Blizzard 2008 Annual Report Download

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Table of contents

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    A C T I V I S I O N B L I Z Z A R D , I N C . 2008 A N N UA L R EPORT AC TI V E ENT ERTA I N M ENT 1

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    2008 A NNUA L R E P O R T

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    A C T I V I S I O N B L I Z Z A R D , I N C . BY COMBINING 3

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    AC T I V I S I O N 'S T O P - S E L L I N G P O R T F O L I O OF CONSOLE AND HANDHELD GAMES

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    W I T H B L I Z Z A R D E N T E R TA I N M E N T 'S L E A DI N G PC AND ONLINE SUBSCR IPTION FR ANCHISES

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    2008 A NNUA L R E P O R T WE AR E NOW THE L ARGEST MO ST PROFITA BL E PU R E-PL AY I N T ER AC T I V E E N T E R T A I N M E N T S O F T WA R E P U B L I S H E R I N THE WOR LD WITH LEADING M A R K ET POSITIONS AC ROSS A L L M AJOR C AT EG OR I ES OF THE INDUSTRY 8

  • Page 11
    ... L L ION I N OPER AT I NG I NCOM E* O P E R AT I N G M A R G I N* BI L L ION I N C A SH & INVESTMENTS *Non-GAAP comparable basis - For a full reconciliation see tables at the end of the annual report.

  • Page 12
    ... experienced management team led by Mike Griffith, Mike Morhaime and Bruce Hack. Now that we have successfully completed the merger and integration of Blizzard Entertainment and Activision, Bruce Hack, who served as our Chief Corporate Officer, has decided to return full time to New York City. He...

  • Page 13
    ...platforms- Call of Duty: World at Warâ„¢ , Call of Duty 4: Modern Warfareâ„¢, Guitar Hero III: Legends of Rockâ„¢ and Guitar Hero World Tourâ„¢ . Additionally, World of Warcraft: Wrath of the Lich Kingâ„¢ was the #1 best-selling PC game worldwide for the calendar year and the fastestselling PC title...

  • Page 14
    ... artists downloaded by Guitar Hero players to supplement the music that comes with the game. Today, World of Warcraft is the world's most successful massively multiplayer online role-playing game, with more than 11.5 million subscribers. World of Warcraft is among a handful of Western entertainment...

  • Page 15
    ... our outstanding shares of common stock effected in the form of a stock dividend ("the split"). The split was paid September 5, 2008 to shareholders of record at August 25, 2008. In the quarter ended September 30, 2008, we changed the manner in which we recognize revenue associated with sales of The...

  • Page 16
    ... base ranges from casual players to game enthusiasts, and children to adults. During 2008, Activision released Guitar Hero World Tour and Call of Duty: World at War, and continued to expand its licensed products with titles such as Madagascar: Escape 2 Africa, Spider-Man: Web of Shadows, its first...

  • Page 17
    ...the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc. As of December 31, 2008, Vivendi owned approximately 55% of our common stock. Activision Blizzard now conducts the combined business operations of Activision, Inc. and Vivendi Games including Blizzard Entertainment, Inc...

  • Page 18
    ... on July 9, 2008, we have restructured the Vivendi Games businesses to capture cost-synergies and to streamline the combined Activision Blizzard organization. For the first six months of 2009, we expect to continue to incur restructuring expenses mainly relating to severance payments of remaining...

  • Page 19
    ...titles and the sales volume of such products. Other revenues-Activision is continuing the development of online capabilities for its games. Activision plans to continue to exploit other revenue sources, including downloadable content and in-game advertising for its console games. Economic conditions...

  • Page 20
    ... the sale of World of Warcraft boxed software and related expansion packs are classified as product sales and revenues attributable to subscription and other ancillary services are classified as subscription, licensing and other revenues. Determining whether the online service for a particular game...

  • Page 21
    ... of a similarly themed title by a competitor, or technological obsolescence due to the emergence of new hardware platforms. Material differences may result in the amount and timing of our revenue for any period if factors or market conditions change or if management makes different judgments or...

