Zynga 2013 Annual Report Download

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ZYNGA INC
FORM 10-K
(Annual Report)
Filed 02/21/14 for the Period Ending 12/31/13
Address 699 EIGHTH STREET
SAN FRANCISCO, CA 94103
Telephone 800-762-2530
CIK 0001439404
Symbol ZNGA
SIC Code
7374 - Computer Processing and Data Preparation and Processing Services
Industry Software & Programming
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2014, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ...Period Ending 12/31/13 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 699 EIGHTH STREET SAN FRANCISCO, CA 94103 800-762-2530 0001439404 ZNGA 7374 - Computer Processing and Data Preparation and Processing Services Software & Programming Technology 12/31 http://www.edgar-online.com...

  • Page 2
    ... ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013 OR 3 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-35375 Zynga...

  • Page 3

  • Page 4
    ... 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 5
    ... to mobile and create new franchises on the web and mobile; the ability of our games to generate revenue and bookings for a significant period of time after launch and the timing for market acceptance of new games; retaining and adding players and increasing the monetization of our player base; user...

  • Page 6
    ...in "Part II. Item 1A. Risk Factors" of this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment and industry. New risks may also emerge from time to time. It is not possible for our management to predict all of the risks related to our business and...

  • Page 7
    ... networking sites and mobile platforms. Our games are accessible on Facebook and other social networks, mobile platforms and Zynga.com. Generally, all of our games are free to play, and we generate revenue through the in-game sale of virtual goods, mobile game download fees and advertising services...

  • Page 8
    ... 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 9
    ... social game and is the largest free-to-play online poker game in the world. We also launched Hit it Rich Slots in the third quarter of 2013 and made this game accessible on iPad devices in the fourth quarter of 2013. Words . Includes one of our most popular mobile-game titles in Words With Friends...

  • Page 10
    ... terms of service, we are limited in our ability to use a Facebook user's friends list and Facebook's communication channels to promote Zynga.com. In December 2012, Facebook amended its standard terms of service to prohibit (i) apps on the Facebook canvas from promoting or linking to game sites...

  • Page 11
    ... Facebook's payment services (Facebook Credits and/or local-currency based payments) on any Zynga game pages. We have the right to process our own payments, and Facebook no longer has the right to receive 30% of the proceeds from payments made on Zynga.com (or any other platforms or social networks...

  • Page 12
    ....com, and The Walt Disney Company, DeNA Co. Ltd., Gameloft, Glu Mobile, GREE International Inc., Gungho Online Entertainment Inc., Kabam, Rovio Mobile Ltd. and Supercell. Because our games are free to play, we compete primarily on the basis of player experience rather than price. We also expect new...

  • Page 13
    ... that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States and internationally, laws relating to the liability of providers of online services for activities of their users and other...

  • Page 14
    ... application. Available Information Our website is located at www.zynga.com, and our investor relations website is located at http://investor.zynga.com. The following filings are available through our investor relations website after we file them with the SEC: Annual Reports on Form 10-K, Quarterly...

  • Page 15
    ... regarding our financial performance, including SEC filings, investor events, press and earnings releases as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts...

  • Page 16
    ...such changes in the future could significantly alter how players experience or interact within our games, which may harm our business. Our social games also leverage the global connectivity and distribution of mobile platforms including Apple's App Store for iOS devices and the Google Play App Store...

  • Page 17
    ... to Facebook Credits and local-currency transactions sold to the players of our games on Facebook under the terms of our agreement with Facebook. Such changes could have an adverse effect on our reported revenue, net income and earnings per share under U.S. GAAP. Additionally, NaturalMotion Limited...

  • Page 18
    ... our games, our business depends on our ability to consistently and timely launch new games across multiple platforms and devices that achieve significant popularity and have the potential to become franchise games. For example, we recently announced that we will launch a mobile version of Farmville...

