Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: 8-K, Received: 02/05/2015 16:22:31)

 

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 5, 2015

 

 

 

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 5, 2015, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter and year ended December 31, 2014. A copy of the press release is attached hereto as Exhibit 99.1.  As previously announced, the Company is hosting a conference call and webcast in conjunction with that release.

 

 

Item 8.01.                              Other Events.

 

Cash Dividend .  On February 5, 2015, the Company’s Board of Directors approved a cash dividend of $0.23 per share to be paid on May 13, 2015 to shareholders of record of the Company’s common stock on March 30, 2015.

 

Share Repurchase.  On February 3, 2015, the Company’s Board of Directors authorized the Company to repurchase up to $750 million of the Company’s common stock on terms and conditions to be determined by the Company from February 9, 2015 until the earlier of February 8, 2017 and a determination by the Board of Directors to discontinue the repurchase program.

 

Condensed Consolidated Financial Highlights — Fourth Quarter 2014 Results (Unaudited) .  Set forth below are the Company’s condensed consolidated financial highlights for the periods and at the dates indicated.

 

2



 

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,

 

2014

2013

2014

2013

 

 

 

 

 

Net revenues:

 

 

 

 

Product sales

  $

1,094

  $

1,152

  $

2,786

  $

3,201

Subscription, licensing and other revenues 1

481

366

1,622

1,382

Total net revenues

1,575

1,518

4,408

4,583

 

 

 

 

 

Costs and expenses:

 

 

 

 

Cost of sales - product costs

432

502

999

1,053

Cost of sales - online

61

50

232

204

Cost of sales - software royalties and amortization

124

72

260

187

Cost of sales - intellectual property licenses

14

31

34

87

Product development

184

197

571

584

Sales and marketing

247

239

712

606

General and administrative

75

143

417

490

Total costs and expenses

1,137

1,234

3,225

3,211

Operating income

438

284

1,183

1,372

Interest and other investment income (expense), net

(50)

(51)

(202)

(53)

Income before income tax expense

388

233

981

1,319

Income tax expense

27

59

146

309

Net income

  $

361

  $

174

  $

835

  $

1,010

 

 

 

 

 

Basic earnings per common share 2

  $

0.49

  $

0.23

  $

1.14

  $

0.96

Weighted average common shares outstanding

720

745

716

1,024

 

 

 

 

 

Diluted earnings per common share 2

  $

0.49

  $

0.22

  $

1.13

  $

0.95

Weighted average common shares outstanding assuming dilution

729

757

726

1,035

 

 

 

 

 

 

 

 

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 12 million and 15 million for the three months and year ended December 31, 2014, respectively. 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.  Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $355 million and $817 million for the three months and year ended December 31, 2014 as compared to total net income of $361 million and $835 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 $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.

 

3



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

 

 

December 31,

December 31,

 

2014

2013

ASSETS

 

 

Current assets:

 

 

Cash and cash equivalents

$

4,848

$

4,410

Short-term investments

10

33

Accounts receivable, net

659

510

Inventories, net

123

171

Software development

452

367

Intellectual property licenses

5

11

Deferred income taxes, net

368

321

Other current assets

444

418

Total current assets

6,909

6,241

Long-term investments

9

9

Software development

20

21

Intellectual property licenses

18

---

Property and equipment, net

157

138

Other assets

85

35

Intangible assets, net

29

43

Trademark and trade names

433

433

Goodwill

7,086

7,092

Total assets

$

14,746

$

14,012

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable

$

325

$

355

Deferred revenues

1,797

1,389

Accrued expenses and other liabilities

592

636

Current portion of long-term debt

---

25

Total current liabilities

2,714

2,405

Long-term debt, net

4,324

4,668

Deferred income taxes, net

114

66

Other liabilities

361

251

Total liabilities

7,513

7,390

Shareholders’ equity:

 

 

Common stock

---

---

Additional paid-in capital

9,924

9,682

Treasury stock

(5,762)

(5,814)

