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ZYNGA INC
FORM 10-K
(Annual Report)
Filed 02/19/16 for the Period Ending 12/31/15
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 2016, 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
    ZYNGA INC FORM 10-K (Annual Report) Filed 02/19/16 for the Period Ending 12/31/15 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 ...

  • Page 2
    ...x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-K OR ¨ For the transition period from to Commission File Number: 001...

  • Page 3
    ... 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 4
    ... web and mobile in a timely manner and the success of these games and features; our ability to sustain player engagement, optimize our games to increase long-term player retention and monetize our live games (including our Slots games, Words With Friends , Zynga Poker , and FarmVille franchise games...

  • Page 5
    ..., Google or other Android platform providers; our ability to attract and retain key employees in light of business challenges, including employees key to franchise games and planned launches and senior management; the impact of change in our senior management team and management teams, new hires...

  • Page 6
    ... changes in corporate strategy or management; our ability to understand industry trends, such as seasonality, and position our business to take advantage of these trends; our ability to build on our social legacy in both our web games and our new mobile games and build a player network across mobile...

  • Page 7
    ...game services. We develop, market and operate social games as live services played on mobile platforms such as iOS and Android and social networking sites such as Facebook. Generally, all of our games are free to play, and we generate revenue through the in-game sale of virtual goods and advertising...

  • Page 8
    ... games on various devices. For example, in addition to multiple in-game features and events, this year we released Words on Tour and FarmVille: Harvest Swap in the Casual category, Black Diamond Casino and Princess Bride Slots in the Social Casino category and Empires & Allies in the Action Strategy...

  • Page 9
    ... 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 and Licensing Our advertising services offer...

  • Page 10
    ... the Google Play App Store for Android devices. In 2015, 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 except for certain limited addenda. Our use of mobile...

  • Page 11
    ... rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business, thereby harming our operating results. Companies in the Internet, games, social media, technology and other industries may own large numbers of patents...

  • 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
    ... a partnership agreement with bwin.party to develop, test and operate certain real money online poker and casino games in the United Kingdom which ended in February 2015. Seasonality During fiscal year 2015, approximately 23% of our revenue was derived from advertising and other. Advertising budgets...

  • Page 14
    ... key employees or the inability to hire such employees when needed could have a material adverse impact on our business and financial condition. As of December 31, 2015, we had 1,669 full-time employees. Available Information Our website is located at www.zynga.com and our investor relations website...

  • Page 15
    ... Words on Tour , Empires & Allies , FarmVille: Harvest Swap , Mountain Goat Mountain , Princess Bride Slots and Black Diamond Casino in 2015. In order to generate profits, new games that we introduce need to generate sufficient bookings and revenues to offset the associated development and marketing...

  • Page 16
    ... 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-to-download), but only a relatively small number of "hit" titles account for a significant portion of total revenue in each segment...

  • Page 17
    ... of Financial Condition and Results of Operations-Critical Accounting Policies -Revenue Recognition" in this Annual Report on Form 10-K. Given the rapidly evolving social game industry in which we operate, our historical operating results may not be useful in predicting our future operating results...

  • Page 18
    ...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 be harmed. For example, in September 2014, we launched a new version of Zynga Poker which...

  • Page 19
    ...add fees associated with access to and use of the Facebook platform, alter how we are able to advertise on the Facebook platform, change how the personal information of its users is made available to application developers on the Facebook platform or restrict how Facebook users can share information...

  • Page 20
    ... Facebook users can share information with friends. Any such changes in the future could significantly alter how players experience or interact within our games, which may harm our business. If we violate, or if Facebook believes we have violated its terms of service, it could limit or discontinue...

  • Page 21
    ... of the Apple App Store and the Google Play App Store. If our players or potential players are not able to access our games through these platforms or encounter difficulties in doing so, we may lose players, resulting in decreased bookings and revenue. The level of service provided by these...

