Activision 2014 Annual Report Download

Download and view the complete annual report

Please find the complete 2014 Activision annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 55

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55

®
®
®
®
2014 Annual Report

Table of contents

  • Page 1
    ® ® 2014 Annual Report

  • Page 2
    ... digit growth year over year â-² â-² â-² â-² Digital Revenue 1 46% $1.42 of total revenue, representing an all-time high â-² 2013 Ended with 5 Core Franchises â-² Earnings Per Share 1 50%+ growth year over year, representing an all-time high 2014 â-² â-² Launched 2 New Games Operating...

  • Page 3
    ... Number 1 console game globally in 2014 and next-gen leader 1, 2 1 2 ® SharedWorld Shooter Largest new video game franchise launch in industry's history with over 17 million registered players 1 1 2 2 2 NPD and GfK Chart-Track, including toys and accessories. Activision Blizzard internal...

  • Page 4
    ... toys sold and $3 billion in retail sales to date 1, 2 1 2 ® Free-To-Play Online First Person Action Entered open beta in January 2015 in one of the world's largest online gaming markets, China 5 4 NPD and GfK Chart-Track, including toys and accessories. Activision Blizzard internal estimates...

  • Page 5
    Massively Multi-Player Online Role-Playing Game Over 10 million subscribers at the end of 2014; world's leading subscription-based online game RolePlaying Game Number 1 PC role-playing game in 2014 1 1 6 NPD and GfK Chart-Track 7

  • Page 6
    Free-To-Play Digital Card Game Game of the year with more than 25 million registered players; on iOS and Android tablets, with smartphones to come Free-To-Play Team Brawler Over 9 million players signed up for closed beta globally 9 8

  • Page 7
    6 v. 6 Team-Based Shooter New intellectual property set in an all-new Blizzard game universe To enter closed beta in 2015 10 11

  • Page 8
    ... of popular interactive franchises dating back to the founding of the company 35 years ago, we will continue to generate strong operating performance and superior shareholder returns as we have for more than two decades. Stomp Chomp Traptanian Devil Understanding Our Results Real Time Strategy...

  • Page 9
    ... of people still playing Call of Duty: Black Ops II, which we released in 2012. That's a good sign for the health of the franchise overall, but we need to do a better job of providing and capturing value from the franchise. Skylanders was the most successful kids' game of the year, but we feel...

  • Page 10
    ... to generate billions of dollars in revenue each year through various sources including ticket sales, licensing, merchandising, sponsorships and broadcast rights. Professional sports leagues have done an excellent job creating great franchise based entertainment experiences across multiple channels...

  • Page 11
    ...Xbox One, Wii U, and PS4 are collectively referred to as "next- generation"; Xbox 360, Wii, and PS3 are 2014 For the Years Ended December 31, 2013 2012 2011 2010 Statement of Operations Data: Net Revenues ...Net income ...Basic net income per share...Diluted net income per share...Cash dividends...

  • Page 12
    ...â„¢ Skylanders Trap Team The Amazing Spider-Manâ„¢ 2 Transformersâ„¢: Rise of the Dark Spark World of Warcraft: Warlords of Draenorâ„¢ On January 11, 2015, Activision launched a public open beta for Call of Duty Online, a free-to-play game available in China. On January 13, 2015, Blizzard began...

  • Page 13
    ... 2015, two of our new free-to-play games were released into beta testing. On January 11, 2015, Activision launched a public open beta for Call of Duty Online available in China. On January 13, 2015, Blizzard began closed beta testing for Heroes of the Storm, its upcoming free-to-play online team...

  • Page 14
    ... For the Years Ended December 31, Increase/ (decrease) 2014 v 2013 2013 2012 2014 2013 2012 Net revenues: Product sales ...Subscription, licensing, and other revenues...Total net revenues...Costs and expenses: Cost of sales-product costs...Cost of sales-online ...Cost of sales-software royalties...

  • Page 15
    ... and fees). Activision's operating income in 2013 was comparable to 2012, despite lower revenues. This was primarily due to the strength of the higher margin digital business associated with Call of Duty: Black Ops II digital downloadable content, a smaller but more profitable slate of releases from...

  • Page 16
    ... released in September 2012. The increase in GAAP net revenues from digital online channels for 2014, as compared to 2013, was primarily due to higher revenues from Hearthstone: Heroes of Warcraft, value-added services revenues from the launch of the World of Warcraft paid character boost, revenues...

  • Page 17
    ... Call of Duty: Modern Warfare 3 in 2012, and the deferral of revenues from Diablo III on the PS3 and Xbox 360, which was released in September 2013, and Call of Duty: Black Ops II digital downloadable content released in 2013. Foreign Exchange Impact Changes in foreign exchange rates had a negative...

