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Facebook Inc. (FB)
Analysis of Operating Leases
Difficulty: Advanced
An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee statement of financial position, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.
Operating Leases Accounting Policy
Facebook enters into lease arrangements for office space, land, facilities, data centers, and equipment under non-cancelable capital and operating leases. Certain of the operating lease agreements contain rent holidays, rent escalation provisions, and purchase options. Rent holidays and rent escalation provisions are considered in determining the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. Facebook does not assume renewals in the determination of the lease term unless the renewals are deemed to be reasonably assured at lease inception.
Facebook records assets and liabilities for the estimated construction costs incurred by third parties under build-to-suit lease arrangements to the extent that Facebook is involved in the construction of structural improvements or bear construction risk prior to commencement of a lease. As of December 31, 2018, Facebook completed the build-to-suit lease arrangements and properly derecognized the associated assets on the consolidated balance sheet.
Source: 10-K (filing date: 2019-01-31).
Present Value of Future Operating Lease Payments (before Adoption of FASB Topic 842)
Facebook Inc., future operating lease payments (before adoption of FASB Topic 842)
US$ in millions
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Total undiscounted future operating lease payments | |
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| Discount rate1 | |
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| Total present value of future operating lease payments | |
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Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
1 Internal rate of return on capital leases
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 | |
2021 | |
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| 2022 | |
2022 | |
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| 2023 | |
2023 | |
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| 2024 and thereafter | |
2024 | |
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| 2025 | |
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| 2026 | |
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| 2027 | |
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| 2028 | |
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| 2029 | |
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| 2030 | |
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| 2031 | |
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| 2032 | |
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| 2033 | |
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| Total: | |
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Based on: 10-K (filing date: 2019-01-31).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2018 | |
2018 | |
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| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 | |
2021 | |
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| 2022 | |
2022 | |
|
| 2023 and thereafter | |
2023 | |
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| 2024 | |
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| 2025 | |
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| 2026 | |
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| 2027 | |
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| 2028 | |
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| Total: | |
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Based on: 10-K (filing date: 2018-02-01).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2017 | |
2017 | |
|
| 2018 | |
2018 | |
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| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 | |
2021 | |
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| 2022 and thereafter | |
2022 | |
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| 2023 | |
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| 2024 | |
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| 2025 | |
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| Total: | |
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Based on: 10-K (filing date: 2017-02-03).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2016 | |
2016 | |
|
| 2017 | |
2017 | |
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| 2018 | |
2018 | |
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| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 and thereafter | |
2021 | |
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| 2022 | |
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| 2023 | |
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| Total: | |
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Based on: 10-K (filing date: 2016-01-28).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2015 | |
2015 | |
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| 2016 | |
2016 | |
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| 2017 | |
2017 | |
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| 2018 | |
2018 | |
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| 2019 | |
2019 | |
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| 2020 and thereafter | |
2020 | |
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| 2021 | |
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| 2022 | |
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| Total: | |
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Based on: 10-K (filing date: 2015-01-29).
Analyst Adjustments for Operating Leases
Facebook Inc., adjustments to financial data
US$ in millions
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
1, 2 Equal to total present value of future operating lease payments.
Facebook Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios for Operating Leases (Summary)
Facebook Inc., adjusted ratios
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Facebook Inc.’s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018. |
| Adjusted debt-to-equity | A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. | Facebook Inc.’s adjusted debt-to-equity deteriorated from 2016 to 2017 and from 2017 to 2018. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Facebook Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018. |
Facebook Inc., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 Total asset turnover = Revenue ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Facebook Inc.’s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Debt to Equity
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 Debt to equity = Total debt ÷ Stockholders’ equity
= ÷ =
2 Adjusted debt to equity = Adjusted total debt ÷ Stockholders’ equity
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted debt-to-equity | A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. | Facebook Inc.’s adjusted debt-to-equity deteriorated from 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Facebook Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018. |