Activision 2014 Annual Report Download - page 21

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Cash Flows Used in Financing Activities
The primary drivers of cash flows used in financing activities typically include the proceeds from, and repayments of, our
long-term debt, transactions involving our common stock, such as the issuance of shares of common stock to employees,
the repurchase of our common stock, and the payment of dividends.
Cash flows used in financing activities of $374 million were lower for 2014, as compared to the same period in 2013,
primarily due to the lack of share repurchases in 2014, offset by the $375 million partial repayment of our Term Loan. We
also paid $147 million in dividends and related dividend equivalents and $66 million for taxes in connection with the
vesting of employees’ restricted stock rights. Cash flows from financing activities for 2014 reflected proceeds of
$175 million from the issuance of shares of our common stock to employees in connection with stock option exercises.
Cash flows used in financing activities of $1.2 billion were higher for 2013, as compared to 2012, primarily due to our
repurchase of common stock from Vivendi in October 2013. As previously discussed, on October 11, 2013, we repurchased
approximately 429 million shares of our common stock from Vivendi, pursuant to the Stock Purchase Agreement we
entered into on July 25, 2013 with Vivendi and ASAC, an exempted limited partnership established under the laws of the
Cayman Islands, acting by its general partner, ASAC II LLC. Pursuant to the terms of the Stock Purchase Agreement, we
acquired all of the capital stock of New VH, a Delaware corporation and wholly-owned subsidiary of Vivendi, which was
the direct owner of approximately 429 million shares of our common stock, for a cash payment of $5.83 billion, or $13.60
per share, before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the
transaction. The Purchase Transaction was funded with a combination of $1.2 billion of cash on hand, the net proceeds
from a $2.5 billion Term Loan, maturing in October 2020, and the net proceeds from the issuance of $1.5 billion of 2021
Notes and $750 million of 2023 Notes (in each case, as defined below). Refer to Note 12 of the Notes to the Consolidated
Financial Statements included in this Annual Report, and below in Other Liquidity and Capital Resources for additional
information.
Additionally, cash flows used in financing activities for the year ended December 31, 2013 included an aggregate cash
payment of our annual dividend (and dividend equivalent payment) of $216 million to holders of our common stock and
restricted stock units, $59 million for financing costs related to the debt transactions for the Purchase Transaction,
$49 million for taxes paid relating to the vesting of employees’ restricted stock rights, and $6 million for a repayment of the
principal on the Term Loan. Cash flows provided by financing activities for the year ended December 31, 2013 reflected
proceeds from the issuance of long-term debt of $4.75 billion and proceeds from the issuance of shares of our common
stock to employees in connection with stock option exercises of $158 million.
Effect of Foreign Exchange Rate Changes
Changes in foreign exchange rates had a negative impact of $396 million and a positive impact of $102 million on our cash
and cash equivalents for the years ended December 31, 2014 and 2013, respectively. The change is primarily due to
changes in the value of the U.S. dollar relative to the euro and British pound.
Other Liquidity and Capital Resources
Our primary sources of liquidity are typically cash and cash equivalents, investments, and cash flows provided by operating
activities. In addition, as described below, we have availability of $250 million, subject to certain restrictions, under a
secured revolving credit facility. With our cash and cash equivalents and short-term investments of $4.9 billion at
December 31, 2014, and expected cash flows provided by operating activities, we believe that we have sufficient liquidity
to meet daily operations in the foreseeable future. We also believe that we have sufficient working capital ($4.2 billion at
December 31, 2014) to finance our operational and financing requirements for at least the next twelve months, including:
purchases of inventory and equipment; the development, 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 equivalents held outside of the U.S. by our foreign subsidiaries was
$3.6 billion, as compared to $3.3 billion as of December 31, 2013. If these funds are needed in the future for our operations
in the U.S., we would accrue and pay the required U.S. taxes to repatriate these funds. However, our intent is to
permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to
fund our U.S. operations.
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Debt
On September 19, 2013, we issued, at par, $1.5 billion of 5.625% unsecured senior notes due September 2021 (the “2021
Notes”) and $750 million of 6.125% unsecured senior notes due September 2023 (the “2023 Notes” and, together with the
2021 Notes, the “Notes”). Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each
year, commencing on March 15, 2014. As of December 31, 2014, the Notes had a carrying value of $2.2 billion.
