CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Millions | Sep. 30, 2009
| Dec. 31, 2008
|
Current assets: | ||
Cash and cash equivalents | $2,360 | $2,958 |
Short-term investments | 361 | 44 |
Accounts receivable, net of allowances of $230 million and $268 million at September 30, 2009 and December 31, 2008, respectively | 228 | 974 |
Inventories | 351 | 262 |
Software development | 253 | 235 |
Intellectual property licenses | 65 | 35 |
Deferred income taxes, net | 727 | 536 |
Intangible assets, net | 1 | 14 |
Other current assets | 162 | 201 |
Total current assets | 4,508 | 5,259 |
Long-term investments | 22 | 78 |
Software development | 15 | 1 |
Intellectual property licenses | 5 | |
Property and equipment, net | 133 | 149 |
Other assets | 12 | 30 |
Intangible assets, net | 1,168 | 1,283 |
Trademark and trade names | 433 | 433 |
Goodwill | 7,161 | 7,227 |
Total assets | 13,452 | 14,465 |
Current liabilities: | ||
Accounts payable | 282 | 319 |
Deferred revenues | 471 | 923 |
Accrued expenses and other liabilities | 532 | 842 |
Total current liabilities | 1,285 | 2,084 |
Deferred income taxes, net | 685 | 615 |
Other liabilities | 190 | 239 |
Total liabilities | 2,160 | 2,938 |
Shareholders' equity: | ||
Common stock, $.000001 par value per share, 2,400,000,000 shares authorized, 1,356,273,202 and 1,325,206,032 shares issued at September 30, 2009 and December 31, 2008, respectively | 0 | 0 |
Additional paid-in capital | 12,332 | 12,170 |
Less: Treasury stock, at cost, 88,802,250 and 12,967,265 shares at September 30, 2009 and December 31, 2008, respectively | (960) | (126) |
Accumulated deficit | (75) | (474) |
Accumulated other comprehensive loss | (5) | (43) |
Total shareholders' equity | 11,292 | 11,527 |
Total liabilities and shareholders' equity | $13,452 | $14,465 |
1_CONDENSED CONSOLIDATED BALANC
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | ||
In Millions, except Share data | Sep. 30, 2009
| Dec. 31, 2008
|
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Accounts receivable, allowances (in dollars) | $230 | $268 |
Common stock, par value per share (in dollars per share) | 0.000001 | 0.000001 |
Common stock, shares authorized | 2,400,000,000 | 2,400,000,000 |
Common stock, shares issued | 1,356,273,202 | 1,325,206,032 |
Treasury stock, shares | 88,802,250 | 12,967,265 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | ||||
In Millions, except Per Share data | 3 Months Ended
Sep. 30, 2009 | 3 Months Ended
Sep. 30, 2008 | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Net revenues | ||||
Product sales | $411 | $413 | $1,848 | $553 |
Subscription, licensing, and other revenues | 292 | 298 | 874 | 834 |
Total net revenues | 703 | 711 | 2,722 | 1,387 |
Costs and expenses | ||||
Cost of sales - product costs | 185 | 279 | 762 | 350 |
Cost of sales - software royalties and amortization | 54 | 50 | 212 | 88 |
Cost of sales - intellectual property licenses | 45 | 36 | 163 | 45 |
Cost of sales - massively multi-player online role-playing game ("MMORPG") | 55 | 43 | 158 | 123 |
Product development | 122 | 200 | 362 | 414 |
Sales and marketing | 128 | 142 | 329 | 220 |
General and administrative | 106 | 94 | 301 | 172 |
Restructuring | (1) | 61 | 29 | 61 |
Total costs and expenses | 694 | 905 | 2,316 | 1,473 |
Operating income (loss) | 9 | (194) | 406 | (86) |
Investment and other income, net | 11 | 24 | 21 | 28 |
Income (loss) before income tax expense (benefit) | 20 | (170) | 427 | (58) |
Income tax expense (benefit) | 5 | (62) | 28 | (22) |
Net income (loss) | $15 | ($108) | $399 | ($36) |
Earnings (loss) per common share, basic (in dollars per share) | 0.01 | -0.08 | 0.31 | -0.04 |
Earnings (loss) per common share, diluted (in dollars per share) | 0.01 | -0.08 | 0.3 | -0.04 |
Weighted-average shares outstanding | ||||
Basic (in shares) | 1,271 | 1,271 | 1,289 | 816 |
Diluted (in shares) | 1,297 | 1,271 | 1,320 | 816 |
2_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | |||||||||||||||||||
In Millions | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 | |||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income (loss) | $399 | ($36) | |||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||
Deferred income taxes | (70) | (109) | |||||||||||||||||
Depreciation and amortization | 187 | 144 | |||||||||||||||||
Impairment charges | 24 | ||||||||||||||||||
Unrealized gain on auction rate securities classified as trading securities | (3) | ||||||||||||||||||
Unrealized loss on put option from UBS | 3 | ||||||||||||||||||
Amortization and write-off of capitalized software development costs and intellectual property licenses (1) | 192 | [1] | 120 | [1] | |||||||||||||||
Stock-based compensation expense (2) | 109 | [2] | 47 | [2] | |||||||||||||||
Tax (shortfall) benefit from employee stock option exercises | (1) | 2 | |||||||||||||||||
Excess tax benefits from stock option exercises | (68) | (17) | |||||||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||||||
Accounts receivable | 748 | 306 | |||||||||||||||||
Inventories | (89) | (135) | |||||||||||||||||
Software development and intellectual property licenses | (229) | (119) | |||||||||||||||||
Other assets | 53 | (11) | |||||||||||||||||
Deferred revenues | (452) | 10 | |||||||||||||||||
Accounts payable | (39) | 26 | |||||||||||||||||
Accrued expenses and other liabilities | (370) | (127) | |||||||||||||||||
Net cash provided by operating activities | 370 | 125 | |||||||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Capital expenditures | (41) | (24) | |||||||||||||||||
Proceeds from sale of investments | 2 | ||||||||||||||||||
Proceeds from maturities of investments | 9 | ||||||||||||||||||
Cash acquired through the business combination, net of cash payments to effect acquisitions | 1,137 | ||||||||||||||||||
Increase in restricted cash | (40) | (35) | |||||||||||||||||
Purchase of short-term investments | (228) | ||||||||||||||||||
Net cash (used in) provided by investing activities | (298) | 1,078 | |||||||||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Proceeds from issuance of common stock to employees | 63 | 19 | |||||||||||||||||
Repurchase of common stock | (834) | ||||||||||||||||||
