Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: 10-Q, Received: 05/09/2016 17:36:46)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2016

 

OR

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                           

 

Commission File Number 1-15839

 

 

ACTIVISION BLIZZARD, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-4803544

 

 

 

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3100 Ocean Park Boulevard, Santa Monica, CA

 

90405

 

 

 

(Address of principal executive offices)

 

(Zip Code)

 

(310) 255-2000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer  x

 

Accelerated Filer  o

 

 

 

Non-accelerated filer  o

 

Smaller reporting company  o

 

 

 

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

 

The number of shares of the registrant’s Common Stock outstanding at May 2, 2016 was 738,227,641.

 

 

 



Table of Contents

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

 

Table of Contents

 

 

Cautionary Statement

3

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015

4

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and March 31, 2015

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and March 31, 2015

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and March 31, 2015

7

 

 

 

 

Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three months ended March 31, 2016

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

54

 

 

 

Item 4.

Controls and Procedures

56

 

 

 

PART II.

OTHER INFORMATION

57

 

 

 

Item 1.

Legal Proceedings

57

 

 

 

Item 1A.

Risk Factors

57

 

 

 

Item 6.

Exhibits

57

 

 

 

SIGNATURE

58

 

 

EXHIBIT INDEX

59

 

 

CERTIFICATIONS

 

 

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Table of Contents

 

CAUTIONARY STATEMENT

 

This Quarterly Report on Form 10-Q contains, or incorporates by reference, certain forward - looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those relating to product releases; (3) statements of future financial or operating performance; (4) statements relating to the acquisition of King Digital Entertainment plc and expected impact of that transaction, including without limitation, the expected impact on Activision Blizzard, Inc.’s future financial results; and (5) statements of assumptions underlying such statements. Activision Blizzard, Inc. generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and other similar expressions to help identify forward - looking statements. Forward - looking statements are subject to business and economic risks, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict.

 

The Company cautions that a number of important factors could cause Activision Blizzard, Inc.’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: uncertainties as to whether and when Activision Blizzard, Inc. will be able to realize the anticipated financial results from the acquisition of King Digital Entertainment plc; the integration of King Digital Entertainment plc being more difficult, time-consuming, or costly than expected; the diversion of management time and attention to issues relating to the operations and integration of King Digital Entertainment plc; sales levels of Activision Blizzard, Inc.’s titles; increasing concentration of revenue among a small number of titles; Activision Blizzard, Inc.’s ability to predict consumer preferences, including interest in specific genres, and preferences among hardware platforms; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; adoption rate and availability of new hardware (including peripherals) and related software; counterparty risks relating to customers, licensees, licensors, and manufacturers; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality titles; changing business models, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from used games and other forms of entertainment; rapid changes in technology and industry standards; possible declines in software pricing; product returns and price protection; the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion; the seasonal and cyclical nature of the interactive entertainment market; litigation risks and associated costs; protection of proprietary rights; shifts in consumer spending trends; capital market risks; applicable regulations; domestic and international economic, financial, and political conditions and policies; tax rates and foreign exchange rates; the impact of the current macroeconomic environment; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015. The forward-looking statements contained herein are based upon information available to us as of the date of this Quarterly Report on Form 10-Q and we assume no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

 

Activision Blizzard, Inc.’s names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Activision Blizzard, Inc. All other product or service names are the property of their respective owners.

 

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Part I.  Financial Information

 

Item 1.  Financial Statements

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions, except share data)

 

 

 

At March 31, 2016

 

 

At December 31,
2015

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

  $

2,872

 

  $

1,823

Accounts receivable, net of allowances of $175 and $343, at March 31, 2016 and December 31, 2015, respectively

 

383

 

679

Inventories, net

 

103

 

128

Software development

 

296

 

336

Other current assets

 

354

 

421

Total current assets

 

4,008

 

3,387

Cash in escrow

 

 

3,561

Software development

 

114

 

80

Property and equipment, net

 

246

 

189

Deferred income taxes, net

 

362

 

275

Other assets

 

316

 

177

Intangible assets, net

 

2,484

 

482

Goodwill

 

9,772

 

7,095

Total assets

 

  $

17,302

 

  $

15,246

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

  $

 150

 

  $ 

284

Deferred revenues

 

1,207

 

1,702

Accrued expenses and other liabilities

 

901

 

625

Current portion of long-term debt

 

64

 

Total current liabilities

 

2,322

 

2,611

Long-term debt, net

 

5,777

 

4,074

Deferred income taxes, net

 

57

 

10

Other liabilities

 

798

 

483

Total liabilities

 

8,954

 

7,178

Commitments and contingencies (Note 13)

 

 

 

 

Shareholders’ equity:

 

 

 

 

Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,166,683,743 and 1,163,179,140 shares issued at March 31, 2016 and December 31, 2015, respectively

 

 

Additional paid-in capital

 

10,343

 

10,242

Less: Treasury stock, at cost, 428,676,471 shares at March 31, 2016 and December 31, 2015

 

(5,591)

 

(5,637)

Retained earnings

 

4,239

 

4,096

Accumulated other comprehensive loss

 

(643)

 

(633)

Total shareholders’ equity

 

8,348

 

8,068

Total liabilities and shareholders’ equity

 

  $

17,302

 

  $

15,246

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

 

 

 

 

Net revenues

 

 

 

 

Product sales

 

  $

645

 

  $

784

Subscription, licensing and other revenues

 

810

 

494

Total net revenues

 

1,455

 

1,278

 

 

 

 

 

Costs and expenses

 

 

 

 

Cost of sales - product costs

 

247

 

209

Cost of sales - online

 

64

 

53

Cost of sales - software royalties and amortization

 

144

 

148

Cost of sales - intellectual property licenses

 

36

 

3

Product development

 

175

 

145

Sales and marketing

 

168

 

92

General and administrative

 

160

 

86

Total costs and expenses

 

994

 

736

 

 

 

 

 

Operating income

 

461

 

542

 

 

 

 

 

Interest and other expense (income), net

 

52

 

50

 

 

 

 

 

Income before income tax expense

 

409

 

492

 

 

 

 

 

Income tax expense

 

73

 

98

 

 

 

 

 

Net income

 

  $

336

 

  $

394

 

 

 

 

 

Earnings per common share

 

 

 

 

Basic

 

  $

0.45

 

  $

0.54

Diluted

 

  $

0.45

 

  $

0.53

 

 

 

 

 

Weighted-average number of shares outstanding

 

 

 

 

Basic

 

735

 

723

Diluted

 

746

 

731

 

 

 

 

 

Dividends per common share

 

  $

0.26

 

  $

0.23

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREH ENSIVE INCOME

(Unaudited)

(Amounts in millions)

 

 

 

For the Three Months Ended
March 31,

 

 

 

2016

 

2015

 

Net income

 

 $

336

 

 $

394

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

Foreign currency translation adjustment

 

(5)

 

(330)

 

Unrealized gains (losses) on forward contracts designated as hedges, net of tax

 

(5)

 

14

 

Total other comprehensive loss

 

 $

(10)

 

 $

(316)

 

 

 

 

 

 

 

Comprehensive income

 

 $

326

 

 $

78

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2016

 

 

2015

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

 $

336

 

 $

394

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Deferred income taxes

 

(63)

 

(3)

 

Provision for inventories

 

11

 

6

 

Depreciation and amortization

 

107

 

20

 

Amortization of capitalized software development costs and intellectual property licenses(1)

 

150

 

142

 

Amortization of debt discount and debt financing costs

 

4

 

2

 

Stock-based compensation expense(2)

 

34

 

23

 

Excess tax benefits from stock awards

 

(28)

 

(14)

 

Changes in operating assets and liabilities, net of effect from business acquisitions:

 

 

 

 

 

Accounts receivable, net

 

459

 

438

 

Inventories

 

14

 

10

 

Software development and intellectual property licenses

 

(130)

 

(77)

 

Other assets

 

83

 

108

 

Deferred revenues

 

(508)

 

(567)

 

Accounts payable

 

(184)

 

(208)

 

Accrued expenses and other liabilities

 

24

 

(65)

 

Net cash provided by operating activities

 

309

 

209

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Acquisition of business, net of cash acquired

 

(4,588)

 

 

Release of cash in escrow

 

3,561

 

 

Capital expenditures

 

(27)

 

(21)

 

Decrease (increase) in restricted cash

 

(14)

 

5

 

Net cash used in investing activities

 

(1,068)

 

(16)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock to employees

 

24

 

27

 

Tax payment related to net share settlements on restricted stock rights

 

(11)

 

(3)

 

Excess tax benefits from stock awards

 

28

 

14

 

Proceeds from debt financing

 

2,550

 

 

Repayment of long-term debt

 

(750)

 

(250)

 

Payment of debt discount and financing costs

 

(34)

 

 

Net cash provided by (used in) financing activities

 

1,807

 

(212)

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

1

 

(364)

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

1,049

 

(383)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

1,823

 

4,848

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

 $

2,872

 

 $

4,465

 

 

(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.

