Activision Blizzard, Inc.
Activision Blizzard, Inc. (Form: 8-K, Received: 08/04/2016 16:25:57)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Date of report (Date of earliest event reported): August 4 , 2016

 

                  ACTIVISION BLIZZARD, INC.                     

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware

 

001-15839

 

95-4803544

(State or Other Jurisdiction of
Incorporation)

 

(Commission File Number)

 

(IRS Employer
Identification No.)

 

3100 Ocean Park Boulevard,
Santa Monica, CA

 

 

 

90405

(Address of Principal Executive
Offices)

 

 

 

(Zip Code)

 

 

 

Registrant’s telephone number, including area code:  (310) 255-2000

 

 

 

 

 

(Former Name or Former Address, if Changed Since Last Report)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 



 

Certain Information Not Filed .  The information in Item 2.02 of this Form 8-K and Exhibit 99.1 attached to this Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall such Item 2.02 or such Exhibit 99.1 or any of the information contained therein be deemed incorporated by reference in any filing under the Securities Exchange Act of 1934 or the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

 

Item 2.02.                               Results of Operations and Financial Condition.

 

On August 4, 2016, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter ended June 30, 2016. A copy of the press release is attached hereto as Exhibit 99.1.  As previously announced, the Company is hosting a conference call and webcast in conjunction with that release.

 

Item 9.01.                               Financial Statements and Exhibits.

 

(d)  Exhibits

 

99.1                     Press Release dated August 4, 2016 (furnished not filed)

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 4 , 2016

ACTIVISION BLIZZARD, INC.

 

 

 

 

 

By:

 /s/ Dennis Durkin

 

 

 

 Dennis Durkin

 

 

 

 Chief Financial Officer

 

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release dated August 4, 2016 (furnished not filed)

 

4


 

Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES BETTER-THAN-EXPECTED

AND RECORD SECOND QUARTER 2016 FINANCIAL RESULTS

 

 

Company Increases CY 2016 Revenues and EPS Outlook

 

Record Q2 Revenues, Growing More Than 50% Year-over-Year

 

Record Quarterly Digital Revenues of Over $1 Billion

 

Record Q2 Operating Cash Flow, Up More Than 250% Year-over-Year

 

 

Santa Monica, CA – August 4, 2016 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2016.

 

 

 

 

 

Second Quarter

(in millions, except EPS)

 

2016

 

 

Prior   
Outlook*

 

2015

 

 

GAAP Net Revenues

 

$

1,570

 

$

1,425

 

$

1,044

 

 

GAAP EPS

 

$

0.17

 

$

0.10

 

$

0.29

 

 

Non-GAAP (redefined) EPS

 

$

0.45

 

$

0.36

 

$

0.31

 

 

For the quarter ended June 30, 2016, Activision Blizzard’s net revenues presented in accordance with Generally Accepted Accounting Principles (“GAAP”) were a Q2 record $1.57 b illion, as compared with $1.04 billion for the second quarter of 2015, an increase of 50%. GAAP net revenues from digital channels were an all-time quarterly record of $1.14 billion, up 23% quarter-over-quarter and 101% year-over-year. GAAP earnings per diluted share were $0.17, as compared with $0.29 for the second quarter of 2015, down year-over-year primarily due to purchase price accounting related to the acquisition of King Digital Entertainment. On a Non-GAAP (redefined) basis, the company’s earnings per diluted share were a Q2 record $0.45, as compared with $0.31 for the second quarter of 2015, an increase of 45%.

 

 

 

 

 

Second Quarter

 

(in millions, except EPS)

 

2016

 

 

Prior   
Outlook*

 

2015

 

 

Non-GAAP (as previously defined) Net Revenues

 

$

1,609

 

$

1,375

 

$

759

 

 

Non-GAAP (as previously defined) EPS

 

$

0.54

 

$

0.38

 

$

0.13

 

 

* GAAP and “Non-GAAP (as previously defined)” outlook was previously provided in the May 5, 2016 earnings release. “Non-GAAP (redefined)” outlook is what would have been provided on May 5, 2016 if the company were providing outlook based on the redefined methodology at that time. “Non-GAAP (redefined)” includes the net effect of revenue deferrals accounting treatment on certain of our online enabled products, which was expected to be $0.02 per diluted share in the outlook that was provided in the May 5, 2016 earnings release.

 

1



 

Activision Blizzard Announces Q2 2016 Financial Results

 

 

On a Non-GAAP (as previously defined) basis, the company’s net revenues were a Q2 record $1.61 billion, as compared with $759 million for the second quarter of 2015, an increase of 112%. Non-GAAP (as previously defined) net revenues from digital channels were an all-time quarterly record of $1.40 billion, up 76% quarter-over-quarter and 129% year-over-year. Non-GAAP (as previously defined) earnings per diluted share were a Q2 record $0.54, as compared with $0.13 for the second quarter of 2015, an increase of 315%.  Note that we are providing these Non-GAAP (as previously defined) measures for comparability one last time this quarter.

 

Activision Blizzard generated a Q2 record $479 million in operating cash flow for the quarter ended June 30, 2016, up 255% year-over-year. For the trailing twelve months ended June 30, 2016, operating cash flow totaled $1.64 billion, a 17% increase year-over-year.

 

Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP, non-GAAP (redefined) and non-GAAP (as previously defined) results.