Retained earnings

3,374

2,686

Accumulated other comprehensive income (loss)

(303)

68

Total shareholders’ equity

7,233

6,622

Total liabilities and shareholders’ equity

$

14,746

$

14,012

 

 

 

 

4



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

(Amounts in millions)

 

 

Year Ended December 31,

 

2014

2013

 

 

 

Cash flows from operating activities:

 

 

Net income

  $

835

  $

1,010

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

 

 

Deferred income taxes

(44)

161

Provision for inventories

39

33

Depreciation and amortization

90

108

Loss on disposal of property and equipment

1

---

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

256

207

Amortization of debt discount and debt financing costs

7

1

Stock-based compensation expense (2)

104

108

Excess tax benefits from stock awards

(39)

(29)

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

(177)

198

Inventories

(2)

6

Software development and intellectual property licenses

(349)

(268)

Other assets

18

(67)

Deferred revenues

475

(275)

Accounts payable

(12)

7

Accrued expenses and other liabilities

90

64

Net cash provided by operating activities

1,292

1,264

 

 

 

Cash flows from investing activities:

 

 

Proceeds from maturities of available-for-sale investments

21

304

Proceeds from sales of available-for-sale investments

---

98

Purchases of available-for-sale investments

---

(26)

Capital expenditures

(107)

(74)

Decrease (increase) in restricted cash

2

6

Net cash provided by (used in) investing activities

(84)

308

 

 

 

Cash flows from financing activities:

 

 

Proceeds from issuance of common stock to employees

175

158

Tax payment related to net share settlements on restricted stock rights

(66)

(49)

Repurchase of common stock

---

(5,830)

Dividends paid

(147)

(216)

Proceeds from issuance of long-term debt

---

4,750

Repayment of long-term debt

(375)

(6)

Payment of debt discount and financing costs

---

(59)

Excess tax benefits from stock awards

39

29

Net cash used in financing activities

(374)

(1,223)

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

(396)

102

Net increase in cash and cash equivalents

438

451

 

 

 

Cash and cash equivalents at beginning of period

4,410

3,959

 

 

 

Cash and cash equivalents at end of period

  $

4,848

  $

4,410

 

 

 

 

(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.

 

5



 

Item 9.01.                              Financial Statements and Exhibits.

 

(d)  Exhibits

 

99.1                     Press Release dated February 5, 2015 (furnished not filed)

 

6



 

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 5, 2015

ACTIVISION BLIZZARD, INC.

 

 

 

 

 

 

 

By:

/s/ Dennis Durkin

 

 

 

Dennis Durkin

 

 

 

Chief Financial Officer

 

 

7



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release dated February 5, 2015 (furnished not filed)

 

8


Exhibit 99.1

 

FOR IMMEDIATE RELEASE

 

 

ACTIVISION BLIZZARD ANNOUNCES

RECORD FOURTH QUARTER AND FULL YEAR EARNINGS PER SHARE

 

 

Exceeds Outlook for Fourth Quarter and Full Year 2014

 

Achieved More Than 50% Non-GAAP Earnings Per Share Growth and

Double-Digit Non-GAAP Revenue Growth in 2014

 

Digital Revenues At All-Time High, Representing 46% of Full Year Non-GAAP Revenues

 

Generated Operating Cash Flow of $1.3 Billion in 2014

 

Announces Two-Year Stock Repurchase Plan of $750 Million and Debt Paydown of $250 Million

 

Increases Cash Dividend By 15% to $0.23 Per Common Share

 

 

Santa Monica, CA – February 5, 2015 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced record fourth quarter and full year earnings per share.