  • Page 22
    ... success of such mobile game launches; continued worldwide growth in the adoption and use of Facebook and other social networks on which our platform relies; our ability to maintain the popularity of our games on Facebook, iOS, Android and other platforms; the transition of our players from the web...

  • Page 23
    ...disclose sensitive information in order to gain access to our players' data or our advertisers' 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, and...

  • 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
    ...'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 26
    ... 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 goods from unauthorized...

  • 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
    ... titled Management's Discussion and Analysis of Financial Condition and Results of Operations-Key Metrics," we have recently updated our calculation of these metrics to take into account our business's transition to mobile and we rely on the veracity of data provided by individuals and reported by...

  • Page 29
    ... 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 30
    .... For example, in September 2014, we released a new version of our poker offering that was intended to reimagine the game with an entirely new experience for mobile and replace the original game for mobile applications. Due to playability issues, some players playing on older devices reported that...

  • Page 31
    ... experience a decline in bookings and revenue. Any decline in the growth of the mobile market or in the use of mobile devices for games could harm our business. We have a new business model and a short operating history, which make it difficult to evaluate our prospects and future financial results...

  • Page 32
    ... with applicable foreign laws and regulations, including privacy laws and laws relating to content and consumer protection (for example, the United Kingdom's Office of Fair Trading issued new principles in January 2014 relating to in-app purchases in free-to-play games that are directed toward...

  • 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
    ... also obtained rights to use intellectual property through licenses and service agreements with third parties. We use licensed intellectual property as a creative asset in certain games such as Looney Tunes Dash!, Hit it Rich! Slots, Wizard of Oz Slots and Black Diamond Casino and have built many...

  • Page 36
    ... privacy issues worldwide is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the Internet and mobile platforms are under increased public scrutiny...

  • 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
    ... level or different type of regulation than other social game applications and, if so, what this regulation should include. If new casinothemed regulations are imposed certain of our casino-themed games, including Zynga Poker, Zynga Poker Classic, Hit it Rich! Slots , Wizard of Oz Slots and Black...

  • 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
    .... For example, in 2015 the United Kingdom enacted the Diverted Profits Tax. In addition, the current U.S. administration and key members of Congress have made public statements indicating that tax reform is a priority. Any changes in the taxation of our international business activities may impact...

  • Page 41
    ... per share and our Class A common stock has one vote per share. Mark Pincus, our Chief Executive Officer, beneficially owned approximately 63% of the total voting power of our outstanding capital stock as of December 31, 2015. As a result, Mr. Pincus has significant influence over the management and...

  • Page 42
    ... 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; our announcement of significant transactions; the use by investors or analysts of third-party data...

  • Page 43
    ... Class A common 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...

  • Page 44
    ..., that we file annual, quarterly and current reports with respect to our business and operating results. As a result of disclosure of information in this Annual Report on Form 10-K and in our other public filings with the SEC as required of a public company, our business and financial condition have...

  • Page 45
    ... 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. Fourth Quarter 2014 First Quarter 2015 Second Quarter 2015 Third Quarter 2015 Fourth Quarter 2015 $2.92...

  • Page 46
    ...of Contents The following graph compares, for the year ended December 31, 2015, the cumulative total stockholder return for Zynga's Class A common stock, the Standard and Poor's 500 Stock Index (the "S&P 500 Index") and the NASDAQ 100. The measurement points in the graph below are December 16, 2011...

  • Page 47
    ... Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected in the future. 2015 Consolidated Statements of Operations Data: Revenue: Online game Advertising and other Total revenue Costs and expenses: Cost of revenue Research and development Sales...

  • Page 48
    ... all periods presented. Stock-based expense included in the statements of operations data above was as follows: 2015 2014 Year Ended December 31, 2013 2012 2011 Cost of revenue Research and development Sales and marketing General and administrative Total stock-based compensation 2015 4,547 94,548...

