofIndemnificationAgreement. 2005StockPlan,asamended,andformsofawardagreements. 2005OfficersStockPlan,andamendedandrestatednoticeofstockoptiongrantandstockoptionagreement. 2012EquityIncentivePlan,tobeineffectupontheeffectivenessofRegistrantsinitialpublicoffering. 2011Bonus/RetentionPlan. AmendedandRestatedOfferLetter,datedJanuary27,2012,betweenRegistrantandMarkZuckerberg. Amended and Restated Employment Agreement, dated January 27, 2012, between Registrant and Sheryl K. Sandberg. AmendedandRestatedOfferLetter,datedJanuary27,2012,betweenRegistrantandDavidA.Ebersman. AmendedandRestatedOfferLetter,datedJanuary27,2012,betweenRegistrantandMikeSchroepfer. AmendedandRestatedEmploymentAgreement,datedJanuary27,2012,betweenRegistrantandTheodoreW. Ullyot. Lease,datedFebruary7,2011,betweenRegistrantandWilsonMenloParkCampus,LLC. II5
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Exhibit Number
Description
10.12# 10.13# 10.14# 10.15# 10.16# 10.16A
Developer Addendum, dated May 14, 2010, between Registrant and Zynga Inc., as amended by Amendment No.1toDeveloperAddendum,datedOctober1,2011. DeveloperAddendumNo.2,datedDecember26,2010,betweenRegistrantandZyngaInc. CreditAgreement,datedFebruary28,2012,betweenRegistrant,theLenderspartythereto,andJPMorganChase Bank,N.A.,asAdministrativeAgent. BridgeLoanAgreement,datedFebruary28,2012,betweenRegistrant,theLenderspartythereto,andJPMorgan ChaseBank,N.A.,asAdministrativeAgent. Conversion Agreement, dated February 19, 2010, between Registrant, Digital Sky Technologies Limited, and DSTGlobalLimited. Amendment No. 1 to Conversion Agreement, dated April 30, 2012, between Registrant and Mail.ru Group Limited(f/k/aDigitalSkyTechnologiesLimited),DSTGlobalLimited,DSTGlobalII,L.P,DSTGlobalIII,L.P., DSTUSALimited,andDSTUSAIILimited. ListofSubsidiariesofRegistrant. ConsentofErnst&YoungLLP,IndependentRegisteredPublicAccountingFirm. ConsentofFenwick&WestLLP(includedinExhibit5.1). PowerofAttorney.
21.1# 23.1 23.2 24.1#

