Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: 8-K, Received: 05/06/2014 16:13:45)

 

 

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):  May 6, 2014

 

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 May 6, 2014, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter ended March 31, 2014.  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 May 6, 2014 (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: May 6, 2014

ACTIVISION BLIZZARD, INC.

 

 

 

 

 

By:

/s/ Dennis Durkin

 

 

Dennis Durkin

 

 

Chief Financial Officer

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

99.1

 

Press Release dated May 6, 2014 (furnished not filed)

 

4


Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES BETTER-THAN-EXPECTED

FIRST QUARTER 2014 FINANCIAL RESULTS

 

Company Delivered Record Q1 Non-GAAP Digital Revenues and

Record Q1 Non-GAAP EPS

 

Company Increases CY 2014 Full-Year Revenue and EPS Outlook

 

Santa Monica, CA – May 6, 2014 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the first quarter of 2014.

 

 

 

First Quarter

 

(in millions, except EPS)

 

2014

 

Prior    
Outlook*

 

2013

 

 

 

 

 

 

 

 

 

GAAP

 

 

 

 

 

 

 

Net Revenues

 

$

1,111

 

$

885

 

$

1,324

 

EPS

 

$

0.40

 

$

0.15

 

$

0.40

 

Non-GAAP

 

 

 

 

 

 

 

 Net Revenues

 

$

772

 

$

675

 

$

804

 

 EPS

 

$

0.19

 

$

0.09

 

$

0.17

 

 

*Prior Outlook was provided by the company on February 6, 2014 in its earnings release

 

For the quarter ended March 31, 2014, Activision Blizzard’s GAAP net revenues were $1.11 billion, as compared with $1.32 billion for the first quarter of 2013.   On a non-GAAP basis, the company’s net revenues were $772 million, as compared with $804 million for the first quarter of 2013.  For the first quarter, GAAP net revenues from digital channels represented 34% of the company’s total revenues.  On a non-GAAP basis, net revenues from digital channels were a record 68%.

 

For the quarter ended March 31, 2014, Activision Blizzard’s GAAP earnings per diluted share were $0.40, as compared with $0.40 for the first quarter of 2013.  On a non-GAAP basis, the company’s earnings per diluted share were a record $0.19, as compared with $0.17 for the first quarter of 2013.  Our Q1 GAAP results were higher-than-anticipated due to better-than-expected operating performance in an amount about equal to our non-GAAP over performance and a recently identified forecast miscalculation with regard to deferred revenue recognition in our previous GAAP outlook, which accounted for the balance of the GAAP over delivery.

 

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 Blizzard Announces Q1 2014 Earnings Results

 

Bobby Kotick , Chief Executive Officer, Activision Blizzard, said, “Our better-than-expected performance was driven by record digital sales in Blizzard Entertainment’s franchises, including World of Warcraft®, Diablo ® , and Hearthstone™ : Heroes of Warcraft™, a new free-to-play game which had already registered more than 10 million users as of its March 11, 2014 launch on Windows® and Mac®, in addition to Activision Publishing’s Skylanders™ and Call of Duty® franchises.  For the first quarter, net revenues from non-GAAP digital channels accounted for more than 68% of our revenues, setting a new quarterly record and driving record non-GAAP Q1 operating margin and record non-GAAP Q1 EPS. Additionally, we are raising our full year outlook and expect to grow our non-GAAP revenues year over year and deliver record non-GAAP earnings per share.”

 

Kotick added, “We have a strong product pipeline for the balance of the year, beginning with the September 9 th  planned launch of Destiny, which we believe could become our next billion dollar franchise and the largest new videogame IP launch in history. Activision Publishing also recently announced that Skylanders: Trap Team and Call of Duty: Advanced Warfare are expected to be released on October 5 and November 4, respectively .   In addition to plans for new content for Hearthstone: Heroes of Warcraft and the release of Diablo III: Ultimate Evil Edition™ on console later this year, Blizzard Entertainment expects to launch World of Warcraft: Warlords of Draenor™, which is already one of the fastest selling expansions in the franchise’s history based on pre-sales, in the second half of 2014.”

 

Kotick continued, “With our leading franchises, incredibly talented employees, scale and deep financial resources, we are well positioned to continue driving innovation and delivering the world’s best games along with strong financial performance.”