Repurchase of stock through tender offer | (2) | ||||||||||||||||||
Return of capital to Vivendi | (79) | ||||||||||||||||||
Issuance of additional common stock related to the business combination | 1,731 | ||||||||||||||||||
Excess tax benefits from stock option exercises | 68 | 17 | |||||||||||||||||
Net cash transfers to Vivendi and affiliated companies | (79) | ||||||||||||||||||
Net cash (used in) provided by financing activities | (703) | 1,607 | |||||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | 33 | (30) | |||||||||||||||||
Net (decrease) increase in cash and cash equivalents | (598) | 2,780 | |||||||||||||||||
Cash and cash equivalents at beginning of period | 2,958 | 62 | |||||||||||||||||
Cash and cash equivalents at end of period | $2,360 | $2,842 | |||||||||||||||||
[1]Excludes deferral and amortization of stock-based compensation expense. | |||||||||||||||||||
[2]Includes the net effects of capitalization, deferral, and amortization of stock-based compensation expense. |
3_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (USD $) | ||||||
In Millions | Common Stock
| Additional Paid-In Capital
| Treasury Stock
| Accumulated Deficit
| Accumulated Other Comprehensive Loss
| Total
|
Balance at Dec. 31, 2008 | $12,170 | ($126) | ($474) | ($43) | $11,527 | |
Balance (in shares) at Dec. 31, 2008 | 1,325 | (13) | ||||
Components of comprehensive income: | ||||||
Net income | 399 | 399 | ||||
Foreign currency translation adjustment | 38 | 38 | ||||
Total comprehensive income | 437 | |||||
Issuance of common stock pursuant to employee stock options and restricted stock rights | 63 | 63 | ||||
Issuance of common stock pursuant to employee stock options and restricted stock rights (in shares) | 28 | |||||
Stock-based compensation expense related to employee stock options and restricted stock rights | 117 | 117 | ||||
Tax shortfall from employee stock option exercises | (1) | (1) | ||||
Issuance of contingent consideration | 2 | 2 | ||||
Issuance of contingent consideration (in shares) | 3 | |||||
Shares repurchased | (834) | (834) | ||||
Shares repurchased (in shares) | (76) | |||||
Return of capital to Vivendi related to settlement of pre-Business Combination taxes | (19) | (19) | ||||
Balance at Sep. 30, 2009 | $12,332 | ($960) | ($75) | ($5) | $11,292 | |
Balance (in shares) at Sep. 30, 2009 | 1,356 | (89) |
Background and basis of present
Background and basis of presentation | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Background and basis of presentation | 1. Background and basis of presentation Business Activision Blizzard,Inc. is a worldwide online, personal computer (PC), console and handheld game publisher. The terms Activision Blizzard, the Company, we, us, and our are used to refer collectively to Activision Blizzard,Inc. and its subsidiaries. Based upon our current organizational structure, we operate three operating segments as follows: (i)Activision Publishing,Inc. Activision Publishing,Inc. (Activision) is a leading international publisher of interactive software products and peripherals. Activision develops and publishes video games on various consoles, handheld platforms and the PCplatform through internally developed franchises and license agreements. Activision currently offers games that operate on the Sony Computer Entertainment (Sony) PlayStation2 (PS2), Sony PlayStation3 (PS3), NintendoCo. Ltd. (Nintendo) Wii (Wii), and Microsoft Corporation (Microsoft) Xbox360 (Xbox360) console systems; the Sony PlayStationPortable (PSP) and Nintendo Dual Screen (NDS) handheld devices; the PC; and the new handheld game system Nintendo DSi. We will continue to market to the PS2 platform as long as it remains economically attractive given the consoles installed base. Our Activision business involves the development, marketing, and sale of products directly, by license, or through our affiliate label program with certain third-party publishers. Activisions products cover diverse game categories including action/adventure, action sports, racing, role-playing, simulation, first-person action, music, and strategy. Activisions target customer base ranges from casual players to game enthusiasts, and children to adults. (ii)Blizzard Entertainment,Inc. Blizzard Entertainment,Inc. (Blizzard) is a leader in terms of subscriber base and revenues generated in the subscription-based massively multi-player online role-playing game (MMORPG) category. Blizzard internally develops and publishes PC-based computer games and maintains its proprietary online-game related service, Battle.net. Our Blizzard business involves the development, marketing, sales and support of role playing action and strategy games. Blizzard also develops, hosts, and supports its online subscription-based games in the MMORPG category. Blizzard is the development studio and publisher best known as the creator of World of Warcraft and the multiple award winning Diablo, StarCraft, and Warcraft franchises. Blizzard distributes its products and generates revenues worldwide through various means, including: subscription revenues (which consist of fees from individuals playing World of Warcraft, prepaid cards and other ancillary online revenues); retail sales of physical boxed products; electronic download sales of PCproducts; and licensing of software to third-party companies that distribute World of Warcraft in China, Russia, and Taiwan. Blizzard is currently developing new games, including sequels to the StarCraft and Diablo franchises. Blizzard has entered into licensing arrangements for World of Warcraft, StarCraft II, Battle.net and Warcraft III with an affiliated company of NetEase.com,Inc. in China for a term |
Summary of significant accounti