  • Page 49
    ... 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 50
    ...,274 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 durable virtual goods or as virtual goods are consumed; adjusted EBITDA does not reflect income tax expense; adjusted...

  • Page 51
    ... some of the most successful social games in the industry. Our games are accessible on mobile platforms, Facebook and other social networks and Zynga.com. Our games are generally available for free, and we generate revenue through the in-game sale of virtual goods and advertising services. We are...

  • Page 52
    ...in the games, including PayPal, Apple iTunes accounts, Google Wallet and credit cards. Advertising and other. Advertising revenue primarily includes branded virtual goods and sponsorships, engagement ads and offers, mobile and display ads and other. We generally report our advertising revenue net of...

  • Page 53
    ... analytics systems. The numbers for these operating metrics are calculated using internal company data based on tracking of user account activity. We use the information provided by third parties, including third party network logins provided by platform providers, to help us track whether a player...

  • Page 54
    ... 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 55
    ... months ended December 31, 2015 to December 31, 2014. These declines in average DAUs, MAUs and MUUs were due to declines in users for our existing games such as FarmVille 2 and Zynga Poker which were not offset by the contribution from newer titles such as Wizard of Oz Slots and Empires & Allies...

  • Page 56
    ...across all of our players through the sale of virtual goods and advertising. Recent Developments • Game Launches . We launched several new games in 2015, including Words on Tour , Empires & Allies , Mountain Goat Mountain and Black Diamond Casino on mobile platforms and FarmVille: Harvest Swap and...

  • Page 57
    ..., 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 are purchased through the payment processing systems of these platform providers. To date, we have generated a significant...

  • Page 58
    ... our ability to develop a successful mobile network, obtain new players and retain existing players on new and existing social networks and attract advertisers. In the third quarter of 2015, we acquired Rising Tide Games, a provider of social casino games for mobile and web platforms which expanded...

  • Page 59
    ... discontinued in the second quarter of 2015. All other games accounted for the remaining net decrease of $20.8 million. International revenue as a percentage of total revenue was 34% and 38% in 2015 and 2014, respectively. In 2015, FarmVille 2, Zynga Poker , Hit It Rich! Slots , FarmVille 2: Country...

  • Page 60
    ... partner, offset by a $5.6 million decrease in in-game sponsorships and a $2.2 million decrease in in-game offers, engagement ads, and other advertising revenue. Cost of revenue Year Ended December 31, 2015 2014 (in thousands) 2013 2014 to 2015 % Change 2013 to 2014 % Change Cost of revenue...

  • Page 61
    ...Oz Slots and Empires & Allies , a $2.6 million increase in marketing software costs and a $1.6 million increase in stock-based expense, offset by an $11.3 million decrease in other marketing costs. 2014 Compared to 2013. Sales and marketing expenses increased $53.0 million in the twelve months ended...

  • Page 62
    ...related to the sale of an equity investment in the first quarter of 2015 and a $1.2 million increase in net sublease rental income. 2014 Compared to 2013. Other income (expense), net increased $11.6 million in the twelve months ended December 31, 2014 as compared to the same period of the prior year...

  • Page 63
    ..., 2015 For the Three Months Ended Mar 31, Dec 31, Sep 30, 2015 2014 2014 (in thousands, except per share data) Jun 30, 2014 Mar 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...

  • Page 64
    ...Three Months Ended Mar 31, Dec 31, 2015 2014 (users in millions) 48 N/A N/A 51 N/A N/A 60 62 N/A 71 73 N/A 64 66 71 66 65 77 77 82 89 74 79 86 (2) (3) In the first quarter of 2015, the company modified its calculation to take into account our business's transition to mobile and updates to...

  • Page 65
    ... Resources 2015 Year Ended December 31, 2014 (in thousands) 2013 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 66
    ... 2013, including a $157.1 million decline in deferred revenue offset by increases in accounts receivable and other assets. Investing Activities Investing activities resulted in cash inflow of $749.6 million during the twelve months ended December 31, 2015. The primary inflows of cash associated with...

