Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: 8-K, Received: 02/06/2014 16:14:45)

 

 

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):   February 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 February 6, 2014, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter and year ended December 31, 2013. A copy of the press release is attached hereto as Exhibit 99.1.  As previously announced, the Company is hosting a conference call and webcast in conjunction with that release.

 

Item 9.01.                                         Financial Statements and Exhibits.

 

(d)  Exhibits

 

99.1                         Press Release dated February 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: February 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 February 6, 2014 (furnished not filed)

 

4


Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES BETTER-THAN-EXPECTED

FOURTH QUARTER AND CALENDAR YEAR 2013 RESULTS

 

Company Generated More Than $1.26 Billion in Operating Cash Flow in 2013

 

Board of Directors Authorizes Debt Repayment of $375 Million

 

Company Increases Cash Dividend to $0.20 Per Common Share

 

Company Announces 2014 Outlook Driven by Strongest Slate in its History

 

Santa Monica, CA – February 6, 2014 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the fourth quarter and calendar year 2013.

 

 

Fourth Quarter

 

Calendar Year

(in millions, except EPS)

 

2013

 

Prior  
Outlook*

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

1,518

 

$

1,255

 

$

1,768

$

4,583

 

$

4,856

EPS

 

$

0.22

 

$

0.05

 

$

0.31

$

0.95

 

$

1.01

Non-GAAP

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

2,272

 

$

2,215

 

$

2,595

$

4,342

 

$

4,987

EPS

 

$

0.79

 

$

0.72

 

$

0.78

$

0.94

 

$

1.18

 

*Prior outlook was provided by the company on November 6, 2013 in its earnings release

 

 

For calendar year 2013, Activision Blizzard delivered GAAP net revenues of $4.58 billion, as compared with $4.86 billion for 2012.  On a non-GAAP basis, the company’s net revenues were $4.34 billion, as compared with $4.99 billion for 2012.   For the calendar year 2013, GAAP net revenues from digital channels were $1.56 billion and represented 34% of the company’s total revenues.  On a non-GAAP-basis, for the calendar year 2013, net revenues from digital channels were $1.57 billion and represented a record 36% of the company’s total net revenues.

 

For calendar year 2013, Activision Blizzard delivered GAAP earnings per diluted share of $0.95, as compared with $1.01 per diluted share for 2012.  On a non-GAAP basis, the company delivered earnings per diluted share of $0.94, as compared with $1.18 per diluted share for 2012.

 

1



 

Activision Blizzard Announces Fourth Quarter and CY 2013 Financial Results

 

 

For the quarter ended December 31, 2013, the company delivered GAAP net revenues of $1.52 billion, as compared with $1.77 billion for the fourth quarter of 2012.   On a non-GAAP basis, the company’s net revenues were $2.27 billion, as compared with $2.60 billion for the fourth quarter of 2012.

 

For the quarter ended December 31, 2013, Activision Blizzard’s GAAP earnings per diluted share were $0.22, as compared with earnings per diluted share of $0.31 for the fourth quarter of 2012.  On a non-GAAP basis, the company’s earnings per diluted share were a record $0.79, as compared with $0.78 for the fourth quarter of 2012.

 

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

 

Bobby Kotick, Chief Executive Officer, Activision Blizzard, said, “2013 was a transformational year for Activision Blizzard and for our industry. Our transaction with Vivendi returned us to independence and eliminated the challenges and constraints of being a controlled company. The continued success of our games delivered better-than-expected financial results, including stronger net revenues and earnings per share, and over $1.26 billion in operating cash flow.”

 

Kotick continued, “As we look to 2014 and beyond, we have the strongest and most diverse pipeline of games in our history. In 2014, we expect these releases to enable us to grow non-GAAP revenues year over year and generate record non-GAAP earnings per share. We expect Bungie’s Destiny™ , an innovative shared-world, first-person action game to be Activision Publishing’s next billion dollar franchise. Activision Publishing also has terrific new games planned for the Call of Duty ® and Skylanders ™ franchises, and Blizzard Entertainment has an expansion to the top-selling PC and console game Diablo® III and another major new release. Also in our pipeline for 2014 and the next few years are at least three potentially groundbreaking new free-to-play franchises—Blizzard’s Hearthstone™: Heroes of Warcraft™ and Heroes of the Storm ™, and Activision Publishing’s Call of Duty Online . We believe these games have great global potential. Free-to-play as a business model has now achieved scale, both in the West and in China. Hearthstone , which released in open beta on PC last month and which Blizzard Entertainment plans to expand this year to tablets and smartphones, is already attracting millions of players with strong engagement and monetization in the West and China, putting it on track to join World of Warcraft ® , Diablo , and StarCraft ® as their fourth mega franchise.”