 

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “With Overwatch’s incredibly successful launch, Call of Duty’s record first half performance, and Candy Crush’s continued growth as key drivers of our overall performance, we delivered a record Q2. We exceeded our non-GAAP (as previously defined) outlook by $234 million in revenues and $0.16 in earnings per share, and raised our full-year outlook.

 

Kotick added, “The lynchpin of our current success and our future growth is our talent. Our teams have the unique combination of passion, entrepreneurial spirit and inspired creativity. The success of Overwatch, our newest franchise, is a testament to this talent. I’m grateful to our over 10,000 employees, each of whom embodies these characteristics of our culture.”

 

Selected Business Highlights:

 

Audience Reach

 

·                  Activision Blizzard had 491 million Monthly Active Users (MAUs) A  in the quarter.

 

·                  Blizzard had the biggest quarterly online player community in its history, with MAUs A  of 33 million, up 29% quarter-over-quarter and 13% year-over-year. This reflects the successful launch of Overwatch ®  and strength across the broader portfolio, including Hearthstone ® : Heroes of Warcraft , which had record quarterly MAUs A , and World of Warcraft ® , which had double-digit MAU A  growth quarter-over-quarter and year-over-year.

 

·                  On May 24, 2016, Blizzard launched Overwatch which now has over 15 million players globally, including box and digital sales, internet game room players, and multi-user console households. In China, Overwatch broke the previous record set by Diablo ®  III as the fastest-selling PC game in the market’s history. 1  Overwatch also currently holds the number one position in Korean Internet Game Rooms with over 30% share of play time. 2

 

2



 

Activision Blizzard Announces Q2 2016 Financial Results

 

·                  Activision had the biggest second quarter online player community in its history, with MAUs A  of 49 million, up 11% year-over-year. Activision continues to have four of the top ten games on current-generation consoles life-to-date, including Call of Duty ® : Black Ops III at No. 1. 3

 

·                  King MAUs A  of 409 million declined in the quarter as expected due to seasonal trends and launch timing. King had three of the top-15-grossing titles in the U.S. mobile app stores for the tenth quarter in a row. 4

 

Deep Engagement

 

·                  Activision Blizzard’s deep game experiences drove nearly 10 billion hours of play time during Q2.

 

·                  Players have spent about 500 million hours playing Blizzard’s Overwatch , with additional content updates ahead.

 

·                  Blizzard’s Hearthstone: Heroes of Warcraft had record total quarterly time spent with the launch of the Whispers of the Old Gods ™ expansion.

 

·                  King’s time spent per MAU A  was up quarter-over-quarter and year-over-year.

 

·                  Activision and its partners at Bungie launched an update in April for Destiny which drove strong reengagement, with an increase in MAUs A   and time spent per MAU A  month-over-month.

 

·                  Activision Blizzard’s esports network, Major League Gaming, debuted the Enhanced Viewer Experience (EVE) which provides viewers with match statistics, up-to-the-minute leaderboards and situational insights live as the competition unfolds. MLG also announced a partnership with Facebook that includes broadcast of the “ESR” (Esports Report) on the social network platform.  MLG’s inaugural broadcast on Facebook was the June  Call of Duty World League event, the Anaheim Open. Since the December acquisition, MLG’s reach on Facebook is up 700%.

 

·                  With the growth of the Call of Duty World League , Call of Duty esports viewership increased by more than 5 times year-over-year to 33 million views of the Stage 1 events. This year’s major events are yet to come.

 

Player Investment

 

·                  Activision Blizzard GAAP revenues from in-game content reached a record of over $900 million this quarter.  Activision Blizzard non-GAAP (as previously defined) revenues from in-game content reached a record of over $1 billion this quarter B . In-game content continues to be a rapidly growing part of the business.

 

·                  Blizzard had its biggest segment revenue quarter and first half year, ever. Blizzard’s quarterly segment operating income nearly tripled vs. the second quarter last year.  Additionally, Blizzard had record second quarter GAAP revenues and record quarterly non-GAAP revenues (as previously defined) in China. Blizzard’s overall performance was driven in particular by Overwatch ’s outstanding launch, World of Warcraft ’s strong pre-expansion momentum, with Legion pre-purchases tracking in-line with the previous expansion, and Hearthstone: Heroes of Warcraft ’s double digit revenue growth year-over-year.

 

3



 

Activision Blizzard Announces Q2 2016 Financial Results

 

·                  Activision had its biggest segment operating income second quarter and first half year, ever, with continued momentum on Call of Duty , including on catalog sales, Season Pass, map packs and micro-transactions, and continued engagement on Destiny .

 

·                  Gross bookings C  for King’s Candy Crush ™ franchise grew quarter-over-quarter and year-over-year.  In addition, King’s average revenue per paying user grew quarter-over-quarter and year-over-year, also driving year-over-year growth in King’s mobile gross bookings C .

 

Company Outlook:

 

·                  On July 12, 2016, Activision released the third of four map packs for Call of Duty: Black Ops III , delivering four multiplayer maps in addition to an all-new Zombies experience, available first on PlayStation 4.

 

·                  On August 2, 2016, Blizzard launched its Summer Games content for Overwatch . The content includes a new soccer-like game mode and includes a variety of new Summer Games-themed cosmetic content in loot boxes.