  • Page 67
    ...used $93.5 million during the twelve months ended December 31, 2015. The primary outflow of cash associated with financing activities was the repurchases of Class A common stock of $88.4 million in the fourth quarter of 2015. The remaining $10.5 million of share repurchases were recorded in accounts...

  • Page 68
    ...with our acquisition of Rising Tide Games. This number may change over time as we continue to evaluate the likelihood of payment of the contingent consideration. Under the terms of the agreement, the maximum amount that could be earned and payable by us is $140.0 million. We do not have any material...

  • Page 69
    .... 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 local currency payments when...

  • Page 70
    ... impact our reported earnings per share for the twelve months ended December 31, 2015. From July 2010 through the third quarter 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...

  • Page 71
    ... 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...

  • Page 72
    ... grant date fair value 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 the use of the following assumptions: expected volatility of our Class A common stock, which...

  • Page 73
    ... 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 74
    ... denominated in currencies other than the U.S. dollar, we believe such a change would not have a material impact on our results of operations. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to...

  • Page 75
    Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Zynga Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated ...

  • Page 76
    ... internal control over financial reporting as of December 31, 2015, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2015 consolidated financial statements of Zynga Inc. and our report dated...

  • Page 77
    ... of Zynga Inc. as of December 31, 2015 and 2014, 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, 2015. Our audits also included the financial statement schedule listed...

  • Page 78
    ... current assets Long-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 current...

  • Page 79
    Table of Contents Zynga Inc. Consolidated Statements of Operations (In thousands, except per share data) 2015 Year Ended December 31, 2014 2013 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) 2015 Year Ended December 31, 2014 2013 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
    ...-based expense Vesting of common stock following the early exercise of options Repurchases of common stock Retirements of treasury stock Tax cost (benefit) from stock-based expense Net income (loss) Other comprehensive income (loss) Balances at December 31, 2015 Shares 779,249 34,020 22,914 (502...

  • Page 82
    ... of Contents Zynga Inc. Consolidated Statements of Cash Flows (In thousands) 2015 Year Ended December 31, 2014 2013 Operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization Stock-based...

  • Page 83
    ... Description of Business Zynga Inc. ("Zynga," "we" or "the 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...

  • Page 84
    .... 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 local currency payments when...

  • Page 85
    ... impact our reported earnings per share for the twelve months ended December 31, 2015. From July 2010 through the third quarter 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...

  • 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 in-game 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
    ... charges in 2015 and 2014. In 2013, we recorded a $10.2 million impairment charge related to certain games associated with intangible assets previously acquired through various business combinations. Stock-Based Expense Prior to our IPO in December 2011, we granted ZSUs to our employees that...

  • Page 89
    ... used in the Black-Scholes model changes significantly, stock-based expense for future awards may differ materially compared with the awards granted previously. We record stock-based expense for stock options on a ratable basis over the vesting term. For stock options issued to non-employees...

  • Page 90
    ... its net realizable value. Facebook, Apple, and Google are significant distribution, marketing, promotion and payment platforms for our social games. A significant portion of our 2015, 2014 and 2013 revenue was generated from players who accessed our games through these platforms. As of December 31...

  • Page 91
    ...available-for-sale marketable securities, classified by their contractual maturities was as follows (in thousands): December 31, 2015 December 31, 2014 Due within one year After one year through three years Total $ 245,033 - $ 245,033 $ 785,221 231,385 $1,016,606 Changes in market interest rates...

  • Page 92
    ... payable using 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 2015, we updated this analysis based on our updated projections and recorded the change in...

  • Page 93
    ... of the Company's debt instruments and all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. We use a three-tier...

  • Page 94
    ... costs to sell. 5. Acquisitions 2015 Acquisitions On September 11, 2015, we acquired Rising Tide Games, a provider of social games that we plan to use to release new social casino titles, for purchase consideration of approximately $44.2 million, which consisted of cash paid of $22.4 million...

