Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: 8-K, Received: 08/05/2014 16:21:11)

 

 

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 5, 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 August 5, 2014, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter ended June 30, 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 August 5, 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: August 5, 2014

ACTIVISION BLIZZARD, INC.

 

 

 

 

 

By:

/s/ Dennis Durkin

 

 

Dennis Durkin

 

 

Chief Financial Officer

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release dated August 5, 2014 (furnished not filed)

 

4


Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES BETTER-THAN-EXPECTED

SECOND QUARTER 2014 FINANCIAL RESULTS

 

Company Increases CY 2014 Full-Year Revenue and EPS Outlook

 

Company Expects to Deliver Record Non-GAAP Full-Year EPS in 2014

 

 

Santa Monica, CA – August 5, 2014 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2014.

 

 

 

 

Second Quarter

 

(in millions, except EPS)

 

2014

 

Prior Outlook*

 

2013

 

GAAP

 

 

 

 

 

 

 

Net Revenues

 

$

970

 

$

910

 

$

1,050

 

EPS

 

$

0.28

 

$

0.22

 

$

0.28

 

Non-GAAP

 

 

 

 

 

 

 

Net Revenues

 

$

658

 

$

600

 

$

608

 

EPS

 

$

0.06

 

$

0.01

 

$

0.08

 

 

*Prior outlook was provided by the company on May 6, 2014 in its earnings release

 

For the quarter ended June 30, 2014, Activision Blizzard’s GAAP net revenues were $970 million, as compared with $1.05 billion for the second quarter of 2013.  On a non-GAAP basis, the company’s net revenues were $658 million, as compared with $608 million for the second quarter of 2013.  For the second quarter of 2014, GAAP net revenues from digital channels represented 49% of the company’s total revenues.  On a non-GAAP basis, net revenues from digital channels represented a record 73% of the company’s total revenues.

 

For the quarters ended June 30, 2014 and 2013, Activision Blizzard’s GAAP earnings per diluted share were $0.28.  On a non-GAAP basis, the company’s earnings per diluted share were $0.06 for the second quarter of 2014, as compared with $0.08 for the second quarter of 2013.

 

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 2014 Earnings Results

 

 

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “Our better-than expected performance was driven by continued strong digital sales from Blizzard Entertainment’s World of Warcraft® , Diablo® III: Reaper of Souls™ and Blizzard Entertainment’s newest franchise, Hearthstone®: Heroes of Warcraft™ , which recently launched on the iPad and continues to be well received by audiences around the world, as well as digital sales from Activision Publishing’s Call of Duty ®. Based on our results, we are raising our full-year outlook and we expect to grow our non-GAAP revenues year-over-year and deliver record non-GAAP earnings per share for the full year.”

 

Kotick added, “Over the next few months we expect to release some of the very best games in our company’s history. Blizzard Entertainment plans to launch World of Warcraft: Warlords of Draenor™ , the newest expansion in the epic franchise, which more than 1.5 million Western subscribers have already pre-purchased, and Activision Publishing expects to release Destiny™ , which we believe will be the largest new intellectual property launch in videogame history, as well as Skylanders Trap Team™ and Call of Duty: Advanced Warfare .

 

Kotick continued, “Today, we have more opportunities to create great content using new platforms and business models while also expanding into new geographies, and are embracing all of these growth opportunities with the same commitment to excellence that we have demonstrated over the past 23 years.  As the world’s largest and most profitable independent interactive entertainment company, we remain focused on creating the most compelling, engaging games for our dedicated audiences and providing superior returns for our shareholders.”

 

 

 

Selected Business Highlights:

·

Life to date, Activision Publishing’s Call of Duty: Ghosts remained the #1 best-selling game on the next-generation consoles in North America and Europe combined.¹

 

 

·

In North America and Europe combined, for the first six months of 2014, Activision Publishing’s Skylanders SWAP Force was the #2 best-selling console and handheld game overall in dollars, and in North America, Skylanders SWAP Force ™ outsold the #1 action figure line.²

 

 

·

As of June 30, 2014, Blizzard Entertainment’s Diablo III: Reaper of Souls remained the #1 PC game in dollars in both North America and Europe and, including its expansion and digital sales, Diablo III has sold more than 20 million copies worldwide across all platforms since its release in 2012.³

 

2



 

Activision Announces Q2 2014 Earnings Results

 

 

·

As of June 30, 2014, Blizzard Entertainment’s World of Warcraft remains the #1 subscription-based MMORPG, with approximately 6.8 million subscribers. 4  There was a decline in subscribers quarter over quarter, which was disproportionately concentrated in the East and was similar to the seasonal decline experienced during the second quarter of 2012, prior to the launch of the most recent expansion later that year.

