NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.
The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The condensed consolidated financial statements include the accounts of Meta Platforms, Inc., its subsidiaries where we have controlling financial interests, and any variable interest entities for which we are deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated.
The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2023.
Use of Estimates
Preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values 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, valuation of non-marketable equity securities, income taxes, loss contingencies, including the ultimate resolution of litigation, regulatory matters, and asserted and unasserted claims, valuation of long-lived assets including goodwill, intangible assets, and property and equipment, and their associated estimated useful lives, valuation of purchase commitments, credit losses of available-for-sale debt securities and accounts receivable, fair value of financial instruments, and fair value of leases. These estimates are based on management's knowledge about current events, interpretation of regulations, and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.
Significant Accounting Policies
There have been no material changes to our significant accounting policies from our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Note 2. Revenue
Revenue disaggregated by revenue source and by segment consists of the following (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Advertising | $ | 28,101 | | | $ | 26,998 | | | | | |
Other revenue | 205 | | | 215 | | | | | |
Family of Apps | 28,306 | | | 27,213 | | | | | |
Reality Labs | 339 | | | 695 | | | | | |
Total revenue | $ | 28,645 | | | $ | 27,908 | | | | | |
Revenue disaggregated by geography, based on the addresses of our customers, consists of the following (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
United States and Canada (1) | $ | 11,449 | | | $ | 11,780 | | | | | |
Europe (2) | 6,759 | | | 6,638 | | | | | |
Asia-Pacific | 7,292 | | | 6,722 | | | | | |
Rest of World (2) | 3,145 | | | 2,768 | | | | | |
Total revenue | $ | 28,645 | | | $ | 27,908 | | | | | |
____________________________________(1) United States revenue was $10.79 billion and $11.10 billion for the three months ended March 31, 2023 and 2022, respectively.
(2) Europe includes Russia and Turkey, and Rest of World includes Africa, Latin America, and the Middle East.
Our total deferred revenue was $492 million and $526 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, we expect $460 million of our deferred revenue to be realized in less than a year.
Note 3. Restructuring
2023 Restructuring
In March 2023, we announced three rounds of planned layoffs to further reduce our company size by approximately 10,000 employees across the Family of Apps (FoA) and Reality Labs (RL) segments (the “2023 Restructuring”). Impacted employees in our recruiting and technology teams were notified in March 2023 and April 2023, respectively. We expect to notify employees in our business groups and remaining technology teams in May 2023. In certain regions, it may take through the end of 2023 or longer to complete these layoffs. In connection with these layoffs, we expect to incur total pre-tax severance and related personnel costs of approximately $1 billion across the FoA and RL segments. We began recording these restructuring charges in the first quarter of 2023 and expect that the remaining charges will be substantially recognized by the end of 2023 in accordance with the Accounting Standards Codification (ASC) Topic 420, Exit or Disposal Cost Obligations.
A summary of our 2023 Restructuring pre-tax charges recorded for severance and related personnel costs in the three months ended March 31, 2023 is as follows (in millions):
| | | | | |
| Three Months Ended March 31, 2023 |
Research and development | $ | 324 | |
Marketing and sales | 5 | |
General and administrative | 194 | |
Total (1) | $ | 523 | |
____________________________(1) Total severance and related personnel costs include $61 million of share-based compensation expense recognized for the 2023 layoffs.
Total restructuring charges recorded under our FoA segment were $468 million and RL segment were $55 million for the three months ended March 31, 2023.
The following is a summary of changes in the accrued severance and other personnel liabilities related to 2023 layoff activities, included within accrued expenses and other current liabilities on the condensed consolidated balance sheets (in millions):
| | | | | |
| Severance Liabilities |
Balance as of January 1, 2023 | $ | — | |
Severance and other personnel costs | 462 | |
Cash payments | (9) | |
Balance as of March 31, 2023 | $ | 453 | |
We expect the liabilities as of March 31, 2023 to be substantially paid out in cash by the end of third quarter of 2023.
2022 Restructuring
In 2022, we initiated several measures to pursue greater efficiency and to realign our business and strategic priorities. This includes a facilities consolidation strategy to sublease, early terminate, or abandon several office buildings under operating leases, a layoff of approximately 11,000 employees across the FoA and RL segments, and a pivot towards a next generation data center design, including cancellation of multiple data center projects (the “2022 Restructuring”). As of March 31, 2023, we have substantially completed the 2022 employee layoff while continuing to assess facilities consolidation and data center restructuring initiatives. The 2022 Restructuring charges recorded to date were $5.23 billion, with $4.56 billion in FoA and the remainder in RL.
A summary of our 2022 Restructuring pre-tax charges, including subsequent adjustments, is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Three Months Ended March 31, 2023 | | Plan to Date |
| Facilities Consolidation | | Severance and Other Personnel Costs | | Data Center Assets | | Total | | Facilities Consolidation | | Severance and Other Personnel Costs | | Data Center Assets (1) | | Total | | Total |
Cost of revenue | $ | 154 | | | $ | — | | | $ | 1,341 | | | $ | 1,495 | | | $ | 58 | | | $ | — | | | $ | (168) | | | $ | (110) | | | $ | 1,385 | |
Research and development | 1,311 | | | 408 | | | — | | | 1,719 | | | 484 | | | (4) | | | — | | | 480 | | | 2,199 | |
Marketing and sales | 404 | | | 234 | | | — | | | 638 | | | 136 | | | (2) | | | — | | | 134 | | | 772 | |
General and administrative | 426 | | | 333 | | | — | | | 759 | | | 129 | | | (12) | | | — | | | 117 | | | 876 | |
Total | $ | 2,295 | | | $ | 975 | | | $ | 1,341 | | | $ | 4,611 | | | $ | 807 | | | $ | (18) | | | $ | (168) | | | $ | 621 | | | $ | 5,232 | |
____________________________________(1)Relates to a change in estimates in our data center restructuring charges recorded during the three months ended December 31, 2022.