Summary of significant accounting policies | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Summary of significant accounting policies | 2. Summary of significant accounting policies Financial Instruments The estimated fair values of financial instruments have been determined using available market information and valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses are a reasonable approximation of fair value due to their short-term nature. At September30, 2009, our $361 million of short-term investments included $54 million of auction rate securities (ARS) classified as trading, $228 million of U.S. government agency securities classified as available-for-sale, $77 million of restricted cash, and $2 million of mortgage-backed securities. The U.S. government agency securities and mortgage-backed securities are carried at fair value with fair values estimated based on quoted market prices. Long-term investments represent ARS classified as available-for-sale. Both short-term and long-term ARS, which are comprised of student loan backed securities, are carried at fair value with fair values estimated using an income-approach model (discounted cash-flow analysis). Other-Than-Temporary Impairments A debt security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the securitys amortized cost basis (the difference being defined as the credit loss) or if the fair value of the security is less than the securitys amortized cost basis and we intend, or more-likely-than-not will be required, to sell the security before recovery of the securitys amortized cost basis. If an other-than-temporary impairment exists, the charge to earnings is limited to the amount of credit loss if we do not intend to sell the security, and it is more-likely-than-not that we will not be required to sell the security, before recovery of the securitys amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. Derivative Financial Instruments On January1, 2009, we adopted an amendment issued by the Financial Accounting Standards Board (FASB) regarding disclosures about derivative investments and hedging activities. The adoption of such amendment had no financial impact on our Condensed Consolidated Financial Statements and only required additional financial statement disclosures. We have applied the requirements of the amendment on a prospective basis. Accordingly, disclosures related to interim periods prior to the date of adoption have not been presented. At September30, 2009, no financial statement disclosures were included in our Condensed Consolidated Fi |
Inventories
Inventories | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Inventories | 3. Inventories Our inventories consist of the following (amounts in millions): At September30, 2009 At December31,2008 Finished goods $ 320 $ 251 Purchased parts and components 31 11 $ 351 $ 262 |
Goodwill
Goodwill | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Goodwill | 4. Goodwill The changes in the carrying amount of goodwill by operating segment for the nine months ended September30, 2009 are as follows (amounts in millions): Activision Blizzard Distribution Total Balance at December31, 2008 $ 7,037 $ 178 $ 12 $ 7,227 Issuance of contingent consideration 2 2 Goodwill acquired 3 3 Purchase accounting adjustments (6 ) (6 ) Tax benefit credited to goodwill (67 ) (67 ) Effect of foreign exchange rate changes 2 2 Balance at September30, 2009 $ 6,971 $ 178 $ 12 $ 7,161 Issuance of contingent consideration consists of additional purchase consideration paid during 2009 in relation to previous acquisitions. The tax benefit credited to goodwill represents the tax deduction resulting from the exercise of stock options that were outstanding and vested at the consummation of the Business Combination and included in the purchase price of Activision,Inc. to the extent that the tax deduction did not exceed the fair value of those options. |
Intangible assets, net
Intangible assets, net | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Intangible assets, net | 5. Intangible assets, net Intangible assets, net consist of the following (amounts in millions): At September 30, 2009 Estimated useful lives Gross carrying amount Accumulated amortization Net carrying amount Finite-lived intangible assets: License agreements 3 - 10years $ 209 $ (26 ) $ 183 Developed software 1 - 2years 288 (286 ) 2 Game engines 2 - 5years 133 (66 ) 67 Internally developed franchises 11 - 12years 1,124 (218 ) 906 Favorable leases 1 - 4years 5 (3 ) 2 Distribution agreements 4years 18 (9 ) 9 Total finite-lived intangible assets 1,777 (608 ) 1,169 Indefinite-lived intangible assets: Activision trademark Indefinite 386 386 Acquired trade names Indefinite 47 47 Total $ 2,210 $ (608 ) $ 1,602 At December 31, 2008 Estimated useful lives Gross carrying amount Accumulated amortization Net carrying amount Finite-lived intangible assets: License agreements 3 - 10years $ 207 $ (12 ) $ 195 Developed software 1 - 2years 286 (272 ) 14 Game engines 2 - 5years 134 (42 ) 92 Internally developed franchises 11 - 12years 1,124 (145 ) 979 Favorable leases 1 - 4years 5 (1 ) 4 Distribution agreements 4years 17 (5 ) 12 Other intangibles 0 - 2years 5 (4 ) 1 Total finite-lived intangible assets 1,778 (481 ) 1,297 Indefinite-lived intangible assets: Activision trademark Indefinite 386 386 Acquired trade names Indefinite 47 47 Total $ 2,211 $ (481 ) $ 1,730 Amortization expense of intangible assets for the three and nine months ended September30, 2009 was $39 million and $129 million, respectively. Amortization expense of intangible assets for the three and nine months ended September30, 2008 was $90 million and $92 million, respectively. At September30, 2009, future amortization of finite-lived intangible assets is estimated as follows (amounts in millions): 2009 (remaining three months) $ 153 2010 213 2011 146 2012 123 2013 106 Thereafter 428 Total $ 1,169 |
Income taxes
