Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: 8-K, Received: 08/01/2013 16:10:04)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported):  August 1, 2013

 

ACTIVISION BLIZZARD, INC.

(Exact Name of Registrant as Specified in Charter)

 

Delaware

 

001-15839

 

95-4803544

(State or Other Jurisdiction of
Incorporation)

 

(Commission File Number)

 

(IRS Employer
Identification No.)

 

3100 Ocean Park Boulevard,

Santa Monica, CA

 

90405

(Address of Principal Executive
Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (310) 255-2000

 

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

o             Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o             Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o             Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o             Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Certain Information Not Filed .  The information in Item 2.02 of this Form 8-K and Exhibit 99.1 attached to this Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall such Item 2.02 or such Exhibit 99.1 or any of the information contained therein be deemed incorporated by reference in any filing under the Securities Exchange Act of 1934 or the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

 

Item 2.02.                                         Results of Operations and Financial Condition.

 

On August 1, 2013, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter ended June 30, 2013. A copy of the press release is attached hereto as Exhibit 99.1.  As previously announced, the Company is hosting a conference call and webcast in conjunction with that release.

 

Item 9.01.                                         Financial Statements and Exhibits.

 

(d)  Exhibits

 

99.1                         Press Release dated August 1, 2013 (furnished not filed)

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 1, 2013

 

ACTIVISION BLIZZARD, INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Dennis Durkin

 

 

 

Dennis Durkin

 

 

 

Chief Financial Officer

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release dated August 1, 2013 (furnished not filed)

 

4


 

Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES SECOND QUARTER 2013 FINANCIAL RESULTS

 

Company Was #1 Third-Party Publisher With The Top Two Best-Selling Games in North America and Europe Combined For First Six Months of 2013(1)

 

Santa Monica, CA — August 1, 2013 — Activision Blizzard, Inc. (Nasdaq: ATVI) today announced financial results for the second quarter of 2013.

 

 

 

Second Quarter

 

(in millions, except EPS)

 

2013

 

Prior
Outlook*

 

2012

 

GAAP

 

 

 

 

 

 

 

Net Revenues

 

$

1,050

 

$

980

 

$

1,075

 

EPS

 

$

0.28

 

$

0.21

 

$

0.16

 

Non-GAAP

 

 

 

 

 

 

 

Net Revenues

 

$

608

 

$

590

 

$

1,054

 

EPS

 

$

0.08

 

$

0.05

 

$

0.20

 

 


*Prior outlook was provided by the company on May 8, 2013 in its earnings release

 

For the quarter ended June 30, 2013, Activision Blizzard’s GAAP net revenues were $1.05 billion, as compared with $1.08 billion for the second quarter of 2012.  On a non-GAAP basis, the company’s net revenues were $608 million, as compared with $1.05 billion for the second quarter of 2012.  For the second quarter, GAAP net revenues from digital channels were $387 million and represented 37% of the company’s total revenues.  On a non-GAAP basis, net revenues from digital channels were $383 million and represented a record 63% of the company’s total revenues.

 

For the quarter ended June 30, 2013, Activision Blizzard’s GAAP earnings per diluted share were $0.28, as compared with $0.16 for the second quarter of 2012.  On a non-GAAP basis, the company’s earnings per diluted share were $0.08, as compared with $0.20 for the second quarter of 2012.

 

The company reports results on both a GAAP and a non-GAAP basis.  Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

 

1



Activision Announces Q2 2013 Earnings Results

 

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “We are pleased with our second-quarter results, which confirm the preliminary results we released last week when we announced our transaction with Vivendi. The agreement we reached with Vivendi will make us an independent company and should deliver meaningful earnings per share accretion to our shareholders. Our solid performance across our franchises and strong digital sales, including continued significant growth this quarter in our Call of Duty® downloadable content business over the previous year, validate our belief that we will enter this new period of independence in a position to leverage the flexibility and focus that it provides.”

 

Kotick added, “On a GAAP and non-GAAP basis, we delivered strong quarterly and first half net revenues, operating income, and earnings.  Year to date, we generated a record $434 million in operating cash flow. However, despite this strength in the front half of the year, we remain cautious about the back half. The issues we previously identified, including increased competition in the second half of the year and uncertainties surrounding the console transition, remain on the horizon. We are confident that we will continue to successfully navigate industry challenges and find new opportunities to provide superior returns to our shareholders.”

