Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: 8-K, Received: 11/04/2014 16:41:44)

 

 

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):  November 4, 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 November 4, 2014, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter ended September 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 November 4, 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: November 4, 2014

ACTIVISION BLIZZARD, INC.

 

 

 

 

 

By:

/s/ Dennis Durkin

 

 

Dennis Durkin

 

 

Chief Financial Officer

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release dated November 4, 2014 (furnished not filed)

 

4


Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES BETTER-THAN-EXPECTED

THIRD QUARTER 2014 FINANCIAL RESULTS

 

Destiny® and World of Warcraft® Drive Record Third Quarter Non-GAAP Net Revenue and EPS

 

Company Increases CY 2014 Full-Year Revenue and Non-GAAP EPS Outlook

 

Santa Monica, CA – November 4, 2014 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter of 2014.

 

 

 

 

Third Quarter

 

(in millions, except EPS)

 

2014

 

Prior
Outlook*

 

2013

 

GAAP

 

 

 

 

 

 

 

Net Revenues

 

$

753

 

$

650

 

$

691

 

EPS

 

$

(0.03)

 

$

(0.07)

 

$

0.05

 

Non-GAAP

 

 

 

 

 

 

 

Net Revenues

 

$

1,170

 

$

975

 

$

657

 

EPS

 

$

0.23

 

$

0.11

 

$

0.08

 

 

*Prior outlook was provided by the company on August 5, 2014 in its earnings release

 

For the quarter ended September 30, 2014, Activision Blizzard’s GAAP net revenues were $753 million, as compared with $691 million for the third quarter of 2013.  On a non-GAAP basis, the company’s net revenues were a record $1.17 billion, as compared with $657 million for the third quarter of 2013.  For the third quarter of 2014, GAAP net revenues from digital channels represented a record 67% of the company’s total revenues.  On a non-GAAP basis, net revenues from digital channels represented 43% of the company’s total revenues.

 

For the quarter ended September 30, 2014, Activision Blizzard’s GAAP loss per diluted share was ($0.03), as compared with GAAP earnings per diluted share of $0.05 for the third quarter of 2013.  On a non-GAAP basis, the company’s earnings per diluted share were a record $0.23 for the third quarter of 2014, as compared with $0.08 for the third quarter of 2013.

 

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

 

Page 1 of 6



 

Activision Announces Q3 2014 Earnings Results

 

 

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “Our record third-quarter results were driven by Destiny® , the biggest new videogame franchise launch of all time, as well as strong sales from Blizzard Entertainment’s Diablo® III: Reaper of Souls™ - Ultimate Evil Edition™ , Hearthstone®: Heroes of Warcraft™, which now has over 20 million registered players¹, and World of Warcraft® , which saw a quarterly increase in subscribers to 7.4¹ million in anticipation of the upcoming Warlords of Draenor ™ release.  We are raising our full-year non-GAAP outlook and we expect to deliver double-digit non-GAAP revenue growth year-over-year and record non-GAAP earnings per share.”

 

Kotick added, “In addition to new content releases of Skylanders® Trap Team and Call of Duty®: Advanced Warfare, next week Blizzard Entertainment plans to launch World of Warcraft: Warlords of Draenor.   Today, we have some of the most important franchises in entertainment and we expect to continue growing our product portfolio in 2015 with two additional franchises -- Call of Duty Online, which we expect will enter an unlimited beta test, including virtual item sales, in China during the first quarter, and Blizzard Entertainment’s Heroes of the Storm™.   Looking ahead, we have more opportunities than ever before to fuel our growth by creating great content using new platforms and business models while also expanding into new geographies. We are embracing all of these growth opportunities with the same commitment to excellence that we have demonstrated over the past 23 years.”