 

Selected Business Highlights:

 

·                   For the first quarter of 2014, in North America and Europe combined, Activision Publishing had the #1 and #2 best-selling  titles– Skylanders SWAP Force and Call of Duty: Ghosts

 

·                   In North America and Europe combined, Activision Publishing’s Skylanders SWAP Force™ was the #1 best-selling kids game overall in dollars for the first quarter of 2014. 1

 

·                   For the first quarter, Blizzard Entertainment had the #1 PC title in dollars in both North America and Europe with Diablo III: Reaper of Souls™. 2

 

·                   On March 10, 2014, Blizzard Entertainment announced that players who pre-purchase either the digital Standard Edition or Digital Deluxe Edition of World of Warcraft’s upcoming expansion, Warlords of Draenor , will be able to immediately boost one character of their choosing to level 90, allowing them to experience the latest content alongside their friends. 3   Players who wish to boost multiple characters to level 90 also now have the option to purchase additional level-90 character boosts directly through the game at $60 apiece.  Additionally, Blizzard announced that Warlords of Draenor will be released no later than December 20, 2014.

 

2



 

Activision Blizzard Announces Q1 2014 Earnings Results

 

·                   On March 11, 2014, Blizzard Entertainment announced the launch of Hearthstone: Heroes of Warcraft , a new cross-platform free-to-play digital card game for Windows and Mac.

 

·                   On March 25, 2014, Blizzard Entertainment announced that players the world over launched a crusade against Malthael, the angel of Death, with the release of Diablo III: Reaper of Souls for Windows and Mac. As of the first week of the expansion’s availability, more than 2.7 million copies had sold-through online and at retailers worldwide. 4

 

·                   As of March 31, 2014, Blizzard Entertainment’s World of Warcraft remains the #1 subscription-based MMORPG, with approximately 7.6 million subscribers. 5

 

Company Outlook

 

On April 3, 2014, Activision Publishing released Devastation , the latest DLC Pack for Call of Duty: Ghosts, exclusively on Xbox Live for both Xbox One and Xbox 360.  The company expects to release Devastation for other platforms later in the quarter.

 

On April 2, 2014, Blizzard Entertainment released Hearthstone: Heroes of Warcraft on iPad ®  in Canada, Australia, and New Zealand.  Blizzard made the game available through the iPad App Store for the rest of the world on April 16, 2014.

 

Based on its first-quarter results , Activision Blizzard is raising its outlook for calendar year 2014, as follows:

 

(in millions, except EPS)

 

GAAP
Outlook

 

Prior*
GAAP
Outlook

 

Non-GAAP
Outlook

 

Prior*
Non-GAAP
Outlook

 

 

 

 

 

 

 

 

 

 

 

CY 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net Revenues

 

$

4,220

 

$

4,000

 

$

4,675

 

$

4,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  EPS

 

$

0. 89

 

$

0.76

 

$

1.27

 

$

1.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fully Diluted Shares**

 

750

 

750

 

750

 

750

 

 

 

 

 

 

 

 

 

 

 

Q2 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net Revenues

 

$

910

 

n/a

 

$

600

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  EPS

 

$

0.22

 

n/a

 

$

0.01

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fully Diluted Shares**

 

745

 

n/a

 

745

 

n/a

 

 

* Prior Outlook was provided by the company on February 6, 2014 in its earnings release

 

* * Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis

 

3



 

Activision Blizzard Announces Q1 2014 Earnings Results

 

The increase in Activision Blizzard’s GAAP outlook for 2014 is a result of the company’s actual Q1 GAAP performance (which was higher than its prior Q1 GAAP outlook for the reasons cited on the first page of this press release), as well as the company’s current expectations for the remainder of the year.

 

Debt Repayment and Cash Dividend

 

Activision Blizzard repaid $375 million of its outstanding Term Loan B on February 11, 2014.  Additionally, the company will pay a cash dividend of $0.20 per common share on May 14, 2014 to shareholders of record at the close of business on March 19, 2014.

 

Conference Call

 

Today at 4:30 p.m. EST, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter ended March 31, 2014 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 888-312-9863 in the U.S. with passcode 6972116.

 

About Activision Blizzard

 

Activision Blizzard, Inc. is the largest and most profitable independent western 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, Activision Blizzard maintains operations throughout the United States, Europe, and Asia. It 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, GfK Chart-Track and Activision Blizzard internal estimates, including toys and accessories

2  According to The NPD Group and GfK Chart-Track

3  Players upgrading to Warlords of Draenor from World of Warcraft Starter Edition must wait until trial restrictions are removed before character boost becomes available (may take up to 72 hours).

4  According to The NPD Group, GfK Chart-Track and Activision Blizzard internal estimates

5  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.

