2/24/2018 S-1 Table of Contents DROPBOX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in tables are in millions except per share data, or as otherwise noted) Note 1. Description of the Business and Summary of Significant Accounting Policies Business Dropbox, Inc. (the “Company” or “Dropbox”) is a global collaboration platform. Dropbox was incorporated in May 2007 as Evenflow, Inc., a Delaware corporation, and changed its name to Dropbox, Inc. in October 2009. The Company is headquartered in San Francisco, California. Basis of presentation and consolidation The accompanying consolidated financial statements have been prepared in accordance with the United States of America generally accepted accounting principles (“GAAP”). The accompanying consolidated financial statements include the accounts of Dropbox and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain prior year non­current liability balances have been reclassified to conform to the current year presentation. On January 1, 2017, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2014­09, Revenue from Contracts with Customers (Topic 606) as discussed further in Recently adopted accounting pronouncements below (“Topic 606”). Topic 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. Topic 606 also includes Subtopic 340­40, Other Assets and Deferred Costs—Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, references to Topic 606 used herein refer to both Topic 606 and Subtopic 340­40. The Company adopted Topic 606 with retrospective application to the beginning of the earliest period presented. Unaudited pro forma balance sheet Subject to the satisfaction of certain conditions, immediately prior to the completion of the Company’s initial public offering, all of the 220,965,979 shares of convertible preferred stock will convert into an equivalent number of shares of Class B common stock. Further, pursuant to transfer agreements with certain of the Company’s stockholders, 387,934 shares of the Company’s convertible preferred stock and 3,914,934 shares of the Company’s Class B common stock will automatically convert into an equivalent numbers of shares of Class A common stock. The unaudited pro forma balance sheet information gives effect to these conversions as of December 31, 2017. As described in detail in “Stock­Based Compensation” below, the Company has granted restricted stock units (“RSUs”) that generally vest upon the satisfaction of a service­based vesting condition, and with respect to RSUs granted prior to August 2015, (“two­tier RSUs”), upon the satisfaction of both a service­based vesting condition and a liquidity event­related performance vesting condition (the “Performance Vesting Condition”). The Performance Vesting Condition is satisfied on the earlier of (i) an acquisition or change in control of the Company or (ii) the earlier of (a) six months after our initial public offering or (b) March 15 of the year following our initial public offering. At the time the Performance Vesting Condition becomes probable, the Company will recognize the cumulative stock­based compensation expense for the two­tier RSUs that have met their service­based vesting condition using the accelerated attribution method. Accordingly, the unaudited pro forma balance sheet information as of December 31, 2017, gives effect to stock­based compensation expense of approximately $415.6 million associated with two­tier RSUs using the accelerated attribution method. This pro forma adjustment related to stock­based compensation expense of approximately $415.6 million has been reflected as an increase to additional paid­in capital and accumulated deficit. F­8 https://www.sec.gov/Archives/edgar/data/1467623/000119312518055809/d451946ds1.htm 198/235