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2016

(Unaudited)

(Amounts and shares in millions, except per share data)

 

 

 

Common Stock

 

Treasury Stock

 

Additional

Paid-In

 

Retained

 

Accumulated

Other

Comprehensive

 

Total

Shareholders’

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income (Loss)

 

Equity

 

Balance at December 31, 2015

 

1,163

 

$

 

(429)

 

$

(5,637)

 

$

10,242

 

$

4,096

 

$

(633)

 

$

8,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Components of comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

336

 

 

336

 

Other comprehensive loss

 

 

 

 

 

 

 

(10)

 

(10)

 

Issuance of common stock pursuant to employee stock options

 

2

 

 

 

 

24

 

 

 

24

 

Issuance of common stock pursuant to restricted stock rights

 

4

 

 

 

 

 

 

 

 

Restricted stock surrendered for employees’ tax liability

 

(2)

 

 

 

 

(56)

 

 

 

(56)

 

Tax benefit associated with employee stock awards

 

 

 

 

 

27

 

 

 

27

 

Stock-based compensation expense related to employee stock options and restricted stock rights

 

 

 

 

 

30

 

 

 

30

 

Stock-based compensation assumed in acquisition (see Note 14)

 

 

 

 

 

76

 

 

 

76

 

Dividends ($0.26 per common share)

 

 

 

 

 

 

(193)

 

 

(193)

 

Indemnity on tax attributes assumed in connection with the Purchase Transaction (see Note 10)

 

 

 

 

46

 

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2016

 

1,167

 

$

 

(429)

 

$

(5,591)

 

$

10,343

 

$

4,239

 

$

(643)

 

$

8,348

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.                                       Description of Business and Basis of Consolidation and Presentation

 

Activision Blizzard, Inc. (“Activision Blizzard”) is a leading global developer and publisher of interactive entertainment. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries. We currently offer games for video game consoles, personal computers (“PC”), and handheld, mobile, and tablet devices. We maintain significant operations in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea, and China.

 

Activision Blizzard is the result of the 2008 business combination (“Business Combination”) by and among the Company (then known as Activision, Inc.), Sego Merger Corporation, a wholly-owned subsidiary of Activision, Inc., Vivendi S.A. (“Vivendi”), VGAC LLC, a wholly-owned subsidiary of Vivendi, and Vivendi Games, Inc. (“Vivendi Games”), a wholly-owned subsidiary of VGAC LLC.  As a result of the consummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc.

 

As of March 31, 2016, we had approximately 738 million shares of common stock issued and outstanding.  At that date: (i) ASAC II LP (“ASAC”), an exempted limited partnership established under the laws of the Cayman Islands, held 172 million shares, or approximately 23% of the outstanding shares of our common stock, and (ii) our other stockholders held approximately 77% of the outstanding shares of our common stock.  Robert A. Kotick, our Chief Executive Officer, and Brian G. Kelly, Chairman of our Board of Directors, are affiliates of ASAC II LLC, the general partner of ASAC.

 

The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under the ticker symbol “ATVI.”

 

The King Acquisition

 

On November 2, 2015, we and King Digital Entertainment plc (“King”), a leading interactive mobile entertainment company, entered into a Transaction Agreement (the “Transaction Agreement”) under the terms of which we would acquire King (the “King Acquisition”) and King would become a wholly-owned subsidiary of the Company. On February 23, 2016 we completed the King Acquisition as further described in Note 14 of the Notes to the Condensed Consolidated Financial Statements. Our Condensed Consolidated Financial Statements include the operations of King commencing on February 23, 2016.

 

Reportable Segments

 

Based upon our organizational structure, we conduct our business through three reportable operating segments as follows:

 

(i) Activision Publishing, Inc.

 

Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher of interactive software products and content. Activision delivers content to a broad range of gamers, ranging from children to adults, and from core gamers to mass-market consumers, in a variety of geographies. Activision develops, markets, and sells products through retail channels or digital downloads, which are principally based on our internally-developed intellectual properties, including games in the Call of Duty® and Skylanders® franchises, as well as some licensed properties.  Additionally, we have established a long-term alliance with Bungie to publish its game universe, Destiny. Activision currently offers games that operate on the Microsoft Corporation (“Microsoft”) Xbox One (“Xbox One”) and Xbox 360 (“Xbox 360”), Nintendo Co. Ltd. (“Nintendo”) Wii U (“Wii U”) and Wii (“Wii”), and Sony Computer Entertainment, Inc. (“Sony”) PlayStation 4 (“PS4”) and PlayStation 3 (“PS3”) console systems; the PC; the Nintendo 3DS, Nintendo Dual Screen, and Sony PlayStation Vita handheld game systems; and mobile and tablet devices.

 

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(ii) Blizzard Entertainment, Inc.

 

Blizzard Entertainment, Inc. (“Blizzard”) is a leader in online PC gaming, including the subscription-based massively multi-player online role-playing game category in terms of both subscriber base and revenues generated through its World of Warcraft® franchise. Blizzard also develops, markets, and sells role-playing action and strategy games for the PC, console, mobile and tablet platforms, including games in the multiple-award winning Diablo®, StarCraft®, Hearthstone®: Heroes of Warcraft™, and Heroes of the Storm™ franchises. In addition, Blizzard maintains a proprietary online gaming service, Battle.net®, which facilitates digital distribution and online social connectivity across all Blizzard games. Blizzard distributes its products and generates revenues worldwide through various means, including: subscriptions; sales of prepaid subscription cards; in-game purchases and services; retail sales of physical “boxed” products; online download sales of PC products; purchases and downloads via third-party console, mobile and tablet platforms; and licensing of software to third-party or related party companies that distribute Blizzard products.

 

(iii) King Digital Entertainment

 

King Digital Entertainment is a leading interactive mobile entertainment company that develops and distributes games on mobile platforms such as Android and iOS, and on online and social platforms such as Facebook and king.com websites. King has four category-leading free-to-play franchises: Candy Crush™, Farm Heroes™, Bubble Witch™, and Pet Rescue™, where monetization occurs through players purchasing in-game virtual currency which can be used in-game to buy virtual items.

 

(iv) Other

 

We also engage in other businesses that do not represent reportable segments, including:

 

·                   The Activision Blizzard Media Networks (“Media Networks”) business that is devoted to eSports that builds on our competitive gaming efforts by creating ways to deliver the best-in-class fan experience across games, platforms, and geographies with a long-term strategy of monetization through advertising, sponsorships, tournaments, and premium content.

 

·                   The Activision Blizzard Studios (“Studios”) business that is devoted to creating original film and television content based on our extensive library of iconic and globally-recognized intellectual properties.

 

·                   The Activision Blizzard Distribution (“Distribution”) business that consists of operations in Europe which provide warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.

 

Basis of Consolidation and Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been condensed or omitted if they substantially duplicate the disclosures contained in the annual audited consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

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The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair statement of our financial position and results of operations in accordance with U.S. GAAP have been included in the accompanying unaudited condensed consolidated financial statements. Actual results could differ from these estimates and assumptions.

 

The accompanying condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated.

 

The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

 

Summary of Significant Accounting Policies

 

During the three months ended March 31, 2016, there were no significant changes to our accounting policies but we did expand the accounting policy disclosure for revenue recognition to include virtual currency as noted below.  Refer to Note 2 contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for our full summary of significant accounting policies.

 

Microtransaction Revenues

 

Microtransaction revenues are derived from the sale of virtual goods and currencies to our players to enhance their gameplay experience. Proceeds from the sales of virtual goods and currencies are initially recorded in deferred revenues. Proceeds from the sales of virtual currencies are recognized as a player uses the virtual goods purchased with the virtual currency.  We categorize our virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods represent goods that are accessible to the player over an 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.

 

Supplemental Cash Flow Information: Non-cash investing and financing activities

 

As of March 31, 2016, we had accrued withholding tax payments related to net share settlements on restricted stock rights of $45 million within “Accrued expenses and other liabilities.” Additionally, we had non-cash purchase price consideration of $89 million related to vested and unvested stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards in the King Acquisition.  Refer to Note 14 for further discussion.

 

2.                                       Inventories, Net

 

Our inventories, net consist of the following (amounts in millions):

 

 

 

At March 31, 2016

 

At December 31, 2015

 

Finished goods

 

 $

75

 

 $

101

 

Purchased parts and components

 

28

 

27

 

Inventories, net

 

 $

103

 

 $

128

 

 

At March 31, 2016 and December 31, 2015, inventory reserves were $59 million and $54 million, respectively.

 

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3.                                       Software Development and Intellectual Property Licenses

 

The following table summarizes the components of our capitalized software development costs and intellectual property licenses (amounts in millions):

 

 

 

At March 31, 2016

 

At December 31,
2015

 

Internally-developed software costs

 

 $

271

 

 $

266

 

Payments made to third-party software developers

 

139

 

150

 

Total software development costs

 

 $

410

 

 $

416

 

 

 

 

 

 

 

Intellectual property licenses

 

 $

12

 

 $

30

 

 

Amortization of capitalized software development costs and intellectual property licenses was the following (amounts in millions):

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

Amortization of capitalized software development costs and intellectual property licenses

 

 $

150

 

 $

147

 

 

4.                                       Intangible Assets, Net

 

Intangible assets, net consist of the following (amounts in millions):

 

 

 

At March 31, 2016

 

 

 

Estimated useful
lives

 

Gross carrying
amount

 

Accumulated
amortization

 

Net carrying
amount

 

Acquired definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

Internally-developed franchises

 

3 - 11 years

 

 $

1,154

 

 $

(328)

 

 $

826

 

Developed software

 

3 - 5 years

 

595

 

(16)

 

579

 

Customer base

 

2 years

 

617

 

(33)

 

584

 

Trade names

 

7 - 10 years

 

54

 

(1)

 

53

 

Other

 

1 - 8 years

 

18

 

(9)

 

9

 

Total definite-lived intangible assets

 

 

 

 $

2,438

 

 $

(387)

 

 $

2,051

 

 

 

 

 

 

 

 

 

 

 

Acquired indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

Activision trademark

 

Indefinite

 

 

 

 

 

386

 

Acquired trade names

 

Indefinite

 

 

 

 

 

47

 

Total indefinite-lived intangible assets

 

 

 

 

 

 

 

 $

433

 

Total intangible assets, net

 

 

 

 

 

 

 

 $

2,484

 

 

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At December 31, 2015

 

 

 

Estimated useful
lives

 

Gross carrying
amount

 

Accumulated
amortization

 

Net carrying
amount

 

Acquired definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

License agreements and other

 

1 - 10 years

 

 $

116

 

 $

(93)

 

 $

23

 

Internally-developed franchises

 

11 years

 

309

 

(298)

 

11

 

Developed software

 

5 years

 

15

 

 

15

 

Total definite-lived intangible assets

 

 

 

 $

440

 

 $

(391)

 

 $

49

 

 

 

 

 

 

 

 

 

 

 

Acquired indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

Activision trademark

 

Indefinite

 

 

 

 

 

386

 

Acquired trade names

 

Indefinite

 

 

 

 

 

47

 

Total indefinite-lived intangible assets

 

 

 

 

 

 

 

 $

433

 

Total intangible assets, net

 

 

 

 

 

 

 

 $

482

 

 

The balances of Intangible assets, net presented in the table above at March 31, 2016, does not include license agreement intangible assets that were fully amortized at December 31, 2015, and hence, have been removed from the March 31, 2016 balances as presented. Amortization expense of intangible assets was $82 million and $1 million for the three months ended March 31, 2016 and 2015, respectively.