 

Kotick added, “Over the last five years, through dividends and share buybacks, we have returned almost $10 billion dollars to our shareholders and today we announced an increase to our annual dividend and repayment of $375 million of debt. As we look to our newly independent future, we expect to continue to deliver strong returns to our stakeholders through the development and sale of the world’s best games, as we have for more than twenty years.”

 

2



 

Activision Blizzard Announces Fourth Quarter and CY 2013 Financial Results

 

 

Selected Business Highlights:

 

·                  In North America and Europe combined, Activision Publishing was the #1 console and handheld publisher for the calendar year with the #2 and #3 best-selling franchises— Call of Duty and Skylanders, including toys and accessories. 1

 

·                  In North America and Europe combined, for the calendar year, Activision Publishing had four of the top-10 titles overall.¹

 

·                  For the fourth quarter, in aggregate across all platforms in the U.S. and Europe combined, Activision Publishing’s Call of Duty: Ghosts was the #1 best-selling title in both units and dollars and the #1 best-selling game on both next-gen platforms in both units and dollars.  Additionally, for the calendar year, Call of Duty: Black Ops II was the #9 best- selling title in both units and dollars.²

 

·                  For the calendar year, in North America and Europe combined, Skylanders Giants™, including toys and accessories, was the #4 best- selling handheld and console game in dollars overall and Skylanders SWAP Force ™, including toys and accessories, was the #6 best- selling handheld and console game in dollars overall. 1

 

·                  As of December 31, 2013, the Skylanders franchise has generated, life-to-date, more than $2 billion in worldwide sales ¹   and, at the end of the year, Activision had sold approximately 175 million Skylanders toys worldwide. ³

 

·                  For the calendar year in North America, Blizzard Entertainment’s StarCraft® II: Heart of the Swarm ® was the #1 best-selling PC game. 4

 

·                  As of December 31, 2013, Blizzard Entertainment’s World of Warcraft® remains the #1 subscription-based MMORPG, with approximately 7.8 million subscribers. 3

 

 

 

Company Outlook

On January 28, 2014, Activision Publishing released Onslaught , the first downloadable map pack for Call of Duty: Ghosts, on both Xbox One, the all-in-one games and entertainment system from Microsoft, and the Xbox 360 entertainment system from Microsoft.  The company expects to release Onslaught on other platforms later in the first quarter.

 

Additionally, on March 25, 2014, Blizzard Entertainment expects to release Diablo III: Reaper of Souls™ , an expansion to Blizzard’s award-winning action-role-playing game, Diablo III.

 

3



 

Activision Blizzard Announces Fourth Quarter and CY 2013 Financial Results

 

 

Activision Blizzard’s first quarter and calendar year 2014 outlook is as follows:

 

(in millions, except EPS)

 

GAAP
Outlook

 

Non-GAAP
Outlook

 

CY 2014

 

 

 

 

 

Net Revenues

 

$

4,000

 

$

4,600

 

EPS

 

$

0.76

 

$

1.26

 

Fully Diluted Shares**

 

750

 

750

 

Q1 2014

 

 

 

 

 

Net Revenues

 

$

885

 

$

675

 

EPS

 

$

0.15

 

$

0.09

 

Fully Diluted Shares**

 

745

 

745

 

 

 

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

 

Board Declares Cash Dividend and Debt Repayment

 

The Board of Directors declared a cash dividend of $0.20 per common share payable on May 14, 2014 to shareholders of record at the close of business on March 19, 2014.  Additionally, the Board of Directors approved a repayment of $375 million of the company’s outstanding Term Loan B.

 

 

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 and year ended December 31, 2013 and management’s outlook for 2014. 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 877-857-6161 in the U.S. with passcode 2197679 .

 

 

About Activision Blizzard

Activision Blizzard, Inc. is the world’s largest and most profitable independent interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty , Skylanders, World of Warcraft , StarCraft and Diablo .

