Activision 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
    ...% $ 3.1 $ 9 BI L L I O N I N T O TA L N E T R E V E N U E S * GROWTH IN NET R EV EN UES * BI 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
    ...an average annual rate of 1%, during that same period of time. Over those 10 years, we also outperformed every other third-party video game company in providing superior shareholder returns. On July 9, 2008, we completed our transaction with Vivendi to create Activision Blizzard, the world's largest...

  • Page 13
    ... download sales growth. During the calendar year, the franchise debuted on the Nintendo DSâ„¢ with Guitar Hero: On Tourâ„¢ , which resulted in our largest North American launch ever for the DS platform. We also introduced a cooperative band experience for consoles with Guitar Hero World Tour adding...

  • Page 14
    ...® Wii™, four of the top-10 titles in dollars on the Xbox 360® entertainment system from Microsoft, three of the top-10 titles in dollars on the Sony® PLAYSTATION® 3 video game console, four of the top-10 titles in dollars on the PC and, the #1 best-selling third-party game on the Nintendo DS...

  • Page 15
    ... to be the acquirer. The historical financial statements of Activision Blizzard, Inc. prior to July 9, 2008 are those of Vivendi Games, Inc. (see Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report). Therefore, 2008 financial data is not comparable with prior...

  • Page 16
    ... products with titles such as Madagascar: Escape 2 Africa, Spider-Man: Web of Shadows, its first James Bond title, Quantum of Solace, and several other titles. Activision is currently developing sequels to the Guitar Hero and Call of Duty franchises, Wolfenstein through id Software, Marvel Ultimate...

  • Page 17
    ... Duty, Guitar Hero, Transformers, Wolverine, Marvel, Tony Hawk, Wolfenstein, and Ice Age. Games scheduled for release during the quarter ended March 31, 2009 include Guitar Hero: Metallica for the Xbox 360, PS3, Wii in North America; Monsters vs. Aliens worldwide on multiple platforms; approximately...

  • Page 18
    ...-Activision focuses on the growth of the European market through developing localized contents for its Guitar Hero franchises and other franchises or titles in terms of contents and packaging. For the Asian market, Blizzard distributes World of Warcraft through direct operations and licenses...

  • Page 19
    ... the timing of the release of these 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...

  • Page 20
    ... owed by such customers to us with respect to open and/or future invoices. The conditions our customers must meet to be granted the right to return products or price protection include, among other things, compliance with applicable trading and payment terms, and consistent return of inventory and...

  • Page 21
    ...are not capitalized are charged immediately to product development expense. Commencing upon product release, capitalized software development costs are amortized to "cost of sales-software royalties and amortization" based on the ratio of current revenues to total projected revenues for the specific...

  • Page 22
    ... 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 performance. For products that are scheduled to...

  • Page 23
    ... we use the income approach. Using the income approach requires the use of financial models, which require us to make various estimates including, but not limited to (1) the potential future cash flows for the asset, liability or equity instrument being measured, (2) the timing of receipt or payment...

  • Page 24
    ... approach to testing goodwill for impairment for each reporting unit. Our reporting units are determined by the components of our operating segments that constitute a business for which both (1) discrete financial information is available and (2) segment management regularly reviews the operating...

  • Page 25
    ... 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 for the measurement of fair value of financial assets and financial liabilities and information about the financial assets and...

  • Page 26
    ... of sales-MMORPG ...Product development ...Sales and marketing...Restructuring costs ...General and administrative...Total costs and expenses...Operating income (loss) ...Investment income (loss), net...Income (loss) before income tax benefit...Income tax benefit ...Net income (loss)... $1,872 62...

  • Page 27
    ... to the same period in 2007. In North America, Activision Blizzard was the #1 console and hand-held software publisher in dollars for the quarter ended December 31, 2008, according to The NPD Group. Blizzard's net revenues also increased for the year ended December 31, 2007, compared to the same...

  • Page 28
    ... Bond: Quantum of Solace in the quarter ended December 31, 2008, and the launch of Guitar Hero World Tour band bundle products consisting of a package of software, drum, guitars and/or microphone in the quarter ended December 31, 2008. For the quarter ended December 31, 2008, Activision Blizzard...

  • 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
    ... best-selling franchises on the consoles across all 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...

