6 ms·

Facebook's Sheryl Sandberg told CNBC's Julia Boorstin that she was "disappointed in certain elements of the decision." Sandberg added she was "considering our o

Facebook's Sheryl Sandberg told CNBC's Julia Boorstin that she was "disappointed in certain elements of the decision." Sandberg added she was "considering our options to appeal," and the verdict was "not material to our financials." Sure, FB has a lot of money. But still -- $500M is "not material" to their finances?

hkmurakami 10y ago
Related: I believe you can take offset such a settlement from profits to reduce taxes. Never really understood the rationale for this. Seems pretty arbitrary and another example of how corporations are often favored over humans.
- deleted 10y ago
  [deleted]
- advisedwang 10y ago
  Imagine if you earned $1000 from activity X, paying $200 tax on it. Later X is found to be illegitimate and you have to pay $1000 damages and $500 punitive damages. Except because of the tax you have net lost $700 rather than the $500 punitive damages. Put in another term, it would be like paying tax on money you never had.
- kgwgk 10y ago
  What's to understand? When a company pays your salary or the rent for your office that also means less profit and therefore less taxes. But probably the company would be glad to pay less in salaries and rents even if that meant paying higher taxes.
TAForObvReasons 10y ago
The company may have already reserved 500M for a potential resolution and took the hit in a previous quarter. This is typical of many companies, which is why you sometimes see stock prices rise after a legal settlement that comes in much lower than anticipated. For example, suppose they set aside 1B legal reserve for this case. That hit was already taken. Now they would reclaim 500M of that, which would be accretive.
- xadhominemx 10y ago
  That's not what "material" means. The reserve is non-cash.
- deleted 10y ago
  [deleted]
gamblor956 10y ago
There was a likely an indemnification clause in the acquisition agreement that indemnifies Facebook for this, meaning that the cost of this settlement comes out of Oculus and/or its former shareholders. (Alternatively they could have a clause that reduces earn-out payments or other contingent consideration.) Consequently, the verdict would not be material to Facebook.
elastic_church 10y ago
> But still -- $500M is "not material" to their finances? You just issue a few billion dollars worth of bonds in Europe, and all the investors are excited about getting exposure to a Silicon Valley company. Don't have to pay them back for 10-30 years. So, basically not material.
jonknee 10y ago
It's not material because they have the cash and it will not harm future cash flow. They also don't have to pay it all, Facebook is on the hook for $300m and the rest is from Luckey and Iribe. Facebook just announced earnings this afternoon and banked $3.568b in profit for the quarter. That's 12x they'll pay even without any insurance. They have $29.45b in the bank so this is a 1% hit at worst, so as Sandberg said: not material to their finances. On top of that, as others have said they probably have already reserved the resources.
- jclarkcom 10y ago
  Most acquisitions will set aside 10-20% or more of funds into escrow to cover litigation and tax issues that occur, this isn't released for ~4 years after close (stat of limitations on tax returns). So chances are that FB is not paying much if any of the settlement amount and they don't have a big incentive to fight other than not setting a precedent of being easy to sue and win.

hkmurakami 10y ago

Related: I believe you can take offset such a settlement from profits to reduce taxes. Never really understood the rationale for this. Seems pretty arbitrary and another example of how corporations are often favored over humans.

deleted 10y ago
[deleted]
advisedwang 10y ago
Imagine if you earned $1000 from activity X, paying $200 tax on it. Later X is found to be illegitimate and you have to pay $1000 damages and $500 punitive damages. Except because of the tax you have net lost $700 rather than the $500 punitive damages. Put in another term, it would be like paying tax on money you never had.
kgwgk 10y ago
What's to understand? When a company pays your salary or the rent for your office that also means less profit and therefore less taxes. But probably the company would be glad to pay less in salaries and rents even if that meant paying higher taxes.

TAForObvReasons 10y ago

The company may have already reserved 500M for a potential resolution and took the hit in a previous quarter. This is typical of many companies, which is why you sometimes see stock prices rise after a legal settlement that comes in much lower than anticipated. For example, suppose they set aside 1B legal reserve for this case. That hit was already taken. Now they would reclaim 500M of that, which would be accretive.

xadhominemx 10y ago
That's not what "material" means. The reserve is non-cash.
deleted 10y ago
[deleted]

gamblor956 10y ago

There was a likely an indemnification clause in the acquisition agreement that indemnifies Facebook for this, meaning that the cost of this settlement comes out of Oculus and/or its former shareholders. (Alternatively they could have a clause that reduces earn-out payments or other contingent consideration.) Consequently, the verdict would not be material to Facebook.

elastic_church 10y ago

> But still -- $500M is "not material" to their finances? You just issue a few billion dollars worth of bonds in Europe, and all the investors are excited about getting exposure to a Silicon Valley company. Don't have to pay them back for 10-30 years. So, basically not material.

jonknee 10y ago

It's not material because they have the cash and it will not harm future cash flow. They also don't have to pay it all, Facebook is on the hook for $300m and the rest is from Luckey and Iribe. Facebook just announced earnings this afternoon and banked $3.568b in profit for the quarter. That's 12x they'll pay even without any insurance. They have $29.45b in the bank so this is a 1% hit at worst, so as Sandberg said: not material to their finances. On top of that, as others have said they probably have already reserved the resources.

jclarkcom 10y ago
Most acquisitions will set aside 10-20% or more of funds into escrow to cover litigation and tax issues that occur, this isn't released for ~4 years after close (stat of limitations on tax returns). So chances are that FB is not paying much if any of the settlement amount and they don't have a big incentive to fight other than not setting a precedent of being easy to sue and win.