  • Page 22
    ... relating to such contracts may extend beyond one year. We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is actual title...

  • Page 23
    ... with management's expectations could have a material impact on our financial condition and operating results. For a detailed discussion of the application of these and other accounting policies see Note 3 of the Notes to Consolidated Financial Statements. Fair Value Estimates The preparation of...

  • Page 24
    ... an acquired trade name was impaired. As a result, an impairment charge of $5 million was recorded as part of restructuring costs. Other than this event, during 2008, we did not perform any other impairment tests of our long-lived assets as there were no significant and adverse underlying changes to...

  • Page 25
    ...of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. For more detailed information about Activision Blizzard's accounting policy...

  • Page 26
    ... years ended December 31, 2008 2007 2006 (as adjusted) Net revenues: Product sales...Subscription, licensing, and other revenues...Total net revenues...Costs and expenses: Cost of sales-product costs...Cost of sales-software royalties and amortization...Cost of sales-intellectual property licenses...

  • Page 27
    ... in 2008 and 2007 were mainly attributable to: • The consummation of the Business Combination, which resulted in segments' revenues from Activision, Inc. of approximately $2,215 million, of which $227 million relates to Distribution segment, being included from the date of the Business Combination...

  • Page 28
    ..., 2008, Activision Blizzard had the #1 and #2 best-selling console titles, Guitar Hero World Tour and Call of Duty: World at War, respectively, in dollars in North America and Europe, according to The NPD Group, Gfk and Charttrack; The release of the second expansion pack of World of Warcraft: Wrath...

  • Page 29
    ... software development costs totaling $71 million for the year ended December 31, 2008, mainly as a result of the rationalization of our title portfolio; and The higher cost of sales related to the manufacturing and distribution costs of the Guitar Hero World Tour band bundle products. • Blizzard...

  • Page 30
    ...platforms-Guitar Hero and Call of Duty in North America and Europe for the quarter ending December 31, 2008 according to The NPD Group, Gfk, and Charttrack; Activision's successful releases in 2008, including Call of Duty: World at War, Guitar Hero World Tour, Guitar Hero: Aerosmith, and Guitar Hero...

  • Page 31
    ... Guitar Hero III: Legends of Rock, and Call of Duty: Modern Warfare; The release of the second expansion pack of World of Warcraft: Wrath of the Lich King in November 2008, which is the fastest selling PC game of all time; Activision's release of an affiliated LucasArts' title, Star Wars: The Force...

  • Page 32
    ... #1 third-party publisher for the Wii platform for the December quarter of 2008; and For the quarter ended December 31, 2008, Activision had the #1 North America and Europe best-selling title on the NDS, Guitar Hero: On Tour. • • • • Cost of Sales The following table details the nature...

  • Page 33
    ... costs, cost of sales-software royalties and amortization, and cost of sales- intellectual property licenses, respectively; Higher product costs due to an increase in business mix from affiliated LucasArt's title Star Wars: The Force Unleashed in Europe and Asia Pacific in the fourth quarter of 2008...

  • Page 34
    ... being included from the date of the Business Combination, but not for prior periods; Increased number of titles and skus published by Activision Blizzard compared to Vivendi Games; and Amortization of intangible assets of $40 million for the year ended December 31, 2008 relating to retail customer...

  • Page 35
    ...Vivendi Games maintained a net payable balance with Vivendi at December 31, 2007 and 2006. Investment income for the year ended December 31, 2008, was primarily derived from the interest income from investments in money market funds, mark-to-market gains on our outstanding currency forward contracts...

  • Page 36
    ... part of Activision Blizzard's balances and we received $1.7 billion of cash from Vivendi in exchange for issuance of shares of our common stock. With our liquid investment portfolio and expected cash flows provided by operating activities, we believe that we have sufficient liquidity to meet daily...

  • Page 37
    ... expenditures, and the acquisitions of Freestyle Games, Ltd. and Budcat Creations, LLC. Due to uncertainties surrounding the timing of liquidation of our auction rate securities ("ARS"), which are comprised of debt obligations secured by higher education student loans, all our investments in such...