The following is a summary of changes in the severance and other personnel liabilities related to the 2022 layoff activities, included within accrued expenses and other current liabilities on the condensed consolidated balance sheets (in millions):
| | | | | |
| Severance Liabilities |
Balance as of January 1, 2022 | $ | — | |
Severance and other personnel costs | 975 | |
Cash payments | (203) | |
Balance as of December 31, 2022 | 772 | |
Adjustments and foreign exchange | (27) | |
Cash payments | (675) | |
Balance as of March 31, 2023 | $ | 70 | |
Note 4. Earnings per Share
We compute earnings per share (EPS) of Class A and Class B common stock using the two-class method. As the liquidation and dividend rights for both Class A and Class B common stock are identical, the undistributed earnings are allocated on a proportionate basis to the weighted-average number of common shares outstanding for the period.
Basic EPS is computed by dividing net income by the weighted-average number of shares of our Class A and Class B common stock outstanding. For the calculation of diluted EPS, net income for basic EPS is adjusted by the effect of dilutive securities, including awards under our equity compensation plan.
In addition, the computation of the diluted EPS of Class A common stock assumes the conversion of our Class B common stock to Class A common stock, while the diluted EPS of Class B common stock does not assume the conversion of those shares to Class A common stock. Diluted EPS is computed by dividing the resulting net income by the weighted-average number of fully diluted common shares outstanding.
For the three months ended March 31, 2023 and 2022, approximately 86 million and 48 million shares of Class A common stock equivalents of restricted stock units (RSUs), respectively, were excluded from the diluted EPS calculation as including them would have an anti-dilutive effect.
Basic and diluted EPS are the same for each class of common stock because they are entitled to the same liquidation and dividend rights.
The numerators and denominators of the basic and diluted EPS computations for our common stock are calculated as follows (in millions, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Class A | | Class B | | Class A | | Class B | | | | | | | | |
Basic EPS: | | | | | | | | | | | | | | | |
Numerator | | | | | | | | | | | | | | | |
Net income | $ | 4,905 | | | $ | 804 | | | $ | 6,334 | | | $ | 1,131 | | | | | | | | | |
Denominator | | | | | | | | | | | | | | | |
Shares used in computation of basic earnings per share | 2,223 | | | 364 | | | 2,312 | | | 413 | | | | | | | | | |
Basic EPS | $ | 2.21 | | | $ | 2.21 | | | $ | 2.74 | | | $ | 2.74 | | | | | | | | | |
Diluted EPS: | | | | | | | | | | | | | | | |
Numerator | | | | | | | | | | | | | | | |
Net income | $ | 4,905 | | | $ | 804 | | | $ | 6,334 | | | $ | 1,131 | | | | | | | | | |
Reallocation of net income as a result of conversion of Class B to Class A common stock | 804 | | | — | | | 1,131 | | | — | | | | | | | | | |
Reallocation of net income to Class B common stock | — | | | (3) | | | — | | | (7) | | | | | | | | | |
Net income for diluted EPS | $ | 5,709 | | | $ | 801 | | | $ | 7,465 | | | $ | 1,124 | | | | | | | | | |
Denominator | | | | | | | | | | | | | | | |
Shares used in computation of basic earnings per share | 2,223 | | | 364 | | | 2,312 | | | 413 | | | | | | | | | |
Conversion of Class B to Class A common stock | 364 | | | — | | | 413 | | | — | | | | | | | | | |
Weighted-average effect of dilutive RSUs | 9 | | | — | | | 17 | | | — | | | | | | | | | |
Shares used in computation of diluted earnings per share | 2,596 | | | 364 | | | 2,742 | | | 413 | | | | | | | | | |
Diluted EPS | $ | 2.20 | | | $ | 2.20 | | | $ | 2.72 | | | $ | 2.72 | | | | | | | | | |
Note 5. Financial Instruments
We have cash deposits with financial institutions globally. As part of our cash management strategy, we concentrate cash deposits with large financial institutions subject to the strictest regulations and our marketable securities are held in diversified highly rated securities.
Instruments Measured at Fair Value
We classify our cash equivalents and marketable debt securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. Our marketable equity securities are publicly traded stocks measured at fair value and classified within Level 1 in the fair value hierarchy because we use quoted prices for identical assets in active markets to estimate their fair value. Certain other assets are classified within Level 3 because factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity.
The following tables summarize our assets measured at fair value on a recurring basis and the classification by level of input within the fair value hierarchy (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurement at Reporting Date Using | | |
Description | | March 31, 2023 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | |
Cash | | $ | 5,680 | | | | | | | | | |
Cash equivalents: | | | | | | | | | | |
Money market funds | | 5,384 | | | $ | 5,384 | | | $ | — | | | $ | — | | | |
U.S. government and agency securities | | 50 | | | 50 | | | — | | | — | | | |
| | | | | | | | | | |
Time deposits | | 424 | | | — | | | 424 | | | — | | | |
Corporate debt securities | | 13 | | | — | | | 13 | | | — | | | |
Total cash and cash equivalents | | 11,551 | | | 5,434 | | | 437 | | | — | | | |
Marketable securities: | | | | | | | | | | |
U.S. government securities | | 8,706 | | | 8,706 | | | — | | | — | | | |
U.S. government agency securities | | 4,997 | | | 4,997 | | | — | | | — | | | |
Corporate debt securities | | 12,185 | | | — | | | 12,185 | | | — | | | |
| | | | | | | | | | |
Total marketable securities | | 25,888 | | | 13,703 | | | 12,185 | | | — | | | |
Restricted cash equivalents | | 579 | | | 579 | | | — | | | — | | | |
Other assets | | 93 | | | — | | | — | | | 93 | | | |
Total | | $ | 38,111 | | | $ | 19,716 | | | $ | 12,622 | | | $ | 93 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurement at Reporting Date Using |
Description | | December 31, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Cash | | $ | 6,176 | | | | | | | |
Cash equivalents: | | | | | | | | |
Money market funds | | 8,305 | | | $ | 8,305 | | | $ | — | | | $ | — | |
U.S. government and agency securities | | 16 | | | 16 | | | — | | | — | |
| | | | | | | | |
Time deposits | | 156 | | | — | | | 156 | | | — | |
Corporate debt securities | | 28 | | | — | | | 28 | | | — | |
Total cash and cash equivalents | | 14,681 | | | 8,321 | | | 184 | | | — | |
Marketable securities: | | | | | | | | |
U.S. government securities | | 8,708 | | | 8,708 | | | — | | | — | |