 

 

 

Fourth Quarter

 

Calendar Year

(in millions, except EPS)

 

2014

 

Prior

Outlook*

 

2013

 

2014

 

2013

 

GAAP

Net Revenues

 

$

1,575

 

$

1,492

 

$

1,518

 

$

4,408

 

$

4,583

 

EPS

 

$

0.49

 

$

0.28

 

$

0.22

 

$

1.13

 

$

0.95

 

Non-GAAP

 Net Revenues

 

$

2,213

 

$

2,200

 

$

2,272

 

$

4,813

 

$

4,342

 

 EPS

 

$

0.94

 

$

0.86

 

$

0.79

 

$

1.42

 

$

0.94

 

*Prior outlook was provided by the company on November 4, 2014 in its earnings release

 

For calendar year 2014, Activision Blizzard delivered record non-GAAP earnings per diluted share of $1.42, as compared with $0.94  per diluted share for 2013. On a GAAP basis, the company delivered record earnings per diluted share of $1.13, as compared with $0.95  per diluted share for 2013.

 

For calendar year 2014, Activision Blizzard delivered non-GAAP net revenues of $4.81 billion, as compared with $4.34 billion for 2013. On a GAAP basis, the company delivered net revenues of $4.41 billion, as compared with $4.58 billion for 2013. For the calendar year, non-GAAP net revenues from digital channels were $2.20 billion and represented a record 46% of the company’s total net revenues. On a GAAP basis, for the calendar year 2014, net revenues from digital channels were $1.90

 

 

Page 1 of 8



 

Activision Blizzard Announces Fourth Quarter and CY 2014 Financial Results

 

billion and represented 43% of the company’s total revenues.

 

For the quarter ended December 31, 2014, Activision Blizzard’s non-GAAP earnings per diluted share were a record $0.94, as compared with $0.79 for the fourth quarter of 2013. On a GAAP basis, the company’s earnings per diluted share were a record $0.49, more than double the earnings per diluted share of $0.22 for the fourth quarter of 2013.

 

For the quarter ended December 31, 2014, the company delivered non-GAAP net revenues of $2.21 billion, as compared with $2.27 billion for the fourth quarter of 2013. On a GAAP basis, the company’s net revenues were $1.58 billion, as compared with $1.52 billion for the fourth 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.

 

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “2014 was another successful year as we achieved record results and introduced new franchises with outstanding gameplay, expanded on exciting new business models and continued investing in some of the world’s most important entertainment franchises. We delivered record earnings per share which increased more than 50% from the previous year, double-digit revenue growth, and record high-margin digital revenues that represent an all-time high of 46% of total revenues (all non-GAAP).”

 

Kotick, added, “We expanded our franchise portfolio by launching two of the industry’s most successful new brands, Blizzard’s Hearthstone®: Heroes of Warcraft , and the biggest new IP launch in industry history, Destiny® . Combined, these franchises attracted over 40 million registered players worldwide and generated more than $850 million in non-GAAP revenue. 1  This year, we expect to expand our franchise portfolio to 10 blockbusters, up from five franchises at the beginning of 2014. Our amazingly talented teams will continue to produce the world’s best content for gamers.”

 

Kotick, continued, “We have a growing portfolio of the very best franchises and great confidence in our future. Our Board has once again increased our dividend, authorized a $750 million share repurchase program and the repayment of another $250 million of our debt, and we have returned nearly $10 billion to our shareholders in dividends and repurchases since 2008.”

 

2



 

Activision Blizzard Announces Fourth Quarter and CY 2014 Financial Results

 

Selected Business Highlights:

 

·                  In North America and Europe combined, Activision Publishing was the #1 retail publisher and had three of the top five best-selling new releases for the calendar year – #1 Call of Duty®: Advanced Warfare , #3 Destiny , and #5 Skylanders® Trap Team . 2

 

·                  Activision Publishing’s Call of Duty: Advanced Warfare was the #1 top-selling console game globally for the calendar year. 3  Additionally, in 2014, Call of Duty was the #1 franchise in North America for the sixth year in a row. 4  Call of Duty franchise revenues now exceed $11 billion in retail sales worldwide since it first launched in 2003. 5

 

·                  Activision Publishing’s Destiny was the most successful launch of a new video game franchise in history. 2  Destiny was also the #1 top-selling new video game IP and the #3 top-selling new release in North America and Europe, combined, for the calendar year. 2  To date, Destiny has more than 16 million registered users and active players are playing the game an average of over three hours per day.