 

Selected Business Highlights:

 

·                   For the first six months of 2013, Activision Blizzard was the #1 third-party publisher in North America and Europe combined.(1)

 

·                   For the first six months of 2013, Activision Blizzard had the top-two best-selling games in North America and Europe combined, with Activision Publishing’s Skylanders® Giants™ and Call of Duty: Black Ops II .(1)

 

·                   In both North America and Europe, Activision Publishing’s Skylanders Giants was the #1 best-selling console and hand-held game overall in dollars for the first six months of 2013.(1)

 

·                   As of July 31, 2013, the Skylanders franchise has generated, life-to-date, more than $1.5 billion in worldwide retail sales.(1)

 

·                   As of June 30, 2013, Blizzard Entertainment’s World of Warcraft® remains the #1 subscription-based MMORPG, with approximately 7.7 million subscribers.(2)

 

·                   On July 25, 2013, Activision Blizzard announced that it reached an agreement under which the company will acquire approximately 429 million company shares and certain tax attributes from Vivendi, in exchange for approximately $5.83 billion in cash, or $13.60 per share acquired before taking into account any future benefit from these tax attributes. In a related transaction, ASAC II LP, an investment vehicle led by CEO Bobby Kotick and Activision Blizzard Co-Chairman Brian Kelly, will purchase approximately 172 million company shares from Vivendi for approximately $2.34 billion in cash, or $13.60 per share.  Following the completion of the transactions, which are expected to close by the end of September 2013, Vivendi will no longer be the majority shareholder, but will retain a stake of approximately 83 million shares, or approximately 12%.

 

2



 

Activision Announces Q2 2013 Earnings Results

 

·                   During the quarter, Activision Blizzard paid a cash dividend of $ 0.19 per common share, totaling $216 million, to shareholders of record at the close of business on March 20, 2013.

 

Company Outlook:

 

On July 2, 2013, Activision Publishing released Call of Duty: Black Ops II Vengeance , a downloadable map pack for the Xbox 360® video game system from Microsoft.  The company expects to release Call of Duty: Black Ops II Vengeance on other platforms later in the third quarter of 2013.

 

On September 3, 2013, Blizzard Entertainment expects to release Diablo® III for Sony’s PlayStation® 3 computer entertainment system and the Xbox 360 video game system from Microsoft.

 

Based on its second quarter results, Activision Blizzard is raising its full year GAAP outlook. The company’s third quarter and full year net revenue and earnings per share outlook are as follows and do not include any potential impact from the transaction with Vivendi announced on July 25, 2013 and described above:

 

(in millions, except EPS)

 

GAAP 
Outlook

 

Prior*
GAAP 
Outlook

 

Non-GAAP 
Outlook

 

Prior*
Non-
GAAP 
Outlook

 

 

 

 

 

 

 

 

 

 

 

CY 2013

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

4,310

 

$

4,220

 

$

4,250

 

$

4,250

 

EPS

 

$

0.77

 

$

0.73

 

$

0.82

 

$

0.82

 

 

 

 

 

 

 

 

 

 

 

Q3 2013

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

635

 

n/a

 

$

585

 

n/a

 

EPS

 

$

0.03

 

n/a

 

$

0.03

 

n/a

 

 


* Prior outlook was provided by the company on May 8, 2013 in its earnings release

 

3



 

Activision Announces Q2 2013 Earnings Results

 

The company estimates that, if and when completed, the recently announced transaction with Vivendi will be accretive to full year pro-forma earnings per share.  For additional information and pro-forma results, please refer to the table at the back of this press release.

 

Conference Call

 

Today at 4:30 p.m. EDT, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter ended June 30, 2013 and management’s outlook for the remainder of the calendar year. The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 888-339-3466 in the U.S. with passcode 3585535 .

 

About Activision Blizzard

 

Activision Blizzard, Inc. is the world’s largest and most profitable independent interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty , Skylanders,World of Warcraft , StarCraft ® and Diablo . Headquartered in Santa Monica California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world. More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.

 


(1) According to The NPD Group and Gfk Chart-Track and Activision Blizzard internal estimates, including toys and accessories

(2) According to Activision Blizzard internal estimates

 

Subscriber Definition:  World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to play World of Warcraft , as well as those who have purchased the game and are within their free month of access. Internet Game Room players who have accessed the game over the last thirty days are also counted as subscribers. The above definition excludes all players under free promotional subscriptions, expired or cancelled subscriptions, and expired prepaid cards. Subscribers in licensees’ territories are defined along the same rules.