 

 

·

On July 15, 2014, Blizzard Entertainment and NetEase, Inc. jointly announced an agreement to license Blizzard Entertainment’s award-winning action role-playing game, Diablo III, to a NetEase, Inc. affiliate in mainland China.

 

 

·

During the quarter, Activision Blizzard paid its highest dividend ever of $ 0.20 per common share, totaling $147 million.

 

 

 

Company Outlook:

Today, Activision Publishing released Call of Duty: Ghosts Nemesis , a downloadable content pack exclusively on Xbox Live for both Xbox One and Xbox 360®.  The company expects to release Call of Duty: Ghosts Nemesis on other platforms later in the third quarter of 2014.

 

Additionally, on September 9, 2014, Activision Publishing plans to release Bungie’s highly anticipated game, Destiny, for Sony’s PlayStation®4 and PlayStation®3 and Microsoft’s Xbox One and Xbox 360. Preorders for the game are tracking towards an industry record for a new intellectual property.

 

Earlier this quarter, Blizzard Entertainment released Curse of Naxxramas™: A Hearthstone Adventure for Windows, Mac and iPad.  On August 19, 2014, Blizzard Entertainment also expects to release Diablo III: Reaper of Souls - Ultimate Evil Edition™ for Sony’s PlayStation 4 and PlayStation 3 and Microsoft’s Xbox One and Xbox 360.

 

Based on its second quarter results, Activision Blizzard is raising its full year outlook. The company’s third-quarter and full-year net revenue and earnings per share outlook are as follows:

 

3



 

Activision Announces Q2 2014 Earnings Results

 

(in millions, except EPS)

 

GAAP
Outlook

 

Prior*
GAAP
Outlook

 

Non-GAAP
Outlook

 

Prior*
Non-
GAAP Outlook

 

 

 

 

 

 

 

 

 

 

 

CY 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

4,240

 

$

4,220

 

$

4,700

 

$

4,675

 

 

 

 

 

 

 

 

 

 

 

EPS

 

$

0.91

 

$

0.89

 

$

1.29

 

$

1.27

 

 

 

 

 

 

 

 

 

 

 

Fully Diluted Shares**

 

750

 

750

 

750

 

750

 

 

 

 

 

 

 

 

 

 

 

Q3 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

650

 

n/a

 

$

975

 

n/a

 

 

 

 

 

 

 

 

 

 

 

EPS

 

$

(0.07)

 

n/a

 

$

0.11

 

n/a

 

 

 

 

 

 

 

 

 

 

 

Fully Diluted Shares**

 

719

 

n/a

 

745

 

n/a

 

 

* Prior outlook was provided by the company on May 6, 2014 in its earnings release

**Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis.  With expected GAAP net losses for Q3 2014, basic weighted average shares are used in the losses per share calculation.

 

 

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, 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 888-329-8889 in the U.S. with passcode 9595797.

 

 

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.

 

4



 

Activision Announces Q2 2014 Earnings Results

 

 

¹According to The NPD Group and GfK Chart-Track

²According to The NPD Group and GfK Chart-Track and Activision Blizzard internal estimates, including toys and accessories

³ According to The NPD Group, GfK Chart-Track and Activision Blizzard internal estimates

4  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. 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.

 

5



 

Activision Announces Q2 2014 Earnings Results

 

 

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.

