Activision 2008 Annual Report Download - page 18

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4
International operations—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. Blizzard has licensing arrangements with The9 to distribute
World of Warcraft in China and with SoftWorld in Taiwan. Internet game room players and
prepaid cards are also very popular in Asia, particularly in South Korea. Recently, Blizzard has
licensed its StarCraft II, Warcraft III: Reign of Chaos, Warcraft III: The Frozen Throne, and
Battle.net platform to a company affiliated with NetEase.com, Inc. Blizzard and NetEase have also
established a joint venture, which will provide support for the operation of the licensed games and
Battle.net platform in China. For the year ended December 31, 2008, Blizzard released a Russian
language version of World of Warcraft in Russia and expanded its Spanish version into Latin
America.
Integration and reorganization—Following the Business Combination 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
interim employees who are currently assisting us to exit our non-core operations and under-
utilized facilities. We anticipate substantially exiting or winding down our non-core operations
and substantially completing our organizational restructuring activities as a result of the Business
Combination by June 2009.
For the six months ending June 30, 2009, we anticipate incurring between $20 million
and $40 million of additional before tax restructuring charges, and after tax cash restructuring
charges between $15 million and $25 million relating to the Business Combination. Overall,
including charges incurred through December 31, 2008, we expect to incur before tax
restructuring charges between $113 million and $133 million by June 30, 2009, with an after tax
cash impact between $55 million and $70 million. The after tax charges are expected to consist
primarily of employee-related severance cash costs (approximately $47 million), facility exit cash
costs (approximately $18 million), and cash contract terminations costs (approximately
$5 million). Separately, through December 31, 2008, these restructuring charges were partially
offset by cash proceeds of approximately $28 million from asset disposals and after tax cash
benefits related to the streamlining of the Vivendi Games title portfolio. For the next six months,
we anticipate between $2 million to $7 million of further cash proceeds to partially offset future
restructuring cash charges. We do not expect these anticipated restructuring expenses to materially
effect future earnings and cash flow of Activision Blizzard.
Console online games—Activision has published games with online functionality that
constitutes a more-than-inconsequential separate service deliverable in addition to the product, and
in which our performance obligations extend beyond the sale of the game. Vendor-specific
objective evidence of fair value does not exist for these online features, as we do not separately
charge for this component of these titles. As a result, we recognize all of the revenue from the sale
of these titles ratably over an estimated service period. In addition, we defer the costs of sales of
these titles to match revenue.
MMORPG online games—Blizzard published the first expansion pack World of
Warcarft: The Burning Crusade, in January 2007 and the second expansion pack, World of
Warcraft: Wrath of the Lich King in November 2008. We expect these expansions will extend
Blizzard’s subscription revenues by retaining existing customers and attracting new customers.