Blizzard 2014 Annual Report Download - page 38

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income (loss) to earnings within “General and administrative expense” when the hedged item impacts earnings. The
Company measures hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be 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 forward contracts of $8 million
were reclassified out of “Accumulated other comprehensive income (loss)” into “General and administrative expense”.
Fair Value Measurements on a Non-Recurring Basis
We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable.
For the years ended December 31, 2014, 2013, and 2012, there were no impairment charges related to assets that are
measured on a non-recurring basis.
12. Debt
The proceeds from the credit facilities and the unsecured senior notes, as described below, were used to fund the Purchase
Transaction disclosed in Note 1 of the Notes to Consolidated Financial Statements.
Credit Facilities
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.
Borrowings under the Term Loan and the Revolver bear interest, payable on a quarterly basis, 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. LIBOR borrowings
under the Term Loan will be subject to a LIBOR floor of 0.75%. At December 31, 2014, the Credit Facilities bore interest
at 3.25%. In certain circumstances, our applicable interest rate under the Credit Facilities would 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. Commitment fees are recorded within “Interest and
other investment income (expense), net” on the consolidated statement of operations. We are also required to pay customary
letter of credit fees, if any, and agency fees.
The terms of 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 repayment of $375 million
on our Term Loan. This repayment satisfied the required quarterly principal repayments for the entire term of the Credit
Agreement. Since this voluntary principal repayment was not a contractual requirement as of December 31, 2013 and the
Board of Directors did not approve the repayment until January 2014, only the contractual principal repayment of
$25 million for 2014 has been reflected as “Current portion of long-term debt” in our consolidated balance sheet as of
December 31, 2013. Amounts borrowed under the Term Loan and repaid may not be re-borrowed.
The Credit Facilities are guaranteed by certain of the Company’s U.S. subsidiaries, whose assets represent approximately
69% of our consolidated assets. The Credit Agreement contains customary covenants that place restrictions in certain
circumstances on, among other things, the incurrence of debt, granting of liens, payment of dividends, sales of assets and
mergers and acquisitions. If our obligations under the Revolver exceed 15% of the total facility amount as of the end of any
fiscal quarter (subject to certain exclusions for letters of credit), we are also subject to certain financial covenants. A
violation of any of these covenants could result in an event of default under the Credit Agreement. Upon the occurrence of
such event of default or certain other customary events of default, payment of any outstanding amounts under the Credit
Agreement may be accelerated, and the lenders’ commitments to extend credit under the Credit Agreement may be
terminated. In addition, an event of default under the Credit Agreement could, under certain circumstances, permit the
holders of other outstanding unsecured debt, including the debt holders described below, to accelerate the repayment of
such obligations. The Company was in compliance with the terms of the Credit Facilities as of December 31, 2014.
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Unsecured Senior Notes
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”) in a private offering to qualified institutional buyers made in accordance with Rule 144A under
the Securities Act of 1933, as amended.
The Notes are general senior obligations of the Company and rank pari passu in right of payment to all of the Company’s
existing and future senior indebtedness, including the Credit Facilities described above. The Notes are guaranteed on a
senior basis by the Guarantors. The Notes and related guarantees are not secured and are effectively subordinated to any of
the Company’s existing and future indebtedness that is secured, including the Credit Facilities. The Notes contain
customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of debt, granting
of liens, payment of dividends, sales of assets and mergers and acquisitions. The Company was in compliance with the
terms of the Notes as of December 31, 2014.
Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year. As of December 31,
2014 and 2013, we had interest payable of $38 million, related to the Notes, recorded within “Accrued expenses and other
liabilities” in our consolidated balance sheet.
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. 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. These redemption
options are considered clearly and closely related to the Notes and are not accounted for separately upon issuance.
For the year ended December 31, 2013, we recorded $52 million of fees associated with the closing of the Term Loan and
the Notes as debt discount, which reduced the carrying value of the Term Loan and the Notes. The debt discount is
amortized over the respective terms of the Term Loan and the Notes. Amortization expense is recorded within “Interest and
other investment income (expense), net” in our consolidated statement of operations.
A summary of our debt is as follows (amounts in millions):
December 31, 2014
Gross Carrying
Amount
Unamortized
Discount
Net Carrying
Amount
Term Loan ................................................ $ 2,119 $ (10) $ 2,109
2021 Notes ............................................... 1,500 (23) 1,477
2023 Notes ............................................... 750 (12) 738
Total debt ................................................. $ 4,369 $ (45) $ 4,324
Less: current portion of long-term debt .... —— —
Total long-term debt ................................. $ 4,369 $ (45) $ 4,324
December 31, 2013
Gross Carrying
Amount
Unamortized
Discount
Net Carrying
Amount
Term Loan ................................................ $ 2,494 $ (12) $ 2,482
2021 Notes ............................................... 1,500 (26) 1,474
2023 Notes ............................................... 750 (13) 737
Total debt ................................................. $ 4,744 $ (51) $ 4,693
Less: current portion of long-term debt .... (25) —(25)
Total long-term debt ................................. $ 4,719 $ (51) $ 4,668
For the years ended December 31, 2014 and 2013, interest expense was $201 million and $57 million, respectively,
amortization of the debt discount for the Credit Facilities and Notes was $6 million and $1 million, respectively, and
commitment fees for the Revolver were not material.