 

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 within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those relating to product releases; (3) statements of future financial or operating performance; (4) statements about the impact of the transactions involving the repurchase of shares from Vivendi, S.A., and the debt financing related thereto; and (5) statements of assumptions underlying such statements.  Activision Blizzard generally uses words, such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risk, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict.  Activision Blizzard’s actual future results could differ materially from those expressed in the forward-looking statements set forth in this release.  Risks and uncertainties that may affect our future results 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, massively multiplayer online and “toys to life” 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 transactions involving the repurchase of shares from Vivendi S.A. 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 “Risk Factors” included in Part I, Item 1A 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 Announces Q2 2014 Earnings Results

 

 

###

 

(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

 

7



 

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,

 

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

 

$

587

 

 

$

727

 

 

$

1,357

 

 

$

1,717

 

Subscription, licensing and other revenues 1

 

 

383

 

 

323

 

 

724

 

 

658

 

Total net revenues

 

 

970

 

 

1,050

 

 

2,081

 

 

2,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales - product costs

 

 

187

 

 

179

 

 

412

 

 

440

 

Cost of sales - online

 

 

56

 

 

54

 

 

115

 

 

111

 

Cost of sales - software royalties and amortization

 

 

46

 

 

38

 

 

102

 

 

99

 

Cost of sales - intellectual property licenses

 

 

11

 

 

14

 

 

13

 

 

52

 

Product development

 

 

112

 

 

123

 

 

255

 

 

247

 

Sales and marketing

 

 

141

 

 

116

 

 

245

 

 

223

 

General and administrative

 

 

107

 

 

96

 

 

202

 

 

186

 

Total costs and expenses

 

 

660

 

 

620

 

 

1,344

 

 

1,358

 

Operating income

 

 

310

 

 

430

 

 

737

 

 

1,017

 

Interest and other investment income (expense), net

 

 

(50

)

 

--

-

 

(101

)

 

3

 

Income before income tax expense

 

 

260

 

 

430

 

 

636

 

 

1,020

 

Income tax expense

 

 

56

 

 

106

 

 

139

 

 

240

 

Net income

 

 

$

204

 

 

$

324

 

 

$

497

 

 

$

780

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share 2

 

 

$

0.28

 

 

$

0.28

 

 

$

0.68

 

 

$

0.68

 

Weighted average common shares outstanding

 

 

716

 

 

1,118

 

 

712

 

 

1,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share 2

 

 

$

0.28

 

 

$

0.28

 

 

$

0.67

 

 

$

0.68

 

Weighted average common shares outstanding assuming dilution

 

 

725

 

 

1,127

 

 

723

 

 

1,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1  Subscription, licensing and other revenues represents revenues from World of Warcraft subscriptions, 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 16 million for both the three and six months ended June 30, 2014. 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. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $200 million and $484 million for the three and six months ended June 30, 2014 as compared to the total net income of $204 million and $497 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 $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.

 

8



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

 

 

 

June 30,

December 31,

 

 

 

2014

2013

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

4,199

$

4,410

 

Short-term investments

 

5

33

 

Accounts receivable, net

 

107

510

 

Inventories, net

 

151

171

 

Software development

 

391

367

 

Intellectual property licenses

 

3

11

 

Deferred income taxes, net

 

359

321

 

Other current assets

 

259

418

 

Total current assets

 

5,474

6,241

 

Long-term investments

 

9

9

 

Software development

 

68

21

 

Property and equipment, net

 

162

138

 

Other assets

 

86

35

 

Intangible assets, net

 

39

43

 

Trademark and trade names

 

433

433

 

Goodwill

 

7,089

7,092

 

Total assets

 

$

13,360

$

14,012

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

167

$

355

 

Deferred revenues

 

769

1,389

 

Accrued expenses and other liabilities

 

507

636

 

Current portion of long-term debt

 

---

25

 

Total current liabilities

 

1,443

2,405

 

Long-term debt, net

 

4,321

4,668

 

Deferred income taxes, net

 

82

66

 

Other liabilities

 

343

251

 

Total liabilities

 

6,189

7,390

 

Shareholders’ equity:

 

 

 

 

Common stock

 

---

---

Additional paid-in capital

 

9,853

9,682

 

Treasury stock

 

(5,762)

(5,814

)

Retained earnings

 

3,036

2,686

 

Accumulated other comprehensive income

 

44

68

 

Total shareholders’ equity

 

7,171

6,622

 

Total liabilities and shareholders’ equity

 

$

13,360

$

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 June 30, 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

 

