Zynga 2012 Annual Report Download

Download and view the complete annual report

Please find the complete 2012 Zynga annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 122

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122

Table of contents

  • Page 1

  • Page 2

  • Page 3
    ... building. As of Q4, we engaged more than 290 million monthly average players (72 million of them on mobile). And we had three robust game franchises: FarmVille, Zynga Poker and Words With Friends. FarmVille alone surpassed $1B in total cumulative player purchases, inclusive of partner fees, in 2012...

  • Page 4
    harbor latent desires to be word mavens, organic farmers, chess masters and guild kingpins-or who just need a way to be a little more social with family and friends in our busy lives. We feel challenged and inspired by the year ahead. Game on. Mark Pincus Founder and CEO April 25, 2013

  • Page 5
    ... the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price on The NASDAQ Global Select Market reported for such date. As of February 15, 2013, there were 598,057,857 shares of the registrant's Class A common stock outstanding, 166,918...

  • Page 6

  • Page 7
    ... of Zynga. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders. References in this report to "DAUs" mean daily active users of our games, "MAUs" mean monthly active users of our games, "MUUs" mean monthly unique users of...

  • Page 8
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 9
    ..., including data centers; successfully acquiring and integrating companies and assets. our use of working capital in general; maintaining a technology infrastructure that can efficiently and reliably handle increased player usage, fast load times and the deployment of new features and products...

  • Page 10
    the Facebook platform for a significant portion of our revenue. Our relationship with Facebook, the Facebook platform and our agreements with Facebook are subject to change. New risks emerge from time to time. It is not possible for our management to predict all of the risks related to our business ...

  • Page 11
    PART I ITEM 1. BUSINESS Overview Zynga Inc. ("Zynga" or "we" or "the Company") is the world's leading provider of social game services. We develop, market and operate online social games as live services played over the Internet and on social networking sites and mobile platforms. Our games are ...

  • Page 12
    ... players use to buy in-game virtual goods. Virtual currency can also be earned for free through game play or by accepting promotional offers from our advertising partners. We also generate revenue when players purchase mobile game downloads. Advertising Our advertising services offer creative ways...

  • Page 13
    ... with the launch of Zynga.com for web players in 2012. We plan to further expand our With Friends Network in 2013 to be accessible to both web players and mobile players alike to make games more engaging, more social and more profitable. We have opened up our application programming interface ("API...

  • Page 14
    ...and any data from Facebook on any Zynga service offered through a Zynga game page (for example, the With Friends Network) will be governed by Facebook's standard terms of service beginning on March 31, 2013. Under the current terms of service, we will be limited in our ability to use a Facebook user...

  • Page 15
    ...certain title exclusivities of Zynga games on the Facebook platform, subject to certain exceptions. However, any social game launched after March 31, 2013 by Zynga will generally be available through the Facebook web site concurrent with, or shortly following, the time such game is made available on...

  • Page 16
    .... Because our games are free to play, we compete primarily on the basis of player experience rather than price. We could face additional competition if large companies with significant online presences, such Facebook, Inc., Google Inc., Microsoft Corporation and Tencent Holdings Limited, choose to...

  • Page 17
    ...retain world class game design, product management, engineering and operational talent. We remain steadfast in our commitment to surprise and delight our players. We believe our unique company culture serves as the foundation of our success. Our core values are Build games that you and your friends...

  • Page 18
    ..., Zynga Poker, with the gambling laws in mind and believe that playing such games does not constitute gambling. However, we have begun efforts to expand our business to include RMG. We recently announced a partnership agreement with bwin.party to develop, test and operate certain real money online...

  • Page 19
    ...and related notes. Risks Related to Our Business and Industry If Facebook changes its standard terms and conditions for developers in a way that is detrimental to us, our business will suffer. Facebook is currently the primary distribution, marketing, promotion and payment platform for our games. To...

  • Page 20
    ...and any data from Facebook on any Zynga service offered through a Zynga game page (for example, the With Friends Network) will be governed by Facebook's standard terms of service beginning on March 31, 2013. Under the current terms of service, we will be limited in our ability to use a Facebook user...