 

·                  Activision Publishing’s Skylanders Trap Team was the #1 top-selling kids console game globally for the calendar year. For the third consecutive year, Skylanders was the #1 kids video game franchise of the year in the U.S., and globally. 3

 

·                 At BlizzCon ®  on November 7, 2014, Blizzard Entertainment announced a new intellectual property, Overwatch  – a highly accessible multi-player game featuring an amazing cast of heroes and set in an all-new Blizzard game universe.

 

·                  On November 13, 2014, Blizzard Entertainment launched Warlords of Draenor , the fifth expansion for the #1 subscription-based MMORPG in the world, World of Warcraft ® . The expansion sold-through more than 3.3 million copies as of the first 24 hours of its availability and helped drive World of Warcraft to more than 10 million global subscribers at the end of 2014.

 

·                 On December 8, 2014, Blizzard Entertainment launched Goblins vs Gnomes , the first expansion for Hearthstone: Heroes of Warcraft. The release of Hearthstone: Heroes of Warcraft on Android tablets followed on December 15, 2014.

 

 

Company Outlook:

On January 11, 2015, Activision Publishing and Tencent launched a public open beta for Call of Duty ®  Online , making the game available to millions of Chinese gamers. The open beta marks a historic first for the Call of Duty series as it expands into the world’s largest gaming market.

 

3



 

Activision Blizzard Announces Fourth Quarter and CY 2014 Financial Results

 

 

On January 13, 2015, Blizzard Entertainment began the closed beta test for Heroes of the Storm , its upcoming free-to-play online team brawler featuring iconic heroes from more than 20 years of Blizzard gaming history. To date, more than nine million players have signed up to beta test the game.

 

On January 27, 2015, Activision Publishing launched the first DLC for Call of Duty®: Advanced Warfare – Havoc , available first on the Xbox Live online entertainment network from Microsoft for Xbox One and Xbox 360 . The DLC offers four new multi-player maps, exclusive weapon, custom weapon variant and a new zombies cooperative mode called Exo Zombies.

 

In January 2015, Blizzard Entertainment’s Hearthstone: Heroes of Warcraft reached more than 25 million registered players.

 

Additionally, in 2015, Blizzard Entertainment expects to begin beta testing Overwatch.

 

Given the significant weakening of foreign currencies versus the U.S. dollar, the company’s 2015 international revenues and earnings are expected to be translated at much lower rates than in 2014. This will impact the company’s 2015 outlook as compared to 2014 actual results given approximately 50% of the company’s revenues, and a higher percentage of profits, are generated outside the U.S. See reconciliation table, below.

 

Activision Blizzard’s first quarter and calendar year 2015 outlook is, as follows:

 

(in millions, except EPS)

 

GAAP
Outlook

 

Non-GAAP
Outlook

 

 

 

 

 

 

 

CY 2015

  Net Revenues

 

   $

4,140

 

          $

4,400

 

  EPS

 

   $

0.89

 

          $

1.15

 

  Fully Diluted Shares**

 

750

 

750

 

 

 

 

 

 

 

Q1 2015

  Net Revenues

 

   $

1,140

 

          $

640

 

  EPS

 

   $

0.37

 

          $

0.05

 

  Fully Diluted Shares**

 

745

 

745

 

 

The following table reconciles our CY14 actual earnings per share to CY15 outlook earnings per share.

