Facebook 2014 Annual Report Download - page 72

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and other compensation expense; (iii) share-based compensation expense related to the 46 million
RSUs granted to WhatsApp employees; and (iv) the
associated tax impact on these unaudited pro forma adjustments.
The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred
in integrating the two companies. Accordingly, these unaudited pro forma results are presented for informational purpose only and are not necessarily
indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the
period presented, nor are they indicative of future results of operations (in millions):
The unaudited pro forma combined net income for the year ended December 31, 2013 includes a non-recurring pro forma adjustment of
$188
million of share-
based compensation expense recognized at closing as a result of the vesting provisions of WhatsApp employee awards on the
acquisition date.
The tax withholdings related to the WhatsApp vested merger consideration were funded by net share settlement. The amount remitted to the tax
authorities for the employees' tax obligation to the tax authorities was reflected as a financing activity within our consolidated statements of cash flows.
Oculus
In July 2014, we completed our acquisition of Oculus VR, Inc. (Oculus), a privately-
held company developing virtual reality technology that is
expected to expand our platform. Pursuant to the merger agreement, we issued 23 million shares of our Class B common stock and paid $400 million
cash. Furthermore, up to an additional three million shares of our Class B common stock and $60 million
in cash will be payable contingent upon the
completion of certain milestones. We determined the acquisition-
date fair value of the contingent consideration liability, based on the likelihood of
payment related to the contingent earn-
out clauses, as part of the consideration transferred. For contingent consideration to be settled in common stock,
we use the fair value of the shares as of the acquisition date, which is remeasured on each reporting date until settlement. See Note 5 “
Fair Value
Measurements" for subsequent measurements of this contingent liability. The earn-
out portion that would be payable to employee equityholders is
subject to continuous employment through the applicable payment dates and as such has been excluded from purchase consideration transferred and
accounted for as share-based compensation and other compensation expense.
We have accounted for this acquisition 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 and that in-
process research and development (IPR&D) be
recorded at fair value on the balance sheet regardless of the likelihood of success of the related product or technology.
The following table summarizes the components of the preliminary purchase consideration transferred based on the closing price of our common
stock as of the acquisition date (in millions):
Of the $297 million of share-
based compensation and other compensation expense excluded from the purchase consideration above,
approximately $13 million was recognized as share-
based compensation at closing as a result of the vesting provisions of employee replacement awards
on the acquisition date. The remaining $284 million is subject to continuous employment and will be recognized as share-
based compensation and other
compensation expense over the required service period of four years .
68
Year Ended December 31,
2014
2013
Revenue
$
12,487
$
7,882
Net income
$
1,757
$
65
Cash
$
400
Common stock
1,601
Less: post-acquisition share-based compensation and other compensation expense
(297
)
Less: cash acquired on acquisition date
(20
)
Total purchase consideration, excluding contingent consideration
$
1,684
Contingent consideration
169
Purchase consideration
$
1,853