 

·                  From August 5 to August 7, 2016, MLG will host a Call of Duty World League event in Orlando with a $100,000 prize pool.

 

·                  On August 11, 2016, Blizzard plans to release a new adventure for Hearthstone: Heroes of Warcraft. The adventure, One Night in Karazhan ™, will offer single-player content and the ability to earn new cards for multiplayer duels.

 

·                  On August 30, 2016, Blizzard is expected to launch its highly anticipated World of Warcraft expansion, Legion . World of Warcraft remains the No. 1 subscription-based MMORPG in the world.

 

·                  From September 2 to September 4, 2016, Activision will host fans at Call of Duty XP . Thousands of fans will enjoy hands-on Call of Duty: Infinite Warfare ™ play, the first Call of Duty VR experience, exhibits, developer panels, a surprise musical guest, and more. Call of Duty XP will also host the finals for the Call of Duty World League Championships , where teams from around the world will compete for a $3 million prize pool.

 

·                  On September 20, Activision and Bungie plan to release Rise of Iron , a large new expansion for the Destiny universe. The expansion will include a new location, a new Raid, a new Strike, more quests, weapons, and gear, and a new competitive multiplayer mode.

 

·                  On October 13, 2016, Activision is expected to release Skylanders ® : Imaginators , an innovative new title. For the first time ever, players will be able to create their own Skylanders characters. Skylanders Academy , a new TV series celebrating the beloved kids franchise is expected to premiere on Netflix this fall.

 

4



 

Activision Blizzard Announces Q2 2016 Financial Results

 

·                  On November 4, 2016, Activision is expected to launch the highly anticipated Call of Duty: Infinite Warfare . This is the first release on a three-year development cycle from award-winning studio, Infinity Ward. Fans will also have the opportunity to purchase Legacy and Digital Deluxe Editions including a remastered copy of Call of Duty: Modern Warfare ® , one of the most beloved games of the franchise.

 

·                  Blizzard’s tenth BlizzCon ®  will be returning to the Anaheim Convention Center on Friday, November 4, and Saturday, November 5. Thousands of tickets again sold out in a matter of minutes, but online access via the purchase of a BlizzCon Virtual Ticket is again available for this year’s show.

 

·                  King is expected to have one additional non- Candy Crush franchise release coming towards the end of the year.

 

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

 

(in millions, except
EPS)

 

GAAP
Outlook

 

Non-GAAP
Outlook
(redefined)

 

Impact of GAAP
deferrals
D

 

 

 

 

 

 

 

 

 

CY 2016

 

 

 

 

 

 

 

Net Revenues

 

$

6,400

 

$

6,400

 

$

75

 

EPS

 

$

0.87

 

$

1.83

 

$

0.07

 

Fully Diluted Shares*

 

765

 

765

 

 

 

 

 

 

 

 

 

 

 

Q3 2016

 

 

 

 

 

 

 

Net Revenues

 

$

1,490

 

$

1,490

 

$

45

 

EPS

 

$

0.06

 

$

0.39

 

$

0.01

 

Fully Diluted Shares*

 

760

 

760

 

 

 

 

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

 

As referenced on our July 29, 2016 call, if you would like to calculate Non-GAAP (as previously defined) revenues and EPS, in order to do year-over-year comparisons, you would add the impact of GAAP deferrals to GAAP Revenues and to Non-GAAP (redefined) EPS. See footnote D for further explanation.

 

Currency Assumptions for 2016 Outlook:

 

·                  $1.11 USD/Euro for current outlook (vs. average of $1.11 for 2015 and $1.33 for 2014)

 

·                  $1.31 USD/British Pound Sterling for current outlook (vs. average of $1.53 for 2015 and $1.65 for 2014)

 

5



 

Activision Blizzard Announces Q2 2016 Financial Results

 

Debt Repayment and Cash Dividend

 

In the quarter ended June 30, 2016, we made prepayments to reduce our total outstanding term loans by $816 million. Furthermore, the company paid a cash dividend of $0.26 per common share, a 13% increase year-over-year, in May 2016 to shareholders of record at the close of business on March 30, 2016, totaling $195 million.

 

Conference Call

 

Today at 4:30 p.m. EDT, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter ended June 30, 2016 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 866-598-9332 in the U.S. with passcode 5764728 .

 

About Activision Blizzard

 

Activision Blizzard, Inc., a member of the S&P 500, is the world’s most successful standalone interactive entertainment company. We delight nearly 500 million monthly active users around the world through franchises including Activision’s Call of Duty ® , Destiny and Skylanders ® , Blizzard Entertainment’s World of Warcraft ® , StarCraft ® , Diablo ® , Hearthstone ® : Heroes of Warcraft™ and Overwatch ® , and King’s Candy Crush , Pet Rescue and Farm Heroes . The company is one of the Fortune “100 Best Companies To Work For ® . Headquartered in Santa Monica, California, Activision Blizzard has operations throughout the world, and its games are played in 196 countries. More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com .