#
Previouslyfiled. RegistranthasomittedportionsofthereferencedexhibitpursuanttoarequestforconfidentialtreatmentunderRule406promulgatedundertheSecuritiesAct.
(b)FinancialStatementSchedules.Allfinancialstatementschedulesareomittedbecausetheyarenotapplicableorthe informationisincludedintheRegistrantsconsolidatedfinancialstatementsorrelatednotes. Item17. Undertakings TheundersignedRegistrantherebyundertakestoprovidetotheunderwritersattheclosingspecifiedintheunderwriting agreement,certificatesinsuchdenominationsandregisteredinsuchnamesasrequiredbytheunderwriterstopermitprompt deliverytoeachpurchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controllingpersonsoftheRegistrantpursuanttotheforegoingprovisions,orotherwise,theRegistranthasbeenadvisedthatin the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.Intheeventthataclaimforindemnificationagainstsuchliabilities(otherthanthepaymentbytheRegistrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action,suitorproceeding)isassertedbysuchdirector,officerorcontrollingpersoninconnectionwiththesecuritiesbeing registered,theRegistrantwill,unlessintheopinionofitscounselthematterhasbeensettledbycontrollingprecedent,submit toacourtofappropriatejurisdictionthequestionwhethersuchindemnificationbyitisagainstpublicpolicyasexpressedin theSecuritiesActandwillbegovernedbythefinaladjudicationofsuchissue. TheundersignedRegistrantherebyundertakesthat: (1)ForpurposesofdetermininganyliabilityundertheSecuritiesAct,theinformationomittedfromtheformofprospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the RegistrantpursuanttoRule424(b)(1)or(4)or497(h)undertheSecuritiesActshallbedeemedtobepartofthisregistration statementasofthetimeitwasdeclaredeffective. (2)ForthepurposeofdetermininganyliabilityundertheSecuritiesAct,eachposteffectiveamendmentthatcontainsa formofprospectusshallbedeemedtobeanewregistrationstatementrelatingtothesecuritiesofferedtherein,andtheoffering ofsuchsecuritiesatthattimeshallbedeemedtobetheinitialbonafideofferingthereof. II6
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Table of Contents SIGNATURES PursuanttotherequirementsoftheSecuritiesActof1933,theregistranthasdulycausedthisAmendmentNo.5tothe Registration Statement on Form S1 (Amendment No. 5) to be signed on its behalf by the undersigned, thereunto duly authorized,intheCityofMenloPark,StateofCalifornia,onthis3rddayofMay2012. FACEBOOK,INC. /S/M ARKZUCKERBERG
MarkZuckerberg ChairmanandChiefExecutiveOfficer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 5 has been signed by the following personsinthecapacitiesandonthedatesindicated.
Signature Title Date
/S/M ARKZUCKERBERG
MarkZuckerberg
ChairmanandChiefExecutiveOfficer (PrincipalExecutiveOfficer) ChiefFinancialOfficer (PrincipalFinancialOfficer) ChiefAccountingOfficer (PrincipalAccountingOfficer) Director Director Director Director Director Director
May3,2012 May3,2012 May3,2012 May3,2012 May3,2012 May3,2012 May3,2012 May3,2012 May3,2012
/S/DAVIDA.EBERSMAN
DavidA.Ebersman
/S/DAVIDM.SPILLANE
DavidM.Spillane
*
MarcL.Andreessen
*
ErskineB.Bowles
*
JamesW.Breyer
*
DonaldE.Graham
*
ReedHastings
*
PeterA.Thiel
*By:
/S/DAVIDA.EBERSMAN
DavidA.Ebersman Attorneyinfact
II7
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Table of Contents EXHIBITINDEX

Exhibit Number Description
1.1 3.1# 3.2# 3.3# 3.4# 4.1# 4.2# 4.2A 4.3# 4.4# 4.5# 4.6# 5.1 10.1# 10.2# 10.3# 10.4# 10.5# 10.6# 10.7# 10.8# 10.9# 10.10# 10.11# 10.12#
FormofUnderwritingAgreement. EleventhAmendedandRestatedCertificateofIncorporationofRegistrant. BylawsofRegistrant. FormofRestatedCertificateofIncorporationofRegistrant,tobeineffectattheclosingofRegistrantsinitial publicoffering. FormofAmendedandRestatedBylawsofRegistrant,tobeineffectattheclosingofRegistrantsinitialpublic offering. FormofRegistrantsClassAcommonstockcertificate. SixthAmendedandRestatedInvestorsRightsAgreement,datedDecember27,2010,byandamongRegistrant andcertainsecurityholdersofRegistrant. Amendment No. 1 to Sixth Amended and Restated Investors Rights Agreement, dated May 1, 2012, by and amongRegistrantandcertainsecurityholdersofRegistrant. FormofType1HolderVotingAgreement,betweenRegistrant,MarkZuckerberg,andcertainpartiesthereto. FormofType2HolderVotingAgreement,betweenRegistrant,MarkZuckerberg,andcertainpartiesthereto. FormofType3HolderVotingAgreement,betweenRegistrant,MarkZuckerberg,andcertainpartiesthereto. FormofType4HolderVotingAgreement,betweenRegistrant,MarkZuckerberg,andcertainpartiesthereto. OpinionofFenwick&WestLLP. FormofIndemnificationAgreement. 2005StockPlan,asamended,andformsofawardagreements. 2005OfficersStockPlan,andamendedandrestatednoticeofstockoptiongrantandstockoptionagreement. 2012EquityIncentivePlan,tobeineffectupontheeffectivenessofRegistrantsinitialpublicoffering. 2011Bonus/RetentionPlan. AmendedandRestatedOfferLetter,datedJanuary27,2012,betweenRegistrantandMarkZuckerberg. Amended and Restated Employment Agreement, dated January 27, 2012, between Registrant and Sheryl K. Sandberg. AmendedandRestatedOfferLetter,datedJanuary27,2012,betweenRegistrantandDavidA.Ebersman. AmendedandRestatedOfferLetter,datedJanuary27,2012,betweenRegistrantandMikeSchroepfer. AmendedandRestatedEmploymentAgreement,datedJanuary27,2012,betweenRegistrantandTheodoreW. Ullyot. Lease,datedFebruary7,2011,betweenRegistrantandWilsonMenloParkCampus,LLC. Developer Addendum, dated May 14, 2010, between Registrant and Zynga Inc., as amended by Amendment No.1toDeveloperAddendum,datedOctober1,2011.
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Exhibit Number
Description
10.13# 10.14# 10.15# 10.16# 10.16A
DeveloperAddendumNo.2,datedDecember26,2010,betweenRegistrantandZyngaInc. CreditAgreement,datedFebruary28,2012,betweenRegistrant,theLenderspartythereto,andJPMorganChase Bank,N.A.,asAdministrativeAgent. BridgeLoanAgreement,datedFebruary28,2012,betweenRegistrant,theLenderspartythereto,andJPMorgan ChaseBank,N.A.,asAdministrativeAgent. Conversion Agreement, dated February 19, 2010, between Registrant, Digital Sky Technologies Limited, and DSTGlobalLimited. Amendment No. 1 to Conversion Agreement, dated April 30, 2012, between Registrant and Mail.ru Group Limited(f/k/aDigitalSkyTechnologiesLimited),DSTGlobalLimited,DSTGlobalII,L.P,DSTGlobalIII,L.P., DSTUSALimited,andDSTUSAIILimited. ListofSubsidiariesofRegistrant. ConsentofErnst&YoungLLP,IndependentRegisteredPublicAccountingFirm. ConsentofFenwick&WestLLP(includedinExhibit5.1). PowerofAttorney.
21.1# 23.1 23.2 24.1#