  • Page 21
    ... its virtual currency, Facebook Credits, as payment from users, provided Facebook with a greater share of payments made by our players than it did when other payment options were allowed. Facebook may also change its fee structure, add fees associated with access to and use of the Facebook platform...

  • Page 22
    ...and any data from Facebook on any Zynga service offered through a Zynga game page (for example, the With Friends Network) will be governed by Facebook's standard terms of service beginning on March 31, 2013. Under the current terms of service, we will be limited in our ability to use a Facebook user...

  • Page 23
    ..., product managers and engineers who have experience developing games for mobile platforms; expand on our current mobile games; effectively market new mobile games to our existing web-based players and players of our current mobile games; expand our With Friends Network to mobile; minimize launch...

  • Page 24
    ... it difficult to effectively assess our future prospects. Our business model is based on offering games that are free to play. To date, only a small portion of our players pay for virtual goods. If we fail to effectively manage our human resources, our business and operating results could be harmed...

  • Page 25
    ... to execute our business strategy. Our success depends in a large part upon the continued service of our senior management team. In particular, our founder and Chief Executive Officer, Mark Pincus, is critical to our vision, strategic direction, culture, products and technology. We do not maintain...

  • Page 26
    ... attract players in countries other than the United States is a critical element of our business strategy. An important part of targeting international markets is developing offerings that are localized and customized for the players in those markets. We have a limited operating history as a company...

  • Page 27
    language offerings. Our ability to expand our business and to attract talented employees and players in an increasing number of international markets will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in ...

  • Page 28
    ... specific international markets, such as Tencent Holdings Limited in Asia, and high-profile companies with significant online presences that to date have not developed social games, such as Facebook, Google Inc. and Microsoft Corporation, may decide to develop social games. Some of these current and...

  • Page 29
    ... our games. This may lead to lost revenue from paying players, increased cost of developing technological measures to combat these programs and activities, legal claims relating to the diminution in value of our virtual currency and goods, and increased customer service costs needed to respond to...

  • Page 30
    ... position. For example, in the third quarter of 2012, we made the decision to discontinue the development of certain games associated with technology and other intangible assets previously acquired from OMGPOP, Inc. and we recorded an asset impairment charge of $95.5 million. For more information...

  • Page 31
    ... us from offering certain features, functionalities, products, or services, or requiring a change in our business practices, products or technologies, which could in the future materially and adversely affect our business, operating results, and financial condition. See the section titled "Legal...

  • Page 32
    ... to responsibly use the data that our players share with us. Therefore, our business could be harmed by any significant change to applicable laws, regulations or industry practices or the requirements of platform providers regarding the use or disclosure of data our players choose to share with us...

  • Page 33
    ...States and elsewhere that could restrict the online and mobile industries, including player privacy, advertising, taxation, content suitability, copyright, distribution and antitrust. Furthermore, the growth and development of electronic commerce and virtual goods may prompt calls for more stringent...

  • Page 34
    ..., reporting relationships, or future prospects; the need to implement controls, procedures and policies appropriate for a larger public company at companies that prior to acquisition had lacked such controls, procedures and policies; risks associated with our expansion into new international markets...

  • Page 35
    ..., test and operate certain real money online poker and casino games in the United Kingdom. This is our first experience with RMG and we cannot assure you that these preliminary efforts will be successful or result in the development or timely launch of RMG products, if at all, or ultimately produce...

  • Page 36
    ... we operate our business. Our corporate structure and intercompany arrangements, including the manner in which we develop and use our intellectual property and the transfer pricing of our intercompany transactions, are intended to reduce our worldwide effective tax rate. The application of the tax...

  • Page 37
    ...funds to respond to business challenges, including the need to develop new games and features or enhance our existing games, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure...

  • Page 38
    ...cause volatility in our share price include changes in projected operational and financial results; issuance of new or updated research or reports by securities analysts; market rumors or press reports; announcements related to our stock repurchase program; the use by investors or analysts of third...

