Activision 2014 Annual Report Download - page 22

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Capital Expenditures
We made capital expenditures of $107 million in 2014, as compared to $74 million in 2013. In 2015, we anticipate total
capital expenditures of approximately $100 million. Capital expenditures are expected to be primarily for computer
hardware and software purchases.
Commitments
In the normal course of business, we enter into contractual arrangements with third-parties for non-cancelable operating
lease agreements for our offices, for the development of products, and for rights to intellectual property. Under these
agreements, we commit to provide specified payments to a lessor, developer or intellectual property holder, as the case may
be, based upon contractual arrangements. The payments to third-party developers are generally conditioned upon the
achievement by the developers of contractually specified development milestones. Further, these payments to third-party
developers and intellectual property holders typically are deemed to be advances and are recoupable against future royalties
earned by the developer or intellectual property holder based on the sale of the related game. Additionally, in connection
with certain intellectual property rights acquisitions and development agreements, we commit to spend specified amounts
for marketing support for the related game(s) which is to be developed or in which the intellectual property will be utilized.
Assuming all contractual provisions are met, the total future minimum commitments for these and other contractual
arrangements in place at December 31, 2014 are scheduled to be paid as follows (amounts in millions):
Contractual Obligations(1)
Facility and
equipment leases
Developer
and IP Marketing
Long-term debt
obligations(2) Total
For the Year Ending December 31,
2015 ................................................. $ 36 $ 180 $ 45 $ 200 $ 461
2016 ................................................. 31 5 — 200 236
2017 ................................................. 28 3 — 200 231
2018 ................................................. 26 — — 200 226
2019 ................................................. 24 — — 200 224
Thereafter ......................................... 23 2 — 4,774 4,799
Total ................................................. $ 168 $ 190 $ 45 $ 5,774 $ 6,177
(1) We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the
timing of potential issue resolution. Specifically, either the underlying positions have not been fully developed
enough under audit to quantify at this time or the years relating to the issues for certain jurisdictions are not
currently under audit. At December 31, 2014, we had $419 million of gross unrecognized tax benefits, of which
$392 million was included in “Other Liabilities” and $27 million was included in “Accrued Expenses and Other
Liabilities” in the consolidated balance sheet.
(2) Long-term debt obligations represent our obligations related to the contractual principal repayments and interest
payments under the Term Loan and the Notes as of December 31, 2014. There was no outstanding balance under
our Revolver as of December 31, 2014. The Notes are subject to fixed interest rates and we have calculated the
interest obligation based on the applicable rates and payment dates for the Notes. The Term Loan bears a variable
interest rate and interest is payable on a quarterly basis. We have calculated the expected interest obligation based
on the outstanding principal balance and interest rate applicable at December 31, 2014. Refer to Note 12 of the
Notes to Consolidated Financial Statements included in this Annual Report for additional information on our debt
obligations. On February 11, 2015, we made a voluntary partial repayment of $250 million to the Term Loan. The
2015 repayment is expected to reduce our contractual interest payments, as shown in the table above, by
approximately $8 million annually, through the October 2020 maturity date, based on the interest rate of 3.25% at
December 31, 2014.
Off-balance Sheet Arrangements
At December 31, 2014 and 2013, Activision Blizzard had no significant relationships with unconsolidated entities or
financial parties, often referred to as “structured finance” or “special purpose” entities, established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, that have or are reasonably
likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses,
results of operation, liquidity, capital expenditures, or capital resources.
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Financial Disclosure
We maintain internal control over financial reporting, which generally includes those controls relating to the preparation of
our financial statements in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”). We also are focused on our “disclosure controls and procedures,” which as defined by the Securities and
Exchange Commission (the “SEC”), are generally those controls and procedures designed to ensure that financial and
non-financial information required to be disclosed in our reports filed with the SEC is reported within the time periods
specified in the SEC’s rules and forms, and that such information is communicated to management, including our principal
executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Our Disclosure Committee, which operates under the Board of Directors approved Disclosure Committee Charter and
Disclosure Controls & Procedures Policy, includes senior management representatives and assists executive management in
its oversight of the accuracy and timeliness of our disclosures, as well as in implementing and evaluating our overall
disclosure process. As part of our disclosure process, senior finance and operational representatives from all of our
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 by certain key corporate finance executives. These corporate finance
representatives also conduct quarterly interviews on a rotating basis with the preparers of selected quarterly reports. The
results of the quarterly reports and related interviews are reviewed by the Disclosure Committee. Finance representatives
also conduct interviews with our senior management team, our legal counsel and other appropriate personnel involved in
the disclosure process, as appropriate. Additionally, senior finance and operational representatives provide internal
certifications regarding the accuracy of information they provide that is utilized in the preparation of our periodic public
reports filed with the SEC. Financial results and other financial information also are reviewed with the Audit Committee of
the Board of Directors on a quarterly basis. As required by applicable regulatory requirements, the principal executive and
financial officers review and make various certifications regarding the accuracy of our periodic public reports filed with the
SEC, our disclosure controls and procedures, and our internal control over financial reporting. With the assistance of the
Disclosure Committee, we will continue to assess and monitor, and make refinements to, our disclosure controls and
procedures, and our internal control over financial reporting.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and
assumptions. The impact and any associated risks related to these policies on our business operations are discussed
throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies
affect our reported and expected financial results. The estimates and assumptions discussed below are considered by
management to be critical because they are both important to the portrayal of our financial condition and results of
operations and because their application places the most significant demands on management’s judgment, with financial
reporting results relying on estimates and assumptions about the effect of matters that are inherently uncertain. Specific
risks for these critical accounting estimates and assumptions are described in the following paragraphs.
Revenue Recognition including Revenue Arrangements with Multiple Deliverables
We recognize revenues when there is persuasive evidence of an arrangement, the product or service has been provided to
the customer, the collection of our fees is reasonably assured, and the amount of fees to be paid by the customer is fixed or
determinable. Certain products are sold to customers with a “street date” (which is the earliest date these products may be
sold by retailers). For these products, we recognize revenues on the later of the street date or the date the product is sold to
the customer.
Certain of our revenue arrangements have multiple deliverables, which we account for in accordance with Accounting
Standards Topic (“ASC”) Topic 605 and Accounting Standards Update (“ASU”) 2009-13. These revenue arrangements
include product sales consisting of both software and hardware deliverables (such as peripherals or other ancillary
collectors’ items sold together with physical “boxed” software) and our sales of World of Warcraft boxed products,
expansion packs and value-added services, each of which is considered with the related subscription services for these
purposes.
Under ASC Topic 605 and ASU 2009-13, when a revenue arrangement contains multiple elements, such as hardware and
software products, licenses and/or services, we allocate revenue to each element based on a selling price hierarchy. The
selling price for a deliverable is based on its vendor-specific- objective-evidence (“VSOE”) if it is available, third-party
evidence (“TPE”) if VSOE is not available, or best estimated selling price (“BESP”) if neither VSOE nor TPE is available.