 

 

4



 

Activision Blizzard Announces Q1 2014 Earnings Results

 

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. In addition, Activision Blizzard provides EBITDA (defined as GAAP net income (loss) before interest (income) expense, income taxes, depreciation and amortization) and adjusted EBITDA (defined as non-GAAP operating margin (see non-GAAP financial measure below) before depreciation).  The non-GAAP financial measures exclude the following items, as applicable in any given reporting period:

 

·                   the change in deferred revenues 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;

·                   fees and other expenses related to the acquisition of 429 million shares of our common stock on October 11, 2013 from Vivendi, pursuant to the stock purchase agreement dated July 25, 2013 and the $4.75 billion debt financings related thereto; 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, and measuring compliance with the requirements of the company’s debt financing agreements, 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, non-GAAP operating margin, and non-GAAP or adjusted EBITDA 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 revenues and related cost of sales with respect to certain of the company’s online-enabled games.

 

5



 

Activision Blizzard Announces Q1 2014 Earnings Results

 

 

 

 

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 revenues 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 revenues 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 revenues 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.  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 macroeconomic environment, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres such as first-person action, “toys to life” 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 ongoing 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, financing providers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality 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 recently completed transactions with Vivendi may not materialize as expected, the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt, and the other  factors  identified in the risk factors section of Activision Blizzard’s most recent annual report on Form 10-K.   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.

 

###

 

6



 

Activision Blizzard Announces Q1 2014 Earnings Results

 

 

 

 

For Information Contact:

 

Kristin Southey

Maryanne Lataif

SVP, Investor Relations and Treasury

SVP, Corporate Communications

(310) 255-2635

(310) 255-2704

ksouthey@activision.com

mlataif@activision.com

 

7



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

(Amounts in millions, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

Product sales

 

$

769

 

  $

990

 

Subscription, licensing and other revenues 1

 

342

 

334

 

Total net revenues

 

1,111

 

1,324

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Cost of sales - product costs

 

225

 

260

 

Cost of sales - online

 

58

 

57

 

Cost of sales - software royalties and amortization

 

57

 

61

 

Cost of sales - intellectual property licenses

 

2

 

38

 

Product development

 

143

 

125

 

Sales and marketing

 

104

 

107

 

General and administrative

 

95

 

89

 

Total costs and expenses

 

684

 

737

 

Operating income

 

427

 

587

 

Interest and other investment income (expense), net

 

(51

)

2

 

Income before income tax expense

 

376

 

589

 

Income tax expense

 

83

 

133

 

Net income

 

$

293

 

  $

456

 

 

 

 

 

 

 

Basic earnings per common share 2

 

$

0.40

 

  $

0.40

 

Weighted average common shares outstanding

 

709

 

1,113

 

 

 

 

 

 

 

Diluted earnings per common share 2

 

$

0.40

 

  $

0.40

 

Weighted average common shares outstanding assuming dilution

 

720

 

1,120

 

 

 

 

 

 

 

 

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 17 million and 26 million for the three months ended March 31, 2014 and 2013, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $285 million for the three months ended March 31, 2014 as compared to total net income of $293 million for the same period. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $446 million for the three months ended March 31, 2013 as compared to total net income of $456 million for the same period.

 

8



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

(Amounts in millions)

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

4,279

 

$

4,410

 

Short-term investments

 

8

 

33

 

Accounts receivable, net

 

219

 

510

 

Inventories, net

 

158

 

171

 

Software development

 

361

 

367

 

Intellectual property licenses

 

12

 

11

 

Deferred income taxes, net

 

336

 

321

 

Other current assets

 

321

 

418

 

Total current assets

 

5,694

 

6,241

 

Long-term investments

 

9

 

9

 

Software development

 

44

 

21

 

Property and equipment, net

 

152

 

138

 

Other assets

 

66

 

35

 

Intangible assets, net

 

41

 

43

 

Trademark and trade names

 

433

 

433

 

Goodwill

 

7,089

 

7,092

 

Total assets

 

$

13,528

 

$

14,012

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

166

 

$

355

 

Deferred revenues

 

1,092

 

1,389

 

Accrued expenses and other liabilities

 

635

 

636

 

Current portion of long-term debt

 

---

25

 

Total current liabilities

 

1,893

 

2,405

 

Long-term debt, net

 

4,320

 

4,668

 

Deferred income taxes, net

 

86

 

66

 

Other liabilities

 

305

 

251

 

Total liabilities

 

6,604

 

7,390

 

Shareholders’ equity:

 

 

 

 