 

4



 

Activision Blizzard Announces Fourth Quarter and CY 2013 Financial Results

 

 

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 .

 

¹According 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

³According to Activision Blizzard internal estimates

4 According to The NPD Group, GfK Chart-Track and 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.

 

5



 

Activision Blizzard Announces Fourth Quarter and CY 2013 Financial Results

 

 

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.

 

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 “hit” titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, capital market risks, the possibility that expected benefits related to the 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

 

6



 

Activision Blizzard Announces Fourth Quarter and CY 2013 Financial Results

 

 

annual report on Form 10-K as amended, and our quarterly report on Form 10-Q for the quarter ended September 30, 2013.   The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes no obligation to update any such forward-looking statements.

 

Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Activision Blizzard and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.

 

 

###

 

(Tables to Follow)

 

 

 

For Information Contact:

 

 

 

Kristin Southey

Maryanne Lataif

SVP, Investor Relations 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 December 31,

 

Year Ended December 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

Product sales

 

$

1,152

 

$

1,413

 

$

3,201

 

$

3,620

 

Subscription, licensing and other revenues 1

 

366

 

355

 

1,382

 

1,236

 

Total net revenues

 

1,518

 

1,768

 

4,583

 

4,856

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales - product costs

 

502

 

483

 

1,053

 

1,116

 

Cost of sales - online subscriptions

 

50

 

60

 

204

 

263

 

Cost of sales - software royalties and amortization

 

72

 

87

 

187

 

194

 

Cost of sales - intellectual property licenses

 

31

 

52

 

87

 

89

 

Product development

 

197

 

222

 

584

 

604

 

Sales and marketing

 

239

 

232

 

606

 

578

 

General and administrative

 

143

 

148

 

490

 

561

 

Total costs and expenses

 

1,234

 

1,284

 

3,211

 

3,405

 

Operating income

 

284

 

484

 

1,372

 

1,451

 

Interest and other investment income (expense), net

 

(51)

 

3

 

(53)

 

7

 

Income before income tax expense

 

233

 

487

 

1,319

 

1,458

 

Income tax expense

 

59

 

133

 

309

 

309

 

Net income

 

$

174

 

$

354

 

$

1,010

 

$

1,149

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share 2

 

$

0.23

 

$

0.31

 

$

0.96

 

$

1.01

 

Weighted average common shares outstanding

 

745

 

1,111

 

1,024

 

1,112

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share 2

 

$

0.22

 

$

0.31

 

$

0.95

 

$

1.01

 

Weighted average common shares outstanding assuming dilution

 

757

 

1,115

 

1,035

 

1,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 23 million and 24 million for the three months and year ended December 31, 2013, respectively. We had, on a weighted-average basis, participating securities of approximately 27 million and 24 million for the three months and year ended December 31, 2012, respectively.  Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $168 million and $987 million for the three months and year ended December 31, 2013 as compared to total net income of $174 million and $1,010 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 $345 million and $1,125 million for the three months and year ended December 31, 2012 as compared to total net income of $354 million and $1,149 million for the same periods, respectively.

 

8



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

(Amounts in millions)

 

 

 

December 31,

December 31,

 

 

2013

2012

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 

$

4,410

$

3,959

Short-term investments

 

33

416

Accounts receivable, net

 

515

707

Inventories, net

 

171

209

Software development

 

367

164

Intellectual property licenses

 

11

11

Deferred income taxes, net

 

321

487

Other current assets

 

413

321

Total current assets

 

6,241

6,274

Long-term investments

 

9

8

Software development

 

21

129

Intellectual property licenses

 

---

30

Property and equipment, net

 

138

141

Other assets

 

35

11

Intangible assets, net

 

43

68

Trademark and trade names

 

433

433

Goodwill

 

7,092

7,106

Total assets

 

$

14,012

$

14,200

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

 

$

355

$

343

Deferred revenues

 

1,389

1,657

Accrued expenses and other liabilities

 

636

652

Current portion of long-term debt

 

25

---

Total current liabilities

 

2,405

2,652

Long-term debt, net

 

4,668

---

Deferred income taxes, net

 

20

25

Other liabilities

 

297

206

Total liabilities

 

7,390

2,883

Shareholders’ equity:

 

 

 

Common stock

 

---

---

Additional paid-in capital

 

