EFTA01378113.pdf

the customer's industry. The Company writes off accounts receivable when they become uncollectible. The Company also maintains allowances to reserve for potential credits issued to customers or other revenue adjustments. The amounts of these reserves are based, in part, on historical experience. Property and equipment Properly and equipment, including significant improvements, are recorded at cost. Repairs and maintenance costs are expensed as incurred Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives Asset category: Computer hardware and software 3 years Furniture and other equipment 5 years Leasehold improvements 7 years For the years ended December 31. 2013 and 2014. the Company did not capitalize any website or internally developed software costs due to the Company's rapid development cycle and frequency of releases. The Company has charged such costs to product development expense in the period incurred. Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. Advertising costs Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and represent online marketing, including fees paid to search engines and of marketing, which is primarily television advertising. Advertising expense is 58.7 million and $6.8 million for the years ended December 31, 2013 and 2014, respectively. Legal costs Legal costs are expensed as incurred. Income taxes The Company accounts for income taxes under the liability method. and deferred tax assets and liabilities are recognized for the future tax consequences attnbutable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates In effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. The Company records interest, net of any applicable related Income tax benefit, on potential income tax contingencies as a component of income tax expense. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. F-77 Comprehensive Income The Company has no items of other comprehensive income. Our comprehensive Income is equivalent to our net eamings for all periods presented, and as such, no statement of other comprehensive income is presented. Foreign currency transaction gains and losses Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the consolidated statement of operations as a component of other (expense) income, net. Certain risks and concentrations The Company's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud. Financial instruments, which potentially subject the Company to concentration of credit risk, consist pnmanly of cash and cash equivalents and time deposits. Some of the cash and cash equivalents are maintained with international financial institutions that are not covered by deposit insurance. Recent accounting pronouncement In May 2014. the Financial Accounting Standards Board (FASB") issued Accounting Standards Update ("ASV') No. 2014-09, Revenue from Contracts with Customers. which clarifies the principles for recognizing revenue and develops a common standard for all industries. The new guidance is effective for reporting periods beginning after December 15. 2017. Entities have the option of using either a full retrospective or cumulative effect approach to adopt ASU No. 2014-09. In July 2015, the FASB decided to defer the effective date by one year, with early adoption on the original effective date permitted. The Company is currently evaluating the new guidance and has not yet determined whether the adoption of the new standard will have a material impact on its consolidated financial statements or the method and timing of adoption. hap: uviu tec.gov An:laves daW1575189O/0104746915006431 3222645Rn-IalfintiI 1,10,2013911:17 AM] CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0075273 CONFIDENTIAL SONY GM_00221457 EFTA01378113