  • Page 39
    ... of our public float relative to the total number of shares of our Class A, Class B and Class C common stock that are issued and outstanding; share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and general economic and market conditions. Furthermore...

  • Page 40
    ... on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES We own our San Francisco, California corporate headquarters, an office building of...

  • Page 41
    ...-to-month to terms through 2021. The San Francisco facility currently accommodates our principal executive, development, engineering, marketing, business development, human resources, finance, legal, information technology and administrative activities. We lease additional domestic office space in...

  • Page 42
    ... to that time, there was no public market for our stock. The following table sets forth for the indicated periods the high and low sales prices per share for our Class A common stock on the NASDAQ Global Select Market. High Low Fourth Quarter 2011 (from December 16, 2011) First Quarter 2012 Second...

  • Page 43
    ... Index"), the NASDAQ 100 Index and the NASDAQ Internet Index. The measurement points in the graph below are December 16, 2011 (the first trading day of our Class A common stock on the NASDAQ Global Select Market) and the last trading day of the fiscal year ended December 31, 2012. The graph assumes...

  • Page 44
    ... future. Year Ended December 31, 2012 2011 2010 2009 2008 (in thousands, except per share, users and ABPU data) Consolidated Statements of Operations Data Revenue: Online game ...Advertising ...Total revenue ...Costs and expenses: Cost of revenue ...Research and development ...Sales and marketing...

  • Page 45
    ... 226 381 60 $689 2012 Year Ended December 31, 2011 2010 2009 2008 Consolidated Balance Sheet Data: Cash, cash equivalents and marketable securities ...Property and equipment, net ...Working capital ...Total assets ...Deferred revenue ...Total stockholders' equity (deficit) ...Non-GAAP Financial...

  • Page 46
    .... Prior to the adoption of Facebook Credits, we recorded a majority of our online game revenue at the gross price charged to the customer. Adjusted EBITDA To provide investors with additional information about our financial results, we disclose within this Annual Report on Form 10-K adjusted EBITDA...

  • Page 47
    ... does not include the impact of stock-based expense; bookings and adjusted EBITDA do not reflect that we defer and recognize online game revenue and revenue from certain advertising transactions over the estimated average life of virtual goods or as virtual goods are consumed; adjusted EBITDA does...

  • Page 48
    ... each of the last three years. Our games are accessible on Facebook and other social networks, mobile platforms and Zynga.com. Our games are generally available for free, and we generate revenue through the ingame sale of virtual goods, mobile game download fees and advertising. We are a pioneer and...

  • Page 49
    ... friends play for free or also purchase virtual goods. Players may also elect to pay a one-time download fee to obtain an ad-free mobile game. Facebook is currently the primary distribution, marketing, promotion and payment platform for our games. We generate a significant portion of our revenue...

  • Page 50
    ...time period. Average MUUs for a particular period is the average of the MUUs at each month-end during that period. We use MUUs as a measure of total audience reach across our network of games. MUPs. We define MUPs as the number of unique players who made a payment at least once during the applicable...

  • Page 51
    ..., which launched in the first quarter of 2012. Additionally we released four titles on mobile platforms. The increase in DAUs for the three months ended June 30, 2012 as compared to the prior quarter was the result of new users from Draw Something, a game we acquired through the OMGPOP acquisition...

  • Page 52
    ... of our players through the sale of virtual goods and advertising. Future growth in audience and engagement will depend on our ability to retain current players, attract new players, launch new games and expand into new markets and distribution platforms, and the success of the Zynga platform. Our...

  • Page 53
    ...and any data from Facebook on any Zynga service offered through a Zynga game page (for example, the With Friends Network) will be governed by Facebook's standard terms of service beginning on March 31, 2013. Under the current terms of service, we will be limited in our ability to use a Facebook user...

  • Page 54
    ... to the success and timely launch of our new games and our success in releasing engaging content and features. Game monetization. We generate most of our bookings and revenue from the sale of virtual goods in our games. The degree to which our players choose to pay for virtual goods in our games is...

  • Page 55
    ...in new distribution channels such as the With Friends Network, mobile platforms, other social networks and international markets to expand our reach and grow our business. For example, we have continued to hire additional employees and acquire companies with experience developing mobile applications...