 

EPS

 

GAAP

 

Non-GAAP

CY14 – Actuals

 

  $

1.13

 

 

  $

1.42

 

Slate / Operations***

 

0.01

 

 

(0.05)

 

Foreign Currency

 

(0.17)

 

 

(0.14)

 

Tax Rate & Share Count

 

(0.08)

 

 

(0.08)

 

 

CY15 – Outlook

 

  $

0.89

 

 

  $

1.15

 

 

4



 

Activision Blizzard Announces Fourth Quarter and CY 2014 Financial Results

 

 

Currency Assumptions for 2015 Outlook:

·                  $1.13 USD/Euro (vs. a $1.33 average for 2014)

·                  $1.51 USD/British Pound Sterling (vs. a $1.65 average for 2014)

·                  Revenue and EPS increase if the Euro or British Pound Sterling strengthens vs. USD

 

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

*** For GAAP purpose, it includes the net change in deferred net revenues and related cost of sales.

 

Board Authorizes Stock Repurchase Program and Debt Repayment and Declares Cash Dividend

 

The company also announced that its Board of Directors authorized a new two-year stock repurchase program under which the company is authorized to repurchase up to $750 million of its outstanding common stock during the period from February 9, 2015 through February 8, 2017.

 

Additionally, the company announced that its Board of Directors has approved a repayment of $250 million of the company’s outstanding “Term Loan B,” which is expected to occur during the first quarter of 2015.

 

The Board of Directors also declared a cash dividend of $0.23 per common share, payable on May 13, 2015 to shareholders of record at the close of business on March 30, 2015, which represents a 15% increase from 2014.

 

Conference Call

Today at 4:30 p.m. EST, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter ended December 31, 2014 and management’s outlook for 2015. 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 877-741-4239 in the U.S. with passcode 3638929.

 

 

About Activision Blizzard

 

Activision Blizzard, Inc. is the largest and most profitable 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 , Call of Duty Online, Destiny , Skylanders, World of Warcraft , StarCraft ®, Diablo®, and Hearthstone .

 

Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world. More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com .

 

1 During calendar year 2014, combined GAAP revenues from Hearthstone: Heroes of Warcraft and Destiny were more than $450 million. The difference in GAAP and non-GAAP revenues represents the net change in deferrals of revenues of approximately $400 million.

2  The NPD Group and GfK Chart-Track, including toys and accessories

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

4  The NPD Group

5  The NPD Group and GfK Chart-Track

 

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

 

5



 

Activision Blizzard Announces Fourth Quarter and CY 2014 Financial Results

 

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 (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

 

6



 

Activision Blizzard Announces Fourth Quarter and CY 2014 Financial Results

 

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.

 

 

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)

 

7



 

Activision Blizzard Announces Fourth Quarter and CY 2014 Financial Results

 

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

 

8



 

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,

 

2014

2013

2014

2013

 

 

 

 

 

Net revenues:

 

 

 

 

Product sales

  $

1,094

  $

1,152

  $

2,786

  $

3,201

Subscription, licensing and other revenues 1

481

366

1,622

1,382

Total net revenues

1,575

1,518

4,408

4,583

 

 

 

 

 

Costs and expenses:

 

 

 

 

Cost of sales - product costs

432

502

999

1,053

Cost of sales - online

61

50

232

204

Cost of sales - software royalties and amortization

124

72

260

187

Cost of sales - intellectual property licenses

14

31

34

87

Product development

184

197

571

584

Sales and marketing

247

239

712

606

General and administrative

75

143

417

490

Total costs and expenses

1,137

1,234

3,225

3,211

Operating income

438

284

1,183

1,372

Interest and other investment income (expense), net

(50)

(51)

(202)

(53)

Income before income tax expense

388

233

981

1,319

Income tax expense

27

59

146

309

Net income

  $

361

  $

174

  $

835

  $

1,010

 

 

 

 

 

Basic earnings per common share 2

  $

0.49

  $

0.23

  $

1.14

  $

0.96

Weighted average common shares outstanding

720

745

716

1,024

 

 

 

 

 

Diluted earnings per common share 2

  $

0.49

  $

0.22

  $

1.13

  $

0.95

Weighted average common shares outstanding assuming dilution

729

757

726

1,035

 

 

 

 

 

 

 

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 12 million and 15 million for the three months and year ended December 31, 2014, respectively. 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.  Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $355 million and $817 million for the three months and year ended December 31, 2014 as compared to total net income of $361 million and $835 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 $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.