Income taxes | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Income taxes | 6. Income taxes The income tax expense of $5 million for the three months ended September30, 2009 reflects an effective tax rate of 26%. The effective tax rate of 26% for the three months ended September 30, 2009 differs from the statutory rate of 35% primarily due to foreign income taxes provided at lower rates, geographic mix in profitability, recognition of research and development credits and IRC 199 domestic production deductions. For the nine months ended September30, 2009, the tax rate is based on our projected annual effective tax rate for 2009, and also includes certain discrete tax benefits recorded during the period. Our tax expense of $28 million for the nine months ended September30, 2009 reflects an effective tax rate of 7% which differs from the statutory rate of 35% for the nine months ended September30, 2008 primarily due to lower foreign income tax rates and certain discrete tax benefits recorded during the period related to the release of valuation allowances on foreign net operating losses and the impact of changes to California tax laws. We evaluate our deferred tax assets, including net operating losses, to determine if a valuation allowance is required. We assess whether a valuation allowance should be established or released based on the consideration of all available evidence using a more likely than not standard. In making such judgments, significant weight is given to evidence that can be objectively verified. At December31, 2008 we had a foreign net operating loss valuation allowance of $23 million. The ultimate realization of the foreign net operating losses depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. We currently expect to realize these net operating losses through taxable income; therefore, in the first quarter of 2009, we released a valuation allowance of $23million against our deferred tax assets. California Senate Bill No.15 was enacted in February20, 2009 and contains significant changes to the state of California tax landscape. When there is an enacted change in tax laws or rate, we adjust our deferred tax liabilities and assets to reflect the change. During the nine months ended September30, 2009, we reduced our net deferred tax liabilities and tax provision by $10 million. Prior to the Business Combination, Vivendi Games income taxes are presented in the financial statements as if Vivendi Games were a stand-alone taxpayer even though Vivendi Games operating results are included in the consolidated federal, certain foreign, and state and local income tax returns of Vivendi or Vivendis subsidiaries. Based on the subsequent filing of these tax returns by Vivendi or Vivendis subsidiaries, we determined that the amount paid by Vivendi Games was greater than the actual amount due (and settled) based upon filing of these returns. This difference between the amount paid and the actual amount due (and settled) represents a return of capital to Vivendi, which was required in accordance with the terms of the Business Combination agreement immediately prior to the close of the Business Combination. This differ |
Software development costs and
Software development costs and intellectual property licenses | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Software development costs and intellectual property licenses | 7. Software development costs and intellectual property licenses At September30, 2009, capitalized software development costs included $211 million of internally developed software costs and $57 million of payments made to third-party software developers. At December31, 2008, capitalized software development costs included $173 million of internally developed software costs and $63 million of payments made to third-party software developers. Capitalized intellectual property licenses were $65 million and $40 million at September30, 2009 and December31, 2008, respectively. Amortization of capitalized software development costs and intellectual property licenses for the three months ended September30, 2009 and 2008 was $41 million and $19 million, respectively. Write-offs and impairments were $2 million and $62 million for the three months ended September30, 2009 and 2008, respectively. Amortization of capitalized software development costs and intellectual property licenses for the nine months ended September30, 2009 and 2008 were $210 million and $26 million, respectively. Write-offs and impairments were $2 million and $94 million for the nine months ended September30, 2009 and 2008, respectively. |
Restructuring
Restructuring | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Restructuring | 8. Restructuring We have substantially completed our implementation of our organizational restructuring plan as a result of the Business Combination described in Note 1 of the Notes to Condensed Consolidated Financial Statements. This organizational restructuring plan included the integration of different operations to streamline the combined organization of Activision Blizzard. The primary goals of the organizational restructuring were to rationalize the title portfolio and consolidate certain corporate functions so as to realize the synergies of the Business Combination. The following table details the changes in restructuring reserves included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets for the nine months ended September30, 2009 (amounts in millions): Severance Facilities costs Total Balance at December31, 2008 $ 37 $ 7 $ 44 Costs charged to expense 21 8 29 Costs paid or otherwise settled (42 ) (5 ) (47 ) Foreign exchange and other (1 ) (1 ) (2 ) Balance at September30, 2009 $ 15 $ 9 $ 24 The total restructuring reserve balance and the net restructuring charges are presented below by operating segment (amounts in millions): Restructuring Reserve Balance Restructuring Charges At At Ninemonthsended September30, 2009 December31, 2008 September30, 2009 Activision $ 24 $ 44 $ 8 Blizzard Distribution 4 Total operating segments 24 44 12 Other (i) 17 Total $ 24 $ 44 $ 29 (i)Represents legacy Vivendi Games divisions or business units that the Company has exited, divested, or wound down as part of its restructuring and integration efforts as a result of the Business Combination. Currently, Non-Core activities, which are handled by certain functional departments of our Activision segment, are insignificant to Activision Blizzards financial condition and results of operations. Prior to July1, 2009, Non-Core activities were managed as a stand-alone operating segment, however, in light of the decreasing significance of Non-Core activities, as of that date we ceased their management as a separate operating segment and consequently we are no longer providing separate operating segment disclosure and have reclassified our prior periods segment presentation so that it conforms to the current periods presentation. |