  • Page 38
    ... business plan. Cash Flows from Financing Activities The primary drivers of cash flows provided by financing activities have historically related to transactions involving our common stock, including the issuance of our common stock to employees and the public and the purchase of treasury shares...

  • Page 39
    ...third-parties for non-cancelable operating lease agreements for our offices, for the development of products, and for the rights to intellectual property ("IP"). Under these agreements, we commit to provide specified payments to a lessor, developer or intellectual property holder, as the case may be...

  • Page 40
    ..., subsequent events, internal controls, changes in internal controls, and other accounting and disclosure-relevant information. These quarterly reports are reviewed by certain key corporate finance executives. These corporate finance representatives also conduct quarterly interviews on a rotating...

  • Page 41
    ... payments made for research and development activities until the related goods are delivered or the related services are performed. EITF 07-03 is effective for interim or annual reporting periods in fiscal years beginning after December 15, 2007 and requires prospective application for new contracts...

  • Page 42
    ... in interest rates, currency exchange rates, market prices, and the timing of transactions. Interest Rate Risk Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments to manage interest rate risk in...

  • Page 43
    ... principal executive officer and principal financial officer concluded that, at December 31, 2008, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange...

  • Page 44
    ... the Company during 2008 in a purchase business combination, from its assessment of the Company's internal control over financial reporting as of December 31, 2008. The acquired Vivendi Games, Inc. businesses, which includes Vivendi Games' subsidiary Blizzard Entertainment, Inc., and business units...

  • Page 45
    ... and related tax disclosures in its financial statements for the fiscal year ended December 31, 2007. Subsequent to the consummation of the Business Combination on July 9, 2008, Activision Blizzard management became responsible for establishing and maintaining the combined Company's internal control...

  • Page 46
    ... statements, in 2008, the Company changed the manner in which it recognizes revenue associated with sales of The Burning Crusade expansion pack, which was released in January 2007. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding...

  • Page 47
    ... in Management's Report on Internal Control Over Financial Reporting, management has excluded Vivendi Games, Inc. from its assessment of internal control over financial reporting as of December 31, 2008 because it was acquired by the Company in a purchase business combination during 2008. We...

  • Page 48
    ... each of the two years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. As more fully described in Note 2, beginning in 2008, Vivendi Games retrospectively changed the manner in which it recognizes revenue associated with sales of The Burning...

  • Page 49
    ... ...Long-term investments ...Software development ...Intellectual property licenses ...Property and equipment, net ...Deferred income taxes, net ...Other assets ...Intangible assets, net ...Trade names ...Goodwill ...Total assets...Liabilities and Shareholders' Equity Current liabilities: Accounts...

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    ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in millions, except per share data) For the years ended December 31, 2007 2006 2008 (As Adjusted) Net revenues Product sales...$1,872 $457 $421 Subscription, licensing, and other revenues ...1,154 892 597 ...

  • Page 51
    ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the years ended December 31, 2008, 2007 and 2006 (Amounts in millions) Common Stock Net Payable Additional to Paid-In Shares Treasury Accumulated Capital Vivendi Issued Amount Stock Deficit ...

  • Page 52
    ... additional common stock related to the Business Combination...1,731 Repurchase of common stock ...(126) Settlement of payable to Vivendi...(79) Excess tax benefits from stock option exercises...21 Net cash provided by (used in) financing activities...1,488 Effect of foreign exchange rate changes on...

  • Page 53
    ... base ranges from casual players to game enthusiasts, and children to adults. During 2008, Activision released Guitar Hero World Tour and Call of Duty: World at War and continued to expand its licensed products with titles such as Madagascar: Escape 2 Africa, Spider-Man: Web of Shadows, its first...

  • Page 54
    ...under the ticker symbol ATVI. Activision Blizzard now conducts the combined business operations of Activision, Inc. and Vivendi Games including its subsidiary, Blizzard Entertainment, Inc. ("Blizzard"). In connection with the Business Combination, we issued 717 million shares of common stock to VGAC...