  • Page 18
    ... have released the following titles, among others, on next-generation consoles: Call of Duty: Ghosts and Skylanders SWAP Forceâ„¢ in the fourth quarter of 2013; The Amazing Spider-Man 2 and Transformers: Rise of the Dark Spark in the second quarter of 2014; Diablo III: Reaper of Souls-Ultimate Evil...

  • Page 19
    ... sales and marketing activities to support the Call of Duty and Skylanders franchises, offset by lower media spending by our value business due to its more focused slate of titles and by our Blizzard segment, due to higher spending in 2012 to support the launches of Diablo III and World of Warcraft...

  • Page 20
    ... Financial Statements included in this Annual Report. Foreign Exchange Impact Changes in foreign exchange rates had a negative impact of $8 million, a positive impact of $20 million, and a negative impact of $67 million on Activision Blizzard's consolidated operating income in 2014, 2013 and 2012...

  • Page 21
    ... production, marketing and sale of new products; provision of customer service for our subscribers; acquisition of intellectual property rights for future products from third parties; funding of dividends; and payments related to debt obligations. As of December 31, 2014, the amount of cash and cash...

  • Page 22
    ... 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 by certain key corporate...

  • Page 23
    ...sale of World of Warcraft boxed software and related expansion packs are classified as "Product sales," whereas revenues attributable to subscriptions and other value-added services are classified as "Subscription, licensing, and other revenues." Certain of our games are offered to players on a free...

  • Page 24
    ... property or proprietary rights in the development of our products. Depending upon the agreement with the rights holder, we may obtain the right to use the intellectual property in multiple products over a number of years, or alternatively, for a single product. Prior to a product's release, if and...

  • Page 25
    ...the fair value of restricted stock rights (including restricted stock units, restricted stock awards and performance shares) based on the closing market price of the Company's common stock on the date of grant. Certain restricted stock rights granted to our employees and senior management vest based...

  • Page 26
    ... of the hedging activities described above, for the year ended December 31, 2014, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in potential declines of our net income of 31 Our exposure to market rate risk for changes in interest rates relates primarily...

  • Page 27
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 28
    ... December 31, 2013 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in millions, except per share data) For the Years Ended December 31, 2014 2013 2012 Assets Current assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net of...

  • Page 29
    ...Amounts in millions) For the Years Ended December 31, 2014 2013 2012 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 2014, 2013, and 2012 (Amounts and shares in millions, except per share data) Additional Paid-In...

  • Page 30
    ... FINANCIAL STATEMENTS 1. Description of Business Activision Blizzard, Inc. ("Activision Blizzard") is a leading global developer and publisher of interactive entertainment. The terms "Activision Blizzard," the "Company," "we," "us," and "our" are used to refer collectively to Activision Blizzard...

  • Page 31
    ... revenues generated through its World of Warcraft® franchise, which it develops, hosts and supports. Blizzard also develops, markets, and sells role-playing action and strategy games for the PC, console, mobile and tablet platforms, including games in the multiple-award winning Diablo®, StarCraft...

  • Page 32
    ...the Activision and Blizzard segments, GameStop, that accounted for approximately 10% of net revenues for the year ended December 31, 2012. We had one customer, Wal-Mart, that accounted for 11% and 24% of consolidated gross receivables at December 31, 2014 and 2013, respectively. Software Development...

  • Page 33
    ... our World of Warcraft boxed products, expansion packs and value-added services, we recognize revenues in each case with the related subscription service revenues, ratably over the estimated service period, beginning upon the activation of the software and delivery of the related services. Revenues...

  • Page 34
    ... our current games range from five months to less than one year. Allowances for Returns, 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, market...

  • Page 35
    ...the fair value of restricted stock rights (including restricted stock units, restricted stock awards and performance shares) based on the closing market price of the Company's common stock on the date of grant. Certain restricted stock rights granted to our employees and senior management vest based...

  • Page 36
    ... by reporting unit are as follows: Activision Blizzard Total Indefinite Indefinite $ At December 31, 2013 Gross carrying Accumulated amount amortization Estimated useful lives Net carrying amount Acquired definite-lived intangible assets: License agreements and other ...Internally-developed...

  • Page 37
    ..., 2014 and 2012, we recognized a pre-tax net gain of $1 million and $7 million, respectively, related to these forward contracts. For the year ended December 31, 2013, pre-tax net gains associated with these forward contracts were not material. Foreign Currency Forward Contracts Designated as Hedges...