U.S. government agency securities | | 4,989 | | | 4,989 | | | — | | | — | |
Corporate debt securities | | 12,335 | | | — | | | 12,335 | | | — | |
Marketable equity securities | | 25 | | | 25 | | | — | | | — | |
Total marketable securities | | 26,057 | | | 13,722 | | | 12,335 | | | — | |
Restricted cash equivalents | | 583 | | | 583 | | | — | | | — | |
Other assets | | 157 | | | — | | | — | | | 157 | |
Total | | $ | 41,478 | | | $ | 22,626 | | | $ | 12,519 | | | $ | 157 | |
Unrealized Losses on Marketable Debt Securities
The following tables summarize our available-for-sale marketable debt securities with unrealized losses as of March 31, 2023 and December 31, 2022, aggregated by major security type and the length of time that individual securities have been in a continuous loss position (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Less than 12 months | | 12 months or greater | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. government securities | $ | 2,338 | | | $ | (59) | | | $ | 6,061 | | | $ | (311) | | | $ | 8,399 | | | $ | (370) | |
U.S. government agency securities | 130 | | | (2) | | | 4,769 | | | (260) | | | 4,899 | | | (262) | |
Corporate debt securities | 1,685 | | | (25) | | | 10,194 | | | (735) | | | 11,879 | | | (760) | |
Total | $ | 4,153 | | | $ | (86) | | | $ | 21,024 | | | $ | (1,306) | | | $ | 25,177 | | | $ | (1,392) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Less than 12 months | | 12 months or greater | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
U.S. government securities | $ | 5,008 | | | $ | (234) | | | $ | 3,499 | | | $ | (247) | | | $ | 8,507 | | | $ | (481) | |
U.S. government agency securities | 524 | | | (17) | | | 4,415 | | | (308) | | | 4,939 | | | (325) | |
Corporate debt securities | 4,555 | | | (249) | | | 7,256 | | | (634) | | | 11,811 | | | (883) | |
Total | $ | 10,087 | | | $ | (500) | | | $ | 15,170 | | | $ | (1,189) | | | $ | 25,257 | | | $ | (1,689) | |
The decrease in the gross unrealized losses for the three months ended March 31, 2023 is due to changes in interest rates. The allowance for credit losses and the gross unrealized gains on our marketable debt securities were not material as of March 31, 2023 and December 31, 2022.
Contractual Maturities
The following table classifies our marketable debt securities by contractual maturities (in millions):
| | | | | |
| March 31, 2023 |
Due within one year | $ | 5,163 | |
Due after one year to five years | 20,725 | |
Total | $ | 25,888 | |
Instruments Measured at Fair Value on Non-recurring Basis
Our non-marketable equity securities accounted for using the measurement alternative are measured at fair value on a non-recurring basis and are classified within Level 3 of the fair value hierarchy because we use significant unobservable inputs to estimate their fair value. Assets remeasured at fair value on a non-recurring basis within Level 3 during the three months ended March 31, 2023 and 2022 were $119 million and immaterial, respectively. For additional information, see Note 6 — Non-marketable Equity Securities.
Note 6. Non-marketable Equity Securities
Our non-marketable equity securities are investments in privately-held companies without readily determinable fair values. The following table summarizes our non-marketable equity securities that were measured using measurement alternative and equity method (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Non-marketable equity securities under measurement alternative: | | | |
Initial cost | $ | 6,388 | | | $ | 6,388 | |
Cumulative upward adjustments | 293 | | | 293 | |
Cumulative impairment/downward adjustments | (532) | | | (497) | |
Carrying value | 6,149 | | | 6,184 | |
Non-marketable equity securities under equity method | 18 | | | 17 | |
Total | $ | 6,167 | | | $ | 6,201 | |
Note 7. Property and Equipment
Property and equipment, net consists of the following (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Land | $ | 1,874 | | | $ | 1,874 | |
Servers and network assets | 37,282 | | | 34,330 | |
Buildings | 30,882 | | | 27,720 | |
Leasehold improvements | 6,654 | | | 6,522 | |
Equipment and other | 5,831 | | | 5,642 | |
Finance lease right-of-use assets | 3,573 | | | 3,353 | |
Construction in progress | 25,039 | | | 25,052 | |
Property and equipment, gross | 111,135 | | | 104,493 | |
Less: Accumulated depreciation | (26,979) | | | (24,975) | |
Property and equipment, net | $ | 84,156 | | | $ | 79,518 | |
Construction in progress includes costs mostly related to construction of data centers, network infrastructure, servers, and office facilities. As of March 31, 2023, construction in progress also includes $1.64 billion of servers and network assets components stored by our suppliers until required by our design manufacturers to fulfill certain purchase orders.
Depreciation expense on property and equipment was $2.48 billion and $2.12 billion for the three months ended March 31, 2023 and 2022, respectively. The majority of the property and equipment depreciation expense was from servers and network assets depreciation of $1.51 billion and $1.36 billion for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023, we capitalized $53 million of interest expense related to certain eligible construction in progress assets.
During the three months ended March 31, 2023, we recorded a $97 million impairment loss for leasehold improvements assets, as a part of our facilities consolidation restructuring efforts, see Note 3 — Restructuring.
Note 8. Leases
We have entered into various non-cancelable operating lease agreements mostly for certain of our offices, data centers, colocations, and land. We have also entered into various non-cancelable finance lease agreements for certain network infrastructure. Our leases have original lease periods expiring between the remainder of 2023 and 2093. Many leases include one or more options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.
The components of lease costs are as follows (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Finance lease cost: | | | | | | | |
Amortization of right-of-use assets | $ | 104 | | | $ | 98 | | | | | |
Interest | 5 | | | 4 | | | | | |
Operating lease cost | 557 | | | 411 | | | | | |
Variable lease cost and other, net | 124 | | | 90 | | | | | |
Total lease cost | $ | 790 | | | $ | 603 | | | | | |
During the three months ended March 31, 2023, we also recorded a $673 million impairment loss for operating lease right-of-use assets as a part of our facilities consolidation restructuring efforts. For additional information, see Note 3 — Restructuring.