  • Page 19
    ... as we develop games in new categories or new markets, including international markets and mobile platforms. If we do not successfully launch games that attract and retain a significant number of players and extend the life of our existing games, our market share, brand and financial results will...

  • Page 20
    ...'s attention away from our business; declining employee morale and retention issues resulting from changes in compensation, or changes in management, reporting relationships, or future prospects; significant competition from other game companies as the social game industry consolidates; the need to...

  • Page 21
    ...platforms such as Facebook, Apple and Google, where our games are distributed, which may limit our ability to operate or promote our network. For example, under the current terms of service with Facebook, we are limited in our ability to use a Facebook users friends list and Facebook's communication...

  • Page 22
    ... publicity or harm our reputation with players and partners; and increasing customer support costs to respond to dissatisfied players. To discourage unauthorized purchases and sales of our virtual goods, we state in our terms of service that the buying or selling of virtual currency and virtual...

  • Page 23
    ... employees or players to disclose sensitive information in order to gain access to our players' data. We must continuously examine and modify our security controls and business policies to address the use of new devices and technologies enabling players to share data and communicate in new ways...

  • Page 24
    ... who use certain payment methods for which unique payer data is not available), who represent approximately two percent of our total players. We lose players in the ordinary course of business. In order to sustain our revenue levels, we must attract, retain and increase the number of players or...

  • Page 25
    ... long-term benefits that we expect, in which case the success of our games, business and operating results could be harmed. If we lose the services of our Chief Executive Officer, founder or other members of our senior management team, we may not be able to execute our business strategy. Our success...

  • Page 26
    ... 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 our products. We cannot assure that any of our efforts will be successful or result in the development or timely launch of additional products...

  • Page 27
    ... 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 28
    ... on 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, Apple Inc., Google Inc. and Microsoft Corporation, may decide to develop social games. Some of...

  • Page 29
    ...players may stop playing 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...

  • Page 30
    ... condition. See the section titled "Legal Matters" included in Note 12-"Commitments and Contingencies" in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Programming errors or flaws in our games could harm our reputation or decrease market...

  • Page 31
    ... and the storing, sharing, use, processing, disclosure and protection of personal information and other player data on the Internet and mobile platforms, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We...

  • Page 32
    ... casino-themed games, including Zynga Poker, may become subject to gambling-related rules and regulations and expose us to civil and criminal penalties if we do not comply. Our business includes real money online poker and casino games offerings in the United Kingdom through an agreement with bwin...

  • Page 33
    ...additional burdens upon us, prohibit the offering of our games to certain users or territories, increase our costs or require changes to our games. Companies and governmental agencies may restrict access to Facebook, our website, mobile applications or the Internet generally, which could lead to the...

  • Page 34
    ... foreign earnings. Any changes in the U.S. taxation of our international business activities may impact our worldwide effective tax rate, our financial position and results of operations. The intended tax benefits of our corporate structure and intercompany arrangements depend on the application of...

  • Page 35
    ... prior to our initial public offering, including our founder and our other executive officers, employees and directors and their affiliates; this limits our other stockholders' ability to influence corporate matters. Our Class C common stock has 70 votes per share, our Class B common stock has seven...

  • Page 36
    ... and financial performance of our commercial partners, such as Facebook; fluctuations in the trading volume of our shares, or the size 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...

  • Page 37
    ...stock in the public market, or the perception that these sales could occur, could cause the market price of our Class A common stock to decline. For example, in connection with the filing of our Registration Statement on Form S-3 in February 2014, covering the resale of shares issued to the security...

  • Page 38
    ...under the Securities Act pursuant to an investors' rights agreement. If these holders of our Class B common stock, by exercising their registration rights, sell a large number of shares, they could adversely affect the market price of our Class A common stock. If we file a registration statement for...

  • Page 39
    ... and international facilities total approximately 270,000 square feet, excluding restructured properties. We believe that our existing facilities are sufficient for our current needs. We intend to add new facilities and expand our existing facilities as we add employees and expand our markets, and...