 

Non-GAAP Financial Measures:  As a supplement to our financial measures presented in accordance with Generally Accepted Accounting Principles (“GAAP”), Activision Blizzard presents certain non-GAAP measures of financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than, the financial information prepared and presented in accordance with GAAP.  In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the company’s results of operations as determined in accordance with GAAP.

 

Activision Blizzard provides net revenues, net income (loss), earnings (loss) per share and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. The non-GAAP financial measures exclude the following items, as applicable in any given reporting period:

 

4



 

Activision Announces Q2 2013 Earnings Results

 

·                   the change in deferred net revenue and related cost of sales with respect to certain of the company’s online-enabled games;

·                   expenses related to stock-based compensation;

·                   the amortization of intangibles from purchase price accounting;

·                   one-time fees and expenses related to repurchase of the Company’s shares from Vivendi and related debt financing transactions; and

·                   the income tax adjustments associated with any of the above items.

 

In the future, Activision Blizzard may also consider whether other significant non-recurring items should also be excluded in calculating the non-GAAP financial measures used by the company.  Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard’s financial and operating performance.  In particular, the measures facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard by excluding certain items that may not be indicative of the company’s core business, operating results or future outlook.  Internally, management uses these non-GAAP financial measures in assessing the company’s operating results, as well as in planning and forecasting.

 

Activision Blizzard’s non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP earnings per share, and non-GAAP operating margin do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard’s performance in relation to other companies.

 

Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard’s GAAP, as well as non-GAAP, results and outlook, and by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.

 

In addition to the reasons stated above, which are generally applicable to each of the items Activision Blizzard excludes from its non-GAAP financial measures, there are additional specific reasons why the company believes it is appropriate to exclude the change in deferred net revenue and related cost of sales with respect to certain of the company’s online-enabled games.

 

Since Activision Blizzard has determined that some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable, we recognize revenue attributed to these game titles over their estimated service periods, which may range from five months to a maximum of less than a year. The related cost of sales is deferred and recognized as the related revenues are recognized. Internally, management excludes the impact of this change in deferred net revenue and related cost of sales in its non-GAAP financial measures when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.

 

Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers, which is consistent with the way the company is measured by investment analysts and industry data sources. In addition, excluding the change in deferred net revenue and the related cost of sales provides a much more timely indication of trends in our operating results.

 

Cautionary Note Regarding Forward-looking Statements:  Information in this press release that involves Activision Blizzard’s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements that are not facts and involve a number of risks and uncertainties.    Activision Blizzard generally uses words such as “outlook,” “will,”  “could,” “should,” “would,” “might,” “to be,” “plans,” “believes,” “may,” “expects,” “intends,” “anticipates,” “estimate,” “future,” “plan,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and similar expressions to identify forward-looking statements.

 

5



 

Activision Announces Q2 2013 Earnings Results

 

Factors that could cause Activision Blizzard’s actual future results to differ materially from those expressed in the forward-looking statements set forth in this release include, but are not limited to, sales levels of Activision Blizzard’s titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres such as first-person action and massively multiplayer online games and preferences among hardware platforms, the seasonal and cyclical nature of the interactive game market, changing business models including digital delivery of content, competition, including from used games and other forms of entertainment, possible declines in software pricing, product returns and price protection, product delays, adoption rate and availability of new hardware (including peripherals) and related software, particularly during the upcoming console transition, rapid changes in technology and industry standards, the current regulatory environment, litigation risks and associated costs, protection of proprietary rights, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality “hit” titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, capital market risks, the possibility that expected benefits related to the pending transactions with Vivendi and ASAC II LP may not materialize as expected, the pending transactions not being timely completed, if completed at all, and the other factors identified in the risk factors section of Activision Blizzard’s most recent annual report on Form 10-K, as amended and our quarterly report on Form 10-Q for the quarter ended June 30, 2013,.   The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes 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 the future performance of Activision Blizzard and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.