       $

970

     $

187

     $

56

     $

46

     $

11

     $

112

     $

141

     $

107

     $

660

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

(a)  

(312)

(69)

-

(24)

1

-

-

-

(92)

Less: Stock-based compensation

(b)  

-

-

-

(4)

-

(3)

(2)

(13)

(22)

Less: Amortization of intangible assets

(c)  

-

-

-

-

(1)

-

-

-

(1)

Non-GAAP Measurement

 

       $

658

     $

118

     $

56

     $

18

     $

11

     $

109

     $

139

     $

94

     $

545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2014

 

Operating
Income

Net Income

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

       $

310

     $

204

     $

0.28

     $

0.28

 

 

 

 

 

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

(a)  

(220)

(174)

(0.24)

(0.23)

 

 

 

 

 

Less: Stock-based compensation

(b)  

22

14

0.02

0.02

 

 

 

 

 

Less: Amortization of intangible assets

(c)  

1

1

-

-

 

 

 

 

 

Non-GAAP Measurement

 

       $

113

     $

45

     $

0.06

     $

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 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

 

    $

2,081

     $

412

     $

115

     $

102

     $

13

     $

255

     $

245

     $

202

     $

1,344

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

(a)  

(651)

(163)

-

(49)

1

-

 -

 -

(211)

Less: Stock-based compensation

(b)  

-

-

-

(11)

-

(10)

(5)

(27)

(53)

Less: Amortization of intangible assets

(c)  

-

-

-

-

(3)

-

-

-

(3)

Non-GAAP Measurement

 

$

1,430

     $

249

     $

115

     $

42

     $

11

     $

245

     $

240

     $

175

     $

1,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2014

 

Operating
Income

Net Income

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

     $

737

     $

497

     $

0.68

     $

 0.67

 

 

 

 

 

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

(a)  

(440)

(346)

(0.47)

(0.47)

 

 

 

 

 

Less: Stock-based compensation

(b)  

53

33

0.05

0.04

 

 

 

 

 

Less: Amortization of intangible assets

(c)  

3

2

-

-

 

 

 

 

 

Non-GAAP Measurement

 

      $

353

      $

186

      $

0.25

      $

  0.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 $44 million and $181 million for the three and six months ended June 30, 2014 as compared to total non-GAAP net income of $45 million and $186 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

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

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 of 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 of 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

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 of 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 of 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 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 $88 million and $282 million for the three and six months ended June 30, 2013 as compared to 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.

 

11



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three And Six Months Ended June 30, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

June 30, 2014

 

June 30, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 4

 

Amount

 

% of Total 4

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

428

 

44

%

$

626

 

60

%

$

(198)

 

(32)

%

Digital online channels 1

 

476

 

49

 

387

 

37

 

89

 

23

 

Total Activision and Blizzard

 

904

 

93

 

1,013

 

96

 

(109)

 

(11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

66

 

7

 

37

 

4

 

29

 

78

 

Total consolidated GAAP net revenues

 

970

 

100

 

1,050

 

100

 

(80)

 

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues 2

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

(317)

 

 

 

(438)

 

 

 

 

 

 

 

Digital online channels 1

 

5

 

 

 

(4)

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(312)

 

 

 

(442)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

111

 

17

 

188

 

31

 

(77)

 

(41)

 

Digital online channels 1

 

481

 

73

 

383

 

63

 

98

 

26

 

Total Activision and Blizzard

 

592

 

90

 

571

 

94

 

21

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

66

 

10

 

37

 

6

 

29

 

78

 

Total non-GAAP net revenues 3

 

$

658

 

100

%

$

608

 

100

%

$

50

 

8

%

 

 

 

Six Months Ended

 

 

 

June 30, 2014

 

June 30, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 4

 

Amount

 

% of Total 4

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

1,087

 

52

%

$

1,522

 

64

%

$

(435)

 

(29)

%

Digital online channels 1

 

854

 

41

 

765

 

32

 

89

 

12

 

Total Activision and Blizzard

 

1,941

 

93

 

2,287

 

96

 

(346)

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

140

 

7

 

88

 

4

 

52

 

59

 

Total consolidated GAAP net revenues

 

2,081

 

100

 

2,375

 

100

 

(294)

 

(12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues 2

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

(804)

