Activision 2008 Annual Report Download - page 89

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18. Commitments and Contingencies
Credit Facilities
We have revolving credit facilities with our Centresoft subsidiary located in the UK (the
“UK Facility”) and our NBG subsidiary located in Germany (the “German Facility”). The UK
Facility provided Centresoft with the ability to borrow up to GBP 12 million ($18 million),
including issuing letters of credit, on a revolving basis at December 31, 2008. The UK Facility
bore interest at the London Inter-bank Offer Rate (“LIBOR”) plus 2.0% at December 31, 2008, is
collateralized by substantially all of the assets of the subsidiary and will expire in March 2009.
The UK Facility contains 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 certain of the subsidiary’s property and
equipment and has no expiration date. No borrowings were outstanding against the UK Facility or
the German Facility at December 31, 2008.
At December 31, 2008, we maintained a $35 million irrevocable standby letter of credit.
The standby letter of credit is required by one of our inventory manufacturers to qualify for
payment terms on our inventory purchases. Under the terms of this arrangement, we are required
to maintain on deposit with the bank a compensating balance, restricted as to use, of not less than
the sum of the available amount of the letter of credit plus the aggregate amount of any drawings
under the letter of credit that have been honored thereunder but not reimbursed. At December 31,
2008, the $35 million deposit is included in short-term investments as restricted cash. The letter of
credit was undrawn at December 31, 2008.
At December 31, 2008, our publishing subsidiary located in the UK maintained a EUR
25 million ($35 million) irrevocable standby letter of credit. The standby letter of credit is required
by one of our inventory manufacturers to qualify for payment terms on our inventory purchases.
The standby letter of credit does not require a compensating balance and is collateralized by
substantially all of the assets of the subsidiary and expires in April 2010. No borrowings were
outstanding at December 31, 2008.
On April 29, 2008, Activision, Inc. entered into a senior unsecured credit agreement with
Vivendi (as lender). Borrowings under the agreement became available upon consummation of the
Business Combination. At December 31, 2008, the credit agreement provides for a revolving
credit facility of up to $475 million, bearing interest at LIBOR plus 1.20% per annum. Any unused
amount under the revolving credit facility is subject to a commitment fee of 0.42% per annum.
The revolving credit facility is subject to customary negative covenants, in each case
subject to certain exceptions and qualifications, including limitations on: indebtedness; liens;
investments, 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 incur consolidated indebtedness, net of unrestricted cash, in excess of $1.5 billion,
and that no additional indebtedness may be incurred as long as the ratio of Activision Blizzard’s
consolidated indebtedness (including the indebtedness to be incurred) minus the amount of
unrestricted cash to Activision Blizzard’s consolidated earnings before interest, taxes, depreciation
and amortization for its most recently ended four quarters would be greater than 1.50 to 1.0. This