 

 

 

Selected Business Highlights:

·

For the third quarter, Activision Publishing’s Destiny was the largest new franchise launch in videogame history and ranks among the top 10 largest videogame launches of all time in the U.S.²  To date, Destiny has more than 9.5 million registered users and our active players are playing the game an average of more than three hours per day.¹

 

 

·

Blizzard Entertainment’s World of Warcraft remains the #1 subscription-based MMORPG, with more than 7.4 million subscribers as of September 30, 2014, ahead of the upcoming World of Warcraft: Warlords of Draenor release.¹

 

 

·

During the quarter, Blizzard Entertainment’s newest franchise, Hearthstone: Heroes of Warcraft ,  exceeded  20 million registered users life to date.¹

 

 

·

In North America and Europe combined, for the third quarter, Blizzard Entertainment’s Diablo III: Reaper of Souls - Ultimate Evil Edition was the #4 best-selling console title², and year to date, Diablo III: Reaper of Souls remained the #2 PC game in dollars.³

 

 

·

In North America and Europe combined, for the first nine months of 2014, Activision Publishing’s Skylanders SWAP Force™ was the #4 best-selling console and handheld game overall in dollars, and in North America and Europe, Skylanders toys outsold the #1 action figure line. 4

 

Page 2 of 6



 

Activision Announces Q3 2014 Earnings Results

 

 

 

 

·

On November 7 and 8, 2014, Blizzard Entertainment will host its eighth BlizzCon ®  gaming convention at the Anaheim Convention Center.  For new product announcements and information please visit www.blizzcon.com .

 

 

 

Company Outlook:

On October 5, 2014, Activision Publishing launched Skylanders Trap Team and yesterday the company released Call of Duty: Advanced Warfare, which brings a new vision to the Call of Duty franchise.

 

On November 13, 2014, Blizzard Entertainment expects to release World of Warcraft: Warlords of Draenor, the newest expansion in the epic franchise .

 

Additionally, on December 9, 2014, Activision Publishing plans to release The Dark Below ™, the first expansion to  Destiny, for Sony’s PlayStation®4 and PlayStation®3 and Microsoft’s Xbox One and Xbox 360®.

 

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

 

 

 

(in millions, except EPS)

 

GAAP
Outlook

 

Prior*
GAAP
Outlook

 

Non-GAAP
Outlook

 

Prior*
Non-
GAAP Outlook

 

 

 

 

 

 

 

 

 

 

 

CY 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

4,325

 

$

4,240

 

$

4,800

 

$

4,700

 

 

 

 

 

 

 

 

 

 

 

EPS

 

$

0.91

 

$

0.91

 

$

1.35

 

$

1.29

 

 

 

 

 

 

 

 

 

 

 

Fully Diluted Shares**

 

745

 

750

 

745

 

750

 

 

 

 

 

 

 

 

 

 

 

Q4 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

1,492

 

n/a

 

$

2,200

 

n/a

 

 

 

 

 

 

 

 

 

 

 

EPS

 

$

0.28

 

n/a

 

$

0.86

 

n/a

 

 

 

 

 

 

 

 

 

 

 

Fully Diluted Shares**

 

748

 

n/a

 

748

 

n/a

 

 

* Prior outlook was provided by the company on August 5, 2014 in its earnings release

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

 

Page 3 of 6



 

Activision Announces Q3 2014 Earnings Results

 

 

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 September 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 877-681-3367 in the U.S. with passcode 5237379.

 

 

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 , Destiny , Skylanders , World of Warcraft , StarCraft ®, Diablo and Hearthstone .

 

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 Activision Blizzard internal estimates

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

³According to The NPD Group and GfK Chart-Track

4 According to the NPD Group and Gfk Chart-Track and Activision Blizzard internal estimates, including toys and accessories

 

 

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:

 

Page 4 of 6



 

Activision Announces Q3 2014 Earnings Results

 

·                   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 (including legal fees, costs, expenses and accruals) related to the acquisition of 429 million shares of our common stock on October 11, 2013 from Vivendi, pursuant to the stock purchase agreement dated July 25, 2013 and the $4.75 billion debt financings related thereto; and

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

 

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

 

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

 

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

 

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

 

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; and (3) statements of future financial or operating performance.

