Zynga Restates Sales on Accounting Change

Zynga Inc., the online game developer that is planning an initial public offering, restated first-quarter results after finding a “material weakness” related to financial reporting.

As a result of the restatement, total sales increased by $7.5 million in the three months that ended March 31 to $243 million, while deferred revenue decreased by the same amount, San Francisco-based Zynga said today in a regulatory filing. The provision for taxes increased by $2.5 million, Zynga said.

Net income was $16.8 million after the restatement, compared with $11.8 million before. Zynga, which collects revenue when users of its games buy credits, defers revenue from unused credits, and counts revenue from used credits as realized, said Nitsan Hargil, director of research at GreenCrest Capital Management LLC in New York. The amount of realized revenue affects the company’s taxes, he said.

“At some point down the line, the IRS would have awakened and said, ‘Hey, you guys are deferring too much of your taxes into the future,’” Hargil said.

The changes related to how Zynga accounts for the average playing time for paying users, the company said. Morgan Stanley and Goldman Sachs Group Inc. are leading Zynga’s IPO.

Groupon Inc., the online-coupon provider that’s also planning an IPO, amended its IPO filing yesterday to remove an accounting practice that had been scrutinized by U.S. regulators. The Chicago-based company abandoned figures it had reported for adjusted consolidated segment operating income, a metric that had prompted an examination by the SEC, a person familiar with the matter said last month.

Zynga said in today’s filing it arranged a $1 billion revolving credit agreement with certain lenders, without naming them. The company was in talks with Goldman Sachs in June for a credit line of more than a $1 billion to help make acquisitions, a person with knowledge of the matter said at the time.

To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.

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