Comprehensive income (loss) and
Comprehensive income (loss) and accumulated other comprehensive income (loss) | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Comprehensive income (loss) and accumulated other comprehensive income (loss) | 9. Comprehensive income (loss) and accumulated other comprehensive income (loss) Comprehensive Income (Loss) The components of comprehensive income (loss) for the three and nine months ended September30, 2009 and 2008 were as follows (amounts in millions): Three months ended September 30, Nine months ended September 30, 2009 2008 2009 2008 Net income (loss) $ 15 $ (108 ) $ 399 $ (36 ) Other comprehensive income (loss): Foreign currency translation adjustment 9 (26 ) 38 (25 ) Unrealized depreciation on investments, net of taxes (2 ) (2 ) Other comprehensive income (loss) 9 (28 ) 38 (27 ) Comprehensive income (loss) $ 24 $ (136 ) $ 437 $ (63 ) Accumulated Other Comprehensive Income (Loss) For the nine months ended September30, 2009 the components of accumulated other comprehensive loss were as follows (amounts in millions): Foreign currency translation adjustment Unrealized depreciation oninvestments Accumulated other comprehensive loss Balance at December31, 2008 $ (41 ) $ (2 ) $ (43 ) Other comprehensive income 38 38 Balance at September30, 2009 $ (3 ) $ (2 ) $ (5 ) Income taxes were not provided for foreign currency translation items as these are considered indefinite investments in non-U.S. subsidiaries. |
Investment and other income, ne
Investment and other income, net | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Investment and other income, net | 10. Investment and other income, net Investment and other income, net comprises the following (amounts in millions): Three months ended September 30, Nine months ended September 30, 2009 2008 2009 2008 Interest income $ 4 $ 17 $ 16 $ 22 Interest expense (1 ) (3 ) Net realized gain on investments 4 4 Unrealized gain on trading securities 1 3 Unrealized loss on put option from UBS (1 ) (3 ) Net realized and unrealized gains on foreign exchange contracts and swaps with Vivendi 3 2 Change in fair value of other financial liability 8 8 Investment and other income, net $ 11 $ 24 $ 21 $ 28 |
Investments
Investments | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Investments | 11. Investments Available-for-Sale Investments The following table summarizes our short-term and long-term investments classified as available-for-sale at September30, 2009 and December31, 2008 (amounts in millions): At September30, 2009 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Short-term investments: Mortgage-backed securities $ 2 $ $ $ 2 U.S. government agency securities 228 228 Long-term investments: Taxable auction rate securities 27 (5 ) 22 Total available-for-sale investments $ 257 $ $ (5 ) $ 252 At December31, 2008 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Short-term investments: Mortgage-backed securities $ 8 $ $ (1 ) $ 7 Long-term investments: Taxable auction rate securities 27 (4 ) 23 Total available-for-sale investments $ 35 $ $ (5 ) $ 30 The following table illustrates the gross unrealized losses on available-for-sale securities and the fair value of those securities, aggregated by investment category at September30, 2009 and December31, 2008. The table also illustrates the length of time that they have been in a continuous unrealized loss position at September30, 2009 and December31, 2008 (amounts in millions): Less than 12 months 12 months or more Total At September30, 2009 Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Fair value Taxable auction rate securities $ $ $ (5 ) $ 22 $ (5 ) $ 22 Lessthan12months 12monthsormore Total At December31, 2008 Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Fair value Mortgage-backed securities $ (1 ) $ 7 $ $ $ (1 ) $ 7 Taxable auction rate securities (4 ) 23 (4 ) 23 Total $ (5 ) $ 30 $ $ $ (5 ) $ 30 The total unrealized loss of $5 million at September30, 2009 is due to the taxable ARS held through Morgan Stanley Smith Barney LLC, which is 51% owned by Morgan Stanley and 49% owned by Citigroup,Inc., as a result of failed auctions. (The ARS were held directly through a wholly owned subsidiary of Citigroup,Inc. until the Morgan Stanley Smith Barney LLC joint-venture closed in the second quarter 2009.) Our investments in ARS are all backed by higher education student loans. Based upon our analysis of the available-for-sale investments with unrealized losses, we have concluded that the gross unrealized losses of $5million at September30, 2009 were temporary in nature. We do not intend to sell the investment securities that are in an unrealized loss position and do not consider that it is more-likely-than-not that we will be required to sell the investment securities before recovery of their amortized cost |
Fair value measurements
Fair value measurements | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Fair value measurements | 12. Fair value measurements The three levels of inputs used to measure fair value are as follows: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The tables below segregate all assets and liabilities that are measured at fair value on a recurring basis (which means they are measured at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date (amountsinmillions): Fair Value Measurements at Reporting Date Using At September30, 2009 Quoted Prices in Active Markets for Identical Financial Instruments (Level1) Significant Other Observable Inputs (Level2) Significant Unobservable Inputs (Level3) Balance Sheet Classification Financial assets: Money market funds $ 2,293 $ 2,293 $ $ Cash and cash equivalents Mortgage-backed securities 2 2 Short-term investments Auction rate securities held through UBS 54 54 Short-term investments U.S. government agency securities 228 228 Short-term investments Auction rate securities held through Morgan Stanley Smith Barney LLC 22 22 Long-term investments Put option from UBS 7 7 Other assetscurrent Total financial assets at fair value $ 2,606 $ 2,521 $ 2 $ 83 Financial liabilities: Other financial liability 23 23 Other liabilitiesnon-current Total financial liabilities at fair value $ 23 $ $ $ 23 Fair Value Measurements at Reporting Date Using At December31, 2008 Quoted Pricesin Active Marketsfor Identical Financial Instruments (Level1) Significant Other Observable Inputs (Level2) Significant Unobservable Inputs (Level3) BalanceSheet Classification Financial assets: Money market funds $ 2,609 $ 2,609 $ $ Cash and cash equivalents Mortgage-backed securities 7 7 Short-term investments Auction rate securities held through UBS and Citigroup,Inc. 78 78 Long-term investments Put option from UBS 10 10 Other assetsnon-current Foreign exchange contract derivatives 5 5 Other assetscurrent Total financial assets at fair value $ 2,709 $ 2,609 $ 12 $ 88 Financial liabilities: Foreign exchange contract derivatives $ 2 $ $ 2 $ Other liabilitiescurrent Other financial |