Supplemental balance sheet information related to lease liabilities is as follows:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Weighted-average remaining lease term: | | | |
Finance leases | 14.3 years | | 14.4 years |
Operating leases | 12.2 years | | 12.5 years |
Weighted-average discount rate: | | | |
Finance leases | 3.2 | % | | 3.1 | % |
Operating leases | 3.3 | % | | 3.2 | % |
The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2023 (in millions):
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
The remainder of 2023 | $ | 1,362 | | | $ | 115 | |
2024 | 2,208 | | | 60 | |
2025 | 2,049 | | | 60 | |
2026 | 1,859 | | | 56 | |
2027 | 1,834 | | | 54 | |
Thereafter | 12,729 | | | 491 | |
Total undiscounted cash flows | 22,041 | | | 836 | |
Less: Imputed interest | (4,391) | | | (149) | |
Present value of lease liabilities (1) | $ | 17,650 | | | $ | 687 | |
| | | |
Lease liabilities, current | $ | 1,479 | | | $ | 114 | |
Lease liabilities, non-current | 16,171 | | | 573 | |
Present value of lease liabilities (1) | $ | 17,650 | | | $ | 687 | |
____________________________________(1) Lease liabilities include those operating leases that we plan to sublease or abandon as a part of our facilities consolidation restructuring efforts. For additional information, see Note 3 — Restructuring.
The table above does not include lease payments that were not fixed at commencement or lease modification. As of March 31, 2023, we have additional operating and finance leases, that have not yet commenced, with lease obligations of approximately $10.26 billion and $1.33 billion, respectively, for data centers, colocations, offices, and network infrastructure. These operating and finance leases will commence between the remainder of 2023 and 2028 with lease terms of greater than one year to 30 years.
Supplemental cash flow information related to leases is as follows (in millions):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases | $ | 478 | | | $ | 389 | |
Operating cash flows for finance leases | $ | 5 | | | $ | 4 | |
Financing cash flows for finance leases | $ | 264 | | | $ | 233 | |
Lease liabilities arising from obtaining right-of-use assets: | | | |
Operating leases | $ | 1,282 | | | $ | 539 | |
Finance leases | $ | 70 | | | $ | 52 | |
Note 9. Acquisitions, Goodwill, and Intangible Assets
During the three months ended March 31, 2023, we completed a business acquisition with total purchase consideration of $430 million in cash. Substantially all of the total consideration was allocated to $88 million of intangible assets and $343 million of goodwill. Goodwill generated from the business acquisition completed was primarily attributable to expected synergies and potential monetization opportunities. The amount of goodwill generated that was deductible for tax purposes was not material. Acquisition-related costs were immaterial and were expensed as incurred. Pro forma historical results of operations related to this business acquisition have not been presented because they are not significant to our condensed consolidated financial statements. We have included the financial results of this acquired business in our condensed consolidated financial statements from the date of acquisition.
Changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2023 are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Family of Apps | | Reality Labs | | Total |
Goodwill at December 31, 2022 | $ | 19,250 | | | $ | 1,056 | | | $ | 20,306 | |
Acquisitions | — | | | 343 | | | 343 | |
Goodwill at March 31, 2023 | $ | 19,250 | | | $ | 1,399 | | | $ | 20,649 | |
The following table sets forth the major categories of the intangible assets and their weighted‑average remaining useful lives (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 | | December 31, 2022 |
| Weighted-Average Remaining Useful Lives (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Acquired technology | 5.0 | | $ | 513 | | | $ | (154) | | | $ | 359 | | | $ | 507 | | | $ | (144) | | | $ | 363 | |
Acquired patents | 2.8 | | 365 | | | (284) | | | 81 | | | 380 | | | (289) | | | 91 | |
Other | 1.9 | | 60 | | | (25) | | | 35 | | | 86 | | | (25) | | | 61 | |
Total finite-lived assets | | | 938 | | | (463) | | | 475 | | | 973 | | | (458) | | | 515 | |
Total indefinite-lived assets | N/A | | 474 | | | — | | | 474 | | | 382 | | | — | | | 382 | |
Total intangible assets | | | $ | 1,412 | | | $ | (463) | | | $ | 949 | | | $ | 1,355 | | | $ | (458) | | | $ | 897 | |
Amortization expense of intangible assets was $47 million and $40 million for the three months ended March 31, 2023 and 2022, respectively.
As of March 31, 2023, expected amortization expense for the unamortized finite-lived intangible assets for the next five years and thereafter is as follows (in millions):
| | | | | |
The remainder of 2023 | $ | 132 | |
2024 | 132 | |
2025 | 86 | |
2026 | 41 | |
2027 | 24 | |
Thereafter | 60 | |
Total | $ | 475 | |
Note 10. Long-term Debt
In August 2022, we issued $10.0 billion of fixed-rate senior unsecured notes (the "Notes"). The following table summarizes the Notes and the carrying amount of our debt (in millions, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maturity | | Stated Interest Rate | | Effective Interest Rate | | March 31, 2023 | | December 31, 2022 |
2027 Notes | 2027 | | 3.50% | | 3.63% | | $ | 2,750 | | | $ | 2,750 | |
2032 Notes | 2032 | | 3.85% | | 3.92% | | 3,000 | | | 3,000 | |
2052 Notes | 2052 | | 4.45% | | 4.51% | | 2,750 | | | 2,750 | |
2062 Notes | 2062 | | 4.65% | | 4.71% | | 1,500 | | | 1,500 | |
Total face amount of long-term debt | | | | | | | 10,000 | | | 10,000 | |
Unamortized discount and issuance costs, net | | | | | | | (75) | | (77) |
Long-term debt | | | | | | | $ | 9,925 | | | $ | 9,923 | |
Each series of the Notes in the table above rank equally with each other. Interest on the Notes is payable semi-annually in arrears. We may redeem the Notes at any time, in whole or in part, at specified redemption prices. We are not subject to any financial covenants under the Notes. For the three months ended March 31, 2023, interest expense, net of capitalized interest, recognized on the debt was $49 million.
