Blizzard 2014 Annual Report Download

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2014 Annual Report

Table of contents

  • Page 1
    ® ® 2014 Annual Report

  • Page 2
    ... Year with Record Results Successfully Launched Two New Franchises â-² ® Revenues 1 $4.8 billion double 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...

  • 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
    ... ToysToLife Number 1 kids console game globally in 2014 with over 240 million 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...

  • 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
    ... by a wide margin and have provided shareholders with more than $10 billion of share repurchases and dividends. If you had invested $100 in our company 20 years ago, it would have returned over $4,400 today - almost nine times more than the $520 the S&P 500 would have returned in that same period of...

  • Page 9
    ... fact that there are millions 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...

  • 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
    ... on licensed intellectual properties. Additionally, we have established a long- term alliance with Bungie to publish its game universe, Destiny®, which was released on September 9, 2014. Activision sells games through both retail and digital online channels. Activision currently offers games that...

  • Page 12
    ... 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 the closed beta test for Heroes of the Storm, its upcoming free-to-play online team brawler...

  • 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
    ...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 and amortization...Cost of sales-intellectual property...

  • Page 15
    ...the PC, and Diablo III: Reaper of Souls-Ultimate Evil Edition, which was released in August 2014 on certain consoles, revenue from value-added services as a result of the launch of the World of Warcraft paid character boost, revenues from World of Warcraft: Warlords of Draenor, which was released in...

  • Page 16
    ... Swarm, which was released in March 2013. The increase in non-GAAP net revenues from digital online channels for 2014, as compared to 2013, was primarily due to revenues from Hearthstone: Heroes of Warcraft, value-added services revenues from the launch of the World of Warcraft: Warlords of Draenor...

  • Page 17
    ... to catalog sales of 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...

  • Page 18
    ... Xbox 360, which was released in September 2013, and revenues from the release of Diablo III: Reaper of Souls-Ultimate Evil Edition. Net revenues from next- and prior- generation consoles increased in 2013, as compared to 2012, primarily due to strong revenues from Call of Duty: Black Ops II digital...

  • Page 19
    ... launch of Destiny, Hearthstone: Heroes of Warcraft, and World of Warcraft: Warlords of Draenor during the year. The increase was partially offset by lower media spending by the Call of Duty and Skylanders franchises. Sales and marketing expenses increased in 2013, as compared to 2012, primarily due...

  • Page 20
    ... the sale of our products and digital and subscription revenues, partially offset by payments to vendors for the manufacturing, distribution and marketing of our products, payments for customer service support for our subscribers, payments to third- party developers and intellectual property holders...

  • Page 21
    ... 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...

  • Page 22
    ... 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...

  • Page 23
    ...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-to-play...

  • Page 24
    ...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 when we believe capitalized costs are not recoverable, we expense the amounts as part of "Cost of sales-intellectual property licenses." Capitalized...

  • Page 25
    ..., and actual and projected employee stock option exercise behaviors. We generally determine 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...

  • Page 26
    ... from our international operations. Similarly, our revenues, operating expenses, net income and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. Since we have significant international sales, but incur the majority of our costs in the...

  • Page 27
    ...been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. To the Board of Directors and Shareholders of Activision Blizzard, Inc...

  • Page 28
    ... 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 and amortization ...Cost of sales-intellectual property licenses...Product development...Sales and marketing...

  • Page 29
    ...) 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 Capital $ 9,616...

  • Page 30
    ... of property and equipment ...Amortization and write-off of capitalized software development costs and intellectual property licenses(1) ...Amortization of debt discount and debt financing costs ...Stock-based compensation expense(2) ...Excess tax benefits from stock awards ...Changes in operating...

  • Page 31
    ...party console, mobile and tablet platforms; and licensing of software to third-party or related-party companies that distribute World of Warcraft, Diablo, StarCraft and Hearthstone: Heroes of Warcraft products. In addition, Blizzard is the creator of Heroes of the Stormâ„¢, a new free-to-play online...

  • Page 32
    ...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 when we believe capitalized costs are not recoverable, we expense the amounts as part of "Cost of sales-intellectual property licenses." Capitalized...

