FACEBOOK, INC. CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) Year Ended December 31, 2017 2016 2015 40,653 $ 27,638 $ 5,454 7,754 4,725 2,517 20,450 20,203 391 20,594 4,660 15,934 14 15,920 3,789 5,919 3,772 1,731 15,211 12,427 91 12,518 2,301 10,217 29 10,188 2,867 4,816 2,725 1,295 11,703 6,225 (31) 6,194 2,506 3,688 19 3,669 $ $ $ Revenue Costs and expenses: Cost of revenue Research and development Marketing and sales General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income taxes Provision for income taxes Net income Less: Net income attributable to participating securities Net income attributable to Class A and Class B common stockholders Earnings per share attributable to Class A and Class B common stockholders: Basic Diluted Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders: Basic Diluted Share-based compensation expense included in costs and expenses: Cost of revenue Research and development Marketing and sales General and administrative Total share-based compensation expense See Accompanying Notes to Consolidated Financial Statements. $ 5.49 5.39 3.56 3.49 $ $ 1.31 1.29 2,901 2,956 2,863 2,925 2,803 2,853 $ $ 178 2,820 436 289 3,723 113 2,494 368 243 3,218 81 2,350 320 218 2.969 Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Three Months Ended Dec 31, 2016 Sep 30, 2016 Jun 30, 2016 Mar 31, 2016 (as a percentage of total revenue) Consolidated Statements of Income Data: 99 % 98 % 98 % 98 % - 98 % 2 100 % 97 % 3 100 % 97 % 3 100 % 97 % 3 100 % 100 % 100 % 100 % 100 % 12 14 13 14 12 14 16 18 Revenue: Advertising Payments and other fees Total revenue Costs and expenses: Cost of revenue Research and development Marketing and sales General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income taxes Provision for income taxes Net income Less: Net income attributable to participating securities Net income attributable to Class A and Class B common stockholders 48 42 11 41 % 7 35 % 38 6 32 % 33 % 46% 42% 38 % 37 % 33% 46% 42% 38% 40% 37% 35% 32% Share-based compensation expense included in costs and expenses: Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Three Months Ended Mar 31, Dec 31, 2017 2016 Sep 30, 2016 Jun 30, 2016 Mar 31, 2016 (as a percentage of total revenue) % 1% 8 -% 8 1 -% 9 -% 10 5 Cost of revenue Research and development Marketing and sales General and administrative Total share-based compensation expense -% 11 1 10% 9% 12% 13% 14% Three Months Ended Dec 31. Mar 31, Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, Jun 30, 2016 Mar 31, 2016 2017 2017 2016 (in millions) $ $ $ 9,164 $ $ $ $ $ 12,779 193 12,972 10,142 186 10,328 157 7,857 175 8,032 8,629 180 8,809 6,816 195 7.011 6,239 197 6,436 5,201 181 5,382 9,321 917 1,237 1,919 1,124 1,471 901 413 Consolidated Statements of Income Data: Revenue: Advertising Payments and other fees Total revenue Costs and expenses: Cost of revenue Research and development Marketing and sales General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income taxes Provision for income taxes Net income Less: Net income attributable to participating securities Net income attributable to Class A and Class B common stockholders Earnings per share attributable to Class A and Class B common stockholders: Basic Diluted 640 1,611 1,949 1,374 686 5,620 7,352 110 7,462 3,194 4,268 1,448 2,052 1,170 536 5,206 5,122 114 5,236 529 4,707 3,702 1,159 1,834 1,057 655 4,705 3,327 81 3,408 344 3,064 987 1,542 926 439 3,894 3,117 47 3,164 838 1,343 826 365 3,372 2,010 1,047 1,563 1,118 515 4,243 4,566 (33) 4,533 965 3,568 4,920 4,401 87 4,488 594 3,894 56 2,734 20 2,754 471 2,283 2,066 537 328 $ $ $ $ $ $ 2,627 $ $ 1,738 $ 4,266 $ 4,704 $ 3,890 $ 3,059 $ 3,561 $ 2,620 $ 2,276 $ 1,732 $ $ 1.47 1.44 $ $ 1.62 1.59 $ $ 1.34 1.32 $ $ 1.06 1.04 1.24 1.21 $ $ 0.91 0.90 $ $ 0.80 0.78 $ $ 0.61 0.60 Share-based compensation expense included in costs and expenses: Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Three Months Ended Mar 31, 2017 Dec 31, 2016 Sep 30, 2016 Jun 30, 2016 Mar 31, 2016 $ $ $ $ $ 32 $ $ $ 47 776 114 Cost of revenue Research and development Marketing and sales General and administrative Total share-based compensation expense 47 787 120 30 636 (in millions) 34 670 96 50 587 106 71 814 29 631 641 586 82 95 95 62 73 67 63 56 $ $ 1,010 $ 1,032 $ 867 $ 831 $ 824 $ 817 $ 746 48 Comprehensive Problem 6-79 (LO 6-1, LO 6-2, LO 6-3, LO 6-4, LO 6-5) Access the 2018 Form 10-K for Facebook, Inc., and answer the following questions. (Round your final answer to 1 decimal place.) Required: a. Using information from the company's Income Statement and Income Taxes footnote, what was the company's effective tax rate for 2018? b. Using information from the Statement of Cash Flows, calculate the company's cash tax rate. a. b. Effective tax rate Cash tax rate c. What does the company's Income Taxes note tell you about where the company earns its international income? There is no mention about where Facebook earns its foreign income in the Income Taxes footnote. United States O England O