The total estimated fair value of our outstanding debt was $9.19 billion as of March 31, 2023. The fair value was determined based on the closing trading price per $100 of the Notes as of March 31, 2023 and is categorized accordingly as Level 2 in the fair value hierarchy.
As of March 31, 2023, future principal payments for the Notes, by year, are as follows (in millions):
| | | | | |
Remainder of 2023 through 2026 | $ | — | |
2027 | 2,750 | |
Thereafter | 7,250 | |
Total outstanding debt | $ | 10,000 | |
Note 11. Liabilities
The components of accrued expenses and other current liabilities are as follows (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Legal-related accruals (1) | $ | 5,474 | | | $ | 4,795 | |
Accrued compensation and benefits | 3,392 | | | 4,591 | |
Accrued property and equipment | 2,561 | | | 2,921 | |
Accrued taxes | 3,589 | | | 2,339 | |
Other current liabilities | 4,329 | | | 4,906 | |
Accrued expenses and other current liabilities | $ | 19,345 | | | $ | 19,552 | |
____________________________________(1)Includes accruals for estimated fines, settlements, or other losses in connection with legal and related matters, as well as other legal fees. For further information, see Legal and Related Matters in Note 12 — Commitments and Contingencies.
The components of other liabilities are as follows (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Income tax payable | $ | 6,946 | | | $ | 6,645 | |
| | | |
Other non-current liabilities | 1,273 | | | 1,119 | |
Other liabilities | $ | 8,219 | | | $ | 7,764 | |
Note 12. Commitments and Contingencies
Contractual Commitments
We have $17.48 billion of non-cancelable contractual commitments as of March 31, 2023, which are primarily related to our investments in network infrastructure, servers, and consumer hardware products in Reality Labs. The following is a schedule, by years, of non-cancelable contractual commitments as of March 31, 2023 (in millions):
| | | | | |
The remainder of 2023 | $ | 10,745 | |
2024 | 2,222 | |
2025 | 1,500 | |
2026 | 264 | |
2027 | 210 | |
Thereafter | 2,536 | |
Total | $ | 17,477 | |
Additionally, as part of the normal course of business, we have entered into multi-year agreements to purchase renewable energy that do not specify a fixed or minimum volume commitment or to purchase certain server components that do not specify a fixed or minimum price commitment. We enter into these agreements in order to secure either volume or price. Using the projected market prices or expected volume consumption, the total estimated spend as of March 31, 2023 is approximately $12.22 billion, a majority of which is due beyond five years. The ultimate spend under these agreements may vary and will be based on prevailing market prices or actual volume purchased.
Legal and Related Matters
With respect to the cases, actions, and inquiries described below, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. In addition, we believe there is a reasonable possibility that we may incur a loss in some of these matters. With respect to the matters
described below that do not include an estimate of the amount of loss or range of possible loss, such losses or range of possible losses either cannot be estimated or are not individually material, but we believe there is a reasonable possibility that they may be material in the aggregate.
We are also party to various other legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. Additionally, we are required to comply with various legal and regulatory obligations around the world. The requirements for complying with these obligations may be uncertain and subject to interpretation and enforcement by regulatory and other authorities, and any failure to comply with such obligations could eventually lead to asserted legal or regulatory action. With respect to these other legal proceedings, claims, regulatory, tax, or government inquiries and investigations, and other matters, asserted and unasserted, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. In addition, we believe there is a reasonable possibility that we may incur a loss in some of these other matters. We believe that the amount of losses or any estimable range of possible losses with respect to these other matters will not, either individually or in the aggregate, have a material adverse effect on our business and condensed consolidated financial statements.
The ultimate outcome of the legal and related matters described in this section, such as whether the likelihood of loss is remote, reasonably possible, or probable, or if and when the reasonably possible range of loss is estimable, is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's estimates of loss, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.
For information regarding income tax contingencies, see Note 14 — Income Taxes.
Privacy and Related Matters
Beginning on March 20, 2018, multiple putative class actions were filed in state and federal courts in the United States and elsewhere against us and certain of our directors and officers alleging various causes of action in connection with our platform and user data practices as well as the misuse of certain data by a developer that shared such data with third parties in violation of our terms and policies, and seeking unspecified damages and injunctive relief. With respect to the putative class actions alleging fraud and violations of consumer protection, privacy, and other laws in connection with the same matters, several of the cases brought on behalf of consumers in the United States were consolidated in the U.S. District Court for the Northern District of California. On September 9, 2019, the court granted, in part, and denied, in part, our motion to dismiss the consolidated putative consumer class action. On December 22, 2022, the parties entered into a settlement agreement to resolve the lawsuit, which provides for a payment of $725 million by us and is subject to court approval. In addition, our platform and user data practices, as well as the events surrounding the misuse of certain data by a developer, became the subject of U.S. Federal Trade Commission (FTC), state attorneys general, and other government inquiries in the United States, Europe, and other jurisdictions. We entered into a settlement and modified consent order to resolve the FTC inquiry, which took effect in April 2020. Among other matters, our settlement with the FTC required us to pay a penalty of $5.0 billion which was paid in April 2020 upon the effectiveness of the modified consent order. The state attorneys general inquiry and certain government inquiries in other jurisdictions remain ongoing. On July 16, 2021, a stockholder derivative action was filed in Delaware Chancery Court against certain of our directors and officers asserting breach of fiduciary duty and related claims relating to our historical platform and user data practices, as well as our settlement with the FTC. On July 20, 2021, other stockholders filed an amended derivative complaint in a related Delaware Chancery Court action, asserting breach of fiduciary duty and related claims against certain of our current and former directors and officers in connection with our historical platform and user data practices. On November 4, 2021, the lead plaintiffs filed a second amended and consolidated complaint in the stockholder derivative action. We believe the lawsuits described above are without merit, and we are vigorously defending them.