  • Page 56
    ...: Consolidated Statements of Operations Data: For the Year Ended December 31, 2012 2011 2010 Revenue ...Costs and expenses: Cost of revenue ...Research and development ...Sales and marketing ...General and administrative ...Impairment of intangible assets ...Total costs and expenses ...Income (loss...

  • Page 57
    ...the remaining net increase of $95.8 million. International revenue as a percentage of total revenue accounted for 36% and 33% in 2011 and 2010, respectively. In 2011, FarmVille, FrontierVille, Zynga Poker, Mafia Wars and CityVille were our top revenue-generating games and comprised 27%, 15%, 15%, 13...

  • Page 58
    Wars, FarmVille and Zynga Poker were our top revenue-generating games and comprised 28%, 30% and 20%, respectively, of online game revenue. No other game generated more than 10% of online game revenue during either year. Consumable virtual goods accounted for 29% and 37% of online game revenue in ...

  • Page 59
    ... in connection with our initial public offering, a $23.2 million increase in player acquisition costs, an increase in headcount-related expenses of $13.4 million and increase of $5.7 million in consulting costs. General and administrative Year Ended December 31, 2012 2011 2010 (in thousands) 2011 to...

  • Page 60
    ... million in 2011. The decrease was primarily attributable to increased interest expense under the terms of a revolving credit agreement signed in July 2011. (Provision for) / benefit from income taxes Year Ended December 31, 2012 2011 2010 (in thousands) 2011 to 2012 % Change 2010 to 2011 % Change...

  • Page 61
    ...in the year ended December 31, 2010 to a pretax loss of $406.1 million in 2011. The decrease in pre-tax income was primarily driven by stock-based compensation expense associated with ZSUs that vested in connection with our initial public offering. In addition, the income tax benefit associated with...

  • Page 62
    ... of Operations Data: Online game ...$274,337 $285,587 $291,548 $292,780 $ 283,910 $287,866 $263,974 $229,898 Advertising ...36,828 31,050 40,945 28,192 27,327 18,963 15,170 12,992 Total Revenue ...Costs and expenses: Cost of revenue ...Research and development . . Sales and marketing ...General and...

  • Page 63
    ... 2012 Sep 30, 2012 Jun 30, 2012 For the Three Months Ended Mar 31, Dec 31, Sep 30, 2012 2011 2011 (as a percentage of revenue) Jun 30, 2011 Mar 31, 2011 Consolidated Statements of Operations Data: Revenue ...Costs and expenses: Cost of revenue ...Research and development ...Sales and marketing...

  • Page 64
    ... $1.65 billion, which consisted of cash, money market funds, U.S. government and government agency debt securities, corporate debt securities and municipal securities. For the full year ended December 31, 2012, we made capital expenditures of $331.8 million, which included the purchase and build out...

  • Page 65
    ...ZSUs that vested upon our initial public offering, stock awards issued in connection with business acquisitions and expense associated with stock warrants and employee stock options. Non-cash depreciation and amortization expense was $95.4 million during 2011, an increase from prior years due to our...

  • Page 66
    ... million shares of our outstanding capital stock for a total purchase price of $283.8 million and made payments of $83.2 million related to tax withholding obligations and the related net settlement of equity awards during 2011. Credit Facility In July 2011, we executed a revolving credit agreement...

  • Page 67
    ... 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...

  • Page 68
    ... was complete. Facebook Credits is Facebook's proprietary virtual currency that Facebook sells for use on the Facebook platform. Under the terms of our agreement, Facebook sets the price our players pay for Facebook Credits and collects the cash from the sale of Facebook Credits. Facebook's current...

  • Page 69
    ..., if any, related to unrecognized tax benefits in provision for income taxes. Business Combinations In line with our growth strategy, we have completed acquisitions to expand our social games and mobile offerings, obtain employee talent, and expand into new markets. We account for acquisitions of...