 

###

 

(Tables to Follow)

 

For Information Contact:

 

 

 

Kristin Southey

Maryanne Lataif

SVP, Investor Relations

SVP, Corporate Communications

(310) 255-2635

(310) 255-2704

ksouthey@activision.com

mlataif@activision.com

 

6



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

Product sales

 

$

727

 

$

798

 

$

1,717

 

$

1,672

 

Subscription, licensing and other revenues (1)

 

323

 

277

 

658

 

575

 

Total net revenues

 

1,050

 

1,075

 

2,375

 

2,247

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales - product costs

 

179

 

229

 

440

 

486

 

Cost of sales - online subscriptions

 

54

 

71

 

111

 

140

 

Cost of sales - software royalties and amortization

 

38

 

57

 

99

 

88

 

Cost of sales - intellectual property licenses

 

14

 

20

 

52

 

27

 

Product development

 

123

 

145

 

247

 

259

 

Sales and marketing

 

116

 

136

 

223

 

216

 

General and administrative

 

96

 

190

 

186

 

291

 

Total costs and expenses

 

620

 

848

 

1,358

 

1,507

 

Operating income

 

430

 

227

 

1,017

 

740

 

Investment and other income (expense), net

 

 

2

 

3

 

3

 

Income before income tax expense

 

430

 

229

 

1,020

 

743

 

Income tax expense

 

106

 

44

 

240

 

174

 

Net income

 

$

324

 

$

185

 

$

780

 

$

569

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.28

 

$

0.16

 

$

0.68

 

$

0.50

 

Weighted average common shares outstanding

 

1,118

 

1,109

 

1,116

 

1,115

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share (2)

 

$

0.28

 

$

0.16

 

$

0.68

 

$

0.50

 

Weighted average common shares outstanding assuming dilution

 

1,127

 

1,115

 

1,124

 

1,121

 

 


(1) Subscription, licensing and other revenues represents revenues from World of Warcraft subscriptions, Call of Duty Elite memberships, licensing royalties from our products and franchises, value-added services, downloadable content, and other miscellaneous revenues.

(2) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. We had, on a weighted-average basis, participating securities of approximately 24 million and 25 million for the three and six months ended June 30, 2013, respectively. We had, on a weighted-average basis, participating securities of approximately 24 million and 22 million for the three and six months ended June 30, 2012, respectively.  Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $318 million and $764 million for the three and six months ended June 30, 2013 as compared to the total net income of $324 million and $780 million for the same periods, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $181 million and $558 million for the three and six months ended June 30, 2012 as compared to total net income of $185 million and $569 million for the same periods, respectively.

 

7



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

4,341

 

$

3,959

 

Short-term investments

 

205

 

416

 

Accounts receivable, net

 

117

 

707

 

Inventories, net

 

131

 

209

 

Software development

 

304

 

164

 

Intellectual property licenses

 

11

 

11

 

Deferred income taxes, net

 

335

 

487

 

Other current assets

 

185

 

321

 

Total current assets

 

5,629

 

6,274

 

Long-term investments

 

9

 

8

 

Software development

 

35

 

129

 

Intellectual property licenses

 

 

30

 

Property and equipment, net

 

132

 

141

 

Other assets

 

10

 

11

 

Intangible assets, net

 

61

 

68

 

Trademark and trade names

 

433

 

433

 

Goodwill

 

7,102

 

7,106

 

Total assets

 

$

13,411

 

$

14,200

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

139

 

$

343

 

Deferred revenues

 

665

 

1,657

 

Accrued expenses and other liabilities

 

389

 

652

 

Total current liabilities

 

1,193

 

2,652

 

Deferred income taxes, net

 

77

 

25

 

Other liabilities

 

206

 

206

 

Total liabilities

 

1,476

 

2,883

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock

 

 

 

Additional paid-in capital

 

9,541

 

9,450

 

Retained earnings

 

2,456

 

1,893

 

Accumulated other comprehensive income (loss)

 

(62

)

(26

)

Total shareholders’ equity

 

11,935

 

11,317

 

Total liabilities and shareholders’ equity

 

$

13,411

 

$

14,200

 

 

8


 

 


 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)

 

Three months ended June 30, 2013

 

 

Net Revenues

 

Cost of Sales -
Product Costs

 

Cost of Sales -
Online
Subscriptions

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

$

1,050

 

$

179

 

$

54

 

$

38

 

$

14

 

$

123

 

$

116

 

$

96

 

$

620

 

Less: Net effect from deferral in net revenues and related cost of sales

(a)

 

(442

)

(77

)

 

(26

)

(1

)

 

 

 

(104

)

Less: Stock-based compensation

(b)

 

 

 

 

(3

)

 

(7

)

(2

)

(12

)

(24

)

Less: Amortization of intangible assets

(c)

 

 

 

 

 

(3

)

 

 

 

(3

)