 

1  NetEase

2  Gametrics.com

3  Based on data from the NPD Group and GfK Chart-Track

4  U.S. ranking for Apple App Store and Google Play Store, per App Annie Intelligence for second quarter 2016

 

A  Monthly Active User (“MAU”) Definition: We monitor MAUs as a key measure of the overall size of our user base and their regular engagement with our portfolio of games. MAUs are the number of individuals who played a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who plays two of our games would be counted as two users. In addition, due to technical limitations with respect to Activision Publishing and King MAUs, an individual who plays the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard MAUs, an individual who plays the same game on two platforms or devices in the relevant period would generally be counted as a single user.

 

B  The difference between the GAAP and non-GAAP measurement represents the net effect of accounting treatment from revenue deferrals on certain of our online enabled products. In-game content is defined as content and services that can be purchased once the player starts playing a game, e.g. DLC such as map packs, micro-transactions such as loot boxes or gold bars, and value added services such as paid character boosts. It does not include subscriptions.

 

6



 

Activision Blizzard Announces Q2 2016 Financial Results

 

 

C  Gross bookings is an operating metric that represents the total cash spent by players in the period for the purchase of virtual items. King uses gross bookings to evaluate its results of operations, generate future operating plans and assess performance. Gross bookings is the total price paid by players, which includes indirect taxes (sales tax or value added tax etc.), platform providers fees, and King’s share of revenues.

 

D  Net effect of accounting treatment from revenue deferrals on certain of our online enabled products. Some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable. As a result, we recognize revenues attributed to these game titles over their estimated service periods, which is generally less than a year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized. Impact from changes in deferrals refers to the net effect from revenue deferrals accounting treatment for the purposes of revenues, and together with the related cost of revenues deferrals treatment and the related tax impacts for the purposes of EPS. Internally, management excludes the impact of this change in deferred revenues and related cost of revenues 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. In addition, management believes excluding the change in deferred revenues and the related cost of revenues provides a much more timely indication of trends in our operating results.

 

Non-GAAP (as previously defined) and Non-GAAP (redefined) Financial Measures : We provide Non-GAAP (as previously defined) financial measures and Non-GAAP (redefined) financial measures in this earnings release. The only difference between the two measures is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. We have reported our second quarter of 2016 results under Generally Accepted Accounting Principles (“GAAP”), Non-GAAP (as previously defined) and Non-GAAP (redefined). We have provided our outlook for the third quarter and full year of 2016 under GAAP, and Non-GAAP (redefined). This is the last quarter we will report Non-GAAP (as previously defined) financial measures. In accordance with the updated Compliance and Disclosure Interpretations issued by the SEC staff on May 17, 2016, going forward, we will only be providing results and outlook using GAAP and Non-GAAP (redefined).

 

Non-GAAP (redefined) 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 income (loss), earnings (loss) per share and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. When relevant, the Company also provides constant FX information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. 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 and our outlook:

 

·       expenses related to stock-based compensation;

·       the amortization of intangibles from purchase price accounting;

·       fees and other expenses related to the King acquisition, inclusive of related debt financings, and future refinancing of long-term debt, including penalties and the write off of unamortized discount and deferred financing costs; and

·       the income tax adjustments associated with any of the above items. We derive the income tax adjustments commensurate with the non-GAAP income before income tax expenses.

 

7



 

Activision Blizzard Announces Q2 2016 Financial Results

 

In the future, Activision Blizzard may also consider whether other 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, along with others, 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 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.

 

Cautionary Note Regarding Forward-looking Statements: The statements contained in this press release that are not historical facts are forward-looking statements, including, but not limited to, statements about (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 related to product releases; (3) statements of future financial or operating performance; (4) statements relating to the acquisition of King and expected impact of that transaction, including without limitation, the expected impact on Activision Blizzard, Inc.’s future financial results; (5) statements about potential future debt refinancing or other capital structure changes; and (6) statements of assumptions underlying such statements. The company 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.

 

The company cautions that a number of important factors could cause Activision Blizzard’s actual future results and other future circumstances to differ materially from those expressed in any forward looking statements. Such factors include, but are not limited to: uncertainties as to whether and when Activision Blizzard will be able to realize the anticipated financial results from the acquisition of King; the integration of King being more difficult, time-consuming or costly than expected; the diversion of management time and attention to issues relating to the operations and integration of King; sales levels of Activision Blizzard’s titles; increasing concentration of revenue among a small number of titles; Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres, and preferences among hardware platforms; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; adoption rate and availability of new hardware (including peripherals) and related software; counterparty risks relating to customers, licensees, licensors and manufacturers; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality titles; changing business models, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from used games and other forms of entertainment; rapid changes in technology and industry standards; possible declines in software pricing; product returns and price protection; the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion; the seasonal and cyclical nature of the interactive entertainment market; the outcome of current or future tax disputes; litigation risks and associated costs; protection of proprietary rights; shifts in consumer spending trends; capital market risks; applicable regulations; domestic and international economic, financial and political conditions and policies; tax rates and foreign exchange rates; the impact of the current macroeconomic environment; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 and subsequent quarterly reports on Form 10-Q.