#
Previouslyfiled. RegistranthasomittedportionsofthereferencedexhibitpursuanttoarequestforconfidentialtreatmentunderRule406promulgatedundertheSecuritiesAct.
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5/3/12

Amendment No. 5 to Registration Statement on Form S-1

S-1/A 1 d287954ds1a.htm AMENDMENT NO. 5 TO REGISTRATION STATEMENT ON FORM S-1

AmendmentNo.5to FormS1 REGISTRATIONSTATEMENT

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Table of Contents TABLEOFCONTENTS

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

THEOFFERING ClassAcommonstockoffered Byus Bythesellingstockholders Total 180,000,000shares 157,415,352shares 337,415,352shares

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

777 223 115 87 90 515 262 (8) 254 25 229 122

731 167 68 57 51 343 388 10 398 165 233 153

Amendment No. 5 to Registration Statement on Form S-1

Costofrevenue Marketingandsales Researchanddevelopment Generalandadministrative Totalsharebasedcompensationexpense

YearEndedDecember31, 2009 2010 2011 (inmillions) $ $ $ 9 2 2 43 6 9 114 19 9 51 $ 27 $ 20 $ 217

ThreeMonths EndedMarch31, 2011 2012 $ 4 3 $ 7 $ $ 4 23 60 16 103

ConsolidatedBalanceSheetData: Cash,cashequivalents,andmarketablesecurities Workingcapital Propertyandequipment,net Totalassets Totalliabilities Additionalpaidincapital Retainedearnings Totalstockholdersequity

$3,910 3,655 1,855 6,859 1,587 2,853 1,811 5,272

$3,910 3,980 1,855 7,184 1,587 4,433 1,171 5,597

9,511 9,581 1,855 12,785 1,587 10,034 1,171 11,198

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Table of Contents theimpactofnewtechnologiesthatcouldblockorobscurethedisplayofouradsandothercommercialcontentand theimpactofmacroeconomicconditionsandconditionsintheadvertisingindustryingeneral.

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Inaddition,thestockmarketshaveexperiencedextremepriceandvolumefluctuationsthathaveaffectedandcontinueto affectthemarketpricesofequitysecuritiesofmanytechnologycompanies.Stockpricesofmanytechnologycompanieshave fluctuatedinamannerunrelatedordisproportionatetotheoperatingperformanceof 29

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

Amendment No. 5 to Registration Statement on Form S-1

2,853 (7) 1,811 5,272 $5,272

4,433 (7) 1,171 5,597 5,597