 

Page 5 of 6



 

Activision Announces Q3 2014 Earnings Results

 

 

 

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.

 

 

 

###

 

(Tables to Follow)

 

 

 

For Information Contact:

 

 

 

 

 

Kristin Southey

 

Mary Osako

SVP, Investor Relations

 

SVP, Global Communications

(310) 255-2635

 

(424) 322-5166

ksouthey@activision.com

 

mary.osako@activision.com

 

Page 6 of 6



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

(Amounts in millions, except per share data)

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2014

2013

2014

2013

 

 

 

 

 

Net revenues:

 

 

 

 

Product sales

  $

 337

  $

 332

  $

 1,693

  $

 2,049

Subscription, licensing and other revenues 1

416

359

1,140

1,016

Total net revenues

753

691

2,833

3,065

 

 

 

 

 

Costs and expenses:

 

 

 

 

Cost of sales - product costs

156

111

568

551

Cost of sales - online

56

43

170

154

Cost of sales - software royalties and amortization

34

16

136

116

Cost of sales - intellectual property licenses

7

5

20

56

Product development

131

140

387

387

Sales and marketing

221

144

465

367

General and administrative

140

162

342

347

Total costs and expenses

745

621

2,088

1,978

Operating income

8

70

745

1,087

Interest and other investment income (expense), net

(51)

(4)

(152)

(1)

Income (loss) before income tax expense (benefit)

(43)

66

593

1,086

Income tax expense (benefit)

(20)

10

119

249

Net income (loss)

  $

 (23)

  $

 56

  $

 474

  $

 837

 

 

 

 

 

Basic earnings (loss) per common share 2

  $

  (0.03)

  $

 0.05

  $

 0.65

  $

 0.73

Weighted average common shares outstanding

718

1,122

714

1,118

 

 

 

 

 

Diluted earnings (loss) per common share 2

  $

  (0.03)

  $

 0.05

  $

 0.64

  $

 0.73

Weighted average common shares outstanding assuming dilution

718

1,134

725

1,127

 

 

 

 

 

 

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 14 million and 16 million for the three and nine months ended September 30, 2014, respectively. We had, on a weighted-average basis, participating securities of approximately 24 million and 25 million for the three and nine months ended September 30, 2013, respectively. Net income (loss) attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $(23) million and $462 million for the three and nine months ended September 30, 2014 as compared to the total net income (loss) of $(23) million and $474 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 $55 million and $819 million for the three and nine months ended September 30, 2013 as compared to the total net income of $56 million and $837 million for the same periods, respectively.

 

1



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

(Amounts in millions)

 

 

 

September 30,

December 31,

 

 

2014

2013

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 

$

 3,805

$

 4,410

Short-term investments

 

23

33

Accounts receivable, net

 

689

510

Inventories, net

 

222

171

Software development

 

445

367

Intellectual property licenses

 

2

11

Deferred income taxes, net

 

394

321

Other current assets

 

377

418

Total current assets

 

5,957

6,241

Long-term investments

 

9

9

Software development

 

78

21

Property and equipment, net

 

162

138

Other assets

 

90

35

Intangible assets, net

 

38

43

Trademark and trade names

 

433

433

Goodwill

 

7,088

7,092

Total assets

 

$

 13,855

$

 14,012

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

 

$

 266

$

 355

Deferred revenues

 

1,305

1,389

Accrued expenses and other liabilities

 

541

636

Current portion of long-term debt

 

---

25

Total current liabilities

 

2,112

2,405

Long-term debt, net

 

4,322

4,668

Deferred income taxes, net

 

82

66

Other liabilities

 

347

251

Total liabilities

 

6,863

7,390

Shareholders’ equity:

 

 

 

Common stock

 

---

---

Additional paid-in capital

 

9,900

9,682

Treasury stock

 

(5,764)

(5,814)

Retained earnings

 

3,013

2,686

Accumulated other comprehensive income (loss)