  • Page 40
    ... 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 2012 First Quarter 2013 Second Quarter 2013 Third Quarter 2013 Fourth Quarter 2013...

  • Page 41
    ... of our Class A common stock during 2012 and 2013: Total Amount $ of Shares Purchased as Part of PubliclyAnnounced Plans or Programs Maximum $ Amount of Share May Yet Be Purchased Under the Plans or Programs Period Total Number of Shares Purchased Average Price Paid per Share October 1 - October...

  • Page 42
    ... Market) and the last trading day of the fiscal year ended December 31, 2013. The graph assumes that $100 was invested on December 16, 2011 in the Class A common stock of Zynga Inc., the S&P 500 Index and the NASDAQ 100 Index and assumes reinvestment of any dividends. The stock price performance...

  • Page 43
    ... in the future. 2013 Year Ended December 31, 2012 2011 2010 (in thousands, except per share, user and ABPU data) 2009 Consolidated Statements of Operations Data: Revenue: Online game Advertising Total revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General...

  • Page 44
    ... included in the statements of operations data above was as follows: 2013 2012 Year Ended December 31, 2011 2010 2009 Cost of revenue Research and development Sales and marketing General and administrative Total stock-based compensation 2013 $ 468 61,931 8,079 13,915 $84,393 2012 $ 12,116 200...

  • Page 45
    ... of durable virtual goods, see the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Revenue Recognition" elsewhere in this Annual Report on Form 10-K. We use bookings to evaluate the results of our operations, generate future operating plans and...

  • Page 46
    ... 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 47
    ... successful social games in the industry. 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 in-game sale of virtual goods, mobile game download fees and advertising services...

  • Page 48
    ... those friends play for free or also purchase virtual goods. Players may also elect to pay a one-time download fee to obtain certain mobile games free of third-party advertisements. Facebook is currently the primary distribution, marketing, promotion and payment platform for our games. We generate...

  • Page 49
    ... MAUs in any given 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...

  • Page 50
    ... are more players that play our games, social interactions increase and the more valuable the games and our business become. All engaged players of our games help drive our bookings and, consequently, both online game revenue and advertising revenue. Virtual goods are purchased by players who are...

  • Page 51
    ...quarterly bookings or revenue trends in the short term. Recent Developments • • Game Launches. We launched several new games in 2013, including Hidden Shadows , Ninja Kingdom and Hit it Rich on web platforms and Stampede Run, What's the Phrase , Draw Something 2 and CastleVille Legends on mobile...

  • Page 52
    ... by the launch of new mobile and web games and the release of fresh content and new features in existing games. Our future success depends on our ability to launch successful new hit titles on mobile platforms. Although the amount of revenue and bookings we generate from a new game or an enhancement...

  • Page 53
    ... player acquisition costs as our ability to cross-promote traffic to games that are offered on platforms other than Facebook, for example, games offered on Zynga.com, as well as our RMG offerings with bwin.party, are limited by Facebook's standard terms of service, subject to certain exceptions. New...

  • Page 54
    ... for those periods: Consolidated Statements of Operations Data : 2013 For the Year Ended December 31, 2012 2011 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 55
    .... In 2012 , FarmVille , Zynga Poker and CityVille , were our top revenue-generating games and comprised 24%, 19%, and 12%, respectively, of our online game revenue for the period. No other game generated more than 10% of online game revenue during the year. Consumable virtual goods accounted for 30...

  • Page 56
    ... from in-game offers, engagement ads and other advertising revenue. Cost of revenue Year Ended December 31, 2013 2012 (in thousands) 2011 2012 to 2013 % Change 2011 to 2012 % Change Cost of revenue $248,358 $352,169 $330,043 (29)% 7% 2013 Compared to 2012. Cost of revenue decreased $103...