 

Common stock

 

---

---

Additional paid-in capital

 

9,812

 

9,682

 

Treasury stock

 

(5,783

)

(5,814

)

Retained earnings

 

2,832

 

2,686

 

Accumulated other comprehensive income

 

63

 

68

 

Total shareholders’ equity

 

6,924

 

6,622

 

Total liabilities and shareholders’ equity

 

$

13,528

 

$

14,012

 

 

 

 

 

 

 

 

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 March 31, 2014

 

Net Revenues

Cost of Sales -
Product Costs

Cost of Sales -
Online

Cost of Sales -
Software Royalties
and Amortization

Cost of Sales -
Intellectual
Property Licenses

Product
Development

Sales and
Marketing

General and
Administrative

Total Costs and
Expenses

GAAP Measurement

 

       $

1,111

     $

225

     $

58

     $

57

     $

2

     $

143

     $

104

     $

95

     $

684

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

(a)  

(339)

(95)

-

(25)

-

-

-

-

(120)

Less: Stock-based compensation

(b)  

-

-

-

(7)

-

(8)

(2)

(13)

(30)

Less: Amortization of intangible assets

(c)  

-

-

-

-

(2)

-

-

-

(2)

Non-GAAP Measurement

 

       $

772

     $

130

     $

58

     $

25

     $

-

     $

135

     $

102

     $

82

     $

532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2014

 

Operating
Income

Net Income

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

       $

427

     $

293

     $

0.40

     $

0.40

 

 

 

 

 

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

(a)  

(219)

(171)

(0.24)

(0.23)

 

 

 

 

 

Less: Stock-based compensation

(b)  

30

18

0.03

0.02

 

 

 

 

 

Less: Amortization of intangible assets

(c)  

2

1

-

-

 

 

 

 

 

Non-GAAP Measurement

 

       $

240

     $

141

     $

0.19

     $

0.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2013

 

Net Revenues

Cost of Sales-
Product Costs

Cost of Sales-
Online

Cost of Sales-
Software Royalties
and Amortization

Cost of Sales-
Intellectual
Property Licenses

Product
Development

Sales and
Marketing

General and
Administrative

Total Costs and
Expenses

GAAP Measurement

 

    $

1,324

     $

260

     $

57

     $

61

     $

38

     $

125

     $

107

     $

89

     $

737

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

(a)  

(520)

(115)

-

(33)

(3)

-

 -

 -

(151)

Less: Stock-based compensation

(b)  

-

-

-

(5)

-

(7)

(2)

(12)

(26)

Less: Amortization of intangible assets

(c)  

-

-

-

-

(3)

-

-

-

(3)

Non-GAAP Measurement

 

$

804

     $

145

     $

57

     $

23

     $

32

     $

118

     $

105

     $

77

     $

557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2013

 

Operating
Income

Net Income

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

     $

587

     $

456

     $

0.40

     $

 0.40

 

 

 

 

 

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

(a)  

(369)

(277)

(0.24)

(0.24)

 

 

 

 

 

Less: Stock-based compensation

(b)  

26

18

0.02

0.02

 

 

 

 

 

Less: Amortization of intangible assets

(c)  

3

2

-

-

 

 

 

 

 

Non-GAAP Measurement

 

      $

247

      $

199

      $

0.17

      $

  0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Reflects the net change in deferred 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 $136 million for the three months ended March 31, 2014 as compared to total non-GAAP net income of $141 million for the same period. Net income attributable to Activision Blizzard common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $194 million for the three months ended March 31, 2013 as compared to total non-GAAP net income of $199 million for the same period.

 

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 Months Ended March 31, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

March 31, 2014

 

March 31, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 4

 

Amount

 

% of Total 4

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

659

 

59

%

$

896

 

68

%

$

(237)

 

(26)

%

Digital online channels

 

379

 

34

 

377

 

28

 

2

 

1

 

Total Activision and Blizzard

 

1,038

 

93

 

1,273

 

96

 

(235)

 

(18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

73

 

7

 

51

 

4

 

22

 

43

 

Total consolidated GAAP net revenues

 

1,111

 

100

 

1,324

 

100

 

(213)

 

(16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

(487)

 

 

 

(572)

 

 

 

 

 

 

 

Digital online channels

 

148

 

 

 

52

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(339)

 

 

 

(520)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

172

 

22

 

324

 

40

 

(152)

 

(47)

 

Digital online channels

 

527

 

68

 

429

 

53

 

98

 

23

 

Total Activision and Blizzard

 

699

 

