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ZYNGA INC
FORM 10-K
(Annual Report)
Filed 02/24/15 for the Period Ending 12/31/14
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 2015, 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
    ... 10-K (Annual Report) Filed 02/24/15 for the Period Ending 12/31/14 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...

  • Page 2
    ..., based upon the closing price of $3.21 of the registrant's Class A Common Stock as reported on the NASDAQ Global Select Market, was approximately $2.379 billion, which excludes 149.2 million shares of the registrant's common stock held on June 30, 2014 by current executive officers, directors, and...

  • Page 3
    ... Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Consolidated Financial and Other Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk Financial Statements and...

  • Page 4
    ...or agreements with key licensing partners, additional platform providers or any other key partners; our ability to launch and monetize successful new games and features for web and mobile in a timely manner and the success of these games and features; the process of integrating NaturalMotion Limited...

  • Page 5
    ... to illegitimate credit card activity and other security risks, including sales or purchases of virtual goods used in our games through unauthorized or illegitimate third-party websites; our ability to manage risks, costs and other challenges associate with international expansion; the impact...

  • Page 6
    ... be considered as an indication of future performance. Factors that could cause or contribute to such differences include, but are not limited to, those described in the section titled "Risk Factors." We undertake no obligation to update any forward-looking statements for any reason to conform these...

  • Page 7
    ...data analytics with creative game design enables us to create a superior player experience. • • In 2014, we launched several new games on mobile including FarmVille 2: Country Escape, Hit It Rich! Slots, NFL Showdown, New Zynga Poker, New Words With Friends, Wizard of Oz Slots and Looney Tunes...

  • Page 8
    ... distribution on mobile platforms such as iOS and Android and social networking sites such as Facebook. Our games are free to play, span a number of categories and attract a community of players that is demographically and geographically diverse. We operate our games as live services and update them...

  • Page 9
    ... well as offer our games on multiple platforms so players can access our games on various devices. For example, in addition to multiple in-game features and events, this year we released Hit It Rich! Slots, New Zynga Poker and Wizard of Oz Slots for our Casino franchise, FarmVille 2: Country Escape...

  • Page 10
    ... 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 and Licensing Our advertising services offer creative ways for marketers...

  • Page 11
    ... and the Google Play App Store for Android devices. In 2014 an increasing number of our players were generated from mobile platforms. Our use of the Facebook platform and data derived from Facebook is governed by Facebook's standard terms of service. Our use of mobile platforms and data derived from...

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

  • Page 13
    ...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 third parties are currently being tested by a number of claims, including actions based on invasion of...

  • Page 14
    ...advertisements and offers in our games. Additionally, we generally experience increases in game downloads and resulting online games revenues in the fourth quarter and first quarter corresponding to increases in smartphone and tablet purchases during the holiday shopping season. Employees Our future...

  • Page 15
    ... to players or advertisers. We expect to launch several games in 2015, including FarmVille: Harvest Swap, Empires and Allies , Dawn of Titans and Tiger Woods Golf . New games that we introduce need to generate sufficient bookings and revenues to offset the associated development and marketing costs...

  • Page 16
    ... growing number of players switching from web-based to mobile games, the changing mobile landscape and the interests of players on mobile platforms; attract, retain and motivate talented game designers, product managers and engineers who have experience developing games for mobile platforms; partner...

  • Page 17
    ...services over our own, our operating results could suffer. Competition in our industry is intense. Many new games are introduced in each major industry segment (mobile, web, and PC free-todownload), but only a relatively small number of "hit" titles account for a significant portion of total revenue...

  • Page 18
    ...of Facebook, Apple, Google or other third party platforms or accounting policies promulgated by the SEC and national accounting standards bodies affecting software and virtual goods revenue recognition could further significantly affect the way we report revenue related to our products. Such changes...

  • Page 19
    ... and conditions for applications and developers. Facebook is currently the largest single distribution, marketing, promotion and payment platform for our games. To date, we have derived a significant portion of our bookings (43% in 2014) and revenue (51% in 2014) and acquired a significant number of...

