EX-99.3 5 exhibit993unauditedproform.htm UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION Exhibit 99.3 Unaudited Pro Forma Condensed Combined Financial Information


FACEBOOK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information and related notes present the historical condensed combined financial information of Facebook, Inc. and its wholly owned subsidiaries (hereinafter referred to as "Facebook", "we," "our," "us" and similar terms unless the context indicates otherwise) and WhatsApp Inc. ("WhatsApp") after giving effect to Facebook's acquisition of WhatsApp that was completed on October 6, 2014 (the "Acquisition Date"). The unaudited pro forma condensed combined financial information gives effect to our acquisition of WhatsApp based on the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined balance sheet as of June 30, 2014 is presented as if the acquisition of WhatsApp had occurred on June 30, 2014. The unaudited pro forma condensed combined statements of income for the six months ended June 30, 2014 and the year ended December 31, 2013 are presented as if the acquisition had occurred on January 1, 2013. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of income, expected to have a continuing impact on the combined results.
The determination and preliminary allocation of the purchase consideration used in the unaudited pro forma condensed combined financial information are based upon preliminary estimates, which are subject to change during the measurement period (up to one year from the Acquisition Date) as we finalize the valuations of the net tangible and intangible assets acquired.
The unaudited pro forma adjustments are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction been consummated as of the dates indicated or that may be achieved in the future. The actual results reported by the combined company in periods following the acquisition may differ significantly from those reflected in these unaudited pro forma condensed combined financial information for a number of reasons, including cost saving synergies from operating efficiencies and the effect of the incremental costs incurred to integrate the two companies.
The unaudited pro forma condensed combined financial information should be read in conjunction with our historical consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2013, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014, the historical financial statements of WhatsApp for the year ended December 31, 2013, and the historical unaudited financial statements of WhatsApp as of and for the six months ended June 30, 2014 contained in this Form 8-K/A.





FACEBOOK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2014
(in millions)
 
Historical
 
 
 
 
 
Facebook, Inc.
 
WhatsApp Inc.
 
Pro Forma Adjustments
 
Pro Forma Combined
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
     Cash and cash equivalents
$
4,384

 
$
152

 
$
(152
)
 (a)
$
4,384

     Marketable securities
9,572

 
—

 
(4,437
)
 (a)
5,135

     Accounts receivable, net
1,190

 
—

 
—

 
1,190

     Prepaid expenses and other current assets
411

 
8

 
83

 (a)
502

Total current assets
15,557

 
160

 
(4,506
)
 
11,211

Property and equipment, net
3,334

 
16

 
6

 (b)
3,356

Goodwill and intangible assets, net
1,672

 
—

 
18,097

 (c)
19,769

Other assets
206

 
2

 
158

 (a)
366

Total assets
$
20,769

 
$
178

 
$
13,755

 
$
34,702

 
 
 
 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
     Accounts payable
$
146

 
$
5

 
$
—

 
$
151

     Developer partners payable
176

 
—

 
—

 
176

     Accrued expenses and other current liabilities
666

 
15

 
15

 (d)
696

     Deferred revenue and deposits
53

 
20

 
(9
)
 (b)
64

     Current portion of capital lease obligations
173

 
—

 
—

 
173

Total current liabilities
1,214

 
40

 
6

 
1,260

Capital lease obligations, less current portion
153

 
—

 
—

 
153

Deferred revenue, non-current portion
—

 
32

 
(16
)
 (b)
16

Other liabilities
1,056

 
15

 
920

 (b) (e)
1,991

Total liabilities
2,423

 
87

 
910

 
3,420

 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
Preferred stock
—

 
420

 
(420
)
 (f)
—

Common stock
—

 
—

 
—

 
—

Additional paid-in capital
13,759

 
334

 
12,793

 (g)
26,886

Accumulated other comprehensive loss
(5
)
 
—

 
—

 
(5
)
Retained earnings (accumulated deficit)
4,592

 
(663
)
 
472

 (g)
4,401

Total stockholders' equity
18,346

 
91

 
12,845

 
31,282

Total liabilities and stockholders' equity
$
20,769

 
$
178

 
$
13,755

 
$
34,702

 
 
 
 
 
 
 
 
See notes to unaudited pro forma condensed combined financial information





FACEBOOK, INC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2013
(in millions, except per share data)
 
 
 
 
 
 
 
 
 
Historical
 
 
 
 
 
Facebook, Inc.
 
WhatsApp Inc.
 