 

8



 

Activision Blizzard Announces Q2 2016 Financial Results

 

The forward-looking statements in this press release are based on information available to the company and we assume 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 our future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

 

###

 

(Tables to Follow)

 

For Information Contact:

 

 

 

Amrita Ahuja

Mary Osako

SVP, Investor Relations

SVP, Global Communications

(310) 255-2075

(424) 322-5166

Amrita.Ahuja@Activision.com

Mary.Osako@Activision.com

 

9



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

1

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

 

 

 

 

 

 

 

 

Product sales

 

  $

501

 

  $

528

 

  $

1,145

 

  $

1,311

 

Subscription, licensing and other revenues 1

 

1,069

 

516

 

1,880

 

1,011

 

Net revenues

 

1,570

 

1,044

 

3,025

 

2,322

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

Cost of revenues - product sales:

 

 

 

 

 

 

 

 

 

Product costs

 

149

 

147

 

318

 

349

 

Software royalties, amortization, and intellectual property licenses

 

80

 

70

 

208

 

211

 

Cost of revenues - subscription, licensing, and other:

 

 

 

 

 

 

 

 

 

Game operations and distribution costs

 

241

 

61

 

383

 

120

 

Software royalties, amortization, and intellectual property licenses

 

128

 

19

 

180

 

30

 

Product development

 

249

 

149

 

424

 

294

 

Sales and marketing

 

322

 

164

 

490

 

256

 

General and administrative

 

169

 

102

 

329

 

188

 

Total costs and expenses

 

1,338

 

712

 

2,332

 

1,448

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

232

 

332

 

693

 

874

 

 

 

 

 

 

 

 

 

 

 

Interest and other expense (income), net

 

65

 

50

 

117

 

100

 

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

167

 

282

 

576

 

774

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

40

 

70

 

113

 

168

 

 

 

 

 

 

 

 

 

 

 

Net income

 

  $

127

 

  $

212

 

  $

463

 

  $

606

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share 2

 

  $

0.17

 

  $

0.29

 

  $

0.62

 

  $

0.82

 

Weighted average common shares outstanding

 

739

 

727

 

737

 

725

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share 2

 

  $

0.17

 

  $

0.29

 

  $

0.61

 

  $

0.81

 

Weighted average common shares outstanding assuming dilution

 

750

 

735

 

748

 

734

 

 

 

1                    Subscription, licensing and other revenues represent revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, value-added services, downloadable content, microtransactions, 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 3 million for the three and six months ended June 30, 2016, and 9 million and 10 million for the three and six months ended June 30, 2015, respectively.  For the three and six months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate earnings per common share, assuming dilution, was $126 million and $460 million, respectively, as compared to total net income of $127 million and $463 million, respectively, for the same period. For the three and six months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate earnings per common share, assuming dilution, was $210 million and $597 million, respectively, as compared to total net income of $212 million and $606 million, respectively, for the same period.

 



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

2

 

 

 

 

June 30,
 2016

 

December 31,
 2015

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

  $

2,271

 

  $

1,823

 

Accounts receivable, net

 

462

 

679

 

Inventories, net

 

94

 

128

 

Software development

 

287

 

336

 

Other current assets

 

306

 

421

 

Total current assets

 

3,420

 

3,387

 

Cash in escrow

 

 

3,561

 

Software development

 

150

 

80

 

Property and equipment, net

 

260

 

189

 

Deferred income taxes, net

 

405

 

275

 

Other assets

 

320

 

177

 

Intangible assets, net

 

2,281

 

482

 

Goodwill

 

9,771

 

7,095

 

Total assets

 

  $

16,607

 

  $

15,246

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

  $

176

 

  $

284

 

Deferred revenues

 

1,238

 

1,702

 

Accrued expenses and other liabilities

 

721

 

625

 

Current portion of long-term debt, net

 

56

 

 

Total current liabilities

 

2,191

 

2,611

 

Long-term debt, net

 

4,977

 

4,074

 

Deferred income taxes, net

 

50

 

10

 

Other liabilities

 

835

 

483

 

Total liabilities

 

8,053

 

7,178

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock

 

 

 

Additional paid-in capital

 

10,425

 

10,242

 

Treasury stock

 

(5,588)

 

(5,637)

 

Retained earnings

 

4,366

 

4,096

 

Accumulated other comprehensive loss

 

(649)

 

(633)

 

Total shareholders’ equity

 

8,554

 

8,068

 

Total liabilities and shareholders’ equity

 

  $

16,607

 

  $

15,246

 

 



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except per share data)

3

 

 

Three Months Ended June 30, 2016

 

Net Revenues

 

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

  $

1,570

 

  $

149

 

  $

80

 

  $

241

 

  $

128

 

  $

249

 

  $

322

 

  $

169

 

  $

1,338

 

Stock-based compensation 1

 

 

 

(6

 )

 

(1

 )

(13

 )

(4

 )

(17

 )

(41

 )

Amortization of intangible assets 2

 

 

 

(1

 )

 

(122

 )

 

(78

 )

(2

 )

(203

 )

Fees and other expenses related to acquisitions 3

 

 

 

 

 

 

 

 

(4

 )

(4

 )

Non-GAAP (redefined) Measurement

 

  $

1,570

 

  $

149

 

  $

73

 

  $

241

 

  $

5

 

  $

236

 

  $

240

 

  $

146

 

  $

1,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues 4

 

  $

39

 

  $

(44

 )

  $

(34

 )

  $

7

 

  $

2

 

  $

 

  $

 

  $

 

  $

(69

 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Measurement 6

 

  $

1,609

 

  $

105

 

  $

39

 

  $

248

 

  $

7

 

  $

236

 

  $

240

 

  $

146

 

  $

1,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

  $

232

 

