Facebook 2014 Annual Report Download - page 71

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marketers and developers based in the United States, with the majority of revenue outside of the United States coming from customers located in
western Europe, Brazil, Canada, and Australia.
We perform ongoing credit evaluations of our customers, and generally do not require collateral. We maintain an allowance for estimated credit
losses. During the years ended December 31, 2014 , 2013 , and 2012 , our bad debt expenses were $19 million , $21 million , and $9 million
,
respectively. In the event that accounts receivable collection cycles deteriorate, our operating results and financial position could be adversely affected.
No customer represented 10% or more of total revenue during the years ended December 31, 2014 , 2013 , and 2012 .
Segments
Our chief operating decision-
maker is our Chief Executive Officer who makes resource allocation decisions and assesses performance based on
financial information presented on a consolidated basis. There are no segment managers who are held accountable by the chief operating decision-
maker, or anyone else, for operations, operating results, and planning for levels or components below the consolidated unit level. Accordingly, we have
determined that we have a single reportable segment and operating unit structure.
Recently Issued and Adopted Accounting Pronouncement
In May 2014, the Financial Accounting Standards Board issued guidance related to revenue from contracts with customers. Under this guidance,
revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be
received for those goods or services. The updated standard will replace most existing revenue recognition guidance under GAAP when it becomes
effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard
will be effective for us in the first quarter of 2017. We have not yet selected a transition method and we are currently evaluating the effect that the
updated standard will have on our consolidated financial statements and related disclosures.
WhatsApp
In October 2014, we completed our acquisition of WhatsApp Inc. (WhatsApp), a privately-held cross-
platform mobile messaging company that is
expected to provide us with strategic advantages in the mobile ecosystem and expand our mobile messaging offerings. Pursuant to the merger
agreement, we issued approximately 178 million shares of our Class A common stock and paid $4.59 billion in cash. We also granted 46 million
RSUs
to WhatsApp employees which are recognized as share-based compensation expense over the employees' required service periods.
Upon acquisition, WhatsApp became our wholly-
owned subsidiary. The acquisition was accounted for as a business combination. This method
requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the
acquisition date.
The following table summarizes the components of the preliminary purchase consideration transferred based on the closing price of $77.56
per
share of our common stock as of the acquisition date (in millions):
Of the $1.07 billion of share-based compensation and other compensation expense excluded from the purchase consideration above,
$188 million
was accounted for as share-based compensation expense, of which approximately $50 million
was settled in cash, at closing, as a result of the vesting
provisions of WhatsApp employee awards on the acquisition date. The remaining $879 million (approximately 8.5 million
shares of Class A common
stock and $219 million in cash) is subject to continuous employment and will be recognized as share-
based compensation and other compensation
expense over the required service period of up to three years .
The following unaudited pro forma information presents the combined results of operations as if the acquisition had been completed on January 1,
2013, the beginning of the comparable prior annual reporting period. The unaudited pro forma results include: (i) amortization associated with
preliminary estimates for the acquired intangible assets; (ii) recognition of the post-acquisition share-based compensation
67
Note 2.
Acquisitions
Cash
$
4,589
Common stock
13,787
Less: post-acquisition share-based compensation and other compensation expense
(1,067
)
Less: cash and promissory notes acquired on acquisition date
(116
)
Purchase consideration
$
17,193