 

(157)

68

Total shareholders’ equity

 

6,992

6,622

Total liabilities and shareholders’ equity

 

$

 13,855

$

 14,012

 

 

 

 

 

2



 

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 September 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

 

$

 753

$

 156

$

 56

$

 34

$

 7

$

 131

$

 221

$

 140

$

 745

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

(a)

417

80

-

157

-

-

-

-

237

Less: Stock-based compensation

(b)

-

-

-

(1)

-

(5)

(3)

(13)

(22)

Less: Amortization of intangible assets

(c)

-

-

-

-

(2)

-

-

-

(2)

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

(d)

-

-

-

-

-

-

-

(48)

(48)

Non-GAAP Measurement

 

$

 1,170

$

 236

$

 56

$

 190

$

 5

$

 126

$

 218

$

 79

$

 910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2014

 

Operating
Income

Net Income
(Loss)

 

Basic Earnings
(Loss) per
Share

Diluted Earnings
(Loss) per Share

 

 

 

 

 

GAAP Measurement

 

$

 8

$

 (23)

$

 (0.03)

$

 (0.03)

 

 

 

 

 

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

(a)

180

133

0.18

0.18

 

 

 

 

 

Less: Stock-based compensation

(b)

22

14

0.02

0.02

 

 

 

 

 

Less: Amortization of intangible assets

(c)

2

1

-

-

 

 

 

 

 

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

(d)

48

48

0.07

0.07

 

 

 

 

 

Non-GAAP Measurement

 

$

 260

$

 173

$

 0.24

$

 0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 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

 

$

 2,833

$

 568

$

 170

$

 136

$

 20

$

 387

$

 465

$

 342

$

 2,088

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

(a)

(233)

(83)

-

109

1

-

-

-

27

Less: Stock-based compensation

(b)

-

-

-

(12)

-

(17)

(6)

(41)

(76)

Less: Amortization of intangible assets

(c)

-

-

-

-

(4)

-

-

-

(4)

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

(d)

-

-

-

-

-

-

-

(48)

(48)

Non-GAAP Measurement

 

$

 2,600

$

 485

$

 170

$

 233

$

 17

$

 370

$

 459

$

 253

$

 1,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2014

 

Operating
Income

Net Income

 

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

$

 745

$

 474

$

 0.65

$

 0.64

 

 

 

 

 

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

(a)

(260)

(212)

(0.29)

(0.29)

 

 

 

 

 

Less: Stock-based compensation

(b)

76

46

0.06

0.06

 

 

 

 

 

Less: Amortization of intangible assets

(c)

4

3

-

-

 

 

 

 

 

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

(d)

48

48

0.07

0.07

 

 

 

 

 

Non-GAAP Measurement

 

$

 613

$

 359

$

 0.49

$

 0.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 (including legal fees, costs, expenses and accruals) 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 $170 million and $350 million for the three and nine months ended September 30, 2014 as compared to total non-GAAP net income of $173 million and $359 million for the same periods, respectively.

 

For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 718 million, participating securities of approximately 14 million, and dilutive shares of 10 million during the three months ended September 30, 2014.

 

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.

 

3



 

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 September 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

 

$

691

$

111

$

43

$

16

$

5

$

140

$

144

$

162

$

621

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

(a)

(34)

1

-

(3)

-

-

-

-

(2)

Less: Stock-based compensation

(b)

-

-

-

(1)

-

(9)

(2)

(13)

(25)

Less: Amortization of intangible assets

(c)

-

-

-

-

(3)

-

-

-

(3)

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

(d)

-

-

-

-

-

-

-

(62)

(62)

Non-GAAP Measurement

 

$

657

$

112

$

43

$

12

$

2

$

131

$

142

$

87

$

529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2013

 

Operating
Income

Net Income

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

$

70

$

56

$

0.05

$

0.05

 

 

 

 

 

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

(a)

(32)

(23)

(0.02)

(0.02)

 

 

 

 

 