  • Page 20
    ... game offerings; Facebook changes how the personal information of its users is made available to application developers on the Facebook platform or is able to be shared by users; Facebook modifies or interprets its terms of service or other policies in a manner that impacts our ability to advertise...

  • Page 21
    ...including Apple's App Store for iOS devices and the Google Play App Store for Android devices. Our games are distributed on these platforms and the virtual items we sell in our games are purchased using the payment processing systems of these platform providers. In the fourth quarter of 2014, 60% of...

  • Page 22
    ... of our revenues from the sale of virtual goods within our games for smartphones and tablets that run Apple's iOS or Google's Android operating system. Unlike the Apple ecosystem in which Apple controls both the device (iPhone, iPod Touch and iPad) and the storefront (Apple's App Store), the Android...

  • Page 23
    ...-of-service attacks. Because of our prominence in the social game industry, we believe we are a particularly attractive target for hackers. In addition, our games involve the storage and transmission of players' personal information in our facilities and on our equipment, networks and corporate...

  • Page 24
    ..., financial and management controls, and our reporting systems and procedures by, among other things monitoring and updating our technology infrastructure to maintain high performance and minimize down time; enhancing information and communication systems to ensure that our employees and offices...

  • Page 25
    ...impact our financial performance or that of the acquired company; risks associated with our expansion into new international markets and doing business internationally, including those described under the risk factor caption "Expansion into international markets is important for our strategy, and as...

  • Page 26
    ... 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 27
    .... Although it is important to our future success that we develop new games that become popular with players, it is possible that these games could cause players to reduce their playing time and purchase of virtual items in our existing games. We plan to cross-promote our new games in our other...

  • Page 28
    ...not achieve profitability. The industry in which we operate is highly competitive and rapidly changing, and relies heavily on successful new product launches and compelling content, products and services. As such, if we fail to deliver such content, products and services, do not execute our strategy...

  • Page 29
    ...team. The loss of our Chief Executive Officer or other members of senior management could harm our business. In addition, our ability to execute our strategy depends on our continued ability to identify, hire, develop motivate and retain highly skilled employees, particularly game designers, product...

  • Page 30
    ... our headquarters is located. If we are unable to retain our senior management team and our key employees, are unable to continue to hire highly skilled employees our business could be harmed. Moreover, if our team fails to work together effectively to execute our plans and strategies on a timely...

  • Page 31
    ... 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, or...

  • Page 32
    ... 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 33
    ... 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 these current...

  • Page 34
    ...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 35
    ... service agreements with third parties. We use licensed intellectual property as a creative asset in certain games such as Looney Tunes Dash!, NFL Showdown and Hit It Rich! Slots and have built many of our games on proprietary source code, such as Unity. Proprietary licenses typically limit our use...

  • Page 36
    ... works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change...

  • Page 37
    ...regarding privacy 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...

  • Page 38
    ... of regulation than other social game applications and, if so, what this regulation should include. If new casino-themed regulations are imposed certain of our casino-themed games, including Zynga Poker, Zynga Poker Classic and Hit It Rich! Slots , may become subject to the rules and regulations and...

  • Page 39
    ... party social networks and 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...

  • Page 40
    ...line of business or we may lose players and we may curtail our efforts in the RMG market. If we fail to anticipate or successfully develop new games for new technologies, platforms and devices, the quality, timeliness and competitiveness of our games could suffer. The games industry is characterized...

  • Page 41
    ...require substantial recovery time and experience significant expenditures in order to resume operations. We are subject to contractual covenants which place certain limitations on how we manage our business. We have not drawn down on our credit agreement (as defined herein), but if we do use this as...

  • Page 42
    ...may hold this voting power for the foreseeable future, subject to additional issuances of stock by the company or sales by Mr. Pincus. This concentrated voting control limits the ability of our other stockholders to influence corporate matters and could adversely affect the market price of our Class...

  • Page 43
    ...financial performance of our commercial partners, such as Facebook, Apple and Google; 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...

  • Page 44
    ... option on 3,848,472 shares was released on or prior to February 11, 2015. In addition, we issued approximately 1.1 million shares of Class A common stock to employees in connection with our 2014 bonus program. These shares were issued out of the shares reserved under our 2011 Equity Incentive Plan...

