Activision 2014 Annual Report Download - page 41

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As stock-based compensation expense recognized in the consolidated statement of operations for the years ended
December 31, 2014, 2013, and 2012 is based on awards ultimately expected to vest, it has been reduced for estimated
forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Forfeitures were estimated based on historical experience.
Accuracy of Fair Value Estimates
We developed the assumptions used in the binomial-lattice model, including model inputs and measures of employees’
exercise and post-vesting termination behavior. Our ability to accurately estimate the fair value of stock-based payment
awards at the grant date depends upon the accuracy of the model and our ability to accurately forecast model inputs 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 produced by this model may not be indicative of the fair value observed
between a willing buyer and a willing seller. Unfortunately, it is difficult to determine if this is the case, as markets do not
currently exist that permit the active trading of employee stock option and other stock-based instruments.
Stock Option Activities
Stock option activities for the year ended December 31, 2014 are as follows (amounts in millions, except number of shares,
which are in thousands, and per share amounts):
Shares
Weighted-
average
exercise price
Weighted-average
remaining
contractual term
Aggregate
intrinsic value
Outstanding stock options at December 31, 2013 ......... 38,804 $ 12.63
Granted .......................................................................... 6,020 20.41
Exercised ....................................................................... (14,386) 11.97
Forfeited ........................................................................ (939) 14.00
Expired .......................................................................... (13) 10.39
Outstanding stock options at December 31, 2014 ......... 29,486 14.50 6.03 $ 168
Vested and expected to vest at December 31, 2014 ...... 28,391 $ 14.32 5.06 $ 167
Exercisable at December 31, 2014 ................................ 19,254 $ 12.70 4.51 $ 145
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e. the difference between our
closing stock price on the last trading day of the period and the exercise price, times the number of shares for options where
the exercise price is below the closing stock price) that would have been received by the option holders had all option
holders exercised their options on that date. This amount changes based on the market value of our stock. The total intrinsic
value of options actually exercised was $117 million, $104 million, and $25 million for the years ended December 31,
2014, 2013, and 2012, respectively. The total grant date fair value of options vested was $19 million, $29 million, and
$47 million for the years ended December 31, 2014, 2013, and 2012, respectively.
At December 31, 2014, $33 million of total unrecognized compensation cost related to stock options is expected to be
recognized over a weighted- average period of 1.58 years.
Restricted Stock Units and Restricted Stock Awards Activities
We grant restricted stock units, which represent the right to receive shares of our common stock, and restricted stock
awards, which are issued and outstanding upon grant but subject to the risk of forfeiture (collectively referred to as
“restricted stock rights”), under the 2014 Plan to employees around the world, and we assumed, as a result of the Business
Combination, the restricted stock rights granted by Activision, Inc. Vesting for restricted stock rights is contingent upon the
holders’ continued employment with us and may be subject to other conditions (which may include the satisfaction of a
performance measure). If the vesting conditions are not met, unvested restricted stock rights will be forfeited. Holders of
restricted stock are restricted from selling the shares until they vest. Upon vesting of restricted stock rights, we may
withhold shares otherwise deliverable to satisfy minimum tax withholding requirements.
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The following table summarizes our restricted stock rights activity for the year ended December 31, 2014 (amounts in
thousands except per share amounts):
Restricted Stock
Rights
Weighted-
Average Grant
Date Fair Value
Unvested restricted stock rights balance at
December 31, 2013 ............................................... 22,565 $ 12.63
Granted ...................................................................... 4,111 20.07
Vested ....................................................................... (7,120) 12.23
Forfeited .................................................................... (1,966) 12.01
Unvested restricted stock rights balance at
December 31, 2014 ............................................... 17,590 11.85
At December 31, 2014, approximately $69 million of total unrecognized compensation cost was related to restricted stock
rights and is expected to be recognized over a weighted-average period of 1.26 years. Of the total unrecognized
compensation cost, $23 million was related to performance- vesting restricted stock rights, which is expected to be
recognized over a weighted-average period of 1.30 years. The total grant date fair value of vested restricted stock rights was
$92 million, $57 million and $45 million for the years ended December 31, 2014, 2013 and 2012, respectively.
The income tax benefit from stock option exercises and restricted stock rights was $89 million, $77 million, and $20 million
for the years ended December 31, 2014, 2013, and 2012, respectively.
Stock-Based Compensation Expense
The following table sets forth the total stock-based compensation expense included in our consolidated statements of
operations for the years ended December 31, 2014, 2013, and 2012 (amounts in millions):
For the Years Ended
December 31,
2014 2013 2012
Cost of sales—online ...................................................................... $ 1 $ — $ —
Cost of sales—software royalties and amortization ........................ 17 17 9
Product development ....................................................................... 22 33 20
Sales and marketing ........................................................................ 8 7 8
General and administrative .............................................................. 56 53 89
Stock-based compensation expense before income taxes ............... 104 110 126
Income tax benefit ........................................................................... (38) (40) (46)
Total stock-based compensation expense, net of income tax benefit
..................................................................................................... $ 66 $ 70 $ 80
The following table summarizes stock-based compensation included in our consolidated balance sheets as a component of
“Software development” (amounts in millions):
Software
Development
Balance at December 31, 2011 ................................................................................. $ 10
Stock-based compensation expense capitalized and deferred during period ............ 27
Amortization of capitalized and deferred stock-based compensation expense ......... (18)
Balance at December 31, 2012 ................................................................................. $ 19
Stock-based compensation expense capitalized and deferred during period ............ 34
Amortization of capitalized and deferred stock-based compensation expense ......... (31)
Balance at December 31, 2013 ................................................................................. $ 22
Stock-based compensation expense capitalized and deferred during period ............ 27
Amortization of capitalized and deferred stock-based compensation expense ......... (23)
Balance at December 31, 2014 ................................................................................. $ 26