  $

127

 

  $

0.17

 

  $

0.17

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation 1

 

41

 

41

 

0.06

 

0.06

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets 2

 

203

 

203

 

0.27

 

0.27

 

 

 

 

 

 

 

 

 

 

 

Fees and other expenses related to acquisitions 3

 

4

 

5

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above 5

 

 

(35

 )

(0.05

 )

(0.05

 )

 

 

 

 

 

 

 

 

 

 

Non-GAAP (redefined) Measurement

 

  $

480

 

  $

341

 

  $

0.46

 

  $

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues 4

 

  $

108

 

  $

63

 

  $

0.08

 

  $

0.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Measurement 6

 

  $

588

 

  $

404

 

  $

0.54

 

  $

0.54

 

 

 

 

 

 

 

 

 

 

 

 

1

Includes expenses related to stock-based compensation.

2

Reflects amortization of intangible assets from purchase price accounting.

3

Reflects fees and other expenses related to the acquisition of King Digital Entertainment (“King Acquisition”), inclusive of related debt financings.

4

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

5

Reflects the income tax impact associated with the above items. We derive the income tax impacts commensurate with the non-GAAP income before income tax expenses.

6

We have provided Non-GAAP (as previously defined) financial measures and Non-GAAP (redefined) financial measures in this earnings release. The only difference between the two measures is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. We reported our second quarter of 2016 results under GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined). This is the last quarter we will report Non-GAAP (as previously defined) financial measures and going forward, we will only be providing GAAP and Non-GAAP (redefined) results.

 

 

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

 

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. For the three months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (redefined) earnings per common share, assuming dilution, was $340 million, as compared to total net income of $341 million, for the same period. For the three months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (as previously defined) earnings per common share, assuming dilution, was $402 million, as compared to total net income of $404 million, for the same period.

 

For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 739 million, participating securities of approximately 3 million, and dilutive shares of 11 million during the three months ended June 30, 2016.

 



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data )

4

 

 

Six Months Ended June 30, 2016

 

Net Revenues

 

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

  $

3,025

 

  $

318

 

  $

208

 

  $

383

 

  $

180

 

  $

424

 

  $

490

 

  $

329

 

  $

2,332

 

Stock-based compensation 1

 

 

 

(14

 )

 

(1

 )

(23

 )

(7

 )

(40

 )

(85

 )

Amortization of intangible assets 2

 

 

 

(2

 )

(1

 )

(168

 )

 

(111

 )

(3

 )

(285

 )

Fees and other expenses related to acquisitions 3

 

 

 

 

 

 

 

 

(38

 )

(38

 )

Non-GAAP (redefined ) Measurement

 

  $

3,025

 

  $

318

 

  $

192

 

  $

382

 

  $

11

 

  $

401

 

  $

372

 

  $

248

 

  $

1,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues 4

 

  $

(508

 )

  $

(127

 )

  $

(122

 )

  $

3

 

  $

(1

 )

  $

 

  $

 

  $

 

  $

(247

 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined ) Measurement 6

 

  $

2,517

 

  $

191

 

  $

70

 

  $

385

 

  $

10

 

  $

401

 

  $

372

 

  $

248

 

  $

1,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

  $

693

 

  $

463

 

  $

0.62

 

  $

0.61

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation 1

 

85

 

85

 

0.12

 

0.11

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets 2

 

285

 

285

 

0.38

 

0.38

 

 

 

 

 

 

 

 

 

 

 

Fees and other expenses related to acquisitions 3

 

38

 

41

 

0.06

 

0.05

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above 5

 

 

(92

 )

(0.12

 )

(0.12

 )

 

 

 

 

 

 

 

 

 

 

Non-GAAP (redefined ) Measurement

 

  $

1,101

 

  $

782

 

  $

1.06

 

  $

1.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues 4

 

  $

(261

 )

  $

(205

 )

  $

(0.28

 )

  $

(0.27

 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined ) Measurement 6

 

  $

840

 

  $

577

 

  $

0.78

 

  $

0.77

 

 

 

 

 

 

 

 

 

 

 

 

1

Includes expenses related to stock-based compensation.

2

Reflects amortization of intangible assets from purchase price accounting.

3

Reflects fees and other expenses related to the acquisition of King Digital Entertainment (“King Acquisition”), inclusive of related debt financings.

4

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

5

Reflects the income tax impact associated with the above items. We derive the income tax impacts commensurate with the non-GAAP income before income tax expenses.

6

We have provided Non-GAAP (as previously defined) financial measures and Non-GAAP (redefined) financial measures in this earnings release. The only difference between the two measures is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. We reported our second quarter of 2016 results under GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined). This is the last quarter we will report Non-GAAP (as previously defined) financial measures and going forward, we will only be providing GAAP and Non-GAAP (redefined) results.

 

 

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

 

 

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. For the six months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (redefined) earnings per common share, assuming dilution, was $778 million, as compared to total net income of $782 million, for the same period. For the six months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (as previously defined) earnings per common share, assuming dilution, was $573 million, as compared to total net income of $577 million, for the same period.

 

 

For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 737 million, participating securities of approximately 3 million, and dilutive shares of 11 million during the six months ended June 30, 2016.