Ireland FACEBOOK, INC. CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) Year Ended December 31, 2017 2016 2015 40,653 $ 27,638 $ 5,454 7,754 4,725 2,517 20,450 20,203 391 20,594 4,660 15,934 14 15,920 3,789 5,919 3,772 1,731 15,211 12,427 91 12,518 2,301 10,217 29 10,188 2,867 4,816 2,725 1,295 11,703 6,225 (31) 6,194 2,506 3,688 19 3,669 $ $ $ Revenue Costs and expenses: Cost of revenue Research and development Marketing and sales General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income taxes Provision for income taxes Net income Less: Net income attributable to participating securities Net income attributable to Class A and Class B common stockholders Earnings per share attributable to Class A and Class B common stockholders: Basic Diluted Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders: Basic Diluted Share-based compensation expense included in costs and expenses: Cost of revenue Research and development Marketing and sales General and administrative Total share-based compensation expense See Accompanying Notes to Consolidated Financial Statements. $ 5.49 5.39 3.56 3.49 $ $ 1.31 1.29 2,901 2,956 2,863 2,925 2,803 2,853 $ $ 178 2,820 436 289 3,723 113 2,494 368 243 3,218 81 2,350 320 218 2.969 Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Three Months Ended Dec 31, 2016 Sep 30, 2016 Jun 30, 2016 Mar 31, 2016 (as a percentage of total revenue) Consolidated Statements of Income Data: 99 % 98 % 98 % 98 % - 98 % 2 100 % 97 % 3 100 % 97 % 3 100 % 97 % 3 100 % 100 % 100 % 100 % 100 % 12 14 13 14 12 14 16 18 Revenue: Advertising Payments and other fees Total revenue Costs and expenses: Cost of revenue Research and development Marketing and sales General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income taxes Provision for income taxes Net income Less: Net income attributable to participating securities Net income attributable to Class A and Class B common stockholders 48 42 11 41 % 7 35 % 38 6 32 % 33 % 46% 42% 38 % 37 % 33% 46% 42% 38% 40% 37% 35% 32% Share-based compensation expense included in costs and expenses: Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Three Months Ended Mar 31, Dec 31, 2017 2016 Sep 30, 2016 Jun 30, 2016 Mar 31, 2016 (as a percentage of total revenue) % 1% 8 -% 8 1 -% 9 -% 10 5 Cost of revenue Research and development Marketing and sales General and administrative Total share-based compensation expense -% 11 1 10% 9% 12% 13% 14% Three Months Ended Dec 31. Mar 31, Sep 30, 2017 Jun 30, 2017 Dec 31, 2016 Sep 30, Jun 30, 2016 Mar 31, 2016 2017 2017 2016 (in millions) $ $ $ 9,164 $ $ $ $ $ 12,779 193 12,972 10,142 186 10,328 157 7,857 175 8,032 8,629 180 8,809 6,816 195 7.011 6,239 197 6,436 5,201 181 5,382 9,321 917 1,237 1,919 1,124 1,471 901 413 Consolidated Statements of Income Data: Revenue: Advertising Payments and other fees Total revenue Costs and expenses: Cost of revenue Research and development Marketing and sales General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income taxes Provision for income taxes Net income Less: Net income attributable to participating securities Net income attributable to Class A and Class B common stockholders Earnings per share attributable to Class A and Class B common stockholders: Basic Diluted 640 1,611 1,949 1,374 686 5,620 7,352 110 7,462 3,194 4,268 1,448 2,052 1,170 536 5,206 5,122 114 5,236 529 4,707 3,702 1,159 1,834 1,057 655 4,705 3,327 81 3,408 344 3,064 987 1,542 926 439 3,894 3,117 47 3,164 838 1,343 826 365 3,372 2,010 1,047 1,563 1,118 515 4,243 4,566 (33) 4,533 965 3,568 4,920 4,401 87 4,488 594 3,894 56 2,734 20 2,754 471 2,283 2,066 537 328 $ $ $ $ $ $ 2,627 $ $ 1,738 $ 4,266 $ 4,704 $ 3,890 $ 3,059 $ 3,561 $ 2,620 $ 2,276 $ 1,732 $ $ 1.47 1.44 $ $ 1.62 1.59 $ $ 1.34 1.32 $ $ 1.06 1.04 1.24 1.21 $ $ 0.91 0.90 $ $ 0.80 0.78 $ $ 0.61 0.60 Share-based compensation expense included in costs and expenses: Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Three Months Ended Mar 31, 2017 Dec 31, 2016 Sep 30, 2016 Jun 30, 2016 Mar 31, 2016 $ $ $ $ $ 32 $ $ $ 47 776 114 Cost of revenue Research and development Marketing and sales General and administrative Total share-based compensation expense 47 787 120 30 636 (in millions) 34 670 96 50 587 106 71 814 29 631 641 586 82 95 95 62 73 67 63 56 $ $ 1,010 $ 1,032 $ 867 $ 831 $ 824 $ 817 $ 746 48 Comprehensive Problem 6-79 (LO 6-1, LO 6-2, LO 6-3, LO 6-4, LO 6-5) Access the 2018 Form 10-K for Facebook, Inc., and answer the following questions. (Round your final answer to 1 decimal place.) Required: a. Using information from the company's Income Statement and Income Taxes footnote, what was the company's effective tax rate for 2018? b. Using information from the Statement of Cash Flows, calculate the company's cash tax rate. a. b. Effective tax rate Cash tax rate c. What does the company's Income Taxes note tell you about where the company earns its international income? There is no mention about where Facebook earns its foreign income in the Income Taxes footnote. United States O England O Ireland