  • Page 55
    ... studios, assets, and titles previously included in Vivendi Games' Sierra Entertainment operating segment prior to the Business Combination ("Activision"), (ii) Blizzard Entertainment, Inc. and its subsidiaries-publishing traditional games and online subscription-based games in the MMORPG category...

  • Page 56
    ...): For the year ended December 31, 2007 As adjusted and As As Effect of reclassified* reported adjusted change Consolidated Statement of Operations: Product sales...Subscription, licensing, and other revenues ...Cost of sales-product costs ...Cost of sales-software royalties and amortization...

  • Page 57
    ... dividend ("the split"). The split was paid September 5, 2008 to shareholders of record at August 25, 2008. The par value of our common stock was maintained at the pre-split amount of $.000001 per share. The Consolidated Financial Statements and Notes thereto, including all share and per share data...

  • Page 58
    ... backed by student loans, a substantial portion of which are guaranteed by the United States government. On November 14, 2008, we accepted an offer from UBS, providing us with rights related to our ARS held through UBS (the "Rights"). The Rights permit us to require UBS to purchase our ARS...

  • Page 59
    ...times, we had deposits in excess of coverage by the Federal Deposit Insurance Corporation ("FDIC") at these financial institutions. Our customer base includes retail outlets and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, and game specialty stores...

  • Page 60
    ...currencies and has significant international sales and expenses denominated in foreign currencies, subjecting Activision Blizzard to foreign currency risk. Activision Blizzard utilizes foreign exchange forward contracts to mitigate foreign currency exchange rate risk associated with foreign-currency...

  • Page 61
    ... relating to such contracts may extend beyond one year. We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is actual title...

  • Page 62
    multiple products over multiple years, we also assess the recoverability of capitalized intellectual property license costs based on certain qualitative factors such as the success of other products and/or entertainment vehicles utilizing the intellectual property, whether there are any future ...

  • Page 63
    ...to consider a one month average market capitalization given the overall market conditions which have depressed our stock value, and the trends of our stock performance subsequent to December 31, 2008 has proven that the closing price at December 31, 2008 (i.e. at a particular point in time) does not...

  • Page 64
    ... an acquired trade name was impaired. As a result, an impairment charge of $5 million was recorded as part of restructuring costs. Other than this event, during 2008, we did not perform any other impairment tests of our long-lived assets as there were no significant and adverse underlying changes to...

  • Page 65
    ... sale of World of Warcraft boxed software and related expansion packs are classified as product sales and revenues attributable to subscription and other ancillary services are classified as subscription, licensing and other revenues. With respect to online transactions, such as electronic downloads...

  • Page 66
    ...among other things, compliance with applicable trading and payment terms, and consistent return of inventory and delivery of sell-through reports to us. We may also consider other factors, including the facilitation of slow-moving inventory and other market factors. Management must make estimates of...

  • Page 67
    ... costs associated with media advertising which are deferred and charged to expense the first time the related ad is run. Advertising expenses for the years ended December 31, 2008, 2007, and 2006 were $241 million, $73 million, and $73 million, respectively, and are included in sales and marketing...

  • Page 68
    ... by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding, increased by common stock equivalents. Common stock equivalents are calculated using the treasury stock method and represent incremental shares issuable upon exercise of our...

  • Page 69
    ... a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Prior to the Business Combination, Vivendi Games had equity...

  • Page 70
    ... purchase price of Activision, Inc. consists of the following items (amounts in millions): Fair market value of Activision, Inc.'s outstanding common stock immediately prior to the Business Combination at the closing price...Fair value of Activision, Inc.'s existing vested and unvested stock awards...

  • Page 71
    ... amortizable intangible assets acquired in the Business Combination at December 31, 2008 (amounts in millions): Gross carrying amount Accumulated amortization Net carrying amount License agreements...$207 68 Developed software ...128 Game engines...Internally developed franchises ...1,124 40 Retail...