9,682

9,450

Treasury stock

 

(5,814)

---

Retained earnings

 

2,686

1,893

Accumulated other comprehensive income (loss)

 

68

(26)

Total shareholders’ equity

 

6,622

11,317

Total liabilities and shareholders’ equity

 

$

14,012

$

14,200

 

 

 

 

 

9



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

(Amounts in millions)

 

 

 

Year Ended December 31,

 

 

2013

 

2012

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

Net income

 

$

1,010

 

$

1,149

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

 

 

 

 

Deferred income taxes

 

185

 

(10)

Depreciation and amortization

 

108

 

120

Loss on disposal of property and equipment

 

---

 

1

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

 

207

 

208

Amortization of debt discount and debt financing costs

 

1

 

---

Stock-based compensation expense (2)

 

108

 

126

Excess tax benefits from stock awards

 

(29)

 

(5)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

198

 

(46)

Inventories, net

 

39

 

(62)

Software development and intellectual property licenses

 

(268)

 

(301)

Other assets

 

(91)

 

88

Deferred revenues

 

(275)

 

153

Accounts payable

 

7

 

(54)

Accrued expenses and other liabilities

 

64

 

(22)

Net cash provided by operating activities

 

1,264

 

1,345

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Proceeds from maturities of available-for-sale investments

 

304

 

444

Proceeds from auction rate securities called at par

 

---

 

10

Proceeds from sales of available-for-sale investments

 

98

 

---

Purchases of available-for-sale investments

 

(26)

 

(503)

Capital expenditures

 

(74)

 

(73)

Decrease (increase) in restricted cash

 

6

 

(2)

Net cash provided by (used in) investing activities

 

308

 

(124)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from issuance of common stock to employees

 

158

 

33

Tax payment related to net share settlements on restricted stock rights

 

(49)

 

(16)

Repurchase of common stock

 

(5,830)

 

(315)

Dividends paid

 

(216)

 

(204)

Proceeds from issuance of long-term debt

 

4,750

 

---

Repayment of long-term debt

 

(6)

 

---

Payment of debt discount and financing costs

 

(59)

 

---

Excess tax benefits from stock awards

 

29

 

5

Net cash used in financing activities

 

(1,223)

 

(497)

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

102

 

70

Net increase in cash and cash equivalents

 

451

 

794

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

3,959

 

3,165

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

4,410

 

$

3,959

 

 

 

 

 

 

(1) Excludes deferral and amortization of stock-based compensation expense.

(2) Includes the net effects of capitalization, deferral, and amortization of stock-based compensation expense.

 

10



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

 

SUPPLEMENTAL FINANCIAL INFORMATION

 

(Amounts in millions)

 

 

 

Three Months Ended

 

Year over Year

 

Three Months Ended

 

Year over Year

 

 

 

December 31,

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

% Increase

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

% Increase

 

 

 

2011

 

2012

 

2012

 

2012

 

2012

 

(Decrease)

 

2013

 

2013

 

2013

 

2013

 

(Decrease)

 

Cash Flow Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

$

850

 

$

154

 

$

93

 

$

122

 

$

976

 

15

%

$

325

 

$

109

 

$

(50)

 

$

880

 

(10)

%

Capital Expenditures

 

25

 

8

 

17

 

21

 

27

 

8

 

17

 

19

 

22

 

16

 

(41)

 

Non-GAAP Free Cash Flow

 

825

 

146

 

76

 

101

 

949

 

15

 

308

 

90

 

(72)

 

864

 

(9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow - TTM

 

952

 

972

 

1,143

 

1,219

 

1,345

 

41

 

1,516

 

1,532

 

1,360

 

1,264

 

(6)

 

Capital Expenditures - TTM

 

72

 

76

 

79

 

71

 

73

 

1

 

82

 

84

 

85

 

74

 

1

 

Non-GAAP Free Cash Flow - TTM

 

$

880

 

$

896

 

$

1,064

 

$

1,148

 

$

1,272

 

45

%

$

1,434

 

$

1,448

 

$

1,275

 

$

1,190

 

(6)

%

 

 

1  TTM represents trailing twelve months.  Operating Cash Flow for the three months ended December 31, 2011, three months ended September 30, 2011, three months ended June 30, 2011, and three months ended March 31, 2011 was $850 million, $46 million, $(78) million, and $134 million, respectively.  Capital expenditures for the three months ended December 31, 2011, three months ended September 30, 2011, three months ended June 30, 2011, and three months ended March 31, 2011 was $25 million, $29 million, $14 million, and $4 million, respectively.