  • Page 57
    Table of Contents 2013 Compared to 2012. Sales and marketing expenses decreased $77.5 million in the twelve months ended December 31, 2013 as compared to the same period of the prior year. The decrease was primarily attributable to a $41.6 million decrease in player acquisition costs which declined ...

  • Page 58
    ...months ended December 31, 2013 as compared to the same period of the prior year. This decrease was attributable primarily to a benefit of $12.4 million recorded in the first quarter of 2013 related to the reinstatement of the federal research and development tax credit retroactive to January 1, 2012...

  • Page 59
    ..., 2013 For the Three Months Ended Mar 31, Dec 31, 2013 2012 (in thousands, except per share data) Sep 30, 2012 Jun 30, 2012 Mar 31, 2012 Consolidated Statements of Operations Data: Online game Advertising Total Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing...

  • Page 60
    ... Three Months Ended Mar 31, Dec 31, 2013 2012 (as a percentage of revenue) Dec 31, 2013 Sep 30, 2013 Jun 30, 2013 Sep 30, 2012 Jun 30, 2012 Mar 31, 2012 Consolidated Statements of Operations Data: Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General...

  • Page 61
    ... $ 28,735 2013 Year Ended December 31, 2012 (in thousands) 2011 Consolidated Statements of Cash Flows Data: Acquisition of property and equipment Depreciation and amortization Cash flows provided by operating activities Cash flows provided by (used in) investing activities Cash flows provided by...

  • Page 62
    ... the purchase of our corporate headquarters building, and business acquisitions. Changes in our operating assets and liabilities used $67.8 million of cash in the twelve months ended December 31, 2012 , primarily due to a decrease in deferred revenue offset by increases in accounts receivable, other...

  • Page 63
    ... billion during the twelve months ended December 31, 2012. The primary uses of cash associated with investing activities were $954 million for the purchase of marketable securities, net of sales and maturities; $233.7 million for the purchase of our corporate headquarters building and $205.5 million...

  • Page 64
    ...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...

  • Page 65
    .... Durable virtual goods, such as tractors in FarmVille , represent virtual goods that are accessible to the player over an extended period of time. We recognize revenue from the sale of durable virtual goods ratably over the estimated average playing period of paying players for the applicable game...

  • Page 66
    ... average playing period. From July 2010 through September 2013, Facebook's proprietary virtual currency, Facebook Credits, was the primary in-game payment method for our games on the Facebook platform. Under the terms of our agreement, Facebook set the price our players pay for Facebook Credits and...

  • Page 67
    ...have a material impact on our financial statements. 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...

  • Page 68
    ... table presents the weighted-average grant date fair value of stock options and the related assumptions used to estimate the fair value in 2013, 2012 and 2011: 2013 Year Ended December 31, 2012 2011 Expected term, in years Risk-free interest rates Expected volatility Dividend yield Weighted...

  • Page 69
    ... 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 70
    ...Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Stockholders' Equity (Deficit) Consolidated Statements of Cash...

  • Page 71
    ... internal control over financial reporting as of December 31, 2013, based on the COSO criteria . We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2013 consolidated financial statements of Zynga Inc. and our report dated...

  • Page 72
    ... of December 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedule listed in the Index...

  • Page 73
    ...: Cash and cash equivalents Marketable securities Accounts receivable, net of allowance of $0 and $160 at December 31, 2013 and December 31, 2012, respectively Income tax receivable Deferred tax assets Restricted cash Other current assets Total current assets Long-term marketable securities Goodwill...

  • Page 74
    Table of Contents Zynga Inc. Consolidated Statements of Operations (In thousands, except per share data) 2013 Year Ended December 31, 2012 2011 Revenue: Online game Advertising Total revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative ...

  • Page 75
    ... Zynga Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands) 2013 Year Ended December 31, 2012 2011 Net income (loss) Other comprehensive income (loss): Change in foreign currency translation adjustment Net change on unrealized gains (losses) on available-for-sale investments...