  • Page 70
    ... model changes significantly, stock-based expense for future awards may differ materially compared with the awards granted previously. The following table summarizes the assumptions relating to our stock options granted in 2012, 2011 and 2010: 2012 Year Ended December 31, 2011 2010 Expected term...

  • Page 71
    ... external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future operating results do not meet current forecasts or if we experience a continued decline in our market capitalization, we may be...

  • Page 72
    ... that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could...

  • Page 73
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Zynga Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Report of Independent Registered Public Accounting Firm ...Consolidated Financial Statements Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated ...

  • Page 74
    ... audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2012 consolidated financial statements of Zynga Inc. and our report dated February 25, 2013 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP San Francisco, CA February 25...

  • Page 75
    ..., 2012 and 2011, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our...

  • Page 76
    ...-term marketable securities ...Goodwill ...Other intangible assets, net ...Property and equipment, net ...Restricted cash ...Other long-term assets ...Total assets ...Liabilities and stockholders' equity Current liabilities: Accounts payable ...Other current liabilities ...Deferred revenue ...Total...

  • Page 77
    Zynga Inc. Consolidated Statements of Operations (In thousands, except per share data) Year Ended December 31, 2012 2011 2010 Revenue: Online game ...Advertising ...Total revenue ...Costs and expenses: Cost of revenue ...Research and development ...Sales and marketing ...General and administrative ...

  • Page 78
    Zynga Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands) Year Ended December 31, 2012 2011 2010 Net income (loss) ...Other comprehensive income (loss): Change in foreign currency translation adjustment ...Net change on unrealized gains (losses) on available-for-sale ...

  • Page 79
    ... - 18,313 - Repurchase of unvested early exercised stock options ...- - (4,200) - Issuance of Series B-2 convertible preferred stock, net of issuance costs ...48,163 305,231 - - Issuance of Series Z convertible preferred stock in connection with business acquisitions ...26,340 35,269 - - Vesting of...

  • Page 80
    ... of ZSUs, net ...- - 16,035 - Issuance of Class A common stock from initial public offering, net of issuance costs ...- - 100,000 1 Vesting of common shares following the early exercise of options ...- - - - Stock-based expense ...- 44,230 - - Tax cost from stock-based expense ...- - - - Net loss...

  • Page 81
    Zynga Inc. Consolidated Statements of Stockholders' Equity (Deficit) (continued) (In thousands) Common Stock Shares Amount Balances at December 31, 2011 ...Exercise of stock options ...Vesting of ZSUs, net ...Issuance of common stock in connection with business acquisitions ...Cancellation of ...

  • Page 82
    ... of marketable securities ...Maturities of marketable securities ...Purchase of corporate headquarters building ...Acquisition of property and equipment ...Business acquisition, net of cash acquired ...Equity method investment ...Restricted cash ...Other investing activities, net ...Net cash used in...

  • Page 83
    ... of Business Zynga Inc. ("Zynga," "we" or "the Company") develops, markets and operates online social games as live services played over the Internet and on social networking sites and mobile platforms. We generate revenue through the in-game sale of virtual goods and through advertising. Our...

  • Page 84
    ... revenue from the sale of virtual goods associated with our online games and the sale of advertising. 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...

  • Page 85
    ..., benefits and stock-based expense for our customer support and infrastructure teams. Cost of revenue also includes amortization expense related to purchased technology of $38.5 million, $28.4 million and $8.8 million for the years ended December 31, 2012, 2011 and 2010, respectively. Cash and Cash...

  • Page 86
    ... relate, we apply the equity method of accounting. Our non-marketable securities are subject to periodic impairment reviews. Restricted Cash Restricted cash consists of collateral for facility operating lease agreements and funds held in escrow in accordance with the terms of certain of our business...

  • Page 87
    ... and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. For example, if our future operating...

  • Page 88
    ... the initial public offering, which will only be subject to a service condition, we recognize stock-based expense on a ratable basis over the requisite service period for the entire award. We estimate the fair value of stock options using the Black-Scholes option-pricing model. This model requires...