  • Page 72
    ...the years ended December 31, 2007 2006 2008 Interest income...Interest expense...Unrealized loss on trading securities ...Unrealized gain on put option from UBS ...Net realized gain on investments ...Net realized and unrealized gains (losses) on foreign exchange contracts ...Investment income (loss...

  • Page 73
    ... of recent failed auctions. Our investments in auction rate securities are all backed by higher education student loans. Based upon our analysis of the available-for-sale investments with unrealized losses, which includes consideration of the status of debt servicing, the financial condition of the...

  • Page 74
    ... costs and intellectual property licenses (amounts in millions): For the years ended December 31, 2007 2006 2008 (as adjusted) Amortization of capitalized software development and intellectual property licenses...Write-off and impairments ...8. Restructuring $90 89 $10 7 $8 19 The Company...

  • Page 75
    ... to be incurred principally by Activision Blizzard's non-core exit operations related to the Business Combination during the next six months are presented below (amounts in millions): Low High Expected future restructuring costs, before tax...Expected future restructuring costs, after tax... $20 15...

  • Page 76
    ... of the Vivendi Games title portfolio. Prior to the Business Combination, Vivendi Games adopted certain restructuring plans, which were primarily implemented in 2004. These plans primarily related to employee severance, closure of certain facilities, and other similar actions. At December 31, 2008...

  • Page 77
    ... tax benefit credited to goodwill represents the tax deduction resulting from the exercise of stock options that were outstanding and vested at the consummation of the Business Combination and included in the purchase price of Activision, Inc. to the extent that the tax deduction does not exceed the...

  • Page 78
    ...): At December 31, 2008 Impairment Accumulated charge amortization (See Note 8) Estimated useful lives Gross carrying amount Foreign exchange Net carrying amount Acquired definite-lived intangible assets: License agreements ...Developed software...Game engines...Internally developed franchises...

  • Page 79
    ..., Vivendi Games managed its business in two main divisions: Blizzard Entertainment and Sierra Entertainment (along with Sierra online and Vivendi Games Mobile). As a result of the Business Combination, we provide our CODM financial information based upon management's new organizational structure...

  • Page 80
    ... includes Vivendi Games titles retained after the Business Combination. The CODM reviews segment performance exclusive of the impact of the deferred net revenues and related cost of sales, stock-based compensation expense, restructuring expense, amortization of intangible assets and purchase price...

  • Page 81
    ... location of the selling entity. Net revenues from external customers by geographic areas were as follows (amounts in millions): For the years ended December 31, 2008 2007 (as adjusted) 2006 North America ...Europe ...Asia Pacific...Total geographic area net revenues ...Activision Blizzard's non...

  • Page 82
    .... Vivendi Games' remaining separate U.S. net operating loss carry forward tax benefit of $79 million was recognized in 2007 through a reduction in the valuation allowance. Since the tax assets related to these losses were surrendered to Vivendi or its affiliates in prior years, the income tax...

  • Page 83
    ... ...State ...Foreign...Release of valuation allowance ...Change on valuation allowance related to net operating loss surrendered .. Total deferred ...Add back benefit credited to additional paid-in capital: Excess tax benefit associated with stock options...Income tax benefit ... $(131) (56) $(187...

  • Page 84
    ... 31, 2008 2007 (As Adjusted) Deferred tax assets: Reserves and allowances ...Allowance for sales returns and price protection...Inventory reserve ...Accrued expenses ...Accrued legal and professional fees ...Accrued restructuring ...Deferred revenue ...Deferred compensation...Depreciation ...Tax...

  • Page 85
    ... liabilities because payment of cash or settlement is not anticipated within one year of the balance sheet date. These non-current income tax liabilities are recorded in other liabilities in the Consolidated Balance Sheets as of December 31, 2008. We recognize interest and penalties related to...

  • Page 86
    or its affiliates while Vivendi Games results for the period July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by Activision Blizzard. Vivendi Games is no longer subject to U.S. federal income tax ...