 

1



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

(Amounts in millions)

 

 

 

December 31,

December 31,

 

 

2014

2013

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 

$

4,848

$

4,410

Short-term investments

 

10

33

Accounts receivable, net

 

659

510

Inventories, net

 

123

171

Software development

 

452

367

Intellectual property licenses

 

5

11

Deferred income taxes, net

 

368

321

Other current assets

 

444

418

Total current assets

 

6,909

6,241

Long-term investments

 

9

9

Software development

 

20

21

Intellectual property licenses

 

18

---

Property and equipment, net

 

157

138

Other assets

 

85

35

Intangible assets, net

 

29

43

Trademark and trade names

 

433

433

Goodwill

 

7,086

7,092

Total assets

 

$

14,746

$

14,012

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

 

$

325

$

355

Deferred revenues

 

1,797

1,389

Accrued expenses and other liabilities

 

592

636

Current portion of long-term debt

 

---

25

Total current liabilities

 

2,714

2,405

Long-term debt, net

 

4,324

4,668

Deferred income taxes, net

 

114

66

Other liabilities

 

361

251

Total liabilities

 

7,513

7,390

Shareholders’ equity:

 

 

 

Common stock

 

---

---

Additional paid-in capital

 

9,924

9,682

Treasury stock

 

(5,762)

(5,814)

Retained earnings

 

3,374

2,686

Accumulated other comprehensive income (loss)

 

(303)

68

Total shareholders’ equity

 

7,233

6,622

Total liabilities and shareholders’ equity

 

$

14,746

$

14,012

 

 

 

 

 

2



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

 

 

 

 

Year Ended December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

 

$

835 

 

$

1,010 

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

 

 

 

 

 

Deferred income taxes

 

 

(44)

 

161 

Provision for inventories

 

 

39 

 

33 

Depreciation and amortization

 

 

90 

 

108 

Loss on disposal of property and equipment

 

 

 

---

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

 

 

256 

 

207 

Amortization of debt discount and debt financing costs

 

 

 

Stock-based compensation expense (2)

 

 

104 

 

108 

Excess tax benefits from stock awards

 

 

(39)

 

(29)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

 

(177)

 

198 

Inventories

 

 

(2)

 

Software development and intellectual property licenses

 

 

(349)

 

(268)

Other assets

 

 

18 

 

(67)

Deferred revenues

 

 

475 

 

(275)

Accounts payable

 

 

(12)

 

Accrued expenses and other liabilities

 

 

90 

 

64 

Net cash provided by operating activities

 

 

1,292 

 

1,264 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from maturities of available-for-sale investments

 

 

21 

 

304 

Proceeds from sales of available-for-sale investments

 

 

---

 

98 

Purchases of available-for-sale investments

 

 

---

 

(26)

Capital expenditures

 

 

(107)

 

(74)

Decrease (increase) in restricted cash

 

 

 

Net cash provided by (used in) investing activities

 

 

(84)

 

308 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock to employees

 

 

175 

 

158 

Tax payment related to net share settlements on restricted stock rights

 

 

(66)

 

(49)

Repurchase of common stock

 

 

---

 

(5,830)

Dividends paid

 

 

(147)

 

(216)

Proceeds from issuance of long-term debt

 

 

---

 

4,750 

Repayment of long-term debt

 

 

(375)

 

(6)

Payment of debt discount and financing costs

 

 

---

 

(59)

Excess tax benefits from stock awards

 

 

39 

 

29 

Net cash used in financing activities

 

 

(374)

 

(1,223)

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

(396)

 

102 

Net increase in cash and cash equivalents

 

 

438 

 

451 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

4,410 

 

3,959 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

 

$

4,848 

 

$

4,410 

 

 

 

 

 

 

 

(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.