  • Page 45
    ...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 46
    ...These additional domestic and international facilities total approximately 210,000 square feet, excluding restructured properties. We signed a lease for additional space in London, England in February 2015. We believe that our existing facilities are sufficient for our current needs. We believe that...

  • Page 47
    ... any future earnings and do not expect to pay dividends in the foreseeable future. Issuer Purchases of Equity Securities On October 24, 2012, we announced that our Board of Directors authorized a stock repurchase program allowing us to repurchase up to $200 million of our outstanding shares of Class...

  • Page 48
    ... 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, 2014. 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...

  • Page 49
    ... Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected in the future. 2014 Consolidated Statements of Operations Data: Revenue: Online game Advertising and other Total revenue Costs and expenses: Cost of revenue Research and development Sales...

  • Page 50
    ...-Key Metrics-Key Operating Metrics-ABPU" for more information on how we define and calculate ABPU. Stock-based expense included in the statements of operations data above was as follows: 2014 2013 Year Ended December 31, 2012 2011 2010 Cost of revenue Research and development Sales and marketing...

  • Page 51
    ... companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure. The following table is a reconciliation of revenue to bookings for each of the periods presented: 2014 2013 Year Ended December 31, 2012 (in thousands) 2011 2010...

  • Page 52
    ... 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 53
    ... 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 54
    ... to our players. On platforms other than Facebook, players purchase our virtual goods through various widely accepted payment methods offered in the games, including PayPal, Apple iTunes accounts, Google Wallet, credit cards and direct wires. Advertising and other. Advertising revenue primarily...

  • Page 55
    ... the measurement date. Under this metric, an individual who plays two different games in the same 30-day period is counted as two MAUs. Similarly, an individual who plays the same game on two different platforms or social networks (e.g., Facebook.com, Zynga.com, iPad, Android Phone, iPhone, etc.) in...

  • Page 56
    ... of 2014 and when comparing the three months ended December 31, 2014 to December 31, 2013. Growth in average DAUs, MAUs and MUUs in the first and second quarters of 2014 was due to increases in mobile users from FarmVille 2: Country Escape and Hit it Rich! Slots, both launched on mobile platforms in...

  • Page 57
    ... our players through the sale of virtual goods and advertising. Recent Developments • Game Launches. We launched several new games in 2014, including Hit it Rich! Slots, FarmVille 2: Country Escape, NFL Showdown, New Words with Friends, New Zynga Poker, Wizard of Oz Slots and Looney Tunes Dash! on...

  • Page 58
    ... related to the 2014 plan. Factors Affecting Our Performance Platform agreements. Our games are primarily distributed, marketed and promoted through third parties, primarily Facebook, Apple's App store for iOS and the Google Play App Store for Android devices. Virtual goods for our games purchased...

  • Page 59
    ... periods presented as a percentage of revenue for those periods: 2014 For the Year Ended December 31, 2013 2012 Consolidated Statements of Operations Data : Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Impairment of intangible...

  • Page 60
    ... increase in online game revenue of $47.1 million from Hit it Rich! Slots . All other games accounted for the remaining net decrease of $34.8 million. International revenue as a percentage of total revenue was 38% and 40% in 2014 and 2013, respectively. In 2014, FarmVille 2 and Zynga Poker were our...

  • Page 61
    ... of deferred revenue generated in prior periods at the time of a change in estimate. These changes in estimates resulted in a $0.01 increase in our reported earnings per share for the year ended December 31, 2013. For 2012, changes in our estimated average life of durable virtual goods resulted in...

  • Page 62
    ... in stock-based expense primarily due to forfeiture credits resulting from employee attrition, a decrease of $9.3 million in depreciation and amortization expense and a decrease of $7.9 million in payment processing fees. Research and development Year Ended December 31, 2014 2013 (in thousands) 2012...

  • Page 63
    ...stock-based expense primarily due to forfeiture credits resulting from employee attrition, an $11.0 million decrease in headcount-related expenses, offset by a $17.6 million increase in restructuring expense. Interest income Year Ended December 31, 2014 2013 (in thousands) 2012 2013 to 2014 % Change...