 

At March 31, 2016, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):

 

2016 (remaining nine months)

 

 $

624

 

2017

 

778

 

2018

 

361

 

2019

 

201

 

2020

 

66

 

Thereafter

 

21

 

Total

 

 $

2,051

 

 

5.              Goodwill

 

The changes in the carrying amount of goodwill by operating segment for the three months ended March 31, 2016 are as follows (amounts in millions):

 

 

 

Activision

 

Blizzard

 

King

 

Other

 

Total

 

Balance at December 31, 2015

 

 $

6,905 

 

 $

178

 

 $

 

 $

12

 

 $

7,095 

 

Additions through acquisition

 

— 

 

 

2,678

 

 

2,678 

 

Other

 

(1)

 

 

 

 

(1)

 

Balance at March 31, 2016

 

 $

6,904 

 

 $

178

 

 $

2,678

 

 $

12

 

 $

9,772 

 

 

Other includes tax benefits credited to goodwill for tax deductions 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 the Company, to the extent that the tax deduction did not exceed the fair value of those options. Conversely, to the extent that the tax deduction did exceed the fair value of those options, the tax benefit is credited to additional paid-in capital. Other also includes the impact to goodwill from changes in foreign exchange rates.

 

The addition to goodwill through acquisition is attributed to the King Acquisition (see Note 14 of the Notes to Condensed Consolidated Financial Statements).

 

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6.                                       Fair Value Measurements

 

Financial Accounting Standards Board (“FASB”) literature regarding fair value measurements for financial and non-financial assets and liabilities establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” 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; and

 

·       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, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

Fair Value Measurements on a Recurring Basis

 

The table below segregates all financial assets that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date (amounts in millions):

 

 

 

 

 

Fair Value Measurements at March 31, 2016
Using

 

 

 

 

 

As of March
31, 2016

 

Quoted
Prices in
Active
Markets for
Identical
Assets

(Level 1)

 

Significant
Other
Observable
Inputs

(Level 2)

 

Significant
Unobservable
Inputs

(Level 3)

 

Balance Sheet Classification

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

Recurring fair value measurements:

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 $

2,622   

 

 $

2,622  

 

 $

—   

 

 $

—  

 

Cash and cash equivalents

 

Foreign government treasury bills

 

35   

 

35  

 

—   

 

—  

 

Cash and cash equivalents

 

Foreign currency forward contracts not designated as hedges

 

8   

 

—  

 

8   

 

—  

 

Other current assets

 

Auction rate securities (“ARS”)

 

9   

 

—  

 

—   

 

9  

 

Other assets

 

Total recurring fair value measurements

 

 $

2,674   

 

 $

2,657  

 

 $

8   

 

 $

9  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts designated as hedges

 

 $

(9)  

 

 $

—  

 

 $

(9)  

 

 $

—  

 

Accrued expenses and other liabilities

 

 

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Fair Value Measurements at December 31, 2015
Using

 

 

 

 

 

As of
December 31,
2015

 

Quoted
Prices in
Active
Markets for

Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance Sheet Classification

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

Recurring fair value measurements:

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 $

1,613   

 

 $

1,613  

 

 $

—   

 

 $

—  

 

Cash and cash equivalents

 

Foreign government treasury bills

 

34   

 

34  

 

—   

 

—  

 

Cash and cash equivalents

 

Foreign currency forward contracts not designated as hedges

 

11   

 

—  

 

11   

 

—  

 

Other current assets

 

ARS

 

9   

 

—  

 

—   

 

9  

 

Other assets

 

Total recurring fair value measurements

 

 $

1,667   

 

 $

1,647  

 

 $

11   

 

 $

9  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts designated as hedges

 

 $

(4)  

 

 $

—  

 

 $

(4)  

 

 $

—  

 

Accrued expenses and other liabilities

 

 

ARS represented the only level 3 investment held by the Company. There were no changes in the fair value of these investments for the three months ended March 31, 2016.

 

Foreign Currency Forward Contracts

 

Foreign Currency Forward Contracts Not Designated as Hedges

 

For foreign currency forward contracts entered into to mitigate risk from foreign currency-denominated monetary assets, liabilities, and earnings that are not designated as hedging instruments in accordance with FASB Accounting Standard Codification (“ASC”) Topic 815, changes in the estimated fair value of these derivatives are recorded within “General and administrative expenses” and “Interest and other expense (income), net” in our condensed consolidated statements of operations, consistent with the nature of the underlying transactions.

 

At March 31, 2016, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges was approximately $376 million. The fair value of these foreign currency forward contracts was $8 million as of March 31, 2016, and recorded in “Other current assets” in our condensed consolidated balance sheet.

 

At December 31, 2015, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges was approximately $489 million. The fair value of these foreign currency forward contracts was $11 million as of December 31, 2015, and recorded in “Other current assets” in our condensed consolidated balance sheet.

 

For the three months ended March 31, 2016 and 2015, pre-tax net gains associated with these forward contracts were not material.

 

Foreign Currency Forward Contracts Designated as Hedges

 

For foreign currency forward contracts entered into to hedge forecasted intercompany cash flows that are subject to foreign currency risk and which we designated as cash flow hedges in accordance with ASC Topic 815, we assess the effectiveness of these cash flow hedges at inception and on an ongoing basis to determine if the hedges are effective at providing offsetting changes in cash flows of the hedged items. We record the effective portion of changes in the estimated fair value of these derivatives in “Accumulated other comprehensive income (loss)” and subsequently reclassify the related amount of accumulated other comprehensive income (loss) to earnings within “General and administrative expense” when the hedged item impacts earnings. Cash flows from these foreign currency forward contracts are classified in the same category as the cash flows associated with the hedged item in the condensed consolidated statements of cash flows. We measure hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be a highly effective hedge, we will discontinue hedge accounting for the derivative.

 

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The gross notional amount of all outstanding foreign currency forward contracts designated as cash flow hedges was approximately $449 million at March 31, 2016 and $381 million at December 31, 2015.  These foreign currency forward contracts have remaining maturities of 12 months or less.  During the three months ended March 31, 2016 and 2015, there was no ineffectiveness relating to these hedges. At March 31, 2016, $9 million of net unrealized losses related to these contracts are expected to be reclassified into earnings within the next twelve months.

 

During the three months ended March 31, 2016 and 2015, the amount pre-tax net realized losses reclassified out of “Accumulated other comprehensive income (loss)” due to maturity of these contracts was not material.

 

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 three months ended March 31, 2016 and 2015, there were no impairment charges related to assets that are measured on a non-recurring basis.

 

7.                                       Debt

 

Credit Facilities

 

Term Loan.  On October 11, 2013, 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 (the “Original Revolver”). A portion of the Original Revolver could be used to issue letters of credit of up to $50 million, subject to the availability of the Original Revolver.

 

Borrowings under the Term Loan 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”) for an interest period of one month plus 1.00%, or (B) LIBOR. LIBOR borrowings under the Term Loan are subject to a LIBOR floor of 0.75%.  At March 31, 2016, the Term Loan bore interest at 3.25%. In certain circumstances, our applicable interest rate under the Term Loan will increase.

 

In addition to paying interest on outstanding principal balances under the Term Loan, we were required to pay the lenders a commitment fee on unused commitments under the Original Revolver. Commitment fees are recorded within “Interest and other expense (income), net” on the condensed 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 require 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.  On February 11, 2015, we made an additional voluntary repayment of $250 million on our Term Loan.  On February 25, 2016 and March 31, 2016, we made additional voluntary repayments of $500 million and $250 million, respectively, on our Term Loan.

 

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Table of Contents

 

Tranche A Term Loans.   In conjunction with the King Acquisition, the Company entered into three Amendments to the Credit Agreement (the “Amendments”). The Amendments, among other things, provided for incremental term loans in the form of Tranche A Term Loans in an aggregate principal amount of approximately $2.3 billion. The proceeds were issued and provided on February 23, 2016, upon successful closing of the King Acquisition and were used to fund the King Acquisition. On March 31, 2016, we entered into a fourth amendment to the Credit Agreement which provided for an incremental Tranche A Term Loan in the aggregate principal amount of $250 million, of which the total proceeds from the incremental borrowing were used to make the voluntary prepayment on our Term Loan discussed above.