  • Page 76
    ... and common stock Conversion of convertible preferred stock to common stock Vesting of ZSUs, net Issuance of Class A common stock from initial public offering, net of issuance costs Vesting of common shares following the early exercise of options Stock-based expense Tax cost from stock-based expense...

  • Page 77
    Table of Contents Zynga Inc. Consolidated Statements of Stockholders' Equity (continued) (In thousands) Common Stock Retained Earnings (Accumulated OCI $(1,447 401 $(1,046) Deficit) (603,542 304,902) (36,982) - (945,426) Total Stockholders Equity 1,825,503 26,115 (1,387) - 84,393 363 (9,303) (11,...

  • Page 78
    ... revenue Other liabilities Net cash provided by (used in) operating activities Investing activities: Purchases of marketable securities Sales of marketable securities Maturities of marketable securities Purchase of corporate headquarters building Acquisition of property and equipment Business...

  • Page 79
    ... 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 80
    ... 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 pay for our virtual currency using Facebook Credits (prior to July 2013...

  • Page 81
    ... implementation of Facebook Credits in our games, players could purchase our virtual goods through various widely accepted payment methods offered in the games and we recognized revenue based on the transaction price paid by the player. For revenue earned through certain mobile platforms, including...

  • Page 82
    ..., benefits and stock-based expense for our customer support and infrastructure teams. Cost of revenue also includes amortization expense related to purchased technology of $11.3 million, $38.5 million and $28.4 million for the years ended December 31, 2013, 2012 and 2011, respectively. Cash and Cash...

  • Page 83
    ... of the estimated useful lives of the improvements or the lease term. Business Combinations 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, which includes the...

  • Page 84
    ... 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 85
    ...net realizable value. Facebook is a significant distribution, marketing, promotion and payment platform for our social games. A significant portion of our 2013, 2012 and 2011 revenue was generated from players who accessed our games through Facebook. As of December 31, 2013 and December 31, 2012, 41...

  • Page 86
    ... thousands): December 31, 2013 December 31, 2012 Cash and cash equivalents: Cash Money market funds Corporate debt securities Total cash and cash equivalents Marketable securities: U.S. government and government agency debt securities Corporate debt securities Municipal securities Total $ 116,102...

  • Page 87
    ... quarter of 2012, we made the decision to discontinue development of certain games associated with technology and other intangible assets previously acquired from OMGPOP. Our updated financial forecast as of September 30, 2012 indicated a reduction of undiscounted cash flows expected to be generated...

  • Page 88
    ... the acquisition date fair value of the contingent consideration payable using probability-weighted discounted cash flow models, and applied a discount rate that appropriately captured a market participant's view of the risk associated with the obligations. In the fourth quarter of 2013, we updated...

  • Page 89
    ...in the fourth quarter of 2013. 2012 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...

  • Page 90
    ... the periods presented. The estimated useful life for the building is 39 years and is being amortized on a straight-line basis. 5. Acquisitions 2013 Acquisitions On June 19, 2013, we acquired Spooky Cool Labs LLC ("Spooky Cool Labs"), a developer of social casino games, for purchase consideration of...

  • Page 91
    ... workforce of the acquired business and expected synergies at the time of the acquisition. 2012 Acquisitions Acquisition of OMGPOP . In March 2012, we acquired 100% of the outstanding stock of OMGPOP, a provider of social games for mobile phones, tablets, PCs and social network sites, for purchase...

  • Page 92
    ... remaining useful lives of all identified acquired intangible assets were 2.5 years for developed technology, 2.2 years for trademarks, branding, and domain names, and 3.8 years for acquired lease intangibles. Amortization expense of intangible assets for the years ended December 31, 2013, 2012 and...

  • Page 93
    ...): 2013 Year Ended December 31, 2012 2011 Expected provision (benefit) at U.S. federal statutory rate State income taxes-net of federal benefit Income taxed at foreign rates Stock-based compensation Tax credits Tax reserve for uncertain tax positions Change in valuation allowance Change in earnings...

