Zynga 2011 Annual Report Download - page 72

Table of Contents
calculate using the simplified method; (iii) expected dividend yield, which is 0%, as we have not paid and do not anticipate paying dividends on
our common stock; and (iv) the risk-free interest rate, which is based on the U.S. Treasury yield curve in effect at the time of grant with
maturities equal to the grant’s expected life. Option grants generally vest over four years, with 25% vesting after one year and the remainder
vesting monthly thereafter over 36 months. The options have a contractual term of 10 years.
Stock-based compensation expense is recorded net of estimated forfeitures so that expense is recorded for only those stock-based awards
that we expect to vest. We estimate forfeitures based on our historical forfeiture of equity awards adjusted to reflect future changes in facts and
circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates. We record stock-based
compensation expense for stock options on a straight-line basis over the vesting term.
For stock options issued to non-employees, including consultants, we record expense related to stock options equal to the fair value of the
options calculated using the Black-Scholes model over the service performance period. The fair value of options granted to non-employees is
remeasured over the vesting period and recognized as an expense over the period the services are received.
Income Taxes
We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements
or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future
changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits
that are not expected to be realized based on available evidence. We account for uncertain tax positions by reporting a liability for unrecognized
tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any,
related to unrecognized tax benefits in income tax expense.
Foreign Currency Transactions
Generally, the functional currency of our international subsidiaries is the U.S. dollar. For these subsidiaries, foreign currency denominated
monetary assets and liabilities are remeasured into U.S. dollars at current exchange rates and foreign currency denominated nonmonetary assets
and liabilities are remeasured into U.S. dollars at historical exchange rates. Gains or losses from foreign currency remeasurement are included in
other income (expense), net in the consolidated statements of operations. For foreign subsidiaries where the functional currency is the local
currency, we use the period-end exchange rates to translate assets and liabilities, and the average exchange rates to translate revenues and
expenses into U.S. dollars. We record translation gains and losses in accumulated other comprehensive income (loss) as a component of
stockholders’ equity.
Concentration of Credit Risk and Significant Customers
Financial instruments, which potentially expose us to concentrations of credit risk, consist primarily of cash and cash equivalents, short-
term marketable securities, and accounts receivable. Substantially all of our cash, cash equivalents, and short-term marketable securities are
maintained with three financial institutions with high credit standings. We perform periodic evaluations of the relative credit standing of these
institutions.
Accounts receivable are unsecured and represent amounts due to us based on contractual obligations where a signed and executed contract
or click-through agreement exists. In cases where we are aware of circumstances that may impair a specific customer’s ability to meet its
financial obligations, we record a specific allowance as a reduction to the accounts receivable balance to reduce it to its net realizable value.
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