  • Page 31
    ...) 2007 v 2006 Platform net revenues: MMORPG...PC...Console: Sony PlayStation 3 ...Sony PlayStation 2 ...Microsoft Xbox 360 ...Nintendo Wii...Microsoft Xbox ...Nintendo GameCube...Total console...Hand-held...Total platform net revenues ...Distribution ...Activision Blizzard's noncore exit operations...

  • Page 32
    ...from the date of the Business Combination, but not for prior periods; A growing installed base for the hardware platforms (in particular, the Wii, PS3, and Xbox 360) and increased number of titles and skus available from Activision compared to the titles and skus released by Vivendi Games; According...

  • Page 33
    ... the fourth quarter of 2008 and the catalog title, Lego: Indiana Jones the Original Adventures; Higher royalties expenses for released titles during the year ended December 31, 2008, such as The Bourne Conspiracy and James Bond: Quantum of Solace; and Pre-release impairments on certain titles of $18...

  • Page 34
    ... 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 relationships. • • Restructuring Charges (amounts in millions) Year ended December...

  • Page 35
    ... and California Research and Development tax credit and IRC 199 Domestic Production Deduction in 2008. For the years ended December 31, 2007 and 2006, the tax benefit as a result of net income (loss) before income taxes was offset by tax benefits from net operating losses surrendered and the release...

  • Page 36
    ... at December 31, 2008. Through the Business Combination, Activision, Inc.'s cash and cash equivalents of approximately $1.1 billion became 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...

  • Page 37
    ... payments to vendors for the manufacture, distribution and marketing of our products, third-party developers and intellectual property holders and to our employees. A significant operating use of our cash relates to our continued investment in software development and intellectual property licenses...

  • Page 38
    ... ability to execute our current 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...

  • Page 39
    ...are met, the total future minimum commitments for these and other contractual arrangements in place at December 31, 2008 are scheduled to be paid as follows (amounts in millions): Contractual Obligations(1) Facility and equipment Developer leases Marketing and IP Total For the year ending December...

  • Page 40
    ... corporate divisions and business units prepare quarterly reports regarding their current quarter operational performance, future trends, subsequent events, internal controls, changes in internal controls, and other accounting and disclosure-relevant information. These quarterly reports are reviewed...

  • Page 41
    ... the Company for acquisitions closing during and subsequent to the first quarter of 2009. In June 2007, the FASB ratified the Emerging Issues Task Force's ("EITF") consensus conclusion on EITF 07-03, "Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development...

  • Page 42
    ... debt instruments with high credit quality and relatively short average maturities and money market funds that invest in such securities. Because short-term securities mature relatively quickly and must be reinvested at the then current market rates, interest income on a portfolio consisting of cash...

  • Page 43
    ..., and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. A control system...

  • Page 44
    ... 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 and divisions that the Company has exited or is winding down such as Sierra Online and Vivendi Games...

  • Page 45
    ... 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 over financial reporting, including financial statement preparation and reporting and tax provision preparation...

  • Page 46
    ... Public Accounting Firm To Board of Directors and Shareholders of Activision Blizzard, Inc.: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, shareholders' equity and cash flows, present fairly, in all material respects, the financial...

  • Page 47
    ... control over financial reporting. Vivendi Games is a wholly-owned subsidiary whose total assets and total net revenues represent 4% and 46%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2008. PricewaterhouseCoopers LLP Los Angeles...

  • Page 48
    ..., and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these...

  • Page 49
    ...-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 payable...

  • Page 50
    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
    ... number of split adjusted shares received by Vivendi, former parent company of Vivendi Games. The accompanying notes are an integral part of these Consolidated Financial Statements. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in millions) For the years...

  • Page 53
    ... products with titles such as Madagascar: Escape 2 Africa, Spider-Man: Web of Shadows, its first James Bond title, Quantum of Solace, and several other titles. Activision is currently developing sequels to the Guitar Hero and Call of Duty franchises, Wolfenstein from id Software, Marvel Ultimate...

  • Page 54
    ...own publishing operations, and manufacturers of interactive entertainment hardware. We maintain operations in the United States, Canada, the United Kingdom ("UK"), Germany, France, Italy, Spain, Australia, Sweden, South Korea, Norway, and the Netherlands. In 2008, operations outside of North America...