  • Page 64
    ...in the twelve months ended December 31, 2014 compared to the same period of the prior year. This decrease was attributable primarily to the incremental benefit of $5.0 million recorded in the first quarter of 2013 related to the recognition of Federal research and development tax credits and the net...

  • Page 65
    ... results of operations for a full year or any future period. Dec 31, 2014 Consolidated Statements of Operations Data: Online game Advertising and other Total Revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Impairment of intangible...

  • Page 66
    ... $ 28,735 2014 Year Ended December 31, 2013 (in thousands) 2012 Consolidated Statements of Cash Flows Data: Acquisition of property and equipment Depreciation and amortization Cash flows provided by (used in) operating activities Cash flows provided by (used in) investing activities Cash flows...

  • Page 67
    ... 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...

  • Page 68
    ... months ended December 31, 2014, the primary inflow of cash was $16.4 million of cash receipts from exercises of employee stock options and employee stock purchase plan. For the twelve months ended December 31, 2013, the primary outflow of cash associated with financing activities was $100.0 million...

  • Page 69
    ... 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 experience. Players can pay...

  • Page 70
    ... and distributors. Upon redemption of a game card in one of our games and delivery of the purchased virtual currency to the player, these amounts are reclassified to deferred revenue. Advance payments from customers that are non-refundable and relate to non-cancellable contracts that specify our...

  • Page 71
    ... of 2013, Facebook's proprietary virtual currency, Facebook Credits, was the primary in-game payment method for our games played on the Facebook platform. Under the terms of our agreement with Facebook, Facebook set the price our players pay for Facebook Credits and collected the funds from the sale...

  • Page 72
    ...current liabilities of $33.3 million. 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...

  • Page 73
    ...-based expense for stock options on a ratable 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...

  • Page 74
    ... 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 75
    ... ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Zynga Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Report of Ernst & Young, LLP, Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Consolidated...

  • Page 76
    ... of Zynga Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed...

  • Page 77
    ... audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2014 consolidated financial statements of Zynga Inc. and our report dated February 24, 2015 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP San Francisco, CA February 24...

  • Page 78
    Table of Contents Zynga Inc. Consolidated Balance Sheets (In thousands, except par value) December 31, 2014 December 31, 2013 Assets Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net of allowance of $0 at December 31, 2014 and December 31, 2013, Income tax ...

  • Page 79
    Table of Contents Zynga Inc. Consolidated Statements of Operations (In thousands, except per share data) 2014 Year Ended December 31, 2013 2012 Revenue: Online game Advertising and other Total revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and ...

  • Page 80
    ... Zynga Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands) 2014 Year Ended December 31, 2013 2012 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 81
    Table of Contents Zynga Inc. Consolidated Statements of Stockholders' Equity (In thousands) Common Stock Shares 721,592 42,...Retained Earnings (Accumulated Deficit) $ (394,094 209,448) - $ (603,542 304,902) - (36,982) - (945,426) (945,426 789) - (225,900) - (1,172,115) Total Stockholders Equity $...

  • Page 82
    ... costs Taxes paid related to net share settlement of equity awards Repurchases of common stock Proceeds from employee stock purchase plan and exercise of stock options Excess tax benefits from stock-based awards Repayment of debt Net cash provided by (used in) financing activities Effect of exchange...

  • Page 83
    ... Company") develops, markets, and operates 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 operations are headquartered in San Francisco, California...

  • Page 84
    ... and distributors. Upon redemption of a game card in one of our games and delivery of the purchased virtual currency to the player, these amounts are reclassified to deferred revenue. Advance payments from customers that are non-refundable and relate to non-cancellable contracts that specify our...

  • Page 85
    ... of 2013, Facebook's proprietary virtual currency, Facebook Credits, was the primary in-game payment method for our games played on the Facebook platform. Under the terms of our agreement with Facebook, Facebook set the price our players pay for Facebook Credits and collected the funds from the sale...