  • Page 89
    ... Facebook. Advertising Expense Costs for advertising are expensed as incurred. Advertising costs, which are included in sales and marketing expense, primarily consisting of player acquisition costs, totaled $102.2 million, $102.6 million and $83.4 million for the years ended December 31, 2012, 2011...

  • Page 90
    ...-for-sale marketable securities, classified by their contractual maturities was as follows (in thousands): December 31, 2012 December 31, 2011 Due within one year ...After one year through three years ...Total ... $ 898,821 367,543 $1,266,364 $225,165 110,098 $335,263 Changes in market interest...

  • Page 91
    ... fair value at the time. The primary input used in determining the fair value of the intangible assets was the estimated undiscounted future cash flows associated with those assets as of September 30, 2012. As of December 31, 2012, there were no further indicators of impairment related to the OMGPOP...

  • Page 92
    ...) $246,740 Acquisition of Corporate Headquarters Building In April, 2012, we purchased our corporate headquarters building located in San Francisco, California from 650 Townsend Associates, LLC to support the overall growth of our business. Pursuant to the agreement, we also acquired existing third...

  • Page 93
    ... 100% of the outstanding stock of OMGPOP, a provider of social games for mobile phones, tablets, PCs and social network sites, for purchase consideration of approximately $183.1 million in cash. We acquired OMGPOP to expand our social games offerings, particularly on mobile platforms. Goodwill from...

  • Page 94
    ... of the acquired businesses and the synergies expected to arise after our acquisition of those businesses. In connection with acquisitions closed in 2011, we incurred transaction costs of approximately $2.3 million. Pro forma results of operations related to our 2012 and 2011 acquisitions have not...

  • Page 95
    ... the years ended December 31, 2012, 2011 and 2010 were $42.3 million, $29.5 million and $8.8 million respectively. As of December 31, 2012, future amortization expense related to the intangible assets is expected to be recognized as shown below (in thousands): Year ending December 31: 2013 ...2014...

  • Page 96
    ... companies during 2010, the revenue from non-U.S. users was earned by our U.S. Company, resulting in virtually no foreign profit before tax. The new foreign entities, as startup companies, generated operating losses in 2010 and 2011. During 2012, we completed the implementation of our international...

  • Page 97
    ... been provided is approximately $4.4 million. Deferred tax assets and liabilities consist of the following (in thousands): Year Ended December 31, 2012 2011 Deferred tax assets: Equity based compensation ...Tax credit carryforwards ...Deferred revenue ...Net operating loss carryforwards ...Deferred...

  • Page 98
    ... carryforwards related to stock options is approximately $178.1 million, the benefit of which will be credited to additional paidin capital when realized. The federal and state net operating loss carryforwards are subject to various annual limitations under Section 382 of the Internal Revenue Code...

  • Page 99
    ... any funds under the terms of the credit agreement. 9. Other Current Liabilities Other current liabilities consist of the following (in thousands): December 31, 2012 December 31, 2011 Customer deposits ...Accrued escrow for acquisitions ...Other ...Total other current liabilities ... $ 25,671 32...

  • Page 100
    .... Each share of our Class B common stock and Class C common stock is convertible at any time at the option of the holder into one share of our Class A common stock. In addition, after the closing of the initial public offering, upon sale or transfer of shares of either Class B common stock or Class...

  • Page 101
    ... stock options and ZSUs to employees, directors and nonemployees. The maximum number of shares of our Class A common stock that may be issued under our 2011 Plan is 42.5 million shares and excludes the number of shares still available under our 2007 Plan as of the date of our initial public offering...

  • Page 102
    ... options, warrants, restricted stock and restricted stock units ("ZSUs") in our consolidated statements of operations as follows (in thousands): Twelve Months Ended December 31, 2012 2011 2010 Cost of revenue ...Research and development ...Sales and marketing ...General and administrative ...Total...

  • Page 103
    ...the Company recognized $5.5 million of stock-based expense related to 2011 ESPP. Common Stock Reserved for Future Issuance As of December 31, 2012, we had reserved shares of common stock for future issuance as follows (in thousands): December 31, 2012 Common stock warrants Stock options outstanding...