 



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

5

 

 

Three Months Ended June 30, 2015

 

Net Revenues

 

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

  $

1,044

 

  $

147

 

  $

70

 

  $

61

 

  $

19

 

  $

149

 

  $

164

 

  $

102

 

  $

712

 

Stock-based compensation 1

 

 

 

(2

 )

 

(1

 )

(6

 )

(2

 )

(10

 )

(21

 )

Amortization of intangible assets 2

 

 

 

(1

 )

 

 

 

 

 

(1

 )

Non-GAAP (redefined) Measurement

 

  $

1,044

 

  $

147

 

  $

67

 

  $

61

 

  $

18

 

  $

143

 

  $

162

 

  $

92

 

  $

690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues 3

 

  $

(285

 )

  $

(66

 )

  $

(57

 )

  $

8

 

  $

11

 

  $

 

  $

 

  $

 

  $

(104

 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Measurement 5

 

  $

759

 

  $

81

 

  $

10

 

  $

69

 

  $

29

 

  $

143

 

  $

162

 

  $

92

 

  $

586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

  $

332

 

  $

212

 

  $

0.29

 

  $

0.29

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation 1

 

21

 

21

 

0.03

 

0.03

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets 2

 

1

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above 4

 

 

(5

 )

(0.01

 )

(0.01

 )

 

 

 

 

 

 

 

 

 

 

Non-GAAP (redefined) Measurement

 

  $

354

 

  $

229

 

  $

0.31

 

  $

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues 3

 

  $

(181

 )

  $

(136

 )

  $

(0.18

 )

  $

(0.18

 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Measurement 5

 

  $

173

 

  $

93

 

  $

0.13

 

  $

0.13

 

 

 

 

 

 

 

 

 

 

 

 

1

Includes expenses related to stock-based compensation.

2

Reflects amortization of intangible assets from purchase price accounting.

3

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

4

Reflects the income tax impact associated with the above items. We derive the income tax impacts commensurate with the non-GAAP income before income tax expenses.

5

We have provided Non-GAAP (as previously defined) financial measures and Non-GAAP (redefined) financial measures in this earnings release. The only difference between the two measures is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. We reported our second quarter of 2016 results under GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined). This is the last quarter we will report Non-GAAP (as previously defined) financial measures and going forward, we will only be providing GAAP and Non-GAAP (redefined) results.

 

 

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

 

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. For the three months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (redefined) earnings per common share, assuming dilution, was $226 million, as compared to total net income of $229 million, for the same period. For the three months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (as previously defined) earnings per common share, assuming dilution, was $92 million, as compared to total net income of $93 million, for the same period.

 

For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 727 million, participating securities of approximately 9 million, and dilutive shares of 8 million during the three months ended June 30, 2015.

 



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

6

 

 

Six Months Ended June 30, 2015

 

Net Revenues

 

Cost of Revenues
- Product Sales:
Product Costs

 

Cost of Revenues
- Product Sales:
Software
Royalties and
Amortization

 

Cost of Revenues
- Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of Revenues
- Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

  $

2,322

 

  $

349

 

  $

211

 

  $

120

 

  $

30

 

  $

294

 

  $

256

 

  $

188

 

  $

1,448

 

Stock-based compensation 1

 

 

 

(5

 )

 

(2

 )

(14

 )

(4

 )

(19

 )

(44

 )

Amortization of intangible assets 2

 

 

 

(3

 )

 

 

 

 

 

(3

 )

Non-GAAP (redefined) Measurement

 

  $

2,322

 

  $

349

 

  $

203

 

  $

120

 

  $

28

 

  $

280

 

  $

252

 

  $

169

 

  $

1,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues 3

 

  $

(860

 )

  $

(176

 )

  $

(173

 )

  $

7

 

  $

27

 

  $

 

  $

 

  $

 

  $

(315

 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Measurement 5

 

  $

1,462

 

  $

173

 

  $

30

 

  $

127

 

  $

55

 

  $

280

 

  $

252

 

  $

169

 

  $

1,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

  $

874

 

  $

606

 

  $

0.82

 

  $

0.81

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation 1

 

44

 

44

 

0.06

 

0.06

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets 2

 

3

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above 4

 

 

(13

 )

(0.01

 )

(0.01

 )

 

 

 

 

 

 

 

 

 

 

Non-GAAP (redefined) Measurement

 

  $

921

 

  $

640

 

  $

0.87

 

  $

0.86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues 3

 

  $

(545

 )

  $

(431

 )

  $

(0.59

 )

  $

(0.58

 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Measurement 5

 

  $

376

 

  $

209

 

  $

0.28

 

  $

0.28

 

 

 

 

 

 

 

 

 

 

 

 

1

Includes expenses related to stock-based compensation.

2

Reflects amortization of intangible assets from purchase price accounting.

3

Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

4

Reflects the income tax impact associated with the above items. We derive the income tax impacts commensurate with the non-GAAP income before income tax expenses.

5

We have provided Non-GAAP (as previously defined) financial measures and Non-GAAP (redefined) financial measures in this earnings release. The only difference between the two measures is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. We reported our second quarter of 2016 results under GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined). This is the last quarter we will report Non-GAAP (as previously defined) financial measures and going forward, we will only be providing GAAP and Non-GAAP (redefined) results.

 

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

 

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. For the six months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (redefined) earnings per common share, assuming dilution, was $630 million, as compared to total net income of $640 million, for the same period. For the six months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (as previously defined) earnings per common share, assuming dilution, was $205 million, as compared to total net income of $209 million, for the same period.

 

For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 725 million, participating securities of approximately 10 million, and dilutive shares of 9 million during the six months ended June 30, 2015.

 



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

7

FINANCIAL INFORMATION

For the Three and Six Months Ended June 30, 2016 and 2015

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

June 30, 2016

 

June 30, 2015

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 1

 

Amount

 

% of Total 1

 

(Decrease)

 

 (Decrease)

 

Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital online channels 2

 

  $

1,141

 

73%

 

  $

569

 

55%

 

  $

572 

 

101%

 

Retail channels

 

374

 

24

 

414

 

40

 

(40)

 

(10)  

 

Other 3

 

55

 

4

 

61

 

6

 

(6)

 

(10)  

 

Total consolidated net revenues

 

1,570

 

100

 

1,044

 

100

 

526 

 

50   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues 4

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital online channels 2

 

261

 

 

 

42

 

 

 

 

 

 

 

Retail channels

 

(222)

 

 

 

(327)

 

 

 

 

 

 

 

Total changes in deferred revenues

 

39

 

 

 

(285)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Net Revenues by Distribution Channel 5

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital online channels 2

 

1,402

 

87

 

611

 

81

 

791 

 

129   

 

Retail channels

 

152

 

9

 

87

 

11

 

65 

 

75   

 

Other 3

 

55

 

3

 

61

 

8

 

(6)

 

(10)   

 

Total non-GAAP (as previously defined) net revenues 5

 

  $

1,609

 

100%

 

  $

759

 

100%

 

  $

850 

 

112%

 

 

 

 

Six Months Ended

 

 

 

June 30, 2016

 

June 30, 2015

 

$ Increase

 

% Increase 

 

 

 

Amount

 

% of Total 1

 

Amount

 

% of Total 1

 

(Decrease)

 

(Decrease)

 

Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital online channels 2

 

  $

2,067

 

68%

 

  $

1,150

 

50%

 

  $

917

 

80%

 

Retail channels

 

856

 

28

 

1,063

 

46

 

(207)

 

(19)

 

Other 3

 

102

 

3

 

109

 

5

 

(7)

 

(6)

 

Total consolidated net revenues

 

3,025

 

100

 

2,322

 

100

 

703

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues 4

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital online channels 2

 

132

 

 

 

(1)

 

 

 

 

 

 

 

Retail channels

 

(640)

 

 

 

(859)

 

 

 

 

 

 

 

Total changes in deferred revenues

 

(508)

 

 

 

(860)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Net Revenues by Distribution Channel 5

 

 

 

 

 

 

 

 

 

 

 

 

 

Digital online channels 2

 

2,199

 

87

 

1,149

 

79

 

1,050

 

91

 

Retail channels

 

216

 

9

 

204

 

14

 

12

 

6

 

Other 3

 

102

 

4

 

109

 

7

 

(7)

 

(6)

 

Total non-GAAP (as previously defined) net revenues 5

 

  $

2,517

 

100%

 

  $

1,462

 

100%

 

  $

1,055

 

72%

 

 

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

2        Net revenues from digital online channels represent revenues from digitally distributed subscriptions, licensing royalties, value-added services, downloadable content, microtransactions, and products.

3        Net revenues from Other include revenues from our Major League Gaming, studios, and distribution businesses.

4        Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products, including the effect of taxes.

5        We have provided Non-GAAP (as previously defined) financial measures and Non-GAAP (redefined) financial measures in this earnings release. The only difference between the two measures is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. We reported our second quarter of 2016 results under GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined). This is the last quarter we will report Non-GAAP (as previously defined) financial measures and going forward, we will only be providing GAAP and Non-GAAP (redefined) results.

 



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

8

 

FINANCIAL INFORMATION

For the Three and Six Months Ended June 30, 2016 and 2015

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

June 30, 2016

 

June 30, 2015

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total 1

 

Amount

 

% of Total 1

 

(Decrease)

 

(Decrease)

 

Net Revenues by Platform

 

 

 

 

 

 

 

 

 

 

 

 

 

Console

 

 $

650

 

41%

 

 $

559

 

54%

 

 $

91

 

16%

 

PC 2

 

411

 

26

 

370

 

35

 

41

 

11

 

Mobile and ancillary 3

 

454

 

29

 

54

 

5

 

400

 

NM

 

Other 4

 

55

 

4

 

61

 

6

 

(6)

 

(10)

 

Total consolidated net revenues

 

1,570

 

100

 

1,044

 

100

 

526

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in deferred revenues 5

 

 

 

 

 

 

 

 

 

 

 

 

 

Console

 

(210)

 

 

 

(283)

 

 

 

 

 

 

 

PC 2

 

219

 

 

 

(28)

 

 

 

 

 

 

 

Mobile and ancillary 3

 

30

 

 

 

26

 

 

 

 

 

 

 

Total changes in deferred revenues

 

39

 

 

 

(285)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (as previously defined) Net Revenues by Platform 6

 

 

 

 

 

 

 

 

 

 

 

 

 

Console

 

440

 

27

 

276

 

36

 

164

 

59

 

PC 2

 

630

 

39