Pro Forma Adjustments
 
Pro Forma Combined
Revenue
$
7,872

 
$
10

 
$
—

 
$
7,882

Costs and expenses
 
 
 
 
 
 
 
Cost of revenue
1,875

 
53

 
46

 (c) (h)
1,974

Research and development
1,415

 
77

 
1,086

 (c) (h)
2,578

Marketing and sales
997

 
—

 
462

 (c) (h)
1,459

General and administrative
781

 
19

 
10

 (h)
810

Total costs and expenses
5,068

 
149

 
1,604

 
6,821

Income (Loss) from operations
2,804

 
(139
)
 
(1,604
)
 
1,061

Interest and other income/(expense), net
(50
)
 
—

 
—

 
(50
)
Income (Loss) before provision for income taxes
2,754

 
(139
)
 
(1,604
)
 
1,011

Provision for (Benefit from) income taxes
1,254

 
(1
)
 
(559
)
 (j)
694

Net income (loss)
$
1,500

 
$
(138
)
 
$
(1,045
)
 
$
317

Less: Net income attributable to participating securities
9

 
—

 
(6
)
(k)
3

Net income (loss) attributable to Class A and Class B common stockholders
$
1,491

 
$
(138
)
 
$
(1,039
)
 
$
314

Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
$
0.62

 
 
 
 
 
$
0.12

Diluted
$
0.60

 
 
 
 
 
$
0.12

Weighted-average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
2,420

 
 
 
170

(l)
2,590

Diluted
2,517

 
 
 
168

(l)
2,685

 
 
 
 
 
 
 
 
See notes to unaudited pro forma condensed combined financial information





FACEBOOK, INC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2014
(in millions, except per share data)
 
 
 
 
 
 
 
 
 
Historical
 
 
 
 
 
Facebook, Inc.
 
WhatsApp Inc.
 
Pro Forma Adjustments
 
Pro Forma Combined
Revenue
$
5,412

 
$
15

 
$
—

 
$
5,427

Costs and expenses
 
 
 
 
 
 
 
Cost of revenue
936

 
44

 
11

 (c) (h)
991

Research and development
947

 
68

 
483

 (c) (h)
1,498

Marketing and sales
681

 
—

 
231

 (c) (h)
912

General and administrative
384

 
135

 
(12
)
 (h) (i)
507

Total costs and expenses
2,948

 
247

 
713

 
3,908

Income (loss) from operations
2,464

 
(232
)
 
(713
)
 
1,519

Interest and other income/(expense), net
(4
)
 
(1
)
 
—

 
(5
)
Income (loss) before provision for income taxes
2,460

 
(233
)
 
(713
)
 
1,514

Provision for income taxes
1,027

 
—

 
(275
)
 (j)
752

Net income (loss)
$
1,433

 
$
(233
)
 
$
(438
)
 
$
762

Less: Net income attributable to participating securities
6

 
—

 
(1
)
(k)
5

Net income (loss) attributable to Class A and Class B common stockholders
$
1,427

 
$
(233
)
 
$
(437
)
 
$
757

Earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
$
0.56

 
 
 
 
 
$
0.28

Diluted
$
0.55

 
 
 
 
 
$
0.27

Weighted-average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
 
 
Basic
2,552

 
 
 
172

(l)
2,724

Diluted
2,609

 
 
 
175

(l)
2,784

 
 
 
 
 
 
 
 
See notes to unaudited pro forma condensed combined financial information






FACEBOOK, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1.
BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed combined balance sheet as of June 30, 2014 combines our historical condensed consolidated balance sheet with the historical condensed balance sheet of WhatsApp and has been prepared as if our acquisition of WhatsApp had occurred on June 30, 2014. The unaudited pro forma condensed combined statements of income for the six months ended June 30, 2014 and for the year ended December 31, 2013 combine our historical condensed consolidated statements of income with WhatsApp's historical statements of operations and have been prepared as if the acquisition had occurred on January 1, 2013. The historical financial information is adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the condensed combined statements of income, expected to have a continuing impact on the combined results.
We have accounted for the acquisition in this unaudited pro forma condensed combined financial information using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the Acquisition Date. Goodwill as of the Acquisition Date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.
The pro forma adjustments described below were developed based on Facebook management’s assumptions and estimates, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from WhatsApp based on preliminary estimates of fair value. The final purchase consideration and the allocation of the purchase consideration will differ from that reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized following the completion of the acquisition.
The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position.
The unaudited pro forma condensed combined financial information does not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions or other restructurings that could result from the acquisition.
The following reclassifications have been made to the presentation of WhatsApp’s historical financial statements in order to conform to Facebook’s presentation:
•
WhatsApp’s restricted cash, current of $6 million was reclassified as prepaid expenses and other current assets;
•
WhatsApp’s restricted cash of $2 million was reclassified as other assets;
•
WhatsApp's early exercise liabilities, current portion of $1 million was reclassified as accrued expenses and other current liabilities; and
•
WhatsApp’s facility lease financing liability of $13 million, early exercise liabilities, non-current portion of $1 million and deferred rent, non-current portion of $1 million were reclassified as other liabilities.