  • Page 33
    ... extended period of time. We recognize revenues from the sale of durable virtual goods ratably over the period of time the goods are available to the player, generally the estimated service period of the game. Revenues from the licensing of intellectual property other than software to third-parties...

  • Page 34
    ... from the retail markets, but at the same time are controlled to prevent excess inventory in the channel. We benchmark units to be shipped to our customers using historical and industry data. We may permit product returns from, or grant price protection to, our customers under certain conditions...

  • Page 35
    ... ...Total short-term investments ...Long-term investments: Available-for-sale investments: Auction rate securities held through Morgan Stanley Smith Barney LLC ... $ $ 10 10 Amortization, write-offs and impairments of capitalized software development costs and intellectual property licenses are...

  • 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
    ...): Fair Value Measurements at December 31, 2014 Using Quoted Prices in Active Markets for Identical Assets (Level 1) ARS(a) Balance at December 31, 2012...Total unrealized gains included in other comprehensive income ...Balance at December 31, 2013...Total unrealized gains included in other...

  • Page 38
    ... 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. These redemption options are considered clearly and closely related to the Notes and are not accounted for...

  • Page 39
    ... of the change in deferred revenues and related cost of sales with respect to certain of our online-enabled games, stock-based compensation expense, amortization of intangible assets as a result of purchase price accounting, and fees and other expenses (including legal fees, costs, expenses and...

  • Page 40
    ... of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services. Revenues from mobile and other include revenues from handheld, mobile and tablet devices, as well as non-platform specific game related revenues such as standalone sales of...

  • Page 41
    ...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...

  • Page 42
    ... ...Research and development credits ...Domestic production activity deduction ...Foreign rate differential ...Change in tax reserves ...Shortfall from employee stock option exercises ...Return to provision adjustment ...Net Operating Loss tax attribute received from Internal Revenue Service audit...

  • Page 43
    ... on current information, in the opinion of the Company's management, the ultimate resolution of these matters will not have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. Activision Blizzard's tax years 2008 through 2013 remain open to...

  • Page 44
    ... to this stock repurchase plan. The 2011 stock repurchase program expired on March 31, 2012. Dividend 716 10 1,024 11 1,112 6 On February 6, 2014, our Board of Directors declared a cash dividend of $0.20 per common share, payable on May 14, 2014, to shareholders of record at the close of business on...

  • Page 45
    ...in place at December 31, 2014 are scheduled to be paid as follows (amounts in millions): Contractual Obligations(1) Developer and Intellectual Properties Marketing Board of Directors and Vivendi as defendants, and the Company as a nominal defendant. The complaint alleges that our Board of Directors...

  • Page 46
    ... that the Stock Purchase Agreement was not a merger, business combination or similar transaction that would require a vote of Activision's unaffiliated stockholders under the charter. On October 29, 2013, an amended complaint was filed. It added factual allegations but no new claims or relief...

  • 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...

  • Page 48
    ... National Market under the symbol "ATVI." The following table sets forth, for the periods indicated, the high and low reported sale prices for our common stock. At February 19, 2015, there were 1,653 holders of record of our common stock. High Low â-² $200 â-² $150 â-² â-² â-² 2013 First Quarter...

  • Page 49
    ... 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 are not aware of material non-public information...

  • Page 50
    .../Platform Mix Activision and 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...

  • Page 51
    ... 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 to...

  • Page 52
    ...related to the Purchase Transaction and related debt financings(d) Non-GAAP Measurement Net Revenues $ 4,408 Cost of Sales - Product Costs 999 Cost of Sales - Online 232 Cost of Sales - Software Royalties and Amortization 260 Cost of Sales - Intellectual Property License...

  • Page 53
    ...December 31, 2013 Year over Year % Increase (Decrease) Net Revenues Cost of Sales - Product Costs Cost of Sales - Online Subscriptions Cost of Sales - Software Royalties and Amortization Cost of Sales - Intellectual Property Licenses Product Development Sales and Marketing General and...

  • Page 54
    ... 3, 2015, 9:00 am PDT Shutters on the Beach 1 Pico Boulevard Santa Monica, California 90405 Auditor PricewaterhouseCoopers LLP Los Angeles, California $ - 257 $ - 131 $ 48 280 $ (36) 936 $ 13 1,606 Annual Report on Form 10-K Activision Blizzard's Annual...

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