 

The Tranche A Term Loans are scheduled to mature on October 11, 2020 and bear interest, at the Company’s option, at either (a) a base rate equal to the highest of (i) the federal funds rate, plus 0.5%, (ii) the prime commercial lending rate of Bank of America, N.A. and (iii) the LIBOR for an interest period of one month beginning on such day plus 1.00%, or (b) LIBOR, in each case, plus an applicable interest margin. LIBOR is subject to a floor of 0% and the base rate is subject to an effective floor of 1.00%. The applicable interest margin for Tranche A Term Loans ranges from 1.50% to 2.25% for LIBOR borrowings and from 0.50% to 1.25% for base rate borrowings and is determined by reference to a pricing grid based on the Company’s Consolidated Total Net Debt Ratio (as defined in the Credit Agreement).

 

The Tranche A Term Loans require quarterly principal payments of 0.625% of the stated principal amount of the Tranche A Term Loans commencing June 30, 2016, with increases to 1.250% starting on June 30, 2019 and 3.125% starting on June 30, 2020, with the remaining balance payable on the Tranche A Term Loans’ scheduled maturity date of October 11, 2020. Voluntary prepayments of the Tranche A Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty.

 

The Tranche A Term Loans are subject to a financial maintenance covenant requiring the Company to maintain a maximum Consolidated Total Net Debt Ratio (as defined in the Credit Agreement) of 4.00 to 1.00, which will decrease to 3.50 to 1.00 (I) after the sixth full fiscal quarter after the Tranche A Term Loans are made or (II) if the Collateral Suspension occurs prior to the date falling 18 months after the Tranche A Term Loans are made, on the later of (x) the last day of the fourth full fiscal quarter after the Tranche A Term Loans are made and (y) the last day of the fiscal quarter in which the Collateral Suspension occurs.

 

The Tranche A Term Loans are secured by the same collateral and guaranteed by the same guarantors that secure and guarantee the Term Loan. The other terms of the Tranche A Term Loans are also generally the same as the terms of the Term Loan. At March 31, 2016, the Tranche A Term Loans bore interest at 2.43%. In certain circumstances, our applicable interest rate under the Tranche A Term Loans will increase.

 

2015 Revolving Credit Facility.   As part of the Amendments, upon the closing of the King Acquisition, the Company’s Original Revolver under the Credit Agreement in an aggregate principal amount of $250 million was replaced with a new revolving credit facility under the Credit Agreement in the same aggregate principal amount (the “2015 Revolving Credit Facility,” and, together with the Term Loan and Tranche A Term Loans, the “Credit Facilities”).

 

Borrowings under the 2015 Revolving Credit Facility may be borrowed, repaid and re-borrowed by the Company and are available for working capital and other general corporate purposes. Up to $50 million of the 2015 Revolving Credit Facility may be used for letters of credit.

 

The 2015 Revolving Credit Facility is scheduled to mature on October 11, 2020. Borrowings under the 2015 Revolving Credit Facility bear interest, at the Company’s option, under the same terms as the Tranche A Term Loans. Additionally, the 2015 Revolving Credit Facility is subject to the same financial maintenance covenant and is secured by the same collateral and guaranteed by the same guarantors that secure and guarantee the Tranche A Term Loans. The other terms of the 2015 Revolving Credit Facility are generally the same as the terms of the Original Revolver. To date, we have not drawn on the 2015 Revolving Credit Facility.

 

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Table of Contents

 

The Credit Facilities are guaranteed by certain of the Company’s U.S. subsidiaries, whose assets represent approximately 68% of our consolidated total 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.  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 March 31, 2016.

 

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 certain of our U.S. subsidiaries. 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 March 31, 2016.

 

Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year.  As of March 31, 2016 and December 31, 2015, we had interest payable of $5 million and $38 million, respectively, related to the Notes, recorded within “Accrued expenses and other liabilities” in our condensed 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.  Further, 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.

 

Fees associated with the closing of the Term Loan, Tranche A Term Loans, and the Notes are recorded as debt discount, which reduces their respective the carrying values, and is amortized over their respective terms. Amortization expense is recorded within “Interest and other expense (income), net” in our condensed consolidated statement of operations.

 

In connection with the debt financing for the King Acquisition, we incurred $38 million of issuance costs that were capitalized and recorded within “Long-term debt, net” in our condensed consolidated balance sheet. The amortization of these capitalized costs was not material to our condensed consolidated statement of operations for the three months ended March 31, 2016.

 

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We reclassified and presented unamortized deferred financing costs associated with the Term Loan, Tranche A Term Loans, and the Notes as a reduction of their respective gross carrying amounts for all periods presented in accordance with a recent accounting standard that became effective during the period.  Refer to Note 15 for further discussion of the recent accounting standard that became effective during the period.

 

A summary of our debt is as follows (amounts in millions):

 

 

 

At March 31, 2016

 

 

 

Gross Carrying Amount

 

Unamortized
Discount and Deferred
Financing Costs

 

Net Carrying
Amount

 

Term Loan

 

 $

1,119

 

 $

(8)

 

 $

1,111

 

Tranche A Term Loans

 

2,550

 

(38)

 

2,512

 

2021 Notes

 

1,500

 

(21)

 

1,479

 

2023 Notes

 

750

 

(11)

 

739

 

Total debt

 

 $

5,919

 

 $

(78)

 

 $

5,841

 

Less: current portion of long-term debt

 

(64)

 

 

(64)

 

Total long-term debt

 

 $

5,855

 

 $

(78)

 

 $

5,777

 

 

 

 

At December 31, 2015

 

 

 

Gross Carrying
Amount

 

Unamortized
Discount and Deferred
Financing Costs

 

Net Carrying
Amount

 

Term Loan

 

 $

1,869

 

 $

(11)

 

 $

1,858

 

2021 Notes

 

1,500

 

(22)

 

1,478

 

2023 Notes

 

750

 

(12)

 

738

 

Total long-term debt

 

 $

4,119

 

 $

(45)

 

 $

4,074

 

 

For the three months ended March 31, 2016 and 2015, interest expense was $53 million and $49 million, respectively, amortization of the debt discount for the Credit Facilities and Notes was $4 million and $1 million, respectively, and commitment fees for the Original Revolver and the 2015 Revolving Credit Facility were not material.

 

As of March 31, 2016, the scheduled maturities and contractual principal repayments of our debt for each of the five succeeding years are as follows (amounts in millions):

 

For the year ending December 31,

 

 

 

2016 (remaining nine months)

 

 $

48

 

2017

 

64

 

2018

 

64

 

2019

 

112

 

2020

 

3,381

 

Thereafter

 

2,250

 

Total

 

 $

5,919

 

 

As of March 31, 2016 and December 31, 2015, the carrying value of the Term Loan and Tranche A Term Loans approximates the fair value, based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest period and is similar to current rates at which we can borrow funds.  Based on Level 2 inputs, the fair values of the 2021 Notes and 2023 Notes were $1,577 million, and $804 million, respectively, as of March 31, 2016. Based on Level 2 inputs, the fair values of the 2021 Notes and 2023 Notes were $1,571 million and $795 million, respectively, as of December 31, 2015.

 

Debt Repayments

 

On February 2, 2016, the Board of Directors authorized debt repayments of up to $1.5 billion of our outstanding debt during 2016.  As of March 31, 2016, we have made prepayments to reduce our total outstanding term loans by $500 million.

 

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8.                                       Accumulated Other Comprehensive Income (Loss)

 

The components of accumulated other comprehensive income (loss) at March 31, 2016 and 2015, were as follows (amounts in millions):

 

 

 

For the Three Months Ended March 31, 2016

 

 

 

Foreign currency
translation
adjustments

 

Unrealized gain
(loss) on forward
contracts

 

Unrealized gain
(loss) on available-
for-sale securities

 

Total

 

Balance at December 31, 2015

 

$

 (630)

 

$

 (4)

 

$

 1

 

$

 (633)

 

Other comprehensive loss before reclassifications

 

(5)

 

(6)

 

 

(11)

 

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

1

 

 

1

 

Balance at March 31, 2016

 

$

 (635)

 

$

 (9)

 

$

 1

 

$

 (643)

 

 

 

 

For the Three Months Ended March 31, 2015

 

 

 

Foreign currency
translation
adjustments

 

Unrealized gain
(loss) on forward
contracts

 

Unrealized gain
on available-for-sale
securities

 

Total

 

Balance at December 31, 2014

 

$

 (304)

 

$

 —

 

$

 1

 

$

 (303)

 

Other comprehensive income (loss) before reclassifications

 

(330)

 

14

 

 

(316)

 

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

 

 

 

Balance at March 31, 2015

 

$

 (634)

 

$

 14

 

$

 1

 

$

 (619)

 

 

Income taxes were not provided for foreign currency translation items as these are considered indefinite investments in non-U.S. subsidiaries.

 

9.                                       Operating Segments and Geographic Region

 

Our operating segments are consistent with our internal organizational structure, the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), the manner in which we assess operating performance and allocate resources, and the availability of separate financial information. Currently, we have three reportable operating segments (see Note 1 of the Notes to Condensed Consolidated Financial Statements). We do not aggregate operating segments.