Operating segments, geographic
Operating segments, geographic regions, and platforms | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Operating segments, geographic regions, and platforms | 13. Operating segments, geographic regions, and platforms Our operating segments are a reflection of our internal organizational structure, the manner in which our operations are reviewed and managed by our Chief Executive Officer, our Chief Operating Decision Maker (CODM), the manner in which operating performance is assessed and resources are allocated, and the availability of separate financial information. Prior to the Business Combination, Vivendi Games managed its business in two main divisions: Blizzard Entertainment and Sierra Entertainment (including Sierra online and Vivendi Games Mobile). As a result of the Business Combination, we provide our CODM financial information based upon managements new organizational structure. Currently, we operate under three operating segments: (i)Activision, which publishes interactive entertainment software and peripherals, which includes businesses operated by Activision,Inc. prior to the Business Combination and certain studios, assets, and titles previously included in Vivendi Games Sierra Entertainment operating segment prior to the Business Combination, (ii)Blizzard, which publishes traditional games and online subscription-based games in the MMORPG category, (iii) Distribution, which distributes interactive entertainment software and hardware products. Prior to July1, 2009 we operated a fourth operating segment, Non-Core, which represented legacy Vivendi Games divisions or business units that the Company had exited, divested, or wound down as part of its restructuring and integration efforts as a result of the Business Combination. At July1, 2009 in light of the decreasing significance of Non-Core activities, we ceased management of Non-Core as a separate operating segment and consequently we are no longer providing separate operating segment disclosure with respect to Non-Core and have reclassified our prior periods segment presentation so that it conforms to the current periods presentation. As the historical financial statements prior to July 10, 2008 are those of Vivendi Games, net revenues and segment income (loss) from the business operated by Activision,Inc. prior to the Business Combination are not included for the period January1, 2008 through July9, 2008, but are included for the entire three and nine month periods ended September30, 2009. Also, the Activision operating segment includes Vivendi Games titles retained after the Business Combination. The CODM reviews segment performance exclusive of the impact of the deferred net revenues and related cost of sales, stock-based compensation expense, restructuring expense, amortization of intangible assets and purchase price accounting related adjustments, integration and transaction costs, and other. Information on the operating segments and reconciliations of total net revenues and total segment income from operations to consolidated net revenues and operating income (loss) for the three and nine months ended September30, 2009 and 2008 are presented below (amounts in millions): ThreemonthsendedSeptember30, 2009 2008 2009 2008 Netrevenues Segmentincome(loss)from operations A |
Computation of earnings
Computation of earnings (loss) per common share | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Computation of earnings (loss) per common share | 14. Computation of earnings (loss) per common share The following table sets forth the computation of basic and diluted earnings (loss) per common share (amounts in millions, except per share data): Three months ended September 30, Nine months ended September 30, 2009 2008 2009 2008 Numerator: Consolidated net income (loss) $ 15 $ (108 ) $ 399 $ (36 ) Net income allocated to unvested share-based awards that participate in earnings (3 ) Numerator for basic and diluted earnings per common share income (loss) available to common shareholders $ 15 $ (108 ) $ 396 $ (36 ) Denominator: Denominator for basic earnings per common share weighted-average common shares outstanding 1,271 1,271 1,289 816 Effect of potential dilutive common shares under treasury stock method: Employee stock options 26 31 Denominator for diluted earnings per common share weighted-average common shares outstanding plus potential dilutive effect of employee stock options 1,297 1,271 1,320 816 Basic earnings (loss) per common share $ 0.01 $ (0.08 ) $ 0.31 $ (0.04 ) Diluted earnings (loss) per common share $ 0.01 $ (0.08 ) $ 0.30 $ (0.04 ) On January1, 2009, we adopted the new accounting guidance for determining whether instruments granted in share-based payment transactions are participating securities and, as a result, unvested share-based awards which include the right to receive non-forfeitable dividends or dividend equivalents are considered to participate with common stock in undistributed earnings. Companies that issue share-based awards considered to be participating securities are required to calculate basic and diluted earnings per common share amounts under the two-class method. The two-class method excludes from earnings per common share calculations any