 

3



 

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

 

 

 

2012

 

2013

 

2013

 

2013

 

2013

 

(Decrease)

 

2014

 

2014

 

2014

 

2014

 

(Decrease)

 

Cash Flow Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

$

976

 

$

325

 

$

109

 

$

(50)

 

$

880

 

(10)

%

$

136

 

$

106

 

$

(145)

 

$

1,195

 

36 

%

Capital Expenditures

 

27

 

17

 

19

 

22 

 

16

 

(41)

 

37

 

25

 

28 

 

17

 

 

Non-GAAP Free Cash Flow

 

949

 

308

 

90

 

(72)

 

864

 

(9)

 

99

 

81

 

(173)

 

1,178

 

36 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow - TTM

 

1,345

 

1,516

 

1,532

 

1,360 

 

1,264

 

(6)

 

1,075

 

1,072

 

977 

 

1,292

 

 

Capital Expenditures - TTM

 

73

 

82

 

84

 

85 

 

74

 

 

94

 

100

 

106 

 

107

 

45 

 

Non-GAAP Free Cash Flow - TTM

 

$

1,272

 

$

1,434

 

$

1,448

 

$

1,275 

 

$

1,190

 

(6)

%

$

981

 

$

972

 

$

871 

 

$

1,185

 

(0)

%

 

 

1

TTM represents trailing twelve months. Operating Cash Flow for the three months ended December 31, 2012, three months ended September 30, 2012, three months ended June 30, 2012, and three months ended March 31, 2012 was $976 million, $122 million, $93 million, and $154 million, respectively. Capital expenditures for the three months ended December 31, 2012, three months ended September 30, 2012, three months ended June 30, 2012, and three months ended March 31, 2012 was $27 million, $21 million, $17 million, and $8 million, respectively.

2

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

 

4



 

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, 2014

 

Net Revenues

Cost of Sales -
Product Costs

Cost of Sales -
Online

Cost of Sales -
Software Royalties
and Amortization

Cost of Sales -
Intellectual
Property Licenses

Product
Development

Sales and
Marketing

General and
Administrative

Total Costs and
Expenses

GAAP Measurement

 

$

1,575

$

432

$

61

$

124

$

14

$

184

$

247

$

75

$

1,137

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

(a)

638

112

-

52

(1)

-

-

-

163

Less:  Stock-based compensation

(b)

-

-

-

(5)

-

(5)

(2)

(17)

(29)

Less:  Amortization of intangible assets

(c)

-

-

-

-

(8)

-

-

-

(8)

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

(d)

-

-

-

-

-

-

-

36

36

Non-GAAP Measurement

 

$

2,213

$

544

$

61

$

171

$

5

$

179

$

245

$

94

$

1,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2014

 

Operating
Income

Net Income

 

 

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

$

 438

$

 361

$

 0.49

$

 0.49

 

 

 

 

 

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

(a)

475

349

0.48

0.47

 

 

 

 

 

Less:  Stock-based compensation

(b)

29

19

0.03

0.03

 

 

 

 

 

Less:  Amortization of intangible assets

(c)

8

5

0.01

0.01

 

 

 

 

 

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

(d)

(36)

(36)

(0.05)

(0.05)

 

 

 

 

 

Non-GAAP Measurement

 

$

914

$

698

$

0.95

$

0.94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2014

 

Net Revenues

Cost of Sales -
Product Costs

Cost of Sales -
Online

 

 

Cost of Sales -
Software Royalties
and Amortization

Cost of Sales -
Intellectual
Property Licenses

Product
Development

Sales and
Marketing

General and
Administrative

Total Costs and
Expenses

GAAP Measurement

 

$

4,408

$

999

$

232

$

260

$

34

$

571

$

712

$

417

$

3,225

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

(a)

405

29

-

161

-

-

-

-

190

Less:  Stock-based compensation

(b)

-

-

(1)

(17)

-

(22)

(8)

(56)

(104)

Less:  Amortization of intangible assets

(c)

-

-

-

-

(12)

-

-

-

(12)

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

(d)

-

-

-

-

-

-

-

(13)

(13)

Non-GAAP Measurement

 

$

4,813

$

1,028

$

231

$

404

$

22

$

549

$

704

$

348

$

3,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2014

 