2.
PRELIMINARY PURCHASE CONSIDERATION AND RELATED ALLOCATION
Pursuant to the merger agreement, we issued 177,760,669 shares of our Class A common stock and paid $4.59 billion in cash on October 6, 2014 to existing WhatsApp securityholders.
The following table summarizes the components of the purchase consideration transferred based on the closing price of $77.56 per share of our Class A common stock on the Acquisition Date (in millions):
Cash
$
4,589

Class A Common stock (177,760,669 shares at $77.56 per share)
13,787

 
18,376

Less: post-combination share-based compensation and other compensation expense
(1,067
)
Less: cash and promissory notes acquired on Acquisition Date
(116
)
Purchase consideration
$
17,193

Of the $1.07 billion of share-based compensation and other compensation expense excluded from the purchase consideration above, approximately $188 million will be accounted for as share-based compensation expense at closing as a result of the vesting provisions of WhatsApp employee awards on the Acquisition Date. This amount is reflected as a pro forma adjustment to the retained earnings in the unaudited pro forma condensed combined balance sheet but is excluded from the unaudited pro forma condensed combined statements of income, as it would not have a continuing impact on the combined results. 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 3 years. Such incremental compensation expense is reflected as an adjustment to the unaudited pro forma condensed combined statements of income (see Note 3h).
The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed based on their fair values on the assumed acquisition date and the related estimated useful lives of the amortizable intangible assets acquired (in millions, except for estimated useful life):
 
 
Preliminary estimated useful life
Current assets
$
51

 
Non-current assets
24

 
Current liabilities, net of deferred revenue
(17
)
 
Deferred revenue
(27
)
 
Non-current liabilities, net of deferred revenue
(19
)
 
Deferred tax liabilities
(916
)
 
Finite-lived intangible assets:
 
 
Acquired users
2,026

7 years
Tradename
448

5 years
Acquired technology
288

5 years
Other
21

2 years
Goodwill
15,314

 
Total
$
17,193

 
We believe the amount of goodwill resulting from the allocation of purchase consideration is primarily attributable to expected synergies from future growth, from potential monetization opportunities, from strategic advantages provided in the mobile ecosystem and from expansion of our mobile messaging offerings. Goodwill is not expected to be deductible for tax purposes. In accordance with ASC 805, goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if




certain indicators of impairment are present. In the event that goodwill has become impaired, we will record an expense for the amount impaired during the fiscal quarter in which the determination is made.
Upon completion of the fair value assessment, it is anticipated that the final purchase price allocation will differ from the preliminary assessment outlined above. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
In connection with the acquisition, we will also grant approximately 46 million restricted stock units (“RSUs”) to WhatsApp employees, which will be granted in the fourth quarter of 2014. For pro forma purposes, we valued these RSUs based on the closing price of $77.56 per share of our Class A common stock on the Acquisition Date and assumed they were granted on January 1, 2013. These RSUs will be accounted for as share-based compensation expense over the required service periods based on the grant date fair value, which will be different from the closing price on the Acquisition Date. The incremental effect of this share-based compensation expense is reflected as an adjustment to the unaudited pro forma condensed combined statements of income (see Note 3h).

3.
PRO FORMA ADJUSTMENTS
The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:
a)To record the following adjustments related to cash consideration paid and $7 million of promissory notes receivable from WhatsApp employees entered into on the Acquisition Date (in millions):    
 
 Cash and cash equivalent
 
Marketable securities
 
Prepaid expenses and other current assets
 
Other assets
Cash payments(1)
$
(152
)
 
$
(4,437
)
 
$
78

 
$
156

Promissory notes receivable
—

 
—

 
5

 
2

Total adjustments
$
(152
)
 
$
(4,437
)
 
$
83

 
$
158

(1) Amounts paid include $78 million and $156 million of unvested cash consideration, recorded as restricted cash, current in prepaid expenses and other current assets and restricted cash, non current in other assets, respectively.
b)To record preliminary fair value adjustments to ac    quired property and equipment, net, assumed deferred revenue liability and finance lease liability recorded in other liabilities as of the Acquisition Date:
 
Property and equipment, net
 
Deferred revenue and deposits
 
Deferred revenue, non-current portion
 
Other liabilities
Fair value adjustments
$
6

 
$
(9
)
 
$
(16
)
 
$
6





c)To record preliminary fair values of the intangible assets acquired in connection with the WhatsApp acquisition and associated amortization expenses (in millions, except for estimated useful life).
 