2  Non-GAAP free cash flow represents operating cash flow minus capital expenditures (which includes payment for acquisition of intangible assets).

 

11



 

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 December 31, 2013

 

 

 

 

Net Revenues

 

 

Cost of Sales -
Product Costs

 

 

Cost of Sales -
Online
Subscriptions

 

 

Cost of Sales -
Software Royalties
and Amortization

 

 

 

 

 

Cost of Sales -
Intellectual
Property Licenses

 

 

Product
Development

 

 

Sales and
Marketing

 

 

General and
Administrative

 

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

 

 

$

1,518

 

 

$

502

 

 

    $

50

 

 

   $

72

 

 

    $

31

 

 

  $

197

 

 

  $

239

 

 

  $

143

 

 

  $

1,234

 

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

 

(a)

 

 

 

754

 

 

 

181

 

 

 

-  

 

 

 

64

 

 

 

-  

 

 

-  

 

 

-  

 

 

-  

 

 

245

 

Less: Stock-based compensation

 

(b)

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

(7

)

 

 

-  

 

 

(10

)

 

(2

)

 

(15

)

 

(34

)

Less: Amortization of intangible assets

 

(c)

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

(15

)

 

-  

 

 

-  

 

 

-  

 

 

(15

)

Less: Fees and other expenses related to the Purchase Transaction and related debt financings

 

(d)

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

-  

 

 

-  

 

 

(18

)

 

(18

)

Non-GAAP Measurement

 

 

 

 

$

2,272

 

 

$

683

 

 

   $

50

 

 

   $

129

 

 

    $

16

 

 

  $

 187

 

 

  $

237

 

 

  $

110

 

 

  $

1,412

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2013

 

 

 

 

 

 

Operating
Income

 

 

Net Income

 

 

Basic Earnings
per Share

 

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

 

 

$

284

 

 

$

174

 

 

$

0.23

 

 

    $

0.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(a)

 

 

 

509

 

 

 

401

 

 

 

0.52

 

 

 

0.51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

 

(b)

 

 

 

34

 

 

 

23

 

 

 

0.03

 

 

 

0.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

 

(c)

 

 

 

15

 

 

 

9

 

 

 

0.01

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Fees and other expenses related to the Purchase Transaction and related debt financings

 

(d)

 

 

 

18

 

 

 

14

 

 

 

0.02

 

 

 

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

 

 

$

860

 

 

$

621

 

 

$

0.81

 

 

    $

0.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2013

 

 

 

 

Net Revenues

 

 

Cost of Sales -
Product Costs

 

 

Cost of Sales -
Online
Subscriptions

 

 

Cost of Sales -
Software Royalties
and Amortization

 

 

 

 

 

Cost of Sales -
Intellectual
Property Licenses

 

 

Product
Development

 

 

Sales and
Marketing

 

 

General and
Administrative

 

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

 

 

$

4,583

 

 

$

1,053

 

 

$

204

 

 

    $

187

 

 

    $

87

 

 

  $

584

 

 

  $

606

 

 

  $

490

 

 

  $

3,211

 

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

 

(a)

 

 

 

(241

)

 

 

(10

)

 

 

-  

 

 

 

2

 

 

 

(4

)

 

-  

 

 

-  

 

 

-  

 

 

(12

)

Less: Stock-based compensation

 

(b)

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

(17

)

 

 

-  

 

 

(33

)

 

(7

)

 

(53

)

 

(110

)

Less: Amortization of intangible assets

 

(c)

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

(23

)

 

-  

 

 

-  

 

 

-  

 

 

(23

)

Less: Fees and other expenses related to the Purchase Transaction and related debt financings

 

(d)

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

 

-  

 

 

-  

 

 

-  

 

 

(79

)

 

(79

)

Non-GAAP Measurement

 

 

 

 

$

4,342

 

 

$

1,043

 

 

$

204

 

 

    $

172

 

 

    $

60

 

 

  $

551

 

 

  $

599

 

 

  $

358

 

 

  $

2,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2013

 

 

 

 

 

 

Operating
Income

 

 

Net Income

 