 

The CODM reviews segment performance exclusive of the impact 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 related to financings and acquisitions. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto. Information on the operating segments and reconciliations of total net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense for the three months ended March 31, 2016 and 2015 are presented below (amounts in millions):

 

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For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

Net revenues

 

Income from operations before income
tax expense

 

Activision

 

 $

360

 

 $

303

 

 $

99

 

 $

66

 

Blizzard

 

294

 

352

 

86

 

139

 

King

 

207

 

 

67

 

 

Other (1)

 

47

 

48

 

 

(1)

 

Segments total

 

908

 

703

 

252

 

204

 

 

 

 

 

 

 

 

 

 

 

Reconciliation to consolidated net revenues / consolidated income before income tax expense:

 

 

 

 

 

 

 

 

 

Net effect from deferral of net revenues and related cost of sales

 

547

 

575

 

369

 

362

 

Stock-based compensation expense

 

 

 

(44)

 

(23)

 

Amortization of intangible assets

 

 

 

(82)

 

(1)

 

Fees and other expenses related to acquisitions (2)

 

 

 

(34)

 

 

Consolidated net revenues / operating income

 

 $

1,455

 

 $

1,278

 

 $

461

 

 $

542

 

Interest and other expense (income), net

 

 

 

 

 

52

 

50

 

Consolidated income before income tax expense

 

 

 

 

 

 $

 409

 

 $

 492

 

 

(1)                                  Other includes other income and expenses from operating segments managed outside the reportable segments, including our Media Networks, Studios, and Distribution businesses. Other also includes unallocated corporate income and expenses.

 

(2)                                  Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings.

 

Geographic information presented below for the three months ended March 31, 2016 and 2015 is based on the location of the paying customer. Net revenues from external customers by geographic region were as follows (amounts in millions):

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

Net revenues by geographic region:

 

 

 

 

 

Americas

 

 $

753

 

 $

704

 

Europe

 

521

 

464

 

Asia Pacific

 

181

 

110

 

Total consolidated net revenues

 

 $

1,455

 

 $

1,278

 

 

The Company’s net revenues in the U.S. were 49% and 53% of consolidated net revenues for the three months ended March 31, 2016 and 2015, respectively. The Company’s net revenues in the U.K. were 11% and 12% of consolidated net revenues for the three months ended March 31, 2016 and 2015, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for the three months ended March 31, 2016 and 2015.

 

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Net revenues by platform were as follows (amounts in millions):

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

Net revenues by platform:

 

 

 

 

 

Console

 

 $

765

 

 $

758

 

PC(1)

 

400

 

386

 

Mobile and ancillary(2)

 

243

 

86

 

Other(3)

 

47

 

48

 

Total consolidated net revenues

 

 $

1,455

 

 $

1,278

 

 

(1)                Net revenues from PC includes revenues that were historically shown as “Online.”

(2)                Net revenues from mobile and ancillary includes revenues from handheld, mobile and tablet devices, as well as non-platform specific game-related revenues such as standalone sales of toys and accessories products from our Skylanders franchise and other physical merchandise and accessories.

(3)                Net revenues from Other include revenues from our Media Networks, Studios, and Distribution businesses.

 

Long-lived assets by geographic region at March 31, 2016 and December 31, 2015 were as follows (amounts in millions):

 

 

 

At March 31, 2016

 

At December 31, 2015

 

Long-lived assets(1) by geographic region:

 

 

 

 

 

Americas

 

 $

141

 

 $

138

 

Europe

 

94

 

42

 

Asia Pacific

 

11

 

9

 

Total long-lived assets by geographic region

 

 $

246

 

 $

189

 

 

(1)                The only long-lived assets that we classify by region are our long-term tangible fixed assets, which only include property, plant, and equipment assets; all other long-term assets are not allocated by location.

 

10.                                Income Taxes

 

The Company accounts for its provision for income taxes in accordance with ASC 740,  Income Taxes , which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year.  The provision for income taxes represents federal, foreign, state, and local income taxes.  Our effective tax rate differs from the statutory U.S. income tax rate due to the effect of state and local income taxes, tax rates in foreign jurisdictions and certain nondeductible expenses. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of pre-tax income or loss by jurisdiction; changes in the mix of income by tax jurisdiction (as taxes are levied at relatively lower statutory rates in foreign regions and relatively higher statutory rates in the U.S.); research and development credits; changes in enacted tax laws and regulations, rulings and interpretations thereof, including with respect to tax credits, state and local income taxes; developments in tax audits and other matters;  and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.

 

The income tax expense of $73 million for the three months ended March 31, 2016 reflects an effective tax rate of 18%, which is lower than the effective tax rate of 20% for the three months ended March 31, 2015.  This decrease is the result of an incremental tax benefit included in the three months ended March 31, 2016 due to the mix of foreign earnings taxed at relatively lower statutory rates as compared to domestic earnings and the net benefit related to the settlement of a historical audit, partially offset by certain nondeductible costs incurred during the quarter.

 

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The effective tax rate of 18% for the three months ended March 31, 2016 differed from the U.S. statutory rate of 35%, primarily due to the tax benefit from foreign earnings taxed at relatively lower statutory rates, the net benefit related to the settlement of a historical audit, recognition of federal and California research and development credits, and federal domestic production deductions, partially offset by certain nondeductible costs incurred during the quarter and increases to the Company’s reserve for uncertain tax positions.

 

The overall effective income tax rate for the year will be dependent, in part, on our profitability for the remainder of the year, as well as the other factors described above.

 

The Internal Revenue Service (“IRS”) is currently examining Activision Blizzard’s federal tax returns for the 2009 through 2011 tax years.  During the second quarter of 2015, the Company transitioned the review of its transfer pricing methodology from the advanced pricing agreement review process to the IRS examination team.  Their review could result in a different allocation of profits and losses under the Company’s transfer pricing agreements.  Such allocation could have a positive or negative impact on our provision for uncertain tax positions for the period in which such a determination is reached and the relevant periods thereafter. In addition, as part of the purchase price accounting, the Company assumed $77 million of uncertain tax positions primarily related to the transfer pricing of King tax years occurring prior to the King Acquisition.  The Company is currently in negotiations with the relevant jurisdictions and the taxing authorities which could result in a different allocation of profits and losses between the relevant jurisdictions.

 

In addition, Vivendi Games’ tax year 2008 remains open to examination by the major taxing authorities. In addition, Vivendi Games’ tax return for the 2008 tax year is before the Appeals function of the IRS and is under examination by several state taxing authorities.  While Vivendi Games’ results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by Vivendi or its affiliates, Vivendi Games’ results for the period July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state, and local income tax returns filed by Activision Blizzard. Additionally, the Company has several state and non-U.S. audits pending.

 

The final resolution of the Company’s global tax disputes is uncertain. There is significant judgment required in the analysis of disputes, including the probability determination and estimation of the potential exposure. Based on current information, in the opinion of the Company’s management, the ultimate resolution of these matters are not expected to have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company’s global tax disputes could have a material adverse effect on our business and results of operations in the period in which the matters are ultimately resolved.

 

In 2013, in connection with a share repurchase from Vivendi (the “Purchase Transaction”), we assumed certain tax attributes, generally consisting of net operating loss (“NOL”) carryforwards of approximately $760 million, which represent a potential future tax benefit of approximately $266 million. The utilization of such NOL carryforwards will be subject to certain annual limitations and will begin to expire in 2021. The Company also obtained indemnification from Vivendi against losses attributable to the disallowance of claimed utilization of such NOL carryforwards of up to $200 million in unrealized tax benefits in the aggregate, limited to taxable years ending on or prior to December 31, 2016. No benefit for these tax attributes or indemnification was recorded upon the close of the share repurchase.  For the three months ended March 31, 2016, we utilized $184 million of the NOL, which resulted in a tax benefit of $64 million, and a corresponding reserve of $64 million was established.  As of March 31, 2016, an indemnification asset of $171 million has been recorded in “Other Assets,” and, correspondingly, the same amount has been recorded as a reduction to the consideration paid for the shares repurchased in “Treasury Stock” (see Note 1 of the Notes to Condensed Consolidated Financial Statements for details about the share repurchase).

 

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11.                                            Computation of Basic/Diluted Earnings Per Common Share

 

The following table sets forth the computation of basic and diluted earnings per common share (amounts in millions, except per share data):

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

Numerator:

 

 

 

 

 

Consolidated net income

 

 $

336

 

 $

394

 

Less: Distributed earnings to unvested stock-based awards that participate in earnings

 

(2)

 

(4)

 

Less: Undistributed earnings allocated to unvested stock-based awards that participate in earnings

 

(1)

 

(3)

 

Numerator for basic and diluted earnings (loss) per common share — income (loss) available to common shareholders

 

 $

333

 

 $

387

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic earnings per common share - weighted-average common shares outstanding

 

735

 

723

 

Effect of potential dilutive common shares under the treasury stock method:

 

 

 

 

 

Employee stock options and awards

 

11

 

8

 

Denominator for diluted earnings per common share - weighted-average common shares outstanding plus dilutive common shares under the treasury stock method

 

746

 

731

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

 $

0.45

 

 $

0.54

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

 $

0.45

 

 $

0.53

 

 

Certain of our unvested restricted stock rights (including certain restricted stock units and performance shares) met the definition of participating securities as they participate in earnings based on their rights to dividends or dividend equivalents.  Therefore, we are required to use the two-class method in our computation of basic and diluted earnings per common share. For the three months ended March 31, 2016 and 2015, on a weighted-average basis, we had outstanding unvested restricted stock rights with respect to 4 million and 10 million shares of common stock, respectively, that are participating in earnings.

 

Certain of our employee-related restricted stock rights and options are contingently issuable upon the satisfaction of pre-defined performance measures.  These shares are included in the weighted-average dilutive common shares only if the performance measures are met as of the end of the reporting period.  Approximately 10 million and 4 million shares are not included in the computation of diluted earnings per share for the three months ended March 31, 2016 and 2015, respectively, as their respective performance measures had not yet been met.