Non-GAAP Measurement

 

 

$

608

 

$

102

 

$

54

 

$

9

 

$

10

 

$

116

 

$

114

 

$

84

 

$

489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2013

 

 

Operating
Income

 

Net Income

 

Basic
Earnings per
Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

$

430

 

$

324

 

$

0.28

 

$

0.28

 

 

 

 

 

 

 

 

 

 

 

Less: Net effect from deferral in net revenues and related cost of sales

(a)

 

(338

)

(251

)

(0.22

)

(0.22

)

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

(b)

 

24

 

15

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

(c)

 

3

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

$

119

 

$

90

 

$

0.08

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2013

 

 

Net Revenues

 

Cost of Sales -
Product Costs

 

Cost of Sales -
Online
Subscriptions

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

$

2,375

 

$

440

 

$

111

 

$

99

 

$

52

 

$

247

 

$

223

 

$

186

 

$

1,358

 

Less: Net effect from deferral in net revenues and related cost of sales

(a)

 

(962

)

(192

)

 

(60

)

(3

)

 

 

 

(255

)

Less: Stock-based compensation

(b)

 

 

 

 

(8

)

 

(13

)

(4

)

(25

)

(50

)

Less: Amortization of intangible assets

(c)

 

 

 

 

 

(6

)

 

 

 

(6

)

Non-GAAP Measurement

 

 

$

1,413

 

$

248

 

$

111

 

$

31

 

$

43

 

$

234

 

$

219

 

$

161

 

$

1,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2013

 

 

Operating
Income

 

Net Income

 

Basic
Earnings per
Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

$

1,017

 

$

780

 

$

0.68

 

$

0.68

 

 

 

 

 

 

 

 

 

 

 

Less: Net effect from deferral in net revenues and related cost of sales

(a)

 

(707

)

(528

)

(0.46

)

(0.46

)

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

(b)

 

50

 

32

 

0.03

 

0.03

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

(c)

 

6

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

$

366

 

$

288

 

$

0.25

 

$

0.25

 

 

 

 

 

 

 

 

 

 

 

 


(a) Reflects the net change in deferred net revenues and related cost of sales.

(b) Includes expense related to stock-based compensation.

(c) Reflects amortization of intangible assets from purchase price accounting.

 

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $88 million and $282 million for the three and six months ended June 30, 2013 as compared to the total non-GAAP net income of $90 million and $288 million for the same periods, respectively.

 

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.

 

9



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)

 

Three months ended June 30, 2012

 

 

Net Revenues

 

Cost of Sales -
Product Costs

 

Cost of Sales -
Online
Subscriptions

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

$

1,075

 

$

229

 

$

71

 

$

57

 

$

20

 

$

145

 

$

136

 

$

190

 

$

848

 

Less: Net effect from deferral in net revenues and related cost of sales

(a)

 

(21

)

(61

)

 

 

 

 

 

 

(61

)

Less: Stock-based compensation

(b)

 

 

 

 

(3

)

 

(5

)

(1

)

(22

)

(31

)

Less: Amortization of intangible assets

(c)

 

 

 

 

 

(2

)

 

 

 

(2

)

Non-GAAP Measurement

 

 

$

1,054

 

$

168

 

$

71

 

$

54

 

$

18

 

$

140

 

$

135

 

$

168

 

$

754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2012

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

$

227

 

$

185

 

$

0.16

 

$

0.16

 

 

 

 

 

 

 

 

 

 

 

Less: Net effect from deferral in net revenues and related cost of sales

(a)

 

40

 

17

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

(b)

 

31

 

21

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

(c)

 

2

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

$

300

 

$

224

 

$

0.20

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2012

 

 

Net Revenues

 

Cost of Sales -
Product Costs

 

Cost of Sales -
Online
Subscriptions

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

$

2,247

 

$

486

 

$

140

 

$

88

 

$

27

 

$

259

 

$

216

 

$

291

 

$

1,507

 

Less: Net effect from deferral in net revenues and related cost of sales

(a)

 

(606

)

(181

)

 

(17

)

(1

)

 

 

 

(199

)

Less: Stock-based compensation

(b)

 

 

 

 

(6

)

 

(9

)

(4

)

(33

)

(52

)

Less: Amortization of intangible assets

(c)

 

 

 

 

 

(5

)

 

 

 

(5

)

Non-GAAP Measurement

 

 

$

1,641

 

$

305

 

$

140

 

$

65

 

$

21

 

$

250

 

$

212

 

$

258

 

$

1,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2012

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

$

740

 

$

569

 

$

0.50

 

$

0.50

 

 

 

 

 

 

 

 

 

 

 

Less: Net effect from deferral in net revenues and related cost of sales

(a)

 

(407

)

(317

)

(0.28

)

(0.28

)

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

(b)

 

52

 

36

 

0.03

 

0.03

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

(c)

 

5

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

$

390

 

$

291

 

$

0.26

 

$

0.25

 

 

 

 

 

 

 

 

 

 

 

 


(a) Reflects the net change in deferred net revenues and related cost of sales.