  • Page 95
    ... our game offerings particularly on mobile platforms. The acquisition date fair value of the purchase consideration was $522.2 million, which included the following (in thousands): Fair Value of Purchase Consideration Cash Common stock (28,178,201 shares) Fair value of stock options assumed Total...

  • Page 96
    ... 12 Months Ended December 31, Total revenues Net loss $ 698,608 (233,036) 2014 $912,880 (96,048) 2013 The pro forma financial information for all periods presented has been calculated after adjusting the results of NaturalMotion to reflect the business combination accounting effects resulting...

  • Page 97
    ... useful lives of all identified acquired intangible assets are 3.0 years for developed technology, 1.0 years for trademarks, branding, and domain names, and 3.3 years for acquired lease intangibles. Amortization expense of intangible assets for the years ended December 31, 2015, 2014 and 2013...

  • Page 98
    ...): 2015 Year Ended December 31, 2014 2013 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
    ... as of December 31, 2015 and December 31, 2014 was $151.8 million and $127.9 million, respectively. The increase in valuation allowance for 2015 is primarily related to net operating losses generated and acquired during the current year. Net operating loss and tax credit carryforwards as of December...

  • Page 100
    ... 31, 2015 was realized in a future period, this would result in a tax benefit of $8.5 million within our provision of income taxes at such time. We classify uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year or otherwise directly related to an...

  • Page 101
    ... the twelve months ended December 31, 2015, we recorded total restructuring charges of $36.5 million which were classified within our consolidated statement of operations as follows: Cost of Revenue $1.1 million, Research and Development $14.1 million, Sales and Marketing $0.8 million and General...

  • Page 102
    ... agreement with a new tenant in a data center facility we had previously vacated in the first quarter of 2014. The remaining liability of $2.3 million is expected to be paid out in 2016. Other Plans The following table presents the activity for the three months ended March 31, 2015, June 30, 2015...

  • Page 103
    ... market conditions, share price and other factors. The program does not require us to repurchase any specific number of shares of our Class A common stock, and may be modified, suspended or terminated at any time without notice. The stock repurchase program will be funded from existing cash on hand...

  • 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): 2015 Year Ended December 31, 2014 2013 Cost of revenue Research and development Sales and marketing General and administrative Total stock...

  • Page 105
    ... fair value as of the reporting date. Upon settlement, according to the conditions specified in the agreement, approximately 4.2 million shares would be issued for an estimated total liability of $11.2 million based upon Company's closing stock price as of December 31, 2015 of $2.68. As of December...

  • Page 106
    ...if the fair market value of our Class A common stock has decreased from the original offering date, the offering will automatically terminate and all participants will be reenrolled in the new, lower-priced offering. Participants may end their participation at any time during an offering and will be...

  • Page 107
    ... 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 108
    ... because their effect would have been anti-dilutive for the periods presented (in thousands): 2015 Year Ended December 31, 2014 2013 Stock options and employee stock purchase plan Warrants Restricted shares ZSUs Total 105 29,412 - 8,716 63,764 101,892 42,454 - 12,624 59,141 114,219 61,154 579...

  • Page 109
    ... for facilities, excluding data center hosting expense, for the years ended December 31, 2015, 2014 and 2013 totaled $4.5 million, $4.5 million, and $7.3 million, respectively. Credit Facility In June 2013, we amended our existing revolving credit agreement which we originally executed in July 2011...

  • Page 110
    ... there will be no impact to Zynga's financial statements. In addition, a purported securities class action captioned Reyes v. Zynga Inc., et al. was filed on August 1, 2012, in San Francisco County Superior Court. Subsequent to various proceedings, on February 11, 2015, the court granted plaintiff...