We also notify the Irish Data Protection Commission (IDPC), our lead European Union privacy regulator under the General Data Protection Regulation (GDPR), of certain other personal data breaches and privacy issues, and are subject to inquiries and investigations by the IDPC and other European regulators regarding various aspects of our regulatory compliance. For example, we are currently subject to an IDPC inquiry regarding Meta Platforms Ireland's ability to transfer European Economic Area Facebook user data to the United States, which is described further in "Legal Proceedings" contained in Part II, Item 1 of this Quarterly Report on Form 10-Q. The interpretation of the GDPR is still evolving and draft decisions in investigations by the IDPC are subject to review by other European privacy regulators as part of the GDPR's
cooperation and consistency mechanisms, which may lead to significant changes in the final outcome of such investigations. As a result, the interpretation and enforcement of the GDPR, as well as the imposition and amount of penalties for non-compliance, are subject to significant uncertainty. Although we are vigorously defending our regulatory compliance, we have accrued significant amounts for loss contingencies related to these inquiries and investigations in Europe, and we believe there is a reasonable possibility that additional accruals for losses related to these matters could be material individually or in the aggregate.
On February 14, 2022, the State of Texas filed a lawsuit against us in Texas state court alleging that "tag suggestions" and other uses of facial recognition technology violated the Texas Capture or Use of Biometric Identifiers Act and the Texas Deceptive Trade Practices-Consumer Protection Act, and seeking statutory damages and injunctive relief. The case is currently scheduled for trial in January 2024. We believe this lawsuit is without merit, and we are vigorously defending it.
Beginning on June 7, 2021, multiple putative class actions were filed against us alleging that we improperly received individuals' information from third-party websites or apps via our business tools in violation of our terms and various state and federal laws and seeking unspecified damages and injunctive relief. We believe these lawsuits are without merit, and we are vigorously defending them.
Competition
We are subject to various litigation and government inquiries and investigations, formal or informal, by competition authorities in the United States, Europe, and other jurisdictions. Such investigations, inquiries, and lawsuits concern, among other things, our business practices in the areas of social networking or social media services, digital advertising, and/or mobile or online applications, as well as our acquisitions. For example, in June 2019 we were informed by the FTC that it had opened an antitrust investigation of our company. On December 9, 2020, the FTC filed a complaint against us in the U.S. District Court for the District of Columbia alleging that we engaged in anticompetitive conduct and unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act and Section 2 of the Sherman Act, including by acquiring Instagram in 2012 and WhatsApp in 2014 and by maintaining conditions on access to our platform. In addition, beginning in the third quarter of 2019, we became the subject of antitrust investigations by the U.S. Department of Justice and state attorneys general. On December 9, 2020, the attorneys general from 46 states, the territory of Guam, and the District of Columbia filed a complaint against us in the U.S. District Court for the District of Columbia alleging that we engaged in anticompetitive conduct in violation of Section 2 of the Sherman Act, including by acquiring Instagram in 2012 and WhatsApp in 2014 and by maintaining conditions on access to our platform. The complaint also alleged that we violated Section 7 of the Clayton Act by acquiring Instagram and WhatsApp. The complaints of the FTC and attorneys general both sought a permanent injunction against our company's alleged violations of the antitrust laws, and other equitable relief, including divestiture or reconstruction of Instagram and WhatsApp. On June 28, 2021, the court granted our motions to dismiss the complaints filed by the FTC and attorneys general, dismissing the FTC's complaint with leave to amend and dismissing the attorneys general's case without prejudice. On July 28, 2021, the attorneys general filed a notice of appeal of the order dismissing their case and that appeal is now pending before the U.S. Court of Appeals for the District of Columbia Circuit. On August 19, 2021, the FTC filed an amended complaint, and on October 4, 2021, we filed a motion to dismiss this amended complaint. On January 11, 2022, the court denied our motion to dismiss the FTC's amended complaint. Multiple putative class actions have also been filed in state and federal courts in the United States and in the United Kingdom against us alleging violations of antitrust laws and other causes of action in connection with these acquisitions and/or other alleged anticompetitive conduct, and seeking damages and injunctive relief. Several of the cases brought on behalf of certain advertisers and users in the United States were consolidated in the U.S. District Court for the Northern District of California. On January 14, 2022, the court granted, in part, and denied, in part, our motion to dismiss the consolidated actions. On March 1, 2022, a first amended consolidated complaint was filed in the putative class action brought on behalf of certain advertisers. On December 6, 2022, the court denied our motion to dismiss the first amended consolidated complaint filed in the putative class action brought on behalf of certain advertisers. We believe these lawsuits are without merit, and we are vigorously defending them. In December 2022, the European Commission issued a Statement of Objections alleging that we tie Facebook Marketplace to Facebook and use data in a manner that infringes European Union competition rules.
Securities and Other Actions
Beginning on March 20, 2018, multiple putative class actions and derivative actions were filed in state and federal courts in the United States and elsewhere against us and certain of our directors and officers alleging violations of securities
laws, breach of fiduciary duties, and other causes of action in connection with our platform and user data practices as well as the misuse of certain data by a developer that shared such data with third parties in violation of our terms and policies, and seeking unspecified damages and injunctive relief. Beginning on July 27, 2018, two putative class actions were filed in federal court in the United States against us and certain of our directors and officers alleging violations of securities laws in connection with the disclosure of our earnings results for the second quarter of 2018 and seeking unspecified damages. These two actions subsequently were transferred and consolidated in the U.S. District Court for the Northern District of California with the putative securities class action described above relating to our platform and user data practices. In a series of orders in 2019 and 2020, the district court granted our motions to dismiss the plaintiffs' claims. On January 17, 2022, the plaintiffs filed a notice of appeal of the order dismissing their case, and the appeal is now pending before the U.S. Court of Appeals for the Ninth Circuit. We believe the lawsuits described above are without merit, and we are vigorously defending them.
Beginning on August 15, 2018, multiple putative class actions were filed against us alleging that we inflated our estimates of the potential audience size for advertisements, resulting in artificially increased demand and higher prices. The cases were consolidated in the U.S. District Court for the Northern District of California and seek unspecified damages and injunctive relief. In a series of rulings in 2019, 2021, and 2022, the court dismissed certain of the plaintiffs' claims, but permitted their fraud and unfair competition claims to proceed. On March 29, 2022, the court granted the plaintiffs' motion for class certification. On June 21, 2022, the U.S. Court of Appeals for the Ninth Circuit granted our petition for permission to appeal the district court's class certification order, and the district court subsequently stayed the case. We believe this lawsuit is without merit, and we are vigorously defending it.