 

Potential common shares are not included in the denominator of the diluted earnings per common share calculation when the inclusion of such shares would be anti-dilutive. Therefore, options to acquire 6 million shares of common stock were not included in the calculation of diluted earnings per common share for the three months ended March 31, 2016 and 2015 as the effect of their inclusion would be anti-dilutive.

 

12.                                Capital Transactions

 

Repurchase Program

 

On February 3, 2015, our Board of Directors authorized a stock repurchase program under which we may repurchase up to $750 million of our common stock during the two-year period from February 9, 2015 through February 8, 2017.  As of March 31, 2016, we have not repurchased any shares under this program.

 

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Table of Contents

 

Dividends

 

On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share, payable on May 11, 2016, to shareholders of record at the close of business on March 30, 2016. As such, we have included $195 million of dividends payable in “Accrued expense and other liabilities” on our condensed consolidated balance sheet as of March 31, 2016.

 

On February 3, 2015, our Board of Directors declared a cash dividend of $0.23 per common share, payable on May 13, 2015, to shareholders of record at the close of business on March 30, 2015.  On May 13, 2015, we made an aggregate cash dividend payment of $167 million to such shareholders, and on May 29, 2015, we made related dividend equivalent payments of $3 million to certain holders of restricted stock rights.

 

13.                                Commitments and Contingencies

 

Legal Proceedings

 

We are subject to various legal proceedings and claims. SEC regulations govern disclosure of legal proceedings in periodic reports and FASB ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when it is reasonably possible ( i.e. , more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on us.

 

The outcomes of legal proceedings and other claims are subject to significant uncertainties, many of which are outside of our control. There is significant judgment required in the analysis of these matters, including the probability determination and whether a potential exposure can be reasonably estimated. In making these determinations, we, in consultation with outside counsel, examine the relevant facts and circumstances on a quarterly basis assuming, as applicable, a combination of settlement and litigated outcomes and strategies. Moreover, legal matters are inherently unpredictable and the timing of development of factors on which reasonable judgments and estimates can be based can be slow. As such, there can be no assurance that the final outcome of any legal matter will not materially and adversely affect our business, financial condition, results of operations, profitability, cash flows or liquidity.

 

King Initial Public Offering (the “King IPO”) Matter

 

Beginning on March 17, 2015, purported securities class action lawsuits were filed in the Superior Court of the State of California, County of San Francisco, against King, certain of its directors and executive officers and underwriters of the King IPO.  The lawsuits were brought by purported shareholders of King seeking to represent a class consisting of all those who purchased stock pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with the King IPO.  The lawsuits were consolidated. Plaintiffs assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, and seek unspecified damages and other relief. The court has set a trial date of May 1, 2017.  The Company has not recorded a liability in relation to these lawsuits and believes that the claims are without merit and intends to defend the lawsuits vigorously.

 

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Table of Contents

 

Other Matters

 

In addition, we are party to routine claims, suits, investigations, audits and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.

 

14.                                Acquisitions

 

King Digital Entertainment plc

 

On February 23, 2016 (the “King Closing Date”) we completed the King Acquisition under the terms of the Transaction Agreement, purchasing all of the outstanding shares of King for $18.00 cash per share. As a result, King became a wholly owned subsidiary of Activision Blizzard. King is a leading interactive entertainment company that develops and distributes games on mobile platforms such as Android and iOS, and on online and social platforms such as Facebook and king.com websites. King’s results of operations since the King Closing Date are included in our condensed consolidated financial statements.

 

We made this acquisition because we believe that the addition of King’s highly-complementary mobile business will position the Company as a global leader in interactive entertainment across mobile, console and PC platforms, as well as positioning us for future growth.

 

The aggregate purchase price of the King Acquisition was approximately $5.8 billion, which was paid on the King Closing Date and funded primarily with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. The total aggregate purchase price for King was comprised of (amounts in millions):

 

Cash consideration for outstanding King common stock and vested equity options and awards (1)

 

 $

5,730

 

Fair value of King’s existing vested and unvested stock options and awards assumed (2)

 

98

 

Total purchase price

 

 $

5,828

 

 

(1)                Represents the cash consideration paid based on $18.00 per share to common stock holders of King and the fair value of King’s existing vested options and awards that were cash settled at the King Closing Date for the portion of the fair value related to pre-combination services. No future services are required.

 

(2)                Represents the fair value of King’s existing vested and unvested stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards.  The purchase price includes the portion of fair value related to pre-combination services. The fair value of the options and awards assumed was determined using binomial-lattice and Monte Carlo models with the following assumptions: (a) volatility of 36%, (b) time varying risk free interest rates based on the U.S. Treasury yield curves, (c) an expected life ranging from approximately 0.1 years to 7.6 years, and (d) an expected dividend yield of 0.9%. See additional discussion under “Stock-Based Compensation” below.

 

The Company identified and recorded assets acquired and liabilities assumed at their estimated fair values at the King Closing Date, and allocated the remaining value of approximately $2.7 billion to goodwill. The values assigned to certain acquired assets and liabilities are preliminary, are based on information available as of the date of this Quarterly Report on Form 10-Q, and may be adjusted as further information becomes available during the measurement period of up to 12 months from the date of the King Acquisition. Additional information may become available subsequently and may result in changes in the values allocated to various assets and liabilities, including, the fair value of identified intangible assets, deferred income taxes, and contingent liabilities. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in material adjustments to goodwill.

 

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The preliminary purchase price allocation was as follows (amounts in millions):

 

 

 

February 23, 2016

 

Estimated useful lives

 

Tangible assets and liabilities assumed:

 

 

 

 

 

Cash and cash equivalents

 

 $

1,151

 

 

 

Accounts receivable

 

162

 

 

 

Other current assets

 

72

 

 

 

Property and equipment

 

57

 

2 - 7 years

 

Deferred income tax assets, net

 

27

 

 

 

Other assets

 

47

 

 

 

Accounts payable

 

(9)

 

 

 

Accrued expense and other liabilities

 

(272)

 

 

 

Other liabilities

 

(113)

 

 

 

Deferred income tax liabilities, net

 

(52)

 

 

 

Intangible assets

 

 

 

 

 

Internally-developed franchises

 

845

 

3 - 5 years

 

Customer base

 

609

 

2 years

 

Developed software

 

580

 

3 - 4 years

 

Trademark

 

46

 

7 years

 

 

 

 

 

 

 

Goodwill

 

2,678

 

 

 

Total purchase price

 

 $

5,828

 

 

 

 

During the three months ended March 31, 2016 the Company incurred $34 million of expenses related to the King Acquisition which are included within “General and administrative” in the condensed consolidated statements of operations. In connection with the debt financing that occurred on the King Closing Date, we incurred $38 million of issuance costs that were capitalized and recorded within “Long-term debt, net” on our condensed consolidated balance sheet. The amortization of these capitalized costs was not material to our condensed consolidated statement of operations for the three months ended March 31, 2016.

 

Stock-Based Compensation

 

In connection with the King Acquisition, a majority of the outstanding King options and awards that were unvested as of the King Closing Date were converted into equivalent options and awards, with respect to shares of the Company’s common stock, using an equity award exchange ratio calculated in accordance with the Transaction Agreement. As a result, replacement equity options and awards of 10 million and 3 million, respectively, were issued in connection with the King Acquisition. The portion of the fair value related to pre-combination services of $76 million was included in the purchase price while the remaining fair value will be recognized over the remaining service periods. As of March 31, 2016, the future expense for the converted King unvested options and awards was approximately $88 million, which will be recognized over a weighted average service period of approximately 2.1 years.

 

The remaining portion of outstanding unvested awards that were assumed were replaced with deferred cash awards. The cash proceeds were placed in an escrow-like account with the cash releases to occur based on the awards’ original vesting schedule upon future service being rendered. The cash associated with these awards is recorded in “Other current assets” and “Other assets” in our condensed consolidated balance sheet. The portion of the fair value related to pre-combination services of $22 million was included in the purchase price while the remaining fair value of approximately $9 million will be recognized over the remaining service periods. A portion of the cash proceeds placed in an escrow-like account were released to award holders but the amount was not material.

 

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Identifiable Intangible Assets Acquired and Goodwill

 

The preliminary fair values of the identifiable intangible assets acquired from King were estimated using an income approach, with the exception of the customer base which was estimated using a cost approach. The fair value of the intangibles using the income approach was determined with the following key assumptions: (a) a weighted average cost of capital of 13%, (b) long-term revenue decay rates ranging from 0% to 65%, and (c) royalty rates ranging from 0.5% to 8%. The fair value of the intangibles using the cost approach was based on amounts that would be required to replace the asset (i.e. replacement cost).

 

The Internally-developed franchises, Customer base, Developed software, and Trademark intangible assets will be amortized to “Cost of Sales - intellectual property licenses,” “Sales and marketing,” “Cost of sales - software royalties and amortization,” and “General and administrative,” respectively. The intangible assets will be amortized over their estimated useful lives in proportion to the economic benefits received.

 

The $2.7 billion of goodwill recognized is primarily attributable to the benefits the Company expects to derive from accelerated expansion as an interactive entertainment provider in the mobile sector, future franchises and technology, as well as the management team’s proven ability to create future games and franchises. Approximately $620 million of the goodwill is expected to be deductible for tax purposes in the U.S.

 

Contingent Liabilities Assumed

 

As a result of the King Acquisition we assumed contingent liabilities related to contingent consideration associated with King’s previous acquisitions of Nonstop Games Oy and Z2Live, Inc. The remaining contingent consideration for Non Stop Games Oy is linked to amounts generated from games launched by Nonstop Games over a specified period. The range of the potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is from $0 million up to $84 million. The remaining contingent consideration for Z2Live, Inc. is linked to amounts generated from specific games launched within a defined period. The potential range of undiscounted future payments that the Company could be required to make under the contingent consideration arrangement is from $0 million up to $75 million. The fair value of the contingent consideration arrangement at the King Closing date for Nonstop Games Oy and Z2Live, Inc., was immaterial.