 

Basic Earnings
per Share

 

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

 

 

$

1,372

 

 

$

1,010

 

 

$

0.96

 

 

    $

0.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(a)

 

 

 

(229

)

 

 

(150

)

 

 

(0.14

)

 

 

(0.14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

 

(b)

 

 

 

110

 

 

 

71

 

 

 

0.07

 

 

 

0.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

 

(c)

 

 

 

23

 

 

 

14

 

 

 

0.01

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Fees and other expenses related to the Purchase Transaction and related debt financings

 

(d)

 

 

 

79

 

 

 

54

 

 

 

0.05

 

 

 

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

 

 

$

1,355

 

 

$

999

 

 

$

0.95

 

 

    $

0.94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

(d) 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.

 

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 $602 million and $976 million for the three months and year ended December 31, 2013 as compared to total non-GAAP net income of $621 million and $999 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.

 

12



 

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 December 31, 2012

 

 

 

 

Net Revenues

 

 

Cost of Sales -
Product Costs

 

 

Cost of Sales -
Online
Subscriptions

 

 

Cost of Sales -
Software Royalties
and Amortization

 

 

 

 

 

Cost of Sales -
Intellectual
Property Licenses

 

 

Product
Development

 

 

Sales and
Marketing

 

 

General and
Administrative

 

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

 

 

$

1,768

 

 

$

483

 

 

$

60

 

 

    $

87

 

 

    $

52

 

 

  $

222

 

 

  $

232

 

 

  $

148

 

 

  $

1,284

 

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

 

(a)

 

 

 

827

 

 

 

186

 

 

 

-

 

 

 

31

 

 

 

3

 

 

-

 

 

-

 

 

-

 

 

220

 

Less: Stock-based compensation

 

(b)

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3

)

 

 

-

 

 

(6

)

 

(2

)

 

(29

)

 

(40

)

Less: Amortization of intangible assets

 

(c)

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23

)

 

-

 

 

-

 

 

-

 

 

(23

)

Non-GAAP Measurement

 

 

 

 

$

2,595

 

 

$

669

 

 

$

60

 

 

    $

115

 

 

    $

32

 

 

  $

216

 

 

  $

230

 

 

  $

119

 

 

  $

1,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2012

 

 

 

 

 

 

Operating
Income

 

 

Net Income

 

 

Basic Earnings
per Share

 

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

 

 

$

484

 

 

$

354

 

 

$

0.31

 

 

    $

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(a)

 

 

 

607

 

 

 

485

 

 

 

0.43

 

 

 

0.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

 

(b)

 

 

 

40

 

 

 

38

 

 

 

0.03

 

 

 

0.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

 

(c)

 

 

 

23

 

 

 

14

 

 

 

0.01

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

 

 

$

1,154

 

 

$

891

 

 

$

0.78

 

 

    $

0.78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2012

 

 

 

 

Net Revenues

 

 

Cost of Sales -
Product Costs

 

 

Cost of Sales -
Online
Subscriptions

 

 

Cost of Sales -
Software Royalties
and Amortization

 

 

 

 

 

Cost of Sales -
Intellectual
Property Licenses

 

 

Product
Development

 

 

Sales and
Marketing

 

 

General and
Administrative

 

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

 

 

$

4,856

 

 

$

1,116

 

 

$

263

 

 

    $

194

 

 

    $

89

 

 

  $

604

 

 

  $

578

 

 

  $

561

 

 

  $

3,405

 

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

 

(a)

 

 

 

131

 

 

 

-

 

 

 

1

 

 

 

36

 

 

 

3

 

 

-

 

 

-

 

 

-

 

 

40

 

Less: Stock-based compensation

 

(b)

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9

)

 

 

-

 

 

(20

)

 

(8

)

 

(89

)

 

(126

)

Less: Amortization of intangible assets

 

(c)

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30

)

 

-

 

 

-

 

 

-

 

 

(30

)

Non-GAAP Measurement

 

 

 

 

$

4,987

 

 

$

1,116

 

 

$

264

 

 

    $

221

 

 

    $

62

 

 

  $

584

 

 

  $

570

 

 

  $

472

 

 

  $

3,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2012

 

 

 

 

 

 

Operating
Income

 

 

Net Income

 

 

Basic Earnings
per Share

 

 

Diluted Earnings
per Share