(b) Includes expense related to stock-based compensation.

(c) Reflects amortization of intangible assets from purchase price accounting.

 

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $219 million and $285 million for the three and six months ended June 30, 2012 as compared to total non-GAAP net income of $224 million and $291 million for the same periods, respectively.

 

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.

 

10



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three And Six Months Ended June 30, 2013 and 2012

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

June 30, 2013

 

June 30, 2012

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total(4)

 

Amount

 

% of Total(4)

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

626

 

60

%

$

685

 

64

%

$

(59

)

(9

)%

Digital online channels(1)

 

387

 

37

 

343

 

32

 

44

 

13

 

Total Activision and Blizzard

 

1,013

 

96

 

1,028

 

96

 

(15

)

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

37

 

4

 

47

 

4

 

(10

)

(21

)

Total consolidated GAAP net revenues

 

1,050

 

100

 

1,075

 

100

 

(25

)

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Net Revenues (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

(438

)

 

 

(175

)

 

 

 

 

 

 

Digital online channels(1)

 

(4

)

 

 

154

 

 

 

 

 

 

 

Total changes in deferred net revenues

 

(442

)

 

 

(21

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

188

 

31

 

510

 

48

 

(322

)

(63

)

Digital online channels(1)

 

383

 

63

 

497

 

47

 

(114

)

(23

)

Total Activision and Blizzard

 

571

 

94

 

1,007

 

96

 

(436

)

(43

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

37

 

6

 

47

 

4

 

(10

)

(21

)

Total non-GAAP net revenues(3)

 

$

608

 

100

%

$

1,054

 

100

%

$

(446

)

(42

)%

 

 

 

Six Months Ended

 

 

 

June 30, 2013

 

June 30, 2012

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total(4)

 

Amount

 

% of Total(4)

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

1,522

 

64

%

$

1,479

 

66

%

$

43

 

3

%

Digital online channels(1)

 

765

 

32

 

656

 

29

 

109

 

17

 

Total Activision and Blizzard

 

2,287

 

96

 

2,135

 

95

 

152

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

88

 

4

 

112

 

5

 

(24

)

(21

)

Total consolidated GAAP net revenues

 

2,375

 

100

 

2,247

 

100

 

128

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Net Revenues (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

(1,009

)

 

 

(746

)

 

 

 

 

 

 

Digital online channels(1)

 

47

 

 

 

140

 

 

 

 

 

 

 

Total changes in deferred net revenues

 

(962

)

 

 

(606

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

513

 

36

 

733

 

45

 

(220

)

(30

)

Digital online channels(1)

 

812

 

57

 

796

 

49

 

16

 

2

 

Total Activision and Blizzard

 

1,325

 

94

 

1,529

 

93

 

(204

)

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

88

 

6

 

112

 

7

 

(24

)

(21

)

Total non-GAAP net revenues(3)

 

$

1,413

 

100

%

$

1,641

 

100

%

$

(228

)

(14

)%

 


(1) Net revenues from digital online channel represent revenues from subscriptions and memberships, licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.

(2) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.

(3) Total non-GAAP net revenues presented also represents our total operating segment net revenues.

(4) The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.