 

King Net Revenue and Earnings

 

The amount of net revenue and earnings attributable to King in the Company’s condensed consolidated statement of operations during the three months ended March 31, 2016 are included in the table below.  The amounts presented represent the net revenues and earnings after adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferral of revenues and related cost of sales.

 

 

 

For the Three Months Ended

 

(in millions)

 

March 31, 2016

 

 

 

 

 

Net revenues

 

 $

183

 

Net loss

 

 $

(50)

 

 

Pro Forma Financial Information

 

The unaudited financial information in the table below summarizes the combined results of operations of the Company and King, on a pro forma basis, as though the acquisition had occurred on January 1, 2015. The pro forma financial information presented includes the effects of adjustments related to amortization charges from acquired intangible assets, employee compensation from replacement equity awards issued in the King Acquisition and the profit sharing bonus plan established as part of the King Acquisition, and interest expense from the new debt, among other adjustments. We also adjusted for Activision Blizzard and King non-recurring acquisition related costs of approximately $60 million for the three months ended March 31, 2016.  The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the King Acquisition, and any borrowings undertaken to finance the King Acquisition, had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.

 

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For the Three Months Ended March 31,

 

(in millions)

 

2016

 

2015

 

 

 

 

 

 

 

Net revenues

 

 $

1,735

 

 $

1,848

 

Net income

 

 $

329

 

 $

380

 

Basic earnings per common share

 

 $

0.44

 

 $

0.52

 

Diluted earnings per common share

 

 $

0.44

 

 $

0.51

 

 

Major League Gaming, Inc.

 

On December 22, 2015, we acquired the business of Major League Gaming, Inc. (“MLG”), for an aggregate purchase price of $46 million in cash.  MLG is a leader in creating and streaming premium live gaming events, organizing professional competitions, and running competitive gaming leagues. MLG’s business operates under our Media Networks operating segment.

 

The values assigned to the acquired assets and liabilities were finalized during the three months ended March 31, 2016, and the final purchase price allocation for MLG remained unchanged from the amounts disclosed in Note 23 contained in our Annual Report on Form 10-K for the year ended December 31, 2015. Pro forma financial information has not been presented as the acquisition did not have a material impact on our consolidated financial statements.

 

15.                                Recently issued accounting pronouncements

 

Revenue recognition

 

In May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the adoption method as well as the impact of this new accounting guidance on our financial statements.

 

Stock-based compensation

 

In June 2014, the FASB issued new guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. We adopted this new standard as of January 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

 

Consolidations

 

In February 2015, the FASB issued new guidance related to consolidations. The new standard amends certain requirements for determining whether a variable interest entity must be consolidated. We adopted this new standard as of January 1, 2016. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

 

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Debt Issuance Costs

 

In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs in financial statements. The new standard requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense.  We adopted this change in accounting principle as of January 1, 2016, and applied it retrospectively for each period presented.  The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

 

Internal-Use Software

 

In April 2015, the FASB issued new guidance related to internal-use software. The new standard relates to a customer’s accounting for fees paid in cloud computing arrangements. The amendment provides guidance for customers to determine whether such arrangements include software licenses. If a cloud arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract.  We adopted this standard as of January 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

 

Inventory

 

In July 2015, the FASB issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  The new standard is effective for fiscal years beginning after December 15, 2016 and should be applied prospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.

 

Business Combinations

 

In September 2015, the FASB issued new guidance related to business combinations. The new standard requires that the cumulative impact of a measurement period adjustment, including the impact on prior periods, made to provisional amounts recorded at the acquisition date as a result of the business combination, be recognized in the reporting period the adjustment is identified. The standard also requires separate presentation on the face of the income statement, or disclosure in the notes, of the portion of the amount recorded in current period earnings by line item. Prior to the issuance of the standard, such adjustments to provisional amounts were recognized retrospectively. We adopted this new standard as of January 1, 2016, and applied it prospectively. No measurement period adjustments occurred as of and for the three months ended March 31, 2016.

 

Financial Instruments

 

In January 2016, the FASB issued new guidance related to the recognition and measurement of financial assets and financial liabilities. The new standard, amongst other things, generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The new standard is effective for fiscal years beginning after December 15, 2017 and the guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity investments without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. We are evaluating the impact of this new accounting guidance on our financial statements.

 

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Leases

 

In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current U.S. GAAP guidance on this topic.  The new standard, amongst other things, requires a lessee to classify a lease as either a finance or operating lease in which lessees will need to recognize a right-of-use asset and a lease liability for their leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease accounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will require application of the new guidance at the beginning of the earliest comparative period presented. We are evaluating the impact of this new accounting guidance on our financial statements.

 

Share-Based Payments

 

In March 2016, the FASB issued new guidance in an effort to simplify accounting for share-based payments. The new standard, amongst other things:

 

·                   will require that all excess tax benefits and tax deficiencies be recorded as income tax expense or benefit in the statement of operations and that the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur;

 

·                   will require excess tax benefits from share-based payments to be reported as operating activities on the statement of cash flows; and

 

·                   permits an accounting policy election to either estimate the number of awards that are expected to vest using an estimated forfeiture rate, as currently required, or account for forfeitures when they occur.

 

The new standard is effective for fiscal years beginning after December 15, 2016.  Early adoption is permitted. We are evaluating the impact of this new accounting guidance on our financial statements.

 

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Business Overview

 

Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.

 

Activision Blizzard is the result of the 2008 business combination (“Business Combination”) by and among the Company (then known as Activision, Inc.), Sego Merger Corporation, a wholly-owned subsidiary of Activision, Inc., Vivendi S.A. (“Vivendi”), VGAC LLC, a wholly-owned subsidiary of Vivendi, and Vivendi Games, Inc. (“Vivendi Games”), a wholly-owned subsidiary of VGAC LLC.  As a result of the consummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc.

 

As of March 31, 2016, we had approximately 738 million shares of common stock issued and outstanding.  At that date: (i) ASAC II LP (“ASAC”), an exempted limited partnership established under the laws of the Cayman Islands, held 172 million shares, or approximately 23% of the outstanding shares of our common stock, and (ii) our other stockholders held approximately 77% of the outstanding shares of our common stock.  Robert A. Kotick, our Chief Executive Officer, and Brian G. Kelly, Chairman of our Board of Directors, are affiliates of ASAC II LLC, the general partner of ASAC.

 

The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under the ticker symbol “ATVI.”

 

The King Acquisition

 

On November 2, 2015, we and King Digital Entertainment, a leading interactive mobile entertainment company (“King”), entered into a Transaction Agreement (the “Transaction Agreement”) under the terms of which we would acquire King (the “King Acquisition”) and King would become a wholly-owned subsidiary of the Company. On February 23, 2016, (the “King Closing Date”) we completed the King Acquisition under the terms of the Transaction Agreement and purchased all of the outstanding shares of King for $18.00 cash per share. The aggregate purchase price of King was approximately $5.8 billion, which was paid on the King Closing Date and funded with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. King’s results of operations since the King Closing Date are included in our condensed consolidated financial statements.

 

We made this acquisition because we believe that the addition of King’s highly-complementary mobile business positions the Company as a global leader in interactive entertainment across mobile, console, and PC platforms, as well as positioning us for future growth.

 

Reportable Segments

 

Based upon our organizational structure, we conduct our business through three reportable operating segments, Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment.

 

(i) Activision Publishing, Inc.

 

Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher of interactive software products and content. Activision delivers content to a broad range of gamers, ranging from children to adults, and from core gamers to mass-market consumers, in a variety of geographies. Activision develops, markets, and sells products through retail channels or digital downloads, which are principally based on our internally-developed intellectual properties, including games in the Call of Duty® and Skylanders® franchises, as well as some licensed properties.  Additionally, we have established a long-term alliance with Bungie to publish its game universe, Destiny. Activision currently offers games that operate on the Microsoft Corporation (“Microsoft”) Xbox One (“Xbox One”) and Xbox 360 (“Xbox 360”), Nintendo Co. Ltd. (“Nintendo”) Wii U (“Wii U”) and Wii (“Wii”), and Sony Computer Entertainment, Inc. (“Sony”) PlayStation 4 (“PS4”) and PlayStation 3 (“PS3”) console systems; the PC; the Nintendo 3DS, Nintendo Dual Screen, and Sony PlayStation Vita handheld game systems; and mobile and tablet devices.

 

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(ii) Blizzard Entertainment, Inc.

 

Blizzard Entertainment, Inc. (“Blizzard”) is a leader in online PC gaming, including the subscription-based massively multi-player online role-playing game category in terms of both subscriber base and revenues generated through its World of Warcraft ®  franchise. Blizzard also develops, markets, and sells role-playing action and strategy games for the PC, console, mobile, and tablet platforms, including games in the multiple-award winning Diablo ® , StarCraft ® , Hearthstone ® : Heroes of Warcraft™, and Heroes of the Storm™ franchises. In addition, Blizzard maintains a proprietary online gaming service, Battle.net ® , which facilitates digital distribution and online social connectivity across all Blizzard games. Blizzard distributes its products and generates revenues worldwide through various means, including: subscriptions; sales of prepaid subscription cards; in-game purchases and services; retail sales of physical “boxed” products; online download sales of PC products; purchases and downloads via third-party console, mobile, and tablet platforms; and licensing of software to third-party or related party companies that distribute Blizzard products.