  • Page 86
    ... of selling price. We offer certain promotions to customers from time to time that include the sale of in-game virtual currency via the sale of a game card and also other deliverables such as a limited edition ingame virtual good. Cost of Revenue Amounts recorded as cost of revenue relate to direct...

  • Page 87
    ... the shorter 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...

  • Page 88
    ...various business combinations. In 2012, we recorded a $95.5 million impairment charge related to OMGPOP intangibles. Stock-Based Expense Prior to our IPO 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...

  • Page 89
    ...-based expense for stock options on a ratable 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...

  • Page 90
    ...net realizable value. Facebook is a significant distribution, marketing, promotion and payment platform for our social games. A significant portion of our 2014, 2013 and 2012 revenue was generated from players who accessed our games through Facebook. As of December 31, 2014 and December 31, 2013, 22...

  • Page 91
    ... cost basis, resulting in unrealized losses on marketable securities. As of December 31, 2014, we had unrealized losses of $0.5 million related to marketable securities that had a fair value of $621.5 million. As of December 31, 2013, we had unrealized losses of $0.3 million related to marketable...

  • Page 92
    ... milestones for each of the twelve month periods ended June 30, 2014 and June 30, 2015. Under the terms of the agreement, the maximum amount that could be earned and payable by us is $100 million. As of December 31, 2014, based on our updated assessment of Spooky Cool's expected performance...

  • Page 93
    ... statements of operations upon selling these assets in the fourth quarter of 2013. The net effect of these changes was a $5.3 million decrease in income from operations, a $3.8 million decrease in net income and no impact on reported earnings per share. In the fourth quarter of 2013, we also changed...

  • Page 94
    ... the periods presented. The estimated useful life for the building is 39 years and is being amortized on a straightline basis. 5. Acquisitions On February 11, 2014, we acquired 100% of the outstanding stock of NaturalMotion, a provider of games for mobile phones and tablets domiciled in the U.K. We...

  • Page 95
    ... which may change subject to the completion of certain tax returns. On the acquisition date, we assumed unvested NaturalMotion employee stock options and exchanged them for options to purchase shares of our Class A Common Stock with a preliminary fair value of $29.7 million. $0.7 million of this...

  • Page 96
    ... Acquisitions On June 19, 2013, we acquired Spooky Cool Labs LLC ("Spooky Cool Labs"), a developer of social casino games, for purchase consideration of approximately $30.6 million, which consisted of cash paid of $19.8 million and contingent consideration with an acquisition date fair value of $10...

  • Page 97
    ... useful lives of all identified acquired intangible assets are 2.5 years for developed technology, 1.8 years for trademarks, branding, and domain names, and 3.4 years for acquired lease intangibles. Amortization expense of intangible assets for the years ended December 31, 2014, 2013 and 2012...

  • Page 98
    ...): 2014 Year Ended December 31, 2013 2012 Expected benefit at U.S. federal statutory rate State income taxes-net of federal benefit Income taxed at foreign rates Equity-based compensation Tax credits Tax reserve for uncertain tax positions Change in valuation allowance Change in earnings mix...

  • Page 99
    ...December 31, 2014 and December 31, 2013, the Company recorded a valuation allowance of $127.9 million and $92.1 million, respectively, against its net deferred tax assets. The increase in valuation allowance for 2014 is primarily related to current year net operating losses generated and the partial...

  • Page 100
    ... Revenue Code. As of December 31, 2014, the Company had approximately $140.9 million in total unrecognized tax benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): December 31, 2011 Additions based on tax positions related to 2012...

  • Page 101
    ... within our consolidated statement of operations as follows: Cost of Revenue $1.2 million, Research and Development $9.6 million, Sales and Marketing $1.5 million and General and Administrative $12.0 million. Q1 2014 Restructuring Plan During the three months ended March 31, 2014, our board of...

  • Page 102
    ... plans from prior years (in thousands): Three Months Ended March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 Twelve Months Ended December 31, 2014 Restructuring liability-beginning of period Restructuring expense and adjustments Cash payments Restructuring liability (2013 Plans)-end...

  • Page 103
    ...table presents the weighted-average grant date fair value of stock options and the related assumptions used to estimate the fair value in our consolidated financial statements: 2014 Year Ended December 31, 2013 2012 Expected term, in years Risk-free interest rates Expected volatility Dividend yield...