Less: Stock-based compensation

(b)

25

16

0.01

0.01

 

 

 

 

 

Less: Amortization of intangible assets

(c)

3

2

-

-

 

 

 

 

 

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

(d)

62

39

0.03

0.03

 

 

 

 

 

Non-GAAP Measurement

 

$

128

$

90

$

0.08

$

0.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 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

 

$

3,065

$

551

$

154

$

116

$

56

$

387

$

367

$

347

$

1,978

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

(a)

(995)

(191)

-

(62)

(4)

-

-

-

(257)

Less: Stock-based compensation

(b)

-

-

-

(10)

-

(23)

(5)

(38)

(76)

Less: Amortization of intangible assets

(c)

-

-

-

-

(8)

-

-

-

(8)

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

(d)

-

-

-

-

-

-

-

(62)

(62)

Non-GAAP Measurement

 

$

2,070

$

360

$

154

$

44

$

44

$

364

$

362

$

247

$

1,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2013

 

Operating
Income

Net Income

 

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

$

1,087

$

837

$

0.73

$

0.73

 

 

 

 

 

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

(a)

(738)

(550)

(0.48)

(0.48)

 

 

 

 

 

Less: Stock-based compensation

(b)

76

48

0.04

0.04

 

 

 

 

 

Less: Amortization of intangible assets

(c)

8

5

-

-

 

 

 

 

 

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

(d)

62

39

0.03

0.03

 

 

 

 

 

Non-GAAP Measurement

 

$

495

$

379

$

0.33

$

0.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 (including legal fees, costs, expenses and accruals) 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 Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $88 million and $370 million for the three and nine months ended September 30, 2013 as compared to total non-GAAP net income of $90 million and $379 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.

 

4



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three And Nine Months Ended September 30, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

September 30, 2014

 

September 30, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 4

 

Amount

 

% of Total 4

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

171

 

23

%

$

226

 

33

%

$

(55)

 

(24)

%

Digital online channels

 

504

 

67

 

409

 

59

 

95

 

23

 

Total Activision and Blizzard

 

675

 

90

 

635

 

92

 

40

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

78

 

10

 

56

 

8

 

22

 

39

 

Total consolidated GAAP net revenues

 

753

 

100

 

691

 

100

 

62

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

416

 

 

 

(24)

 

 

 

 

 

 

 

Digital online channels

 

1

 

 

 

(10)

 

 

 

 

 

 

 

Total changes in deferred revenues

 

417

 

 

 

(34)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

587

 

50

 

202

 

31

 

385

 

191

 

Digital online channels

 

505

 

43

 

399

 

61

 

106

 

27

 

Total Activision and Blizzard

 

1,092

 

93

 

601

 

91

 

491

 

82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

78

 

7

 

56

 

9

 

22

 

39

 

Total non-GAAP net revenues

 

$

1,170

 

100

%

$

657

 

100

%

$

513

 

78

%

 

 

 

Nine Months Ended

 

 

 

September 30, 2014

 

September 30, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 4

 

Amount

 

% of Total 4

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

1,257

 

44

%

$

1,748

 

57

%

$

(491)

 

(28)

%

Digital online channels

 

1,358

 

48

 

1,174

 

38

 

184

 

16

 

Total Activision and Blizzard

 

2,615

 

92

 

2,922

 

95

 

(307)

 

(11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

218

 

8

 

143

 

5

 

75

 

52

 

Total consolidated GAAP net revenues

 

2,833

 

100

 

3,065

 

100

 

(232)

 

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

(388)

 

 

 

(1,033)

 

 

 

 

 

 

 

Digital online channels

 

155

 

 

 

38

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(233)

 

 

 

(995)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

869

 

33

 

715

 

35

 

154

 

22

 

Digital online channels

 

1,513

 

58

 

1,212

 

59

 

301

 

25

 

Total Activision and Blizzard

 

2,382

 

92

 

1,927

 

93

 

455

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

218

 

8

 

143

 

7

 

75

 

52

 

Total non-GAAP net revenues

 

$

2,600

 

100

%

$

2,070

 

100

%

$

530

 

26

%

 

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.