 

(iii) King Digital Entertainment plc

 

King Digital Entertainment is a leading interactive mobile entertainment company that develops and distributes games on mobile platforms such as Android and iOS along with games that can be played on Facebook and king.com websites. King has four category-leading free-to-play franchises: Candy Crush™, Farm Heroes™, Bubble Witch™, and Pet Rescue™, where monetization occurs through players purchasing in-game virtual currency which can be used in-game to buy virtual items.

 

(iv) Other

 

We also engage in other businesses that do not represent reportable segments, including:

 

·                   The Activision Blizzard Media Networks (“Media Networks”) business that is devoted to eSports that builds on our competitive gaming efforts by creating ways to deliver the best-in-class fan experience across games, platforms, and geographies with a long-term strategy of monetization through advertising, sponsorships, tournaments, and premium content.

 

·                   The Activision Blizzard Studios (“Studios”) business that is devoted to creating original film and television content based on our extensive library of iconic and globally-recognized intellectual properties.

 

·                   The Activision Blizzard Distribution (“Distribution”) business that consists of operations in Europe which provide warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.

 

Business Highlights

 

For the three months ended March 31, 2016, Activision Blizzard had net revenues of $1.5 billion, as compared to net revenues of $1.3 billion for the same period in 2015.  For the three months ended March 31, 2016, Activision Blizzard had earnings per diluted share of $0.45, as compared to earnings per diluted share of $0.53 for the same period in 2015.

 

For the three months ended March 31, 2016, as a result of the King Acquisition, our net revenues and net income include $183 million and $(50) million from King’s operations, respectively, after adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferral of revenues and related cost of sales. Our earnings under  accounting principles generally accepted in the United States of America (“U.S. GAAP”) are expected to be down versus prior-year as the expected results will be impacted by accounting charges associated with the King Acquisition, which include, among other things, integration and acquisition-related costs, the amortization of intangible assets resulting from purchase price accounting adjustments, share-based payments, and the related tax impact from the King Acquisition.  The majority of these GAAP accounting charges will not impact the economics or operating cash flows of our business, although they will have a material impact on our 2016 GAAP results.

 

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On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share, payable on May 11, 2016, to shareholders of record at the close of business on March 30, 2016.

 

Activision Blizzard Recent and Upcoming Product Releases

 

We have recently released the following titles and games, among other titles:

 

·                   King released Candy Crush Jelly Saga ™, the latest installment in the Candy Crush franchise, in January 2016.

 

·                   Activision released Call of Duty: Black Ops III Awakening , the first downloadable content pack for Call of Duty: Black Ops III, on the PS4 on February 2, 2016 and on other platforms on March 3, 2016.

 

·                   Activision released Call of Duty: Black Ops III Eclipse , the second downloadable content pack for Call of Duty: Black Ops III, on the PS4 on April 19, 2016, and is expected to be released on other platforms in May 2016.

 

·                   On April 26, 2016, Blizzard released Whispers of the Old Gods™, the third expansion to Hearthstone : Heroes of Warcraft .

 

·                   On May 24, 2016, Blizzard expects to release Overwatch™ , its upcoming team-based first-person shooter.

 

Monthly Active Users (“MAUs”)

 

We monitor MAUs as a key measure of the overall size of our user base and its regular engagement with our portfolio of games. MAUs are the number of individuals who played a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing by the number of months in the period.  An individual who plays two of our games would be counted as two users.  In addition, due to technical limitations for Activision and King MAUs, an individual who plays the same game on two platforms or devices in the relevant period would be counted as two users.  For Blizzard MAUs, an individual who plays the same game on two platforms or devices in the relevant period would be counted as one user.

 

The number of MAUs for a given period can be significantly impacted by the timing of new content releases, since new releases can cause a temporary surge in MAUs. Accordingly, although we believe that overall trending in the number of MAUs can be a meaningful performance metric, period-to-period fluctuations may not be indicative of longer-term trends.  The following table details our average MAUs on a sequential quarterly basis for our reportable segments (amounts in millions):

 

 

 

March 31, 2016

 

December 31,
2015

 

September 30,
2015

 

June 30, 2015

 

March 31, 2015

 

Activision

 

55

 

55

 

46

 

45

 

50

 

Blizzard

 

26

 

26

 

28

 

29

 

21

 

King

 

463

 

449

 

474

 

501

 

550

 

Total

 

544

 

530

 

548

 

575

 

621

 

 

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Average MAUs increased by 14 million, or 3%, for the quarter ended March 31, 2016 as compared to the quarter ended December 31, 2015. Activision’s and Blizzard’s average MAUs were flat quarter-over-quarter, and the increase in King’s average MAUs was primarily due to the release of Candy Crush Jelly Saga .

 

Average MAUs decreased by 77 million, or 12%, for the quarter ended March 31, 2016 as compared to the quarter ended March 31, 2015. Activision’s and Blizzard’s average MAUs grew year-over-year, given the strength of the franchise portfolio, and King’s average MAUs declined year-over-year due to the performance of more mature titles.

 

Management’s Overview of Business Trends

 

Digital Online Channel Revenues

 

We provide our products through both retail and digital distribution channels. Many of our video games that are available through retailers as physical “boxed” software products are also available digitally (from our websites and from websites and digital distribution channels owned by third parties). In addition, we offer players digital downloadable content as add-ons to our products ( e.g. , new multi-player content packs or in-game microtransaction purchases), generally for a one-time fee. We also offer subscription-based services and other value-added services for  World of Warcraft , all of which are digitally delivered and hosted by Battle.net.

 

We currently define sales via digital online channels as revenues from digitally-distributed subscriptions, licensing royalties, value-added services, downloadable content, microtransaction purchases, and products. This definition may differ from that used by our competitors or other companies.

 

According to Activision Blizzard internal estimates, overall industry digital gaming revenues for the three months ended March 31, 2016 increased by approximately 19% as compared to the same period in 2015, with mobile growth at 27%. The primary drivers of the increase in digital gaming revenues were increases in microtransaction purchases and consumer purchases of full games via digital channels. In addition to increasing microtransaction purchases within free-to-play games, the increase includes microtransaction purchases within purchased game software, as publishers offer increasingly new opportunities for monetization within their games to extend and enlarge the monetization cycle. Digital revenues are an important part of our business, and we continue to focus on and develop products, such as downloadable content, that can be delivered via digital channels. The amount of our digital revenues in any period may fluctuate depending, in part, on the timing and nature of our specific product releases. Our sales of digital downloadable content are driven in part by sales of, and engagement by players in, our retail products. As such, lower revenues in our retail distribution channels in the current year may impact our revenues through digital online channels in the subsequent year.

 

For the three months ended March 31, 2016, revenues through digital online channels increased by $345 million, as compared to the same period in 2015, and represented 64% of our total consolidated net revenues, as compared to 45% for the same period in 2015. On a non-GAAP basis (which excludes the impact of deferred revenues), revenues through digital online channels for the three months ended March 31, 2016 increased by $259 million, as compared to the same period in 2015, and represented 88% of our total non-GAAP net revenues, as compared to 76% for the same period in 2015.

 

Refer to the reconciliation of GAAP and non-GAAP digital online channel revenues under “Non-GAAP Financial Measures” below.

 

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Concentration of Top Titles

 

The concentration of retail revenues among key titles has continued as a trend in the overall interactive software industry. According to The NPD Group, the top 10 titles accounted for 33% of the retail sales in the U.S. interactive entertainment industry in 2015. Similarly, a significant portion of our revenues has historically been derived from video games based on a few popular franchises and these video games were responsible for a disproportionately high percentage of our profits. For example, the Call of Duty, World of Warcraft, Skylanders, and Destiny franchises combined accounted for 71% of our consolidated net revenues, and a significantly higher percentage of our operating income, for 2015. As a result, successful competition against these titles can significantly impact our performance. Notably, the toys-to-life category has become more competitive with a new entrant competing directly with us and other incumbents.

 

We are continually exploring additional investments in existing and future franchises. During 2015, we released  Heroes of the Storm , as well as  Call of Duty Online  in China. In the fourth quarter of 2015,we released  Overwatch  into closed beta with an anticipated game release of May 24, 2016.  There is no guarantee that these franchises will become key franchises.

 

Additionally, on February 23, 2016, we completed the King Acquisition, diversifying our portfolio of key franchises and increasing our presence in the mobile market. In this market, we see similar concentration of key titles accounting for a disproportionate amount of digital sales.  According to the U.S. ranking for the Apple App Store, per App Annie Intelligence, seven titles remained in the top 10 ranking of gross sales for all four quarters during 2015.

 

Overall, we do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of our, and the industry’s, revenues and profits in the near future.

 

Consolidated Statements of Operations Data

 

The following table sets forth consolidated statements of operations data for the periods indicated in dollars and as a percentage of total net revenues (amounts in millions):

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

Net revenues

 

 

 

 

 

 

 

 

 

Product sales

 

 $

645

 

44%

 

 $

784

 

61%

 

Subscription, licensing and other revenues

 

810

 

56 

 

494

 

39 

 

Total net revenues

 

1,455

 

100

 

1,278

 

100 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales - product costs

 

247

 

17 

 

209

 

16 

 

Cost of sales - online

 

64

 

 

53

 

 

Cost of sales - software royalties and amortization

 

144

 

10 

 

148

 

12 

 

Cost of sales - intellectual property licenses

 

36

 

 

3

 

— 

 

Product development

 

175

 

12 

 

145

 

11 

 

Sales and marketing

 

168

 

12 

 

92

 

 

General and administrative

 

160

 

11