Activision 2012 Annual Report Download - page 56

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2. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts and operations of the Company. All intercompany accounts
and transactions have been eliminated. The consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). The preparation of the consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from these estimates and assumptions.
Certain reclassifications have been made to prior year amounts to conform to the current period presentation.
The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to
provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.
Results of Adjustment
We identified through our internal processes that, in previous years, we erroneously over-recognized revenue for a country in our
Europe region. As reported in the Quarterly Report on Form 10-Q for the second quarter of 2012, we performed an evaluation under SEC Staff
Accounting Bulletin No. 108 and concluded the effect of this error was immaterial to prior years’ financial statements as well as full-year 2012
financial statements. As such, during the year ended December 31, 2012, we recorded an adjustment to reduce “Net revenues” and “Operating
income” by $11 million in our consolidated statements of operations, and similarly reduced “Net revenues” and “Income from operations before
income tax expenses” in our Blizzard segment, Europe region, and online subscriptions as presented in footnote 13 of the notes to consolidated
financial statements by $11 million. There was no impact to operating cash flows. The adjustment increased the “Deferred revenues” on our
consolidated balance sheet and represents a correction of an error. The $11 million adjustment related to prior periods as follows:
(i) approximately $1 million for the quarter ended March 31, 2012 and the year ended December 31, 2012; (ii) approximately $1 million for each
quarter of 2011 (totaling approximately $4 million for the year ended December 31, 2011); (iii) $2 million for the year ended December 31, 2010;
and (iv) approximately $4 million for periods prior to the year ended December 31, 2010. “Net income” for the year ended December 31, 2012
decreased by approximately $8 million, or less than $0.01 earnings per basic and diluted share, as a result of recording this adjustment.
Cash and Cash Equivalents
We consider all money market funds and highly liquid investments with original maturities of three months or less at the time of
purchase to be “Cash and cash equivalents.”
Investment Securities
Investments designated as available-for-sale securities are carried at fair value, which is based on quoted market prices for such
securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics. Unrealized gains
and losses of the Company’s available-for-sale securities are excluded from earnings and reported as a component of “Other comprehensive
income (loss).”
Investments with original maturities greater than 90 days and remaining maturities of less than one year are normally classified as
“Short-term investments.” In addition, investments with maturities beyond one year may be classified as “Short-term investments” if they are
highly liquid in nature and represent the investment of cash that is available for current operations.
The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in
“Investment and other income (expense), net” in the consolidated statements of operations.
The Company’s investments include auction rate securities (“ARS”). These ARS are variable rate bonds tied to short-term interest
rates with long-term maturities. ARS have interest rates which reset through a modified Dutch auction at predetermined short-term intervals,
typically every 7, 28, or 35 days. Interest on ARS is generally paid at the end of each auction process and is based upon the interest rate
determined for the prior auction. Our ARS are highly rated, and are partially collateralized by student loans guaranteed by the U.S. government
under the Federal Family Education Loan Program. Our investments in ARS are not material to our consolidated financial statements.