We may redeem the 2021 Notes on or after September 15, 2016 and the 2023 Notes on or after September 15, 2018, in
whole or in part on any one or more occasions, at specified redemption prices, plus accrued and unpaid interest. At any time
prior to September 15, 2016, with respect to the 2021 Notes, and at any time prior to September 15, 2018, with respect to
the 2023 Notes, we may also redeem some or all of the Notes by paying a “make-whole premium”, plus accrued and unpaid
interest. In addition, upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of the
aggregate principal amount of each of the 2021 Notes and 2023 Notes outstanding with the net cash proceeds from such
offerings. The Notes are repayable, in whole or in part and at the option of the holders, upon the occurrence of a change in
control and a ratings downgrade, at a purchase price equal to 101% of principal, plus accrued and unpaid interest.
On October 11, 2013, in connection and simultaneously with the Purchase Transaction, we entered into a credit agreement
(the “Credit Agreement”) for a $2.5 billion secured term loan facility maturing in October 2020 (the “Term Loan”), and a
$250 million secured revolving credit facility maturing in October 2018 (the “Revolver” and, together with the Term Loan,
the “Credit Facilities”). A portion of the Revolver can be used to issue letters of credit of up to $50 million, subject to the
availability of the Revolver. To date, we have not drawn on the Revolver.
As of December 31, 2014, the outstanding balance of our Term Loan was $2.1 billion. Borrowings under the Term Loan
and Revolver bear interest at an annual rate equal to an applicable margin plus, at our option, (A) a base rate determined by
reference to the highest of (a) the interest rate in effect determined by the administrative agent as its “prime rate,” (b) the
federal funds rate plus 0.5%, and (c) the London InterBank Offered Rate (“LIBOR”) rate for an interest period of one
month plus 1.00%, or (B) LIBOR. Further, LIBOR borrowings under the Term Loan will be subject to a LIBOR floor of
0.75%. At December 31, 2014, the Term Loan bore interest at 3.25%. In certain circumstances, our interest rate under the
Credit Facilities will increase.
In addition to paying interest on outstanding principal balances under the Credit Facilities, we are required to pay the
lenders a commitment fee on unused commitments under the Revolver. We are also required to pay customary letter of
credit fees and agency fees.
The Credit Agreement required quarterly principal repayments of 0.25% of the Term Loan’s original principal amount, with
the balance due on the maturity date. On February 11, 2014, we made a voluntary partial repayment of $375 million on our
Term Loan. This repayment satisfied the required quarterly principal repayments for the entire term of the Credit
Agreement. On February 11, 2015, we made an additional voluntary principal repayment, this time in the amount of
$250 million, which reduced the balance due on the maturity date. The 2015 repayment reduced the Term Loan’s
outstanding principal balance to $1.9 billion and based on this reduced balance, we expect our contractual interest payments
in the future will be reduced by approximately $8 million annually, based on the interest rate of 3.25% at December 31,
2014. Amounts borrowed under the Term Loan and repaid may not be re- borrowed.
Agreements governing our indebtedness, including the indenture governing the Notes and the Credit Agreement, impose
operating and financial restrictions on our activities under certain conditions. These restrictions require us to comply with or
maintain certain financial tests and ratios. In addition, the indenture and the Credit Agreement limit or prohibit our ability
to, among other things: incur additional debt or make additional guarantees; pay distributions or dividends and repurchase
stock; make other restricted payments, including without limitation, certain restricted investments; create liens; enter into
agreements that restrict dividends from subsidiaries; engage in transactions with affiliates; and enter into mergers,
consolidations or sales of substantially all of our assets.
In addition, if, in the future, we borrow under the Revolver, as described in Note 12 of the Notes to Consolidated Financial
Statements included in this Annual Report, we may be required, during certain periods where outstanding revolving loans
exceed a certain threshold, to maintain a maximum senior secured net leverage ratio calculated pursuant to a financial
maintenance covenant under the Credit Agreement.
The Company was in compliance with the terms of the Notes and Credit Facilities as of December 31, 2014.
Dividends
On February 3, 2015, our Board of Directors declared a cash dividend of $0.23 per common share, payable on May 13,
2015, to shareholders of record at the close of business on March 30, 2015.