 

5



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three Months Ended September 30, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

September 30, 2014

 

September 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

 

$

205

 

27

%

$

205

 

30

%

$

---

 

---

%

PC

 

165

 

22

 

79

 

11

 

86

 

109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, Wii U)

 

109

 

14

 

3

 

---

 

106

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

161

 

21

 

293

 

42

 

(132)

 

(45)

 

Total console

 

270

 

36

 

296

 

43

 

(26)

 

(9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other

 

35

 

5

 

55

 

8

 

(20)

 

(36)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

675

 

90

 

635

 

92

 

40

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

78

 

10

 

56

 

8

 

22

 

39

 

Total consolidated GAAP net revenues

 

753

 

100

 

691

 

100

 

62

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

4

 

 

 

(24)

 

 

 

 

 

 

 

PC

 

(69)

 

 

 

(38)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, Wii U)

 

359

 

 

 

(2)

 

 

 

 

 

 

 

Current-generation (PS3, Xbox 360, Wii)

 

123

 

 

 

30

 

 

 

 

 

 

 

Total console

 

482

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total changes in deferred revenues

 

417

 

 

 

(34)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

209

 

18

 

181

 

28

 

28

 

15

 

PC

 

96

 

8

 

41

 

6

 

55

 

134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, Wii U)

 

468

 

40

 

1

 

---

 

467

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

284

 

24

 

323

 

49

 

(39)

 

(12)

 

Total console

 

752

 

64

 

324

 

49

 

428

 

132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other

 

35

 

3

 

55

 

8

 

(20)

 

(36)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

1,092

 

93

 

601

 

91

 

491

 

82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

78

 

7

 

56

 

9

 

22

 

39

 

Total consolidated non-GAAP net revenues

 

$

1,170

 

100

%

$

657

 

100

%

$

513

 

78

%

 

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.

 

6



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Nine Months Ended September 30, 2014 and 2013

(Amounts in millions)

 

 

 

Nine Months Ended

 

 

 

September 30, 2014

 

September 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

 

$

601

 

21

%

$

714

 

23

%

$

(113)

 

(16)

%

PC

 

447

 

16

 

274

 

9

 

173

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, Wii U)

 

353

 

12

 

14

 

---

 

339

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

1,049

 

37

 

1,620

 

53

 

(571)

 

(35)

 

Total console

 

1,402

 

49

 

1,634

 

53

 

(232)

 

(14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other

 

165

 

6

 

300

 

10

 

(135)

 

(45)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

2,615

 

92

 

2,922

 

95

 

(307)

 

(11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

218

 

8

 

143

 

5

 

75

 

52

 

Total consolidated GAAP net revenues

 

2,833

 

100

 

3,065

 

100

 

(232)

 

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

36

 

 

 

(110)

 

 

 

 

 

 

 

PC

 

18

 

 

 

(67)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, Wii U)

 

214

 

 

 

(10)

 

 

 

 

 

 

 

Current-generation (PS3, Xbox 360, Wii)

 

(513)

 

 

 

(808)

 

 

 

 

 

 

 

Total console

 

(299)

 

 

 

(818)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other

 

12

 

 

 

---

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(233)

 

 

 

(995)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

637

 

25

 

604

 

29

 

33

 

5

 

PC

 

465

 

18

 

207

 

10

 

258

 

125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Next-generation (PS4, Xbox One, Wii U)

 

567

 

22

 

4

 

---

 

563

 

NM

 

Current-generation (PS3, Xbox 360, Wii)

 

536

 

21

 

812

 

39

 

(276)

 

(34)

 

Total console

 

1,103

 

42

 

816

 

39

 

287

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile and other

 

177

 

7

 

300

 

14

 

(123)

 

(41)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Activision and Blizzard

 

2,382

 

92

 

1,927

 

93

 

455

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution: