Zynga 2011 Annual Report Download - page 53

Table of Contents
Contractual Obligations
We have entered into operating leases for facilities space. In 2010, we executed an operating lease agreement for 267,000 square feet of
office space for our future headquarters in San Francisco, California, which we expanded to 407,000 square feet in 2011. The lease term is seven
years from the defined commencement date, with options to renew for two five
-year terms. In addition, we have entered into several service
contracts for web hosting services. The minimum lease payments and the future minimum purchase commitments as of December 31, 2011 are
included in the table below. We do not have any debt or material capital lease obligations, and all of our property, equipment and software has
been purchased with cash. This table excludes our unrecognized tax benefits totaling $19.5 million as of December 31. 2011 since we have
determined that the timing of payments with respect to this liability cannot be reasonably estimated.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 1 to our
consolidated financial statements included in this Annual Report on Form 10-K. We have identified below our critical accounting policies and
estimates that we believe require the greatest amount of judgment. These estimates and judgments have a significant impact on our consolidated
financial statements. Actual results could differ materially from those estimates.
Revenue Recognition
We derive revenue from the sale of virtual goods and from the sale of advertising within our games.
Online game
We operate our games as live services that allow players to play for free. Within these games, players can purchase virtual currency to
obtain virtual goods to enhance their game-playing experience. Players can primarily pay for our virtual currency using Facebook Credits when
playing our games through the Facebook platform, and can use other payment methods such as credit cards or PayPal on other platforms. We
also sell game cards that are initially recorded as a customer deposit liability which is included in other current liabilities on the consolidated
balance sheet, net of fees retained by retailers and distributors. Upon redemption of a game card into one of our games and delivery of virtual
currency to the player, these amounts are reclassified to deferred revenue.
We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service
has been provided to the player; (3) the collection of our fees is reasonably assured; and (4) the amount of fees to be paid by the customer is
fixed or determinable. For purposes of determining when the service has been provided to the player, we have determined that an implied
obligation exists to the paying player to continue displaying the purchased virtual goods within the online game over their estimated life or until
they are consumed. The proceeds from the sales of virtual goods are initially recorded in deferred revenue. We categorize our virtual goods as
either consumable or durable. Consumable virtual goods, such as energy in CityVille , represent goods that can be consumed by a specific player
action. Common
49
Payments Due by Period
Total
Less than
1 year
1 -3
years
4-5
years
More than
5 years
(in millions)
Operating lease obligations
$
257.3
$
31.1
$
77.4
$
73.6
$
75.2
Purchase commitments
11.2
9.3
1.9
—
—
Total
$
268.5
$
40.4
$
79.3
$
73.6
$
75.2