  • Page 38
    ... a highly effective hedge, the Company will discontinue hedge accounting for the derivative. At December 31, 2014, we did not have any outstanding foreign currency forward contracts designated as cash flow hedges. For the year ended December 31, 2014, pre-tax net realized gains associated with these...

  • Page 39
    ... internal organizational structure, the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), the Net revenues by platform: Console ...Online(1)...PC...Mobile and other(2) ...Total Activision Blizzard net revenues...

  • Page 40
    .... The following tables present the weighted-average assumptions and the weighted-average fair value at grant date using the binomial-lattice model: Employee and Director Options For the Years Ended December 31, 2014 2013 2012 Long-lived assets* by geographic region: North America ...Europe ...Asia...

  • Page 41
    ... as long as ten years into the future. These inputs include, but are not limited to, expected stock price volatility, risk-free rate, dividend yield, and employee termination rates. Although the fair value of employee stock options is determined using an option- pricing model, the estimates that are...

  • Page 42
    ..., 2014 2013 2012 Federal income tax provision at statutory rate ...State taxes, net of federal benefit ...Research and development credits ...Domestic production activity deduction ...Foreign rate differential ...Change in tax reserves ...Shortfall from employee stock option exercises ...Return to...

  • Page 43
    ... in millions): For the Years Ended December 31, 2014 2013 2012 Deferred tax assets: Allowance for sales returns and price protection ...Inventory reserve...Accrued expenses...Deferred revenue ...Tax credit carryforwards ...Net operating loss carryforwards ...Stock-based compensation ...Transaction...

  • Page 44
    ... May 31, 2013, we made related dividend equivalent payments of $4 million to the holders of restricted stock rights. On February 9, 2012, our Board of Directors declared a cash dividend of $0.18 per common share, payable on May 16, 2012, to shareholders of record at the close of business on March 21...

  • Page 45
    ... our business, financial condition, results of operations, profitability, cash flows or liquidity. Purchase Transaction Matters On August 1, 2013, a purported shareholder of the Company filed a shareholder derivative action in the Superior Court of the State of California, County of Los Angeles...

  • Page 46
    ... financial statements in connection with this matter. The accrual related to potential liabilities associated with legal fees, costs and expenses for services already received prior to the quarter's end, where such fees, costs and expenses had not yet been paid at the quarter's end, and the Company...

  • Page 47
    ...this new accounting guidance on our financial statements. 24. Quarterly Financial and Market Information (Unaudited) For the Quarters Ended December 31, September 30, June 30, March 31, 2014 2014 2014 2014 (Amounts in millions, except per share data) Net revenues...Cost of sales ...Operating income...

  • Page 48
    ...to be incorporated by reference into any filing of Activision Blizzard, Inc. under the Exchange Act or the Securities Act of 1933. The graph below matches the cumulative five-year total return of holders of our common stock with the cumulative total returns of the NASDAQ Composite index, the S&P 500...

  • Page 49
    ... Financial Statements included in this Annual Report, limit our ability to pay distributions or dividends with certain exceptions. There can be no assurances that dividends will be declared in the future. 10b5-1 Stock Trading Plans The Company's directors and employees may, at a time they...

  • Page 50
    ... Blizzard: Online1 PC Next-generation (PS4, Xbox One, Wii U) Prior-generation (PS3, Xbox 360, Wii) Total console2 Mobile and other5 Net revenues from digital online channels represent revenues from subscriptions, licensing royalties, value-added services, downloadable content, digitally distributed...

  • Page 51
    ... publishes PC games and online subscription-based games in the MMORPG category. 3 Activision Blizzard Distribution ("Distribution") - distributes interactive entertainment software and hardware products. 4 Reflects fees and other expenses (including legal fees, costs, expenses and accruals) related...

  • Page 52
    ... (including legal fees, costs, expenses and accruals) related to the repurchase of 429 million shares of our common stock from Vivendi (the "Purchase Transaction") completed on October 11, 2013 and related debt financings. The company calculates earnings per share pursuant to the two-class method...

  • Page 53
    ... millions, except earnings per share data) ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION (Amounts in millions) Year Ended December 31, 2012 GAAP Measurement Less: Net effect from deferral of net revenues and related cost of sales(a) Less: Stockbased compensation...

  • Page 54
    ... Corporate Headquarters Activision Blizzard, Inc. 3100 Ocean Park Boulevard Santa Monica, CA 90405 (310) 255-2000 Reflects the net change in deferred net revenues and related cost of sales. Includes expense related to stock-based compensation. Reflects fees and other expenses (including legal fees...

  • Page 55
    ActivisionBlizzard, Inc. 3100 Ocean Park Boulevard Santa Monica, California 90405 activisionblizzard.com