  • Page 94
    ... annual limitations under Section 382 of the Internal Revenue Code. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): December 31, 2010 Additions based on tax positions related to 2011 Additions for tax positions of prior years Reductions...

  • Page 95
    ...interest rate of three month LIBOR plus 0.75 percent. Interest payments were made quarterly and the three month LIBOR reset once per quarter. The amounts borrowed were collateralized by our corporate headquarters building. Concurrent with the execution of the loan agreement, to eliminate variability...

  • Page 96
    ... 2013, we reduced our work force by approximately 550 employees and closed or exited certain office and data-center facilities as part of an overall plan to better align our cost structure against market opportunities. As a result, we recorded restructuring charges of $42.9 million in the year ended...

  • Page 97
    ...June 2011, in connection with a service arrangement with a related party, we issued a warrant to purchase 1.0 million shares of our Class B common stock at an exercise price of $0.05 per share. We determined the fair value of the warrant using the Black-Scholes option-pricing model and revalued this...

  • Page 98
    ... of employee and consultant stock options, warrants, restricted stock and ZSUs in our consolidated statements of operations as follows (in thousands): 2013 Year Ended December 31, 2012 2011 Cost of revenue Research and development Sales and marketing General and administrative Total stock-based...

  • Page 99
    ... Unless otherwise determined by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of our Class A common stock on the first day of an offering or on the date of purchase. The ESPP offers a twelve-month look-back. The ESPP contains an automatic reset...

  • Page 100
    ... stock using the two-class method required for participating securities. Prior to the date of the initial public offering, we considered all series of our convertible preferred stock to be participating securities due to their non-cumulative dividend rights. Additionally, we consider shares issued...

  • Page 101
    ...-average employee equity awards were excluded from the calculation of diluted net income (loss) per share because their effect would have been anti-dilutive for the periods presented (in thousands): 2013 Year Ended December 31, 2012 2011 Stock options Warrants Restricted shares ZSUs Total 97...

  • Page 102
    ... the years ended December 31, 2013, 2012 and 2011 totaled $7.3 million, $11.2 million, and $14.4 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...

  • Page 103
    ... into in connection with the Company's initial public offering. The plaintiff seeks to represent a class of certain of the Company's shareholders who were subject to the lock-up agreements and who were not permitted to sell shares in an April 2012 secondary offering. The defendants removed the case...

  • Page 104
    ..., cash flows, or financial condition should such litigation be resolved unfavorably. We recognize legal expenses as incurred. 14. Geographical Information The following represents our revenue based on the geographic location of our players (in thousands): Revenue 2013 Year Ended December 31, 2012...

  • Page 105
    ... pursuant to this plan. Acquisition of NaturalMotion In February 2014, we acquired NaturalMotion Limited, a leading mobile game and technology developer, for consideration including $391 million in cash and the issuance of 39.8 million shares of Zynga Class A Common Stock. Approximately 11.6 million...

  • Page 106
    ... this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 2013...

  • Page 107
    ... to Zynga's Proxy Statement for its 2014 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2013. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required...

  • Page 108
    ... Equity (Deficit) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 2. Financial Statement Schedules Schedule II: Valuation and Qualifying Accounts Balance at Beginning of Allowance for Doubtful Accounts and Sales Credits Year Charged to Expenses/ Against Revenue Write...

  • Page 109
    ...Performance Cash Award Agreement Zynga Inc. 2011 Employee Stock Purchase Plan Form of Indemnification Agreement made by and between Zynga Inc. and each of its directors and executive officers Zynga Inc. Non-Employee Director Compensation Policy Zynga Inc. Change in Control Severance Benefit Plan 105...