91

 

753

 

94

 

(54)

 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

73

 

9

 

51

 

6

 

22

 

43

 

Total non-GAAP net revenues

 

$

772

 

100

%

$

804

 

100

%

$

(32)

 

(4)

%

 

1  Net revenues from digital online channels 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 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 March 31, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

March 31, 2014

 

March 31, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 6

 

Amount

 

% of Total 6

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

201

 

18

 

275

 

21

 

(74)

 

(27)

 

PC

 

100

 

9

 

93

 

7

 

7

 

8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

108

 

10

 

7

 

1

 

101

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

546

 

49

 

742

 

56

 

(196)

 

(26)

 

Total console

 

654

 

59

 

749

 

57

 

(95)

 

(13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other

 

83

 

7

 

156

 

12

 

(73)

 

(47)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

1,038

 

93

 

1,273

 

96

 

(235)

 

(18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

73

 

7

 

51

 

4

 

22

 

43

 

Total consolidated GAAP net revenues

 

1,111

 

100

 

1,324

 

100

 

(213)

 

(16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

26

 

 

 

(47)

 

 

 

 

 

 

 

PC

 

139

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

(76)

 

 

 

(4)

 

 

 

 

 

 

 

Current-generation (PS3, Xbox 360, Wii)

 

(428)

 

 

 

(497)

 

 

 

 

 

 

 

Total console

 

(504)

 

 

 

(501)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other

 

---

 

 

 

---

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(339)

 

 

 

(520)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

227

 

29

 

228

 

28

 

(1)

 

(0)

 

PC

 

239

 

31

 

121

 

15

 

118

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

32

 

4

 

3

 

---

 

29

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

118

 

15

 

245

 

30

 

(127)

 

(52)

 

Total console

 

150

 

19

 

248

 

31

 

(98)

 

(40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other

 

83

 

11

 

156

 

19

 

(73)

 

(47)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

699

 

91

 

753

 

94

 

(54)

 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

73

 

9

 

51

 

6

 

22

 

43

 

Total consolidated non-GAAP net revenues

 

772

 

100

 

804

 

100

 

(32)

 

(4)

%

 

1  Revenues from online consists of revenues 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  Revenues from mobile and 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 Three Months Ended March 31, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

March 31, 2014

 

March 31, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 3

 

Amount

 

% of Total 3

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Geographic Region

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

563

 

51

%

$

738

 

56

%

$

(175)

 

(24)

%

Europe

 

462

 

42

 

487

 

37

 

(25)

 

(5)

 

Asia Pacific

 

86

 

8

 

99

 

7

 

(13)

 

(13)

 

Total consolidated GAAP net revenues

 

1,111

 

100

 

1,324

 

100

 

(213)

 

(16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

(233)

 

 

 

(315)

 

 

 

 

 

 

 

Europe

 

(125)

 

 

 

(169)

 

 

 

 

 

 

 

Asia Pacific

 

19

 

 

 

(36)

 

 

 

 

 

 

 

Total changes in net revenues

 

(339)

 

 

 

(520)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Geographic Region

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

330

 

43

 

423

 

53

 

(93)

 

(22)

 

Europe

 

337

 

44

 

318

 

40

 

19

 

6

 

Asia Pacific

 

105

 

14

 

63

 

8

 

42

 

67

 

Total non-GAAP net revenues

 

$

772

 

100

%

$

804

 

100

%

$

(32)

 

(4)

%

 

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

2  Total non-GAAP net revenues presented also represents our total operating segment net revenues.

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

 

13



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

For the Three Months Ended March 31, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

March 31, 2014

 

March 31, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 4

 

Amount

 

% of Total 4

 

(Decrease)

 

(Decrease)

 

Segment net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision

 

$

237

 

31

%

$

423

 

53

%

$

(186)

 

(44)

%

Blizzard

 

462

 

60

 

330

 

41

 

132

 

40

 

Distribution

 

73

 

9

 

51

 

6

 

22

 

43

 

Operating segment total

 

772

 

100

%

804

 

100

%

(32)

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation to consolidated net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect from deferral of net revenues

 

339

 

 

 

520

 

 

 

 

 

 

 

Consolidated net revenues

 

$

1,111

 

 

 

$

1,324

 

 

 

$

(213)

 

(16)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment income from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision

 

$

2

 

 

 

$

112

 

 

 

$

(110)

 

(98)

%

Blizzard

 

239

 

 

 

135

 

 

 

104

 

77

 

Distribution

 

(1)

 

 

 

---

 