We are also subject to other government inquiries and investigations relating to our business activities and disclosure practices. For example, beginning in September 2021, we became subject to government investigations and requests relating to a former employee's allegations and release of internal company documents concerning, among other things, our algorithms, advertising and user metrics, and content enforcement practices, as well as misinformation and other undesirable activity on our platform, and user well-being. We have since received additional requests relating to these and other topics. Beginning on October 27, 2021, multiple putative class actions and derivative actions were filed in the U.S. District Court for the Northern District of California against us and certain of our directors and officers alleging violations of securities laws, breach of fiduciary duties, and other causes of action in connection with the same matters, and seeking unspecified damages. We believe these lawsuits are without merit, and we are vigorously defending them.
Beginning in January 2022, we became subject to litigation and other proceedings that were filed in various federal and state courts alleging that Facebook and Instagram cause "social media addiction" in teenage users, resulting in various mental health and other harms. A putative class action was also filed in U.S. state court on behalf of users under the age of 13, several class actions have been filed in Canada on behalf of Canadian users, and multiple school districts and one state in the U.S. have filed public nuisance claims based on similar allegations. On October 6, 2022, the federal cases were consolidated in the U.S. District Court for the Northern District of California. The California state court proceedings are now pending before a trial judge from Los Angeles County Superior Court. We believe these lawsuits are without merit, and we are vigorously defending them. We are also subject to government investigations and requests from multiple regulators concerning the use of our products, and the related mental and physical health and safety impacts on teenage users.
On March 8, 2022, a putative class action was filed in the U.S. District Court for the Northern District of California against us and certain of our directors and officers alleging violations of securities laws in connection with the disclosure of our earnings results for the fourth quarter of 2021 and seeking unspecified damages. We believe this lawsuit is without merit, and we are vigorously defending it.
In addition, we are subject to litigation and other proceedings involving law enforcement and other regulatory agencies, including in particular in Brazil, Russia, and other countries in Europe, in order to ascertain the precise scope of our legal obligations to comply with the requests of those agencies, including our obligation to disclose user information in particular circumstances. A number of such instances have resulted in the assessment of fines and penalties against us. We believe we have multiple legal grounds to satisfy these requests or prevail against associated fines and penalties, and we intend to vigorously defend such fines and penalties.
Note 13. Stockholders' Equity
Share Repurchase Program
Our board of directors has authorized a share repurchase program of our Class A common stock, which commenced in January 2017 and does not have an expiration date. As of December 31, 2022, $10.87 billion remained available and authorized for repurchases under this program. In January 2023, an additional $40 billion of repurchases was authorized under this program. During the three months ended March 31, 2023, we repurchased and subsequently retired 56 million shares of our Class A common stock for an aggregate amount of $9.22 billion, including $77 million related to the 1% excise tax on net share repurchases as a result of the Inflation Reduction Act of 2022. As of March 31, 2023, $41.73 billion remained available and authorized for repurchases.
The timing and actual number of shares repurchased under the repurchase program depend on a variety of factors, including price, general business and market conditions, and other investment opportunities. Shares may be repurchased through open market purchases or privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
Share-based Compensation Plan
We have one active share-based employee compensation plan, the 2012 Equity Incentive Plan (Amended 2012 Plan), which was amended in each of June 2016, February 2018, and December 2022. Our Amended 2012 Plan provides for the issuance of incentive and nonqualified stock options, restricted stock awards, stock appreciation rights, RSUs, performance shares, and stock bonuses to qualified employees, directors, and consultants. Shares that are withheld in connection with the net settlement of RSUs or forfeited are added to the reserves of the Amended 2012 Plan.
Pursuant to the automatic increase provision under our Amended 2012 Plan, the number of shares reserved for issuance increases automatically on January 1 of each of the calendar years during the term of the Amended 2012 Plan, which will continue through April 2026, by a number of shares of Class A common stock equal to the lesser of (i) 2.5% of the total issued and outstanding shares of our Class A common stock as of the immediately preceding December 31st or (ii) a number of shares determined by our board of directors. Pursuant to this automatic increase provision, our board of directors approved an increase of 56 million shares of Class A common stock reserved for issuance, effective January 1, 2023.
In December 2022, our board of directors approved an amendment to our Amended 2012 Plan to increase the number of shares reserved for issuance under the Amended 2012 Plan by 425 million shares, effective March 1, 2023 (Plan Amendment). The Plan Amendment was also approved by holders of a majority of the voting power of our outstanding capital stock in December 2022. As of March 31, 2023, there were 458 million shares of our Class A common stock reserved for future issuance under our Amended 2012 Plan.
The following table summarizes our share-based compensation expense, which consists of the company's RSU expense, by line item in our condensed consolidated statements of income (in millions):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Cost of revenue | $ | 160 | | | $ | 160 | |
Research and development | 2,449 | | | 1,941 | |
Marketing and sales | 219 | | | 216 | |
General and administrative | 223 | | | 181 | |
Total share-based compensation expense | $ | 3,051 | | | $ | 2,498 | |
The following table summarizes the activities for our unvested RSUs for the three months ended March 31, 2023:
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average Grant Date Fair Value Per Share |
| (in thousands) | | |
Unvested at December 31, 2022 | 127,110 | | | $ | 216.93 | |
Granted | 105,156 | | | $ | 196.27 | |
Vested | (13,612) | | | $ | 211.80 | |
Forfeited | (3,262) | | | $ | 229.43 | |
Unvested at March 31, 2023 | 215,392 | | | $ | 206.98 | |
The fair value as of the respective vesting dates of RSUs that vested during the three months ended March 31, 2023 and 2022 was $2.44 billion and $2.43 billion, respectively. The income tax benefit recognized related to awards vested during the three months ended March 31, 2023 and 2022 was $519 million and $514 million, respectively.