 

11



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three Months Ended June 30, 2013 and 2012

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

June 30, 2013

 

June 30, 2012

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total(6)

 

Amount

 

% of Total(6)

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

$

233

 

22

%

$

220

 

20

%

$

13

 

6

%

PC

 

100

 

10

 

151

 

14

 

(51

)

(34

)

Sony PlayStation 3

 

265

 

25

 

234

 

22

 

31

 

13

 

Microsoft Xbox 360

 

307

 

29

 

248

 

23

 

59

 

24

 

Nintendo Wii and Wii U

 

18

 

2

 

32

 

3

 

(14

)

(44

)

Total console(2)

 

590

 

56

 

514

 

48

 

76

 

15

 

Other(5)

 

90

 

9

 

143

 

13

 

(53

)

(37

)

Total Activision and Blizzard

 

1,013

 

96

 

1,028

 

96

 

(15

)

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

37

 

4

 

47

 

4

 

(10

)

(21

)

Total consolidated GAAP net revenues

 

1,050

 

100

 

1,075

 

100

 

(25

)

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Net Revenues (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

(39

)

 

 

(21

)

 

 

 

 

 

 

PC

 

(57

)

 

 

314

 

 

 

 

 

 

 

Sony PlayStation 3

 

(166

)

 

 

(137

)

 

 

 

 

 

 

Microsoft Xbox 360

 

(175

)

 

 

(162

)

 

 

 

 

 

 

Nintendo Wii and Wii U

 

(5

)

 

 

(12

)

 

 

 

 

 

 

Total console(2)

 

(346

)

 

 

(311

)

 

 

 

 

 

 

Other(5)

 

 

 

 

(3

)

 

 

 

 

 

 

Total changes in deferred net revenues

 

(442

)

 

 

(21

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

194

 

32

 

199

 

19

 

(5

)

(3

)

PC

 

43

 

7

 

465

 

44

 

(422

)

(91

)

Sony PlayStation 3

 

99

 

16

 

97

 

9

 

2

 

2

 

Microsoft Xbox 360

 

132

 

22

 

86

 

8

 

46

 

53

 

Nintendo Wii and Wii U

 

13

 

2

 

20

 

2

 

(7

)

(35

)

Total console(2)

 

244

 

40

 

203

 

19

 

41

 

20

 

Other(5)

 

90

 

15

 

140

 

13

 

(50

)

(36

)

Total Activision and Blizzard

 

571

 

94

 

1,007

 

96

 

(436

)

(43

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

37

 

6

 

47

 

4

 

(10

)

(21

)

Total non-GAAP net revenues(4)

 

$

608

 

100

%

$

1,054

 

100

%

$

(446

)

(42

)%

 


(1) Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.  It also includes revenues from Call of Duty Elite memberships.

(2) Downloadable content and their related revenues are included in each respective console platforms and total console.

(3) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.

(4) Total non-GAAP net revenues presented also represents our total operating segment net revenues.

(5) Revenue from other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.

(6) The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.

 

12



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Six Months Ended June 30, 2013 and 2012

(Amounts in millions)

 

 

 

Six Months Ended

 

 

 

June 30, 2013

 

June 30, 2012

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total(6)

 

Amount

 

% of Total(6)

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

$

508

 

21

%

$

475

 

21

%

$

33

 

7

%

PC

 

195

 

8

 

198

 

9

 

(3

)

(2

)

Sony PlayStation 3

 

609

 

26

 

536

 

24

 

73

 

14

 

Microsoft Xbox 360

 

689

 

29

 

584

 

26

 

105

 

18

 

Nintendo Wii and Wii U

 

41

 

2

 

83

 

4

 

(42

)

(51

)

Total console(2)

 

1,339

 

56

 

1,203

 

54

 

136

 

11

 

Other(5)

 

245

 

10

 

259

 

12

 

(14

)

(5

)

Total Activision and Blizzard

 

2,287

 

96

 

2,135

 

95

 

152

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

88

 

4

 

112

 

5

 

(24

)

(21

)

Total consolidated GAAP net revenues

 

2,375

 

100

 

2,247

 

100

 

128

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Net Revenues (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

(85

)

 

 

(27

)

 

 

 

 

 

 

PC

 

(29

)

 

 

292

 

 

 

 

 

 

 

Sony PlayStation 3

 

(416

)

 

 

(400

)

 

 

 

 

 

 

Microsoft Xbox 360

 

(421

)

 

 

(439

)

 

 

 

 

 

 

Nintendo Wii and Wii U

 

(10

)

 

 

(26

)

 

 

 

 

 

 

Total console(2)

 

(847

)

 

 

(865

)

 

 

 

 

 

 

Other(5)

 

(1

)

 

 

(6

)

 

 

 

 

 

 

Total changes in deferred net revenues

 

(962

)

 

 

(606

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

423

 

30

 

448

 

27

 

(25

)

(6

)

PC

 

166

 

12

 

490

 

30

 

(324

)

(66

)

Sony PlayStation 3

 

193

 

14

 

136

 

8

 

57

 

42

 

</