 

 

(1)

 

---

 

Operating segment total

 

240

 

 

 

247

 

 

 

(7)

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation to consolidated operating income and consolidated income before income tax expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

219

 

 

 

369

 

 

 

 

 

 

 

Stock-based compensation expense

 

(30)

 

 

 

(26)

 

 

 

 

 

 

 

Amortization of intangible assets

 

(2)

 

 

 

(3)

 

 

 

 

 

 

 

Consolidated operating income

 

427

 

 

 

587

 

 

 

(160)

 

(27)

 

Interest and other investment income (expense), net

 

(51)

 

 

 

2

 

 

 

 

 

 

 

Consolidated income before income tax expense

 

$

376

 

 

 

$

589

 

 

 

$

(213)

 

(36)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin from total operating segments

 

31.1

%

 

 

30.7

%

 

 

 

 

 

 

 

1  Activision Publishing (“Activision”) — publishes interactive entertainment products and contents.

 

2  Blizzard — Blizzard Entertainment, Inc. and its subsidiaries (“Blizzard”) publishes PC games and online subscription-based games in the MMORPG category.

 

3  Activision Blizzard Distribution (“Distribution”) — distributes interactive entertainment software and hardware products.

 

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.

 

14



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

For the Trailing Twelve Months Ending March 31, 2014

EBITDA and Adjusted EBITDA

(Amounts in millions)

 

 

 

 

 

 

 

 

 

 

 

Trailing Twelve

 

 

 

 

 

 

 

 

 

 

 

Months Ending

 

 

 

June 30, 2013

 

September 30, 2013

 

December 31, 2013

 

March 31, 2014

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Net Income (Loss)

 

$

324

 

$

56

 

$

174

 

$

293

 

$

847

 

Interest (Income) / Expense, net

 

---

 

4

 

52

 

51

 

107

 

Provision (Benefit) for income taxes

 

106

 

10

 

59

 

83

 

258

 

Depreciation and amortization

 

23

 

21

 

40

 

19

 

103

 

EBITDA

 

453

 

91

 

325

 

446

 

1,315

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferral of net revenues and related cost of sales (a)

 

(338)

 

(32)

 

509

 

(219)

 

(80)

 

Stock-based compensation expense (b)

 

24

 

25

 

34

 

30

 

113

 

Fees and other expenses related to the Purchase

 

 

 

 

 

 

 

 

 

 

 

Transaction and related debt financings (c)

 

---

 

62

 

18

 

---

 

80

 

Adjusted EBITDA

 

$

139

 

$

146

 

$

886

 

$

257

 

$

1,428

 

 

(a)

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

(b)

Includes expense related to stock-based compensation.

(c)

Reflects fees and other expenses related to the repurchase of 429 million shares of our common stock from Vivendi (the “Purchase Transaction”) completed on October 11, 2013 and related debt financings.

 

 

Trailing twelve months amounts are presented as calculated. Therefore, the sum of the four quarters, as presented, may differ due to the impact of rounding.

 

15



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Outlook for the Quarter Ending June 30, 2014 and

Year Ending December 31, 2014

GAAP to Non-GAAP Reconciliation

(Amounts in millions, except per share data)

 

 

 

 

 

Outlook for

 

Outlook for

 

 

 

 

 

Three Months Ending

 

Year Ending

 

 

 

 

 

June 30, 2014

 

December 31, 2014

 

 

 

 

 

 

 

 

 

Net Revenues (GAAP)

 

 

 

$

910

 

$

4,220

 

 

 

 

 

 

 

 

 

Excluding the impact of:

 

 

 

 

 

 

 

Change in deferred net revenues

 

 

(a)

(310)

 

455

 

 

 

 

 

 

 

 

 

Net Revenues (Non-GAAP)

 

 

 

$

600

 

$

4,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Diluted Share (GAAP)

 

 

 

$

0.22

 

$

0.89

 

 

 

 

 

 

 

 

 

Excluding the impact of:

 

 

 

 

 

 

 

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

 

 

(b)

(0.24)

 

0.26

 

Stock-based compensation

 

 

(c)

0.03

 

0.11

 

Amortization of intangible assets

 

 

(d)

-

 

0.01

 

 

 

 

 

 

 

 

 

Earnings Per Diluted Share (Non-GAAP)

 

 

 

$

0.01

 

$

1.27

 

 

 

 

(a) Reflects the net change in deferred net revenues.

 

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

 

(c) Reflects expense related to stock-based compensation.

 

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

 

 

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

 

16