  • Page 110
    ... and Release Agreement, dated August 12, 2013, between Zynga Inc. and David Ko Separation Letter and Release Agreement, dated August 12, 2013, between Zynga Inc. and Cadir Lee 2012 Compensation Information for Executive Officers Developer Addendum by and between Facebook, Inc. and Zynga Inc., dated...

  • Page 111
    ... 2011 2013 Compensation Information for Executive Officers 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...

  • Page 112
    ... the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Pursuant to applicable securities laws and regulations, the Registrant is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is...

  • Page 113
    ... Section 13 or 15(d) 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 21, 2014. Z YNGA I NC . By: /s/ Mark Vranesh Mark Vranesh Chief Financial Officer and Chief...

  • Page 114
    .... Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Mark Pincus Mark Pincus /s/ Don A. Mattrick...

  • Page 115
    ...pleased to confirm our offer to you of full-time employment with Zynga Inc., a Delaware corporation (the " Company "), in the position of Chief Operating Officer. You will report to the Company's Chief Executive Officer, Don Mattrick. The terms of our offer and the benefits currently provided by the...

  • Page 116
    ... an award of Zynga stock units (" ZSUs ") representing the opportunity to acquire 550,000 shares of the Company's Class A common stock subject to the terms and conditions of the Company's applicable equity incentive plan in effect at the time of grant (the " Plan "), and a ZSU agreement between you...

  • Page 117
    ...such outside activities, at all times during employment. In addition, you agree to make any and all filings, applications and submissions as may be required by the Company in connection with the Company's regulatory requirements related to real money gaming approvals and related business lines. Your...

  • Page 118
    ... the Code and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your separation from service with the Company, (b) the date of your death or...

  • Page 119
    Employment Offer Page 5 Attachments: Exhibit A Employee Invention Assignment and Confidentiality Agreement

  • Page 120
    Employment Offer Page 6 Exhibit A Employee Invention Assignment and Confidentiality Agreement

  • Page 121
    ... initially report to the Company's Chief Executive Officer, Don Mattrick. This letter (the "Updated Letter") amends and updates our original offer letter, dated July 1, 2010 (the "Prior Letter"), in its entirety. 1. Salary . Your new salary will be $325,000 per year (as adjusted from time to time...

  • Page 122
    ... on the 15th day of the month following your acceptance of this Updated Letter, and will have an exercise price equal to the fair market value on the date of grant. The Option will be subject to the terms and conditions of the Company's applicable equity incentive plan in effect at the time of grant...

  • Page 123
    ... the Code and the related adverse taxation under Section 409A, such payments will not be provided to you (or such shares issued) prior to the earliest of (a) the expiration of the six month period measured from the date of your separation from service with the Company, (b) the date of your death or...

  • Page 124
    ... understood this Updated Letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of my continued employment except as specifically set forth herein. /s/ Devang Shah Devang Shah Date signed: 12/11/2013

  • Page 125
    ...China) Zynga Game Canada Ltd. (Canada) Zynga Game Holdings Limited (Ireland) Zynga Game International Limited (Jersey) Zynga Game Ireland Limited (Ireland) Zynga Game Network India Private Limited (India) Zynga Germany GmbH (Germany) Zynga Luxembourg S.Ã r.l. (Luxembourg) Zynga U.K. Limited (United...

  • Page 126
    ... to the NaturalMotion Limited Option Plan and the NaturalMotion Limited Enterprise Management Incentive Scheme), Registration Statement (Form S-8 No. 333-188282) pertaining to the 2011 Equity Incentive Plan and 2011 Employee Stock Purchase Plan of Zynga Inc., Registration Statement (Form S-8 No. 333...

  • Page 127
    ... and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 21, 2014 /s/ Don A. Mattrick Don A. Mattrick Chief Executive Officer and...

  • Page 128
    ...process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 21, 2014 /s/ Mark Vranesh Mark Vranesh Chief Financial...

  • Page 129
    ..., Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge: 1. 2. The Company's Annual Report on Form 10-K for the year ended December 31, 2013 (the "Periodic Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act...