dividends paid or owed to participating securities and any undistributed earnings considered to be attributable to participating securities. The accounting guidance requires retrospective application to all prior-period earnings per share data presented. Our unvested restricted stock rights (including restricted stock units, restricted stock awards, and performance shares) are considered participating securities since these securities have non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award. Since the unvested restricted stock rights are considered participating securities, we are required to use the two-class method in our computation of basic and diluted net earnings per common share. For both the three and nine months ended September30, 2009, we had outstanding unvested restricted stock rights with respect to 10 million shares of common stock on a weighted-average basis. The adoption did not change our basic or diluted earnings per common share for the three and nine months ended September30, 2009. According to the accounting guidance |
Capital transactions
Capital transactions | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Capital transactions | 15. Capital transactions Repurchase Program On November5, 2008, we announced that our Board of Directors authorized a stock repurchase program under which we may repurchase up to $1billion of our common stock. Under this program, we may repurchase our common stock from time to time on the open market or in private transactions, including structured or accelerated transactions. We will determine the timing and amount of repurchases based on our evaluation of market conditions and other factors. The repurchase program may be suspended or discontinued by the Company at any time. On July31, 2009, our Board of Directors authorized an increase of $250 million to the stock repurchase program bringing the total authorization to $1.25 billion. Since inception, we have repurchased 89million shares of our common stock for $960 million under the repurchase program. At September30, 2009, we had $290million available for utilization under the repurchase program. |
Commitments and contingencies
Commitments and contingencies | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Commitments and contingencies | 16. Commitments and contingencies We did not have any significant changes to our commitments since December31, 2008. See Note18 of the Notes to Consolidated Financial Statements included in Item8 of the Annual Report on Form10-K for the year ended December31, 2008 for more information regarding our commitments. Legal Proceedings On February8, 2008, the Wayne County Employees Retirement System filed a lawsuit challenging the Business Combination in the Delaware Court of Chancery. The suit is a putative class action filed against the parties to the Business Combination agreement, as well as certain current and former members of our Board of Directors. The plaintiff alleges, among other things, that our current and former directors named therein failed to fulfill their fiduciary duties with regard to the Business Combination by surrendering the negotiating process to conflicted management, that those breaches were aided and abetted by Vivendi and those of its subsidiaries named in the complaint, and that the preliminary proxy statement filed by the Company on January31, 2008 contained certain statements that the plaintiff alleges are false and misleading. The plaintiff seeks an order from the court that, among other things, certifies the case as a class action, enjoins the Business Combination, requires the defendants to disclose all material information, declares that the Business Combination is in breach of the directors fiduciary duties and therefore unlawful and unenforceable, awards the plaintiff and the putative class damages for all profits and special benefits obtained by the defendant in connection with the Business Combination and tender offer, and awards the plaintiff its cost and expense, including attorneys fees. After various initial motions were filed and ruled upon, on May8, 2008, the plaintiff filed an amended complaint that, among other things, added allegations relating to a revised preliminary proxy statement filed by the Company on April30, 2008. Additional motions were then filed, including a motion for preliminary injunction filed by the plaintiff and a motion to dismiss filed by Vivendi and its subsidiaries. On June14, 2008, the plaintiff filed a motion for leave to filea second amended complaint. On June30, 2008, the court granted Vivendi and its subsidiaries motion to dismiss, pursuant to a stipulation with the plaintiff, and on July1, 2008, denied the plaintiffs motion for preliminary injunction. On December23, 2008, the plaintiff filed an amended motion for leave to filea second amended complaint. The court granted the motion on January14, 2009 and the second amended complaint was deemed filed on the same date. The second amended complaint asserts claims similar to the ones made in the original complaint, challenging Activisions Board of Directors actions in connection with the negotiation and approval of the Business Combination, as well as disclosures made to our shareholders and certain amendments made to our certificate of incorporation in connection therewith. In addition, the second amended complaint asserts that Activisions Board of Directors breached its fiduciary duties in approving a |
Stock-based compensation