Preliminary fair values
 
Preliminary estimated useful life
 
Six months amortization based upon preliminary fair values
 
Annual amortization based upon preliminary fair values
Acquired users
$
2,026

 
7 years
 
$
145

 
$
289

Tradename
448

 
5 years
 
45

 
89

Acquired technology
288

 
5 years
 
29

 
58

Other
21

 
2 years
 
5

 
11

Goodwill
15,314

 
 
 
—

 
—

 
$
18,097

 
 
 
$
224

 
$
447

d)
To record approximately $14 million of revested cash consideration related to pre-acquisition services which is capitalized as part of the purchase consideration; to accrue for an additional $3 million in acquisition costs incurred by us; and the elimination of WhatsApp's $2 million current liability related to early exercise of options and acquisition costs.
e)
To record approximately $916 million preliminary non-current net deferred tax liabilities adjustment related to the acquisition, offset by the elimination of $2 million non-current liability related to early exercise of options and deferred rent in other liabilities.
f)
To eliminate WhatsApp historical preferred stock.
g)To record the adjustments to additional paid-in capital and retained earnings to reflect the combined equity structure (in millions):
 
 
Additional paid-in capital
 
Retained earnings (accumulated deficit)
Historical balance as reported
 
 
 
 
Facebook
 
$
13,759

 
$
4,592

WhatsApp
 
334

 
(663
)
Combined historical balances
 
14,093

 
3,929

Eliminate WhatsApp historical equity
 
(334
)
 
663

Record adjustments to equity related to stock consideration and acceleration of vesting of WhatsApp employee awards (see Note 2)
 
13,127

 
—

Record direct acquisition costs due at closing (see Note 3d)
 
—

 
(3
)
Record adjustments to retained earnings related to acceleration of vesting of WhatsApp employee awards (See Note 2)
 
—

 
(188
)
Total adjustments
 
12,793

 
472

Pro forma combined
 
$
26,886

 
$
4,401





h)To record the effects of share-based compensation expense and other compensation expense related to unvested cash consideration as follows (in millions):
 
For the year ended December 31, 2013
 
Cost of revenue
 
Research and development
 
Marketing and sales
 
General and administrative
Other compensation expense related to unvested cash consideration
$
—

 
$
71

 
$
14

 
$
4

Share-based compensation expense
—

 
1,075

 
70

 
22

Total compensation expense
—

 
1,146

 
84

 
26

Less: share-based compensation expense recorded by WhatsApp
(12
)
 
(71
)
 
—

 
(16
)
Adjustments to compensation expense
$
(12
)
 
$
1,075

 
$
84

 
$
10

 
 
 
 
 
 
 
 
 
For the six months ended June 30, 2014
 
Cost of revenue
 
Research and development
 
Marketing and sales
 
General and administrative
Other compensation expense related to unvested cash consideration
$
—

 
$
28

 
$
7

 
$
2

Share-based compensation expense
—

 
512

 
34

 
10

Total compensation expense
—

 
540

 
41

 
12

Less: share-based compensation expense recorded by WhatsApp
(18
)
 
(62
)
 
—

 
(17
)
Adjustments to compensation expense
$
(18
)
 
$
478

 
$
41

 
$
(5
)
i)
To eliminate acquisition related transaction costs of $7 million recorded by Facebook and WhatsApp in the historical condensed consolidated statement of income and historical condensed statement of operations, respectively, for the six months ended June 30, 2014.
j)To record the pro forma adjustments to reflect benefits from income tax at the weighted-average estimated statutory income tax rates applicable to the jurisdictions in which the pro forma adjustments are expected to be recorded as follows (in millions, except for effective tax rate):    
 
For the year ended December 31, 2013
 
For the six months ended June 30, 2014
Total pro forma adjustments recorded to decrease income before provision for income taxes in the unaudited pro forma condensed combined statements of income
$
(1,604
)
 
$
(713
)
Estimated effective tax rate applicable to pro forma adjustments
35
%
 
39
%
Pro forma adjustments to reflect benefits from income taxes
$
559

 
$
275

k)
To record the adjustments to net income available to participating securities.
l)
To record the Class A common stock issued as consideration to WhatsApp’s stockholders and RSUs to be granted to WhatsApp’s employees in connection with the acquisition. We have excluded the effects of certain awards issued or granted in connection with the acquisition from the diluted earnings per share calculation for the pro forma combined year ended December 31, 2013 and the six months ended June 30, 2014 because the impact would be anti-dilutive.