 

 

 

(1,009)

 

 

 

 

 

 

 

Digital online channels 1

 

153

 

 

 

47

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(651)

 

 

 

(962)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

283

 

20

 

513

 

36

 

(230)

 

(45)

 

Digital online channels 1

 

1,007

 

70

 

812

 

57

 

195

 

24

 

Total Activision and Blizzard

 

1,290

 

90

 

1,325

 

94

 

(35)

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

140

 

10

 

88

 

6

 

52

 

59

 

Total non-GAAP net revenues 3

 

$

1,430

 

100

%

$

1,413

 

100

%

$

17

 

1

%

 

1  Net revenues from digital online channels represent revenues from subscriptions, 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.

 

12



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three Months Ended June 30, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

June 30, 2014

 

June 30, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 6

 

Amount

 

% of Total 6

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online 1

 

195

 

20

 

233

 

22

 

(38)

 

(16)

%

PC

 

182

 

19

 

100

 

10

 

82

 

82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

137

 

14

 

4

 

---

 

133

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

342

 

35

 

586

 

56

 

(244)

 

(42)

 

Total console 2

 

479

 

49

 

590

 

56

 

(111)

 

(19)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other 5

 

48

 

5

 

90

 

9

 

(42)

 

(47)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

904

 

93

 

1,013

 

96

 

(109)

 

(11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

66

 

7

 

37

 

4

 

29

 

78

 

Total consolidated GAAP net revenues

 

970

 

100

 

1,050

 

100

 

(80)

 

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online 1

 

6

 

 

 

(39)

 

 

 

 

 

 

 

PC

 

(51)

 

 

 

(57)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

(70)

 

 

 

(4)

 

 

 

 

 

 

 

Current-generation (PS3, Xbox 360, Wii)

 

(208)

 

 

 

(342)

 

 

 

 

 

 

 

Total console 2

 

(278)

 

 

 

(346)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other 5

 

11

 

 

 

---

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(312)

 

 

 

(442)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online 1

 

201

 

31

 

194

 

32

 

7

 

4

 

PC

 

131

 

20

 

43

 

7

 

88

 

205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

67

 

10

 

---

 

---

 

67

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

134

 

20

 

244

 

40

 

(110)

 

(45)

 

Total console 2

 

201

 

31

 

244

 

40

 

(43)

 

(18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other 5

 

59

 

9

 

90

 

15

 

(31)

 

(34)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

592

 

90

 

571

 

94

 

21

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

66

 

10

 

37

 

6

 

29

 

78

 

Total consolidated non-GAAP net revenues 4

 

658

 

100

 

608

 

100

 

50

 

8

%

 

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.

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.

 

13



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Six Months Ended June 30, 2014 and 2013

(Amounts in millions)

 

 

 

Six Months Ended

 

 

 

June 30, 2014

 

June 30, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 6

 

Amount

 

% of Total 6

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online 1

 

395

 

19

 

508

 

21

 

(113)

 

(22)

%

PC

 

281

 

14

 

195

 

8

 

86

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

245

 

12

 

11

 

---

 

234

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

889

 

43

 

1,328

 

56

 

(439)

 

(33)

 

Total console 2

 

1,134

 

54

 

1,339

 

56

 

(205)

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other 5

 

131

 

6

 

245

 

10

 

(114)

 

(47)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

1,941

 

93

 

2,287

 

96

 

(346)

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

140

 

7

 

88

 

4

 

52

 

59

 

Total consolidated GAAP net revenues

 

2,081

 

100

 

2,375

 

100

 

(294)

 

(12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online 1

 

33

 

 

 

(85)

 

 

 

 

 

 

 

PC

 

88

 

 

 

(29)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

(146)

 

 

 

(8)

 

 

 

 

 

 

 

Current-generation (PS3, Xbox 360, Wii)

 

(637)

 

 

 

(839)

 

 

 

 

 

 

 

Total console 2

 

(783)

 

 

 

(847)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other 5

 

11

 

 

 

(1)

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(651)

 

 

 

(962)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online 1

 

428

 

30

 

423

 

30

 

5

 

1

 

PC

 

369

 

26

 

166

 

12

 

203

 

122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, WiiU)

 

99

 

7