  • Page 87
    ... stock based on the average closing price for the five business days immediately preceding issuance of the shares. When estimating the fair value, we considered our projection of revenues from the related titles under the earn-out provisions. For the year ended December 31, 2008, there is no change...

  • Page 88
    ...using an income- approach model (discounted cash-flow analysis). When estimating the fair value, we consider both observable market data and non-observable factors, including credit quality, duration, insurance wraps, collateral composition, maximum rate formulas, comparable trading instruments, and...

  • Page 89
    ..., mergers, consolidations and acquisitions; transactions with affiliates; issuance of preferred stock by subsidiaries; sale and leaseback transactions, restricted payments and certain restrictions with respect to subsidiaries. The limitation on indebtedness provides that Activision Blizzard cannot...

  • Page 90
    ...third parties for non-cancelable operating lease agreements for our offices, for the development of products, and for the rights to intellectual property. Under these agreements, we commit to provide specified payments to a lessor, developer or intellectual property holder, as the case may be, based...

  • Page 91
    ... awards the plaintiff its cost and expense, including attorney's fees. After various initial motions were filed and ruled upon, on May 8, 2008, the plaintiff filed an amended complaint that, among other things, added allegations relating to a revised preliminary proxy statement filed by the Company...

  • Page 92
    ... generally expire ten years from the grant date. Under the terms of the 2008 Plan, the exercise price for the options must be equal to or greater than the closing price per share of our common stock on the date the award is granted, as reported on NASDAQ. Upon the effective date of the 2008 Plan, we...

  • Page 93
    ... unrecognized compensation cost related to restricted stock rights is expected to be recognized over a weighted-average period of 2.09 years. Non-Plan Employee Stock Options In connection with prior employment agreements between Activision, Inc. and Robert A. Kotick, our Chief Executive Officer, and...

  • Page 94
    ... same calendar year. As a result of the Business Combination the offering period in effect at the time of the Business Combination was assumed by us, and on October 1, 2008, employees purchased 262,002 shares of our common stock at a purchase price of $11.65 per share under the ESPP. Blizzard Equity...

  • Page 95
    triggered cash payments to the beneficiaries for the portion of awards that were vested at the closing date of the Business Combination. Upon closing of the Business Combination, we paid $107 million under the BEP to employees. The determination of the value of Blizzard shares upon a change in ...

  • Page 96
    ...stock awards was determined using the fair value of Activision, Inc.'s common stock of $15.04 per share, which is the closing price at July 9, 2008, and using a binomial- lattice model with the following assumptions: (a) varying volatility ranging from 42.38% to 51.50%, (b) a risk free interest rate...

  • Page 97
    ... of share-based payment awards at the grant date depends upon the accuracy of the model and our ability to accurately forecast model inputs as long as ten years into the future. These inputs include, but are not limited to, expected stock price volatility, riskfree rate, dividend yield, and employee...

  • Page 98
    ...stock options granted to employees and directors by Activision, Inc. as a result of the Business Combination. Stock option activities for the year ended December 31, 2008 are as follows (amounts in millions, except number of shares in thousands and per share amounts): Weighted-average exercise price...

  • Page 99
    ... the two-year vesting period. (ii)Plans granted to U.S. resident executives and employees (settled in cash) In 2006, in connection with the delisting of Vivendi shares from the New York Stock Exchange, specific equity awards were granted to Vivendi Games' U.S. resident executives and employees, with...

  • Page 100
    ...the RSUs will be based on the value of Vivendi shares at the time the cash payment is made, plus the value of dividends paid on Vivendi shares during the two year period after vesting (converted into local currency based on prevailing exchange rates). Compensation cost in respect of the RSU plans is...

  • Page 101
    ... date of payment. Method and Assumptions on Valuation of Vivendi Corporate Plans Vivendi Games estimated the fair value of stock-based awards granted using a binomial option-pricing model. For purposes of determining the expected term and in the absence of historical data relating to stock options...

  • Page 102
    ......Number of instruments initially granted...Data at the valuation date (December 31, 2008): Expected term at closing date (in years) ...Share market price ...Expected volatility ...Risk-free interest rate...Expected dividend yield...Performance condition achievement rate...Fair value of the granted...