  • Page 104
    ... related to grants of employee and consultant stock options, restricted stock and ZSUs in our consolidated statements of operations as follows (in thousands): 2014 Year Ended December 31, 2013 2012 Cost of revenue Research and development Sales and marketing General and administrative Total stock...

  • Page 105
    ...,889 Our 2011 Employee Stock Purchase Plan ("2011 ESPP"), was approved by our Board in September 2011 and by our stockholders in November 2011 and amended in August 2012. On December 31, 2014, the maximum number of shares of our Class A common stock that were authorized to be issued under our 2011...

  • Page 106
    ... 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 107
    ...-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): 2014 Year Ended December 31, 2013 2012 Stock options Warrants Restricted shares ZSUs Total 104...

  • Page 108
    ... We have entered into several service contracts for hosting of data systems and payment processing. Future minimum purchase commitments that have initial or remaining non-cancelable terms as of December 31, 2014, are as follows (in thousands): Year ending December 31: 2015 2016 2017 $ 8,302 4,659...

  • Page 109
    ... the federal securities laws by issuing false or misleading statements regarding the Company's business and financial projections. The plaintiffs seek to represent a class of persons who purchased or otherwise acquired the Company's securities between February 14, 2012 and July 25, 2012. The First...

  • Page 110
    ... On March 16, 2012, Spear & Sons Limited ("Spear") filed suit against the Company and Zynga UK Limited before the Paris Civil Court ( Tribunal de Grande Instance ), claiming that the Company's Words with Friends game infringed Spear's copyright and trademark in relation to its Scrabble game, as well...

  • Page 111
    ...cash flows, or financial condition should such litigation be resolved unfavorably. We recognize legal expenses as incurred. 13. Geographical Information The following represents our revenue based on the geographic location of our players (in thousands): Revenue 2014 Year Ended December 31, 2013 2012...

  • Page 112
    ...limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers...

  • Page 113
    ... to Zynga's Proxy Statement for its 2015 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2014. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required...

  • Page 114
    ... Accounts Balance at Beginning of Year Charged to Expenses/ Against Revenue Write-Offs Net of Recoveries Balance at End of Year Page No. 74 75 76 77 78 79 80 Allowance for Doubtful Accounts and Sales Credits Year Ended December 31, 2014 Year Ended December 31, 2013 Year Ended December 31, 2012...

  • Page 115
    ...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 112...

  • Page 116
    ... 2011 Offer Letter between Zynga Inc. and Clive Downie, dated October 21, 2013 Offer letter between Zynga Inc. and Devang Shah, dated December 4, 2013 Offer letter between Zynga Inc. and David Lee, dated April 7, 2014 Developer addendum by and between Facebook, Inc. and Zynga Inc, dated May 14, 2010...

  • Page 117
    ...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. Amended and Restated Revolving Credit Agreement, dated...

  • Page 118
    ... 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 not subject...

  • Page 119
    ...(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 24, 2015. Z YNGA I NC . By: /s/ David Lee David Lee Chief Financial Officer and Chief Accounting Officer 116

  • Page 120
    ... 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 Don A. Mattrick /s/ David Lee David Lee...

  • Page 121
    ...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 122
    ... Employee Stock Purchase Plan of Zynga Inc.; of our reports dated February 24, 2015, with respect to the consolidated financial statements and schedule of Zynga Inc. and the effectiveness of internal control over financial reporting of Zynga Inc. included in this Annual Report (Form 10-K) of Zynga...

  • Page 123
    ... and report financial information; and 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. b. Date: February 24, 2015 /s/ Don. A Mattrick Don A. Mattrick Chief Executive Officer...

  • Page 124
    ...information; and 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. b. Date: February 24, 2015 /s/ David Lee David Lee Chief Financial Officer (Principal Financial and Accounting...

  • Page 125
    ... Don A. Mattrick, Chief Executive Officer of Zynga Inc. (the "Company"), and David Lee, 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, 2014 (the "Periodic Report"), fully...