As of March 31, 2023, there was $42.84 billion of unrecognized share-based compensation expense related to RSU awards. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately three years based on vesting under the award service conditions. As a result of the 2023 Restructuring related to employees notified in April 2023, approximately 8 million of unvested RSUs as of March 31, 2023, are expected to be forfeited, and $1.57 billion of unrecognized share-based compensation expense related to these RSUs awards is not expected to be recognized.
Note 14. Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, we update the estimated annual effective tax rate and make a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to significant volatility due to several factors, including our ability to accurately predict the proportion of our income (loss) before provision for income taxes in multiple jurisdictions, the U.S. tax benefits from foreign derived intangible income, the effects of tax law changes, the effects of acquisitions, and the integration of those acquisitions.
Our gross unrecognized tax benefits were $10.93 billion and $10.76 billion on March 31, 2023 and December 31, 2022, respectively. These unrecognized tax benefits were primarily accrued for the uncertainties related to transfer pricing with our foreign subsidiaries, which include licensing of intellectual property, providing services and other transactions, as well as for uncertainties with our research tax credits. If the gross unrecognized tax benefits as of March 31, 2023 were realized in a future period, this would result in a tax benefit of $6.62 billion within our provision for income taxes at such time. The amount of interest and penalties accrued was $1.18 billion and $1.07 billion as of March 31, 2023 and December 31, 2022, respectively. We expect to continue to accrue unrecognized tax benefits for certain recurring tax positions.
We are subject to taxation in the United States and various other state and foreign jurisdictions. The material jurisdictions in which we are subject to potential examination include the United States and Ireland. We are under examination by the Internal Revenue Service (IRS) for our 2014 through 2019 tax years. Our 2020 and subsequent tax years remain open to examination by the IRS and the Irish Revenue Commissioners.
In July 2016, we received a Statutory Notice of Deficiency (Notice) from the IRS related to transfer pricing with our foreign subsidiaries in conjunction with the examination of the 2010 tax year. While the Notice applies only to the 2010 tax year, the IRS stated that it will also apply its position for tax years subsequent to 2010 and has done so in years covered by the second Notice described below. We do not agree with the position of the IRS and have filed a petition in the Tax Court challenging the Notice. On January 15, 2020, the IRS's amendment to answer was filed stating that it planned to assert at trial an adjustment that is higher than the adjustment stated in the Notice. The first session of the trial was completed in March 2020 and the final trial session was completed in August 2022. We expect the Tax Court to issue an opinion in 2024. Based
on the information provided, we believe that, if the IRS prevails in its updated position, this could result in an additional federal tax liability of an estimated, aggregate amount of up to approximately $9.0 billion in excess of the amounts in our originally filed U.S. return, plus interest and any penalties asserted.
In March 2018, we received a second Notice from the IRS in conjunction with the examination of our 2011 through 2013 tax years. The IRS applied its position from the 2010 tax year to each of these years and also proposed new adjustments related to other transfer pricing with our foreign subsidiaries and certain tax credits that we claimed. If the IRS prevails in its position for these new adjustments, this could result in an additional federal tax liability of up to approximately $680 million in excess of the amounts in our originally filed U.S. returns, plus interest and any penalties asserted. We do not agree with the positions of the IRS in the second Notice and have filed a petition in the Tax Court challenging the second Notice.
We have previously accrued an estimated unrecognized tax benefit consistent with the guidance in ASC 740, Income Taxes (ASC 740), that is lower than the potential additional federal tax liability from the positions taken by the IRS in the two Notices and its Pretrial Memorandum. In addition, if the IRS prevails in its positions related to transfer pricing with our foreign subsidiaries, the additional tax that we would owe would be partially offset by a reduction in the tax that we owe under the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act. As of March 31, 2023, we have not resolved these matters and proceedings continue in the Tax Court.
We believe that adequate amounts have been reserved in accordance with ASC 740 for any adjustments to the provision for income taxes or other tax items that may ultimately result from these examinations. The timing of the resolution, settlement, and closure of any audits is highly uncertain, and it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. Given the number of years remaining that are subject to examination, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. If the tax authorities prevail in the assessment of additional tax due, the assessed tax, interest, and penalties, if any, could have a material adverse impact on our financial position, results of operations, and cash flows.
Note 15. Segment and Geographical Information
We report our financial results for our two reportable segments: Family of Apps (FoA) and Reality Labs (RL). FoA includes Facebook, Instagram, Messenger, WhatsApp, and other services. RL includes augmented and virtual reality related consumer hardware, software, and content. Our operating segments are the same as our reportable segments.
Revenue and costs and expenses are generally directly attributed to our segments. These costs and expenses include certain product development related operating expenses, costs associated with partnership arrangements, consumer hardware product costs, content costs, and legal-related costs. Indirect costs are allocated to segments based on a reasonable allocation methodology, when such costs are significant to the performance measures of the operating segments. Indirect cost of revenue is allocated to our segments based on usage, such as costs related to the operation of our data centers and technical infrastructure. Indirect operating expenses, such as facilities, information technology, certain shared research and development activities, recruiting, and physical security expenses, are mostly allocated based on headcount.
The following table sets forth our segment information of revenue and income (loss) from operations (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Revenue: | | | | | | | |
Family of Apps | $ | 28,306 | | | $ | 27,213 | | | | | |
Reality Labs | 339 | | | 695 | | | | | |
Total revenue | $ | 28,645 | | | $ | 27,908 | | | | | |
| | | | | | | |
Income (loss) from operations: | | | | | | | |
Family of Apps | $ | 11,219 | | | $ | 11,484 | | | | | |
Reality Labs | (3,992) | | | (2,960) | | | | | |
Total income from operations | $ | 7,227 | | | $ | 8,524 | | | | | |
For information regarding revenue disaggregated by geography, see Note 2 — Revenue.
The following table sets forth our long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
United States | $ | 80,214 | | | $ | 76,334 | |
Rest of the world (1) | 16,841 | | | 15,857 | |
Total long-lived assets | $ | 97,055 | | | $ | 92,191 | |
____________________________________(1) No individual country, other than disclosed above, exceeded 10% of our total long-lived assets for any period presented.