  • Page 103
    ...of December 31, 2008, using the balance sheet exchange rate. As such, amounts in U.S. dollars will fluctuate with changes in future exchange rates. Expense amounts disclosed are converted at average exchange rates during the years presented, as appropriate. Restricted Share Plans Stock Options Plans...

  • Page 104
    ... of market conditions and other factors. The repurchase program may be suspended or discontinued by the Company at any time. Under the repurchase program, we repurchased approximately 13 million shares of our common stock for $126 million during the year ended December 31, 2008. At December 31, 2008...

  • Page 105
    ... 2008 Supplemental cash flow information: Cash paid for income taxes...Cash paid for interest...23. Related Party Transactions Treasury Related Administration $151 2 $22 (1) $8 (1) Prior to the Business Combination, Vivendi maintained a centralized cash management pool from which Vivendi Games...

  • Page 106
    ...the Business Combination, Vivendi Games entered into certain transactions with Vivendi and its affiliates in the normal course of operations. Activision Blizzard has entered into various transactions and agreements, including treasury management services, investor agreement, internal group reporting...

  • Page 107
    ... Activision, Inc. being included from the date of the Business Combination (i.e. from July 9, 2008 onwards), but not for prior periods. For the quarters ended December 31, September 30, June 30, March 31, 2008 2008 2008 2008 (Amounts in millions, except per share data) Net revenues ...Cost of sales...

  • Page 108
    ... payments made for research and development activities until the related goods are delivered or the related services are performed. EITF 07-03 is effective for interim or annual reporting periods in fiscal years beginning after December 15, 2007 and requires prospective application for new contracts...

  • Page 109
    ...Company's common stock and in each of the indexes (including reinvestment of dividends) was $100 on March 31, 2003 and tracks it through December 31, 2008. For periods prior to July 9, 2008, the share price information for Activision Blizzard is for Activision, Inc. before completion of the Business...

  • Page 110
    .... Although Vivendi Games did not pay cash dividends in 2007 or 2006, Vivendi Games had net transfers to Vivendi of $340 million and $59 million for the years ended December 31, 2007 and 2006, respectively. Also, upon completion of the Business Combination on July 9, 2008, Vivendi Games returned...

  • Page 111
    ... number of shares and per share data) The following table provides the number of shares repurchased and average price paid per share during the quarter ended December 31, 2008, and the approximate dollar value of shares that may yet be purchased under our $1 billion stock repurchase program as of...

  • Page 112
    ... hardware platforms (including next-generation hardware), declines in software pricing, product returns and price protection, product delays, retail acceptance of Activision Blizzard's products, adoption rate and availability of new hardware and related software, industry competition, rapid changes...

  • Page 113
    ... software and peripherals, and certain studios, assets, and titles previously included in Vivendi Games' historical "Sierra" operating segment. (ii) Blizzard -- which consists of the business of Blizzard Entertainment, Inc. and its subsidiaries publishing traditional games and online subscription...

  • Page 114
    ... software and peripherals, and certain studios, assets, and titles previously included in Vivendi Games' historical "Sierra" operating segment. (ii) Blizzard -- which consists of the business of Blizzard Entertainment, Inc. and its subsidiaries publishing traditional games and online subscription...

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    ...Activision Blizzard George L. Rose Chief Legal Officer, Activision Blizzard Ann Weiser Chief Human Resources Officer, Activision Blizzard Continental Stock Transfer & Trust Company 17 Battery Place New York, New York 10004 (212) 509-4000 AU DITOR PricewaterhouseCoopers LLP Los Angeles, California...

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    31 0 0 O C E A N PA R K B O U L E VA R D SA N TA MONIC A, C A L I FOR NI A 90 405 T E L E P H O N E : ( 31 0 ) 2 55 - 2 0 0 0 F A X : ( 31 0 ) 2 55 - 2 1 0 0 W W W. A C T I V I S I O N B L I Z Z A R D . C O M