Operating
Income

Net Income

 

 

Basic Earnings
per Share

Diluted Earnings
per Share

 

 

 

 

 

GAAP Measurement

 

$

1,183

$

835

$

1.14

$

1.13

 

 

 

 

 

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

(a)

215

136

0.19

0.18

 

 

 

 

 

Less:  Stock-based compensation

(b)

104

65

0.09

0.09

 

 

 

 

 

Less:  Amortization of intangible assets

(c)

12

8

0.01

0.01

 

 

 

 

 

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

(d)

13

13

0.02

0.02

 

 

 

 

 

Non-GAAP Measurement

 

$

1,527

$

1,057

$

1.44

$

1.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 $686 million and $1,034 million for the three months and year ended December 31, 2014 as compared to total non-GAAP net income of $698 million and $1,057 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 720 million, participating securities of approximately 12 million, and dilutive shares of 9 million during the three months ended December 31, 2014.

For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 716 million, participating securities of approximately 15 million, and dilutive shares of 10 million during the year ended December 31, 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.

 

5



 

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

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

 

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 (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 $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.

 

For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 745 million, participating securities of approximately 23 million, and dilutive shares of 12 million during the three months ended December 31, 2013.

For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 1,024 million, participating securities of approximately 24 million, and dilutive shares of 11 million during the year ended December 31, 2013.

 

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.

 

6



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

 

FINANCIAL INFORMATION

For the Three Months and Year Ended December 31, 2014 and 2013

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

December 31, 2014

 

December 31, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 4

 

Amount

 

% of Total 4

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

846 

 

54 

 %

$

953 

 

63 

 %

$

(107)

 

(11)

 %

Digital online channels

 

539 

 

34 

 

385 

 

25 

 

154 

 

40 

 

Total Activision and Blizzard

 

1,385 

 

88 

 

1,338 

 

88 

 

47 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

190 

 

12 

 

180 

 

12 

 

10 

 

 

Total consolidated GAAP net revenues

 

1,575 

 

100 

 

1,518 

 

100 

 

57 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

492 

 

 

 

786 

 

 

 

 

 

 

 

Digital online channels

 

146 

 

 

 

(32)

 

 

 

 

 

 

 

Total changes in deferred revenues

 

638 

 

 

 

754 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

1,338 

 

60 

 

1,739 

 

77 

 

(401)

 

(23)

 

Digital online channels

 

685 

 

31 

 

353 

 

16 

 

332 

 

94 

 

Total Activision and Blizzard

 

2,023 

 

91 

 

2,092 

 

92 

 

(69)

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

190 

 

 

180 

 

 

10 

 

 

Total non-GAAP net revenues

 

$

2,213 

 

100 

 %

$

2,272 

 

100 

 %

$

(59)

 

(3)

 %

 

 

 

Year Ended

 

 

 

December 31, 2014

 

December 31, 2013

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 4

 

Amount

 

% of Total 4

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

$

2,104 

 

48 

 %

$

2,701 

 

59 

 %

$

(597)

 

(22)

 %

Digital online channels

 

1,897 

 

43 

 

1,559 

 

34 

 

338 

 

22 

 

Total Activision and Blizzard

 

4,001 

 

91 

 

4,260 

 

93 

 

(259)

 

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

407 

 

 

323 

 

 

84 

 

26 

 

Total consolidated GAAP net revenues

 

4,408 

 

100 

 

4,583 

 

100 

 

(175)

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

104 

 

 

 

(247)

 

 

 

 

 

 

 

Digital online channels

 

301 

 

 

 

 

 

 

 

 

 

 

Total changes in deferred revenues

 

405 

 

 

 

(241)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channels

 

2,208 

 

46 

 

2,454 

 

57 

 

(246)

 

(10)

 

Digital online channels

 

2,198 

 

46 

 

1,565 

 

36 

 

633 

 

40 

 

Total Activision and Blizzard

 

4,406 

 

92 

 

4,019 

 

93 

 

387