  • Page 55
    ... form Activision Blizzard's core operations) and (iv) Activision Blizzard's non-core exit operations. Activision Blizzard's non-core exit operations represent legacy Vivendi Games' divisions or business units that we have exited or are winding down as part of our restructuring and integration...

  • Page 56
    ... over the remaining estimated useful life of the customers, because this is consistent with the accounting for the World of Warcraft license and the evolution of accounting for online enabled video games in the console industry. In accordance with Statement of Financial Accounting Standards No. 154...

  • Page 57
    ... stock 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...

  • Page 58
    ...us with rights related to our ARS held through UBS (the "Rights"). The Rights permit us to require UBS to purchase our ARS held through UBS at par value, which is defined as the price equal to the liquidation preference of the ARS plus accrued but unpaid dividends or interest, at any time during the...

  • Page 59
    ... a $2 million increase in the fair value of the Rights in investment income, net, in the Consolidated Statements of Operations for the year ended December 31, 2008, for a total fair value of $10 million at December 31, 2008. The Rights do not meet the definition of a derivative instrument under SFAS...

  • Page 60
    ...fair values of the forward contracts are reported as investment income, net in the Consolidated Statements of Operations. Software Development Costs and Intellectual Property Licenses Software development costs include payments made to independent software developers under development agreements, as...

  • Page 61
    ... 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 performance. For products that are scheduled to...

  • Page 62
    ... of December 31, 2008, the Company's reporting units consisted of Activision, Blizzard, Distribution, and Activision Blizzard's non-core operations. We test goodwill for possible impairment by first determining the fair value of the related reporting unit and comparing this value to the recorded net...

  • Page 63
    ... will be a function of our future financial performance and changes in economic conditions, could result in future impairment charges. We test acquired trade names for possible impairment by using a discounted cash flow model to estimate fair value. The estimated fair values of each of our acquired...

  • Page 64
    ... addition to the software product, we take this into account when applying our revenue recognition policy. This evaluation is performed for each software product together with any online transactions, such as electronic downloads of titles with product add-ons when it is released. When we determine...

  • Page 65
    ... revenues are derived from World of Warcraft, a game that is playable through Blizzard's servers on a subscription-only basis. After the first month of free usage that is included with the boxed software, the World of Warcraft end user may enter into a subscription agreement for additional access...

  • Page 66
    ..., Price Protection, Doubtful Accounts, and Inventory Obsolescence We closely monitor and analyze the historical performance of our various titles, the performance of products released by other publishers, and the anticipated timing of other releases to assess future demand of current and upcoming...

  • Page 67
    ...to customers, are included in "cost of sales-product costs." Advertising Expenses We expense advertising as incurred, except for production 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...

  • Page 68
    ...of Vivendi Games. Stock-Based Compensation We account for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R requires companies to estimate the fair value of share-based payment awards...

  • Page 69
    ... the term of the awards, and actual and projected employee stock option exercise behaviors. Prior to the Business Combination, Vivendi Games had equity incentive plans that were equity-settled and cash-settled. Vivendi Games used a binomial model to assess the value of these equity incentive plans...

  • Page 70
    ...: License agreements...Developed software ...Game engines...Internally developed franchises ...Retail customer relationships ...Favorable leases...Distribution agreements ...Activision trade name ...Goodwill ...Long term liabilities...Deferred tax liability ...Total consideration ... 3 - 10 years...

  • Page 71
    ... 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 customer relationships...5 Favorable...

  • Page 72
    ... in the music based genre. Additionally, on November 10, 2008, we acquired Budcat Creations, LLC ("Budcat"), a privately-owned video game developer based in Iowa City, Iowa. Budcat is an award-winning development studio with expertise on the Wii and NDS. Pro forma consolidated statements of...

  • Page 73
    ...short-term investments represented restricted cash of $3 million. The following table illustrates the gross unrealized losses on available-for-sale securities and the fair value of those securities, aggregated by investment category at December 31, 2008. The table also illustrates the length of time...

  • Page 74
    ... consummation of the Business Combination, we have communicated to the affected employees in North America, Europe, and Australia and ceased use of certain offices and studios under operating lease contracts. Impairment of goodwill and acquired trade name, and write-off of fixed assets upon disposal...

  • Page 75
    ... for the year ended December 31, 2008 are presented below by operating segments (amounts in millions): Restructuring charges For the year ended At December 31, 2008 December 31, 2008 Activision ...Blizzard ...Distribution...Activision Blizzard's core operations...Activision Blizzard's non-core exit...

  • Page 76
    ... 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, restructuring...

  • Page 77
    ... of goodwill by operating segments (see Notes 2 and 14 of the Notes to Consolidated Financial Statements for details) for the years ended December 31, 2008 and 2007 are as follows (amounts in millions): Activision Activision Blizzard's Blizzard's Non-core exit core Blizzard Activision Distribution...

  • Page 78
    ... 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 ...Retail customer...

  • Page 79
    ... form Activision Blizzard's core operations) and (iv) Activision Blizzard's non-core exit operations. Activision Blizzard's non-core exit operations represent legacy Vivendi Games' divisions or business units that we have exited or are winding down as part of our restructuring and integration...

  • Page 80
    ... the date of the Business Combination, but not for prior periods. Also, the Activision operating segment 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...

  • Page 81
    ... for information regarding significant customers. 15. Computation of Earnings (Loss) Per Basic/Diluted Share Equity incentive awards consisting of stock options, restricted stock units, and restricted stock with respect to an aggregate of 40 million shares of common stock for the year ended December...

  • Page 82
    ...in the year of loss with no benefit for such losses being recorded in Vivendi Games' income tax provision. However, to the extent that Vivendi Games had U.S. net operating losses allocated to it in the consolidated tax returns that have not been used by Vivendi or Vivendi's subsidiaries, the related...

  • Page 83
    ... income tax rate and the income tax expense (benefit) for each of the years are as follows: For the years ended December 31, 2007 2006 2008 (as adjusted) Federal income tax provision at statutory rate...State taxes, net of federal benefit...Research and development credits...Domestic production...

  • Page 84
    ... between the amounts of assets and liabilities for accounting purposes and the amounts used for income tax purposes. At December 31, 2007, the components of the net deferred tax assets were presented on the basis of what would be attributable to Vivendi Games if it were to be deconsolidated from...

  • Page 85
    .... For the year ended December 31, 2008, we recorded $1 million of interest expense related to uncertain tax positions. Vivendi Games results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by...

  • Page 86
    ...Activision Blizzard will indemnify Vivendi for any tax liability imposed on Vivendi (or any of its subsidiaries) due to Activision Blizzard's failure to pay any taxes it owes under the Tax Sharing Agreement. 17. Fair Value Measurements At January 1, 2008, we adopted Statement of Financial Accounting...

  • Page 87
    ...variable number of shares of our common 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...

  • Page 88
    ... the carrying value of our auction rate securities in the near term may be limited or not exist. Consequently, fair value measurements have been estimated using an income- approach model (discounted cash-flow analysis). When estimating the fair value, we consider both observable market data and...

  • Page 89
    ... various covenants that require the subsidiary to maintain specified financial ratios related to, among others, fixed charges. The German Facility provided for revolving loans up to EUR 1 million ($1 million) at December 31, 2008, bore interest at a Eurocurrency rate plus 2.5%, is collateralized by...

  • Page 90
    ..., the total future minimum commitments for these and other contractual arrangements in place at December 31, 2008 are scheduled to be paid as follows (amounts in millions): Contractual Obligations(1) Facility and Developer equipment and IP leases Marketing Total For the years ending December 31...

  • Page 91
    ...certifies the case as a class action, enjoins the Business Combination, requires the defendants to disclose all material information, declares that the Business Combination is in breach of the directors' fiduciary duties and therefore unlawful and unenforceable, awards the plaintiff and the putative...

  • Page 92
    ... stock, restricted stock units, performance shares, performance units and other performance- or value-based awards structured by the Compensation Committee within parameters set forth in the 2008 Plan, including custom awards that are denominated or payable in, valued in whole or in part by...

  • Page 93
    ... 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 Brian...

  • Page 94
    ... the BEP, an equity incentive plan denominated in U.S. dollars. Under the BEP, restricted shares of Blizzard stock and other cash settled awards were granted to certain key executives and employees of Blizzard. Under the provisions of the BEP and the Business Combination Agreement, the consummation...

  • Page 95
    ... the Vivendi Corporate Plan included in our Consolidated Statements of Operations in accordance with SFAS No. 123R for the year ended December 31, 2008, 2007, and 2006: For the years ended December 31, 2008 2007 2006 Cost of sales-software royalties and amortization...$4 $3 93 Product development...

  • Page 96
    ... expected future changes in model inputs during the option's contractual term. The inputs required by our binomial-lattice model include expected volatility, risk-free interest rate, risk-adjusted stock return, dividend yield, contractual term, and vesting schedule, as well as measures of employees...

  • 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
    ... cash-settled. Equity-settled awards include stock options and restricted share plans granted by Vivendi, and the cash-settled awards include stock appreciation rights and restricted stock units granted by Vivendi. There were no new grants by Vivendi to Vivendi Games' employees during the year ended...

  • Page 99
    ... cost is accounted for over the required three-year service period using the accelerated multi-tranche method in accordance with the following spread rates: 61% in the first year of the plan, 28% in the second year and 11% in the third year. In 2007, Vivendi Games employees received stock options...

  • Page 100
    ...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 recognized on...

  • Page 101
    ...the value of the Vivendi shares at the time the cash payment is made, plus the value of dividends paid on the Vivendi shares in the last two fiscal years prior to payment. RSUs are simply units of account and do not have any value outside the context of this plan. RSUs do not have voting rights, and...

  • Page 102
    ... 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 instruments ...Fair value of the plan as of December 31, 2008...

  • Page 103
    ... future exchange rates. Expense amounts disclosed are converted at average exchange rates during the years presented, as appropriate. Restricted Share Plans Stock Options Plans Weighted Weighted Weighted Average Average Average Strike Strike Remaining Weighted Price of Price of Period Average Number...

  • Page 104
    ...) 95,835 - 59,620 0.1 (a) The weighted average share price for SARs exercised during the years ended December 31, 2008, 2007, and 2006 was $41.64, $43.05 and $35.17, respectively. Cash paid in 2008, 2007, and 2006 to settle awards exercised was $2 million, $9 million, and $1 million, respectively...

  • Page 105
    ...the Business Combination, Vivendi maintained a centralized cash management pool from which Vivendi Games borrowed and loaned cash on a daily basis. Net cash transfers, under the cash pooling agreement, were included in owner's equity as part of net transfers to Vivendi. Vivendi charged Vivendi Games...

  • Page 106
    ... and administrative expense. For the years ended December 31, 2008, 2007 and 2006, a management fee of approximately $1 million, $3 million and $3 million, respectively, was allocated to Vivendi Games from Vivendi for insurance, share-employee costs and other general corporate support functions...

  • Page 107
    ... the Company for acquisitions closing during and subsequent to the first quarter of 2009. In June 2007, the FASB ratified the Emerging Issues Task Force's ("EITF") consensus conclusion on EITF 07-03, "Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development...

  • Page 108
    ... to defer and capitalize non-refundable advance 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...

  • Page 109
    ...The graph assumes that the value of the investment in the 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...

  • Page 110
    ... growth and development of our business. Future dividends, if any, will depend upon our earnings, financial condition, cash requirements, future prospects, and other factors deemed relevant by our Board of Directors. Although Vivendi Games did not pay cash dividends in 2007 or 2006, Vivendi Games...

  • Page 111
    ... 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 December 31, 2008. Total dollar value of shares purchased as part of publicly announced plans or...

  • Page 112
    ...(1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow projections, merger integration and cost savings or other financial items; (2) statements of Activision Blizzard's plans and objectives, including those relating to product releases; (3) statements of future...

  • Page 113
    ... are referred to collectively as Activision Blizzard Inc.'s core operations ("Core"). (v) Activision Blizzard's non-core exit operations ("Non-Core") -- which consists of legacy divisions or business units that the company has exited or is winding down as part of our restructuring and integration...

  • Page 114
    ... are referred to collectively as Activision Blizzard Inc.'s core operations ("Core"). (v) Activision Blizzard's non-core exit operations ("Non-Core") -- which consists of legacy divisions or business units that the company has exited or is winding down as part of our restructuring and integration...

  • Page 115
    ... Santa Monica, California 90405 (310) 255-2000 DOMESTIC OFFICES BOA R D OF DIR EC TOR S Philippe Capron Chief Financial Officer, Vivendi Robert J. Corti Chairman, Avon Products Foundation Frédéric Crépin Senior Vice President, Head of Legal, Vivendi Bruce Hack Vice-Chairman, Activision Blizzard...

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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