  • Page 111
    ...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 112
    ... as incurred. 13. Geographical Information The following represents our revenue based on the geographic location of our players (in thousands): Revenue United States All other countries (1) Total revenue (1) $ 506,268 258,449 $ 764,717 2015 Year Ended December 31, 2014 2013 $ 426,906 263,504...

  • Page 113
    ...At the time of our Q2 2015 Restructuring Plan, we held licensing agreements requiring future contractual commitments for games in categories we decided to exit ("Exited Games") as part of that plan. During the three months ended June 30, 2015, we recognized a loss of $1.2 million associated with the...

  • Page 114
    ... 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, 2015...

  • Page 115
    ... be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2015. Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and employees, which is available on our website (www.zynga.com) under "Corporate Governance...

  • Page 116
    ... Accounts Balance at Beginning of Year Charged to Expenses/ Against Revenue Write-Offs Net of Recoveries Balance at End of Year Page No. 73 75 76 77 78 79 80 Year Ended December 31, 2015 Year Ended December 31, 2014 Year Ended December 31, 2013 Allowance for Doubtful Accounts and Sales Credits...

  • Page 117
    ... of Zynga Inc. Class A Common Stock Certificate Fifth Amended 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...

  • Page 118
    ... Facebook, Inc., Facebook Ireland Limited and Zynga Inc., dated July 2, 2012 115 8-K S-1/A S-1/A 10-K 10-K 8-K S-1/A 001-35375 333-175298 333-175298 001-35375 001-35375 001-35375 333-175298 10.1 10.10 10.24 10.16 10.17 10.1 10.15 7/3/2013 11/17/2011 11/17/2011 2/21/2014 2/21/2014 4/10/2014...

  • Page 119
    ... 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 of 1934 Certification of the Chief Financial...

  • Page 120
    .... Incorporated by Reference Description of Exhibit Form File No. Exhibit Filing Date Filed Herewith 32.1• Certification of the Chief Executive Officer and Chief Financial Officer of Zynga Inc. pursuant to18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002...

  • Page 121
    ... 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 19, 2016. Z YNGA INC . By: /s/ Michelle Quejado Michelle Quejado Interim Chief Financial Officer and Chief Accounting...

  • Page 122
    ... in her or his name, 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...

  • Page 123
    ... having a business relationship with the Company; (iii) any material breach of any provision of any agreement or understanding between the Company and the Participant regarding the terms of service as an employee, officer, director, or consultant to the Company, including without limitation, the...

  • Page 124
    ... to hold shares that come to represent more than 50% of the combined voting power of the Company's then outstanding securities as a result of the conversion of any class of the Company's securities into another class of the Company's securities having a different number of votes per share pursuant...

  • Page 125
    ... the conversion of all equity securities convertible (immediately or at some future time) into shares entitled to vote, but not assuming the exercise of any warrant or right to subscribe to or purchase those shares. In addition, the term Change in Control will not include a sale of assets, merger or...

  • Page 126
    ...days following the end of the cure period. (f) " ERISA " means the Employee Retirement Income Security Act of 1974, as amended. (g) " Involuntary Termination Without Cause " means a Participant's involuntary termination of employment by the Company resulting in a Separation from Service for a reason...

  • Page 127
    ..., including, without limitation, Company files, notes, drawings records, plans, forecasts, reports, studies, analyses, proposals, agreements, financial information, research and development information, sales and marketing information, operational and personnel information, specifications, code...

  • Page 128
    ...the total number of shares (or such lesser number as remain unvested) subject to each of the Participant's then-outstanding compensatory equity awards, including, without limitation, stock options and restricted stock units, will vest, and, as applicable, become exercisable, effective as of the date...

  • Page 129
    ... effective in accordance with its terms within 60 days following the Separation from Service (the " Release Date "). With respect to any outstanding stock option held by the Participant that is subject to acceleration under this Plan, such option may not be exercised as to any shares as to which the...