Stock-based compensation | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Stock-based compensation | 17. Stock-based compensation Restricted Stock Rights The following table summarizes our restricted stock rights (including restricted stock units, restricted stock, and performance shares) activity for the nine months ended September30, 2009 (amounts in thousands, except per share amounts): RestrictedStock Rights Weighted- AverageGrant DateFairValue Balance at December31, 2008 10,267 $ 14.52 Granted 1,264 12.04 Vested (1,045 ) 11.53 Forfeited (118 ) 11.47 Balance at September30, 2009 10,368 12.82 At September30, 2009, $56 million of total unrecognized compensation cost related to Activision Blizzard restricted stock rights is expected to be recognized over a weighted-average period of 1.8years. Stock Option Activity Stock option activity for the nine months ended September30, 2009 is as follows (amounts in millions, except number of shares in thousands and per share amounts): Shares Weighted- average exerciseprice Weighted-average remainingcontractual term Aggregate intrinsicvalue Outstanding at December31, 2008 97,841 $ 6.53 Granted 4,422 11.76 Exercised (26,691 ) 2.60 Forfeited (883 ) 9.28 Outstanding at September30, 2009 74,689 8.21 6.36 $ 350 Vested and expected to vest at September30, 2009 70,623 $ 8.00 5.69 $ 344 Exercisable at September30, 2009 41,833 5.91 4.98 281 The aggregate intrinsic value in the table above represents the total pre-tax 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 over time based on the changes in the fair market value of our stock. Total intrinsic value of options exercised was $58 million and $243 million for the three and nine months ended September30, 2009, respectively. At September30, 2009, $69million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.4years. Income tax benefits from stock option exercises were $68 million for the nine months ended September30, 2009. We present excess tax benefits or shortfall from the exercise of stock options, if any, as financing cash flows, rather than operating cash flows. Blizzard Equity Plan (BEP) In 2006, Blizzard implemented the BEP, an equity incentive plan denominated in U.S. dollars. Under the BEP, restricted shares of Blizzard stock and other cash settled awards were granted to certain key executives and employees of Blizzard. At September30, 2009, unrecognized compensation expense under the BEP was $5 million, which will be recognized over the following three months. At September30, 2009, accrued expenses and other liabilities in our Condensed Consolidate |
Related party transactions
Related party transactions | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Related party transactions | 18. Related party transactions Treasury Our foreign currency risk policy seeks to reduce risks arising from foreign currency fluctuations. We use derivative financial instruments, primarily currency forward contracts and swaps, with Vivendi as our principal counterparty. The gross notional amount of outstanding foreign exchange swaps was $246 million at September30, 2009. The notional amounts of outstanding forward foreign exchange contracts and foreign exchange swaps were $126million and $118 million, respectively, at December31, 2008. See Note 10 of the Notes to Condensed Consolidated Financial Statements for pre-tax net realized and unrealized gains (losses) that resulted from foreign exchange contracts and swaps with Vivendi and were recognized in our Condensed Consolidated Statements of Operations. Others Activision Blizzard has entered into various transactions and agreements, including treasury management services, investor agreement, internal group reporting services, credit facilities arrangement and music royalty agreements with Vivendi and its subsidiaries and affiliates. None of these services, transactions and agreements with Vivendi and its subsidiaries and affiliates is material either individually or in the aggregate to the Condensed Consolidated Financial Statements as a whole. |
Recently issued accounting pron
Recently issued accounting pronouncements | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes To Condensed Consolidated Financial Statements | |
Recently issued accounting pronouncements | 19. Recently issued accounting pronouncements In June2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (VIEs), which amends the evaluation criteria to identify the primary beneficiary of a variable interest entity. Additionally, this amendment requires ongoing reassessments of whether an enterprise is the primary beneficiary of the variable interest entity. This amendment is effective for financial statements issued for fiscal years beginning after November15, 2009. We are currently evaluating the impact from the adoption of this amendment on our consolidated financial statements. In October2009, the FASB issued an update to Revenue Recognition Multiple-Deliverable Revenue Arrangements. This update establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities. This update provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments in this update also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendors multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in this update are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June15, 2010. Early application is permitted. We are currently evaluating the impact, if any, of this new accounting update on our consolidated financial statements. In October2009, the FASB issued an update to Software Certain Revenue Arrangements That Include Software Elements. This update changes the accounting model for revenue arrangements that include both tangible products and software elements that are essential to the functionality, and scopes these products out of current software revenue guidance. The new guidance will include factors to help companies determine what software elements are considered essential to the functionality. The amendments will now subject software-enabled products to other revenue guidance and disclosure requirements, such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments in this update are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June15, 2010. Early application is permitted. We are currently evaluating the impact, if any, of this new accounting update on our consolidated financial statements. |
Document and Entity Information
Document and Entity Information (USD $) | |||
9 Months Ended
Sep. 30, 2009 | Oct. 30, 2009
| Jun. 30, 2008
| |
Document and Entity Information | |||
Entity Registrant Name | Activision Blizzard, Inc. | ||
Entity Central Index Key | 0000718877 | ||
Document Type | 10-Q | ||
Document Period End Date | 2009-09-30 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $9,910,273,014 | ||
Entity Common Stock, Shares Outstanding | 1,268,298,995 |