Zynga 2012 Annual Report Download - page 69

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Advertising
We have contractual relationships with agencies, brokers and certain advertisers for advertisements within our
games. We recognize advertising revenue as advertisements are delivered to customers as long as evidence of the
arrangement exists (executed contract), the price is fixed and determinable, and we have assessed collectability as
reasonably assured. Certain branded virtual goods and sponsorships are deferred and recognized over the estimated
average life of the branded virtual good or as the branded virtual good is consumed, similar to online game revenue.
We generally report our advertising revenue net of amounts due to advertising agencies and brokers because
we are not the primary obligor in our arrangements, we do not set the pricing, and we do not establish or maintain
the relationship with the advertiser. Certain advertising arrangements that are directly between us and end
advertisers are recognized gross equal to the price paid to us by the end advertiser since we are the primary
obligor and we determine the price.
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 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 entities that
include inputs and processes and have the ability to create outputs as business combinations. We allocate the
purchase price of the acquisition to the tangible assets, liabilities and identifiable intangible assets acquired based
on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill.
Determining the fair value of such items requires judgment, including estimating future cash flows or estimating
the cost to recreate an acquired asset. If actual results are lower than estimates, we could be required to record
impairment charges in the future. Acquired intangible assets are amortized over their estimated useful lives.
Intangible assets with indefinite lives are not amortized but rather tested for impairment annually, or more
frequently if circumstances exist which indicate an impairment may exist.
Acquisition-related expenses and restructuring costs are expensed as incurred. During the one-year period
beginning with the acquisition date, we may record certain purchase accounting adjustments related to the fair
value of assets acquired and liabilities assumed against goodwill. After the final determination of the fair value of
assets acquired or liabilities assumed, any subsequent adjustments are recorded to our consolidated statements of
operations. Subsequent to the measurement period, our final determination of any acquired tax attributes’ value
will affect our provision for income taxes in our consolidated statement of operations and could have a material
impact on our results of operations and financial position.
Stock-Based Expense
Prior to our initial public offering in December 2011, we granted ZSUs to our employees that generally vest
upon the satisfaction of both a service-based condition of up to four years and a liquidity condition, the latter of
which was satisfied in connection with our initial public offering in December 2011. Because the liquidity
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