  • Page 130
    ... expressly provided in an agreement between a Participant and the Company, if any payment or benefit the Participant would receive in connection with a Change in Control from the Company or otherwise (a " Payment ") would (i) constitute a "parachute payment" within the meaning of Section 280G of the...

  • Page 131
    ... is a "specified employee" of the Company, as such term is defined in Section 409A(a)(2)(B)(i), at the time of his or her Separation from Service, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the payments upon...

  • Page 132
    ... needs to complete the review and an explanation of why such information or material is necessary; and (4) an explanation of the Plan's review procedures and the time limits applicable to such procedures, including a statement of the applicant's right to bring a civil action under Section 502(a) of...

  • Page 133
    ... 60 days after the application is denied. A request for a review will be in writing and will be addressed to: Zynga Inc. Attn: General Counsel 699 8 th Street San Francisco, CA 94103 A request for review must set forth all of the grounds on which it is based, all facts in support of the request and...

  • Page 134
    ..." as that term is used in ERISA) by the Internal Revenue Service is 42-1733483. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is 525. (b) Ending Date for Plan's Fiscal Year. The date of the end of the fiscal year for the purpose...

  • Page 135
    ... Plan Administrator's office and at other specified locations, such as worksites, all documents governing the Plan and a copy of the latest annual report (Form 5500 Series), if applicable, filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee...

  • Page 136
    ... terms of the Plan will be in writing and will be deemed given when delivered personally, when received electronically (including email addressed to the Participant's Company email account and to the Company email account of the Company's General Counsel), or deposited in the U.S. mail, First Class...

  • Page 137
    .... The Plan will be binding upon any surviving entity resulting from a Change in Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company without regard to whether or not such person or entity actively...

  • Page 138
    ... IN C ONTROL S EVERANCE B ENEFIT P LAN P ARTICIPATION N OTICE To: Date: Zynga Inc. (the " Company ") has adopted the Zynga Inc. Change in Control Severance Benefit Plan (the " Plan "). The Company is providing you this Participation Notice to inform you that you have been designated as a Participant...

  • Page 139
    ... to the terms set forth in the Zynga Inc. Change in Control Severance Benefit Plan (the " Plan "). I understand that this Release, together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company, affiliates of the Company and me with...

  • Page 140
    ...and Medical Leave Act, the California Family Rights Act, or otherwise; and I have not suffered any on-the-job injury for which I have not already filed a workers' compensation claim. I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not...

  • Page 141
    ... to the terms set forth in the Zynga Inc. Change in Control Severance Benefit Plan (the " Plan "). I understand that this Release, together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company, affiliates of the Company and me with...

  • Page 142
    ... to an office of the Company; (e) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after I sign this Release; and (f) I have received with this Release a detailed list of the job titles and ages of all employees who were...

  • Page 143
    ... to the terms set forth in the Zynga Inc. Change in Control Severance Benefit Plan (the " Plan "). I understand that this Release, together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company, affiliates of the Company and me with...

  • Page 144
    ...and Medical Leave Act, the California Family Rights Act, or otherwise; and I have not suffered any on-the-job injury for which I have not already filed a workers' compensation claim. I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not...

  • Page 145
    ...Cayman) Zynga China (Beijing) Co. Ltd. (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 U.K. Limited (United...

  • Page 146
    ... 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 Inc. for the year ended December 31, 2015. /s/ Ernst & Young LLP San Francisco, CA February 19...

  • Page 147
    ... end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual...

  • Page 148
    Date: February 19, 2016 /s/ Mark Pincus Mark Pincus Chief Executive Officer and Director (Principal Executive Officer)

  • Page 149
    ... end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual...

  • Page 150
    Date: February 19, 2016 /s/ Michelle Quejado Michelle Quejado Interim Chief Financial Officer (Principal Financial and Accounting Officer)

  • Page 151
    ...Chief Financial Officer and Chief Accounting 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, 2015 (the "Periodic Report"), fully complies with the requirements of Section 13(a) or Section...