  • Page 104
    ... as follows (in thousands): Year Ended December 31, 2012 2011 2010 Unrealized gains (losses) on available-for-sale securities ...Unrealized gains (losses) on derivative investments ...Foreign currency translation ...Total ...12. Net Income (Loss) Per Share of Common Stock $ 649 (2,423) 327 $ (91...

  • Page 105
    ... the computation of basic and diluted net income (loss) per share of common stock (in thousands, except per share data): Twelve Months Ended December 31, Class A 2012 Class B Class C Class A 2011 Class B Class C Class A 2010 Class B Class C BASIC: Net income (loss) ...$(109,643) $ (94,007) $ (5,798...

  • Page 106
    ...the years ended December 31, 2012, 2011 and 2010 totaled $11.2 million, $14.4 million and $7.0 million, respectively. Other Purchase Commitments We have entered into several service contracts for hosting of data systems and payment processing. Future minimum purchase commitments that have initial or...

  • Page 107
    ...section 25402 in connection with our initial public offering in December 2011, secondary offering in April 2012, and allegedly made false or misleading statements regarding the Company's business and financial projections. Beginning on August 3, 2012, three of the actions were filed in San Francisco...

  • Page 108
    14. Geographical Information The following represents our revenue based on the geographic location of our players (in thousands): Revenue Year Ended December 31, 2012 2011 2010 United States ...All other countries(1) ...Total revenue ... $ 757,299 523,968 $1,281,267 $ 734,469 405,631 $1,140,100 $...

  • Page 109
    ... of December 31, 2012, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management's Report on Internal Control over Financial Reporting Our management is responsible for...

  • Page 110
    ... by reference to Zynga's Proxy Statement for its 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2012. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The...

  • Page 111
    ... Balance at Beginning of Year Charged to Expenses/ Against Revenue Write-Offs Net of Recoveries Balance at End of Year Page No. 66 68 69 70 71 74 75 Allowance for Doubtful Accounts and Sales Credits Year Ended December 31, 2012 Year Ended December 31, 2011 Year Ended December 31, 2010 $163...

  • Page 112
    ... and Restated Investor Rights Agreement, by and between Zynga Inc., the investors listed on Schedule A thereto and Mark Pincus, dated February 18, 2011 Zynga Inc. 2007 Equity Incentive Plan Forms of Stock Option Agreement and Stock Option Exercise Agreement under 2007 Equity Incentive Plan Forms of...

  • Page 113
    ... between Zynga Inc. and Mark Vranesh, dated October 25, 2011 Amended and Restated Offer Letter, between Zynga Inc. and David M. Wehner, dated November 16, 2011 2012 Compensation Information for Executive Officers Office Lease by and between 650 Townsend Associates LLC and Zynga Inc., dated September...

  • Page 114
    ...to Developer Addendum No. 2 by and between Facebook, Inc., Facebook Ireland Limited, Zynga Inc. and Zynga Game Ireland Limited, dated November 28, 2012 Warrant to Purchase Class B Common Stock, dated July 31, 2009, issued to Allen & Company LLC. Revolving Credit Agreement, dated July 21, 2011, among...

  • Page 115
    ...; and Amendment to Lease, dated February 1, 2011 List of subsidiaries Consent of Independent Registered Public Accounting Firm Power of Attorney (included in signature page) Certification of the Chief Executive Officer of Zynga Inc. pursuant to rule 13a-14 under the Securities Exchange Act of 1934...

  • Page 116
    ... the submission requirements. These interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as...

  • Page 117
    ...of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on February 22, 2013. ZYNGA INC. By: /s/ Mark Vranesh Mark Vranesh Chief Financial Officer and Chief Accounting Officer 109

  • Page 118
    ..., place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents...

  • Page 119
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 120
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 121
    ... about Zynga, to view the Annual Report online, or to obtain other financial information without charge, contact: Investor Relations Zynga Inc. 699 Eighth Street San Francisco, CA 94103 company.zynga.com investor.zynga.com Zynga's Class A common stock trades on the NASDAQ Global Select Market under...

  • Page 122