UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported):  November 7, 2012

 

ACTIVISION BLIZZARD, INC.

(Exact Name of Registrant as Specified in Charter)

 

Delaware

 

001-15839

 

95-4803544

(State or Other Jurisdiction of
Incorporation)

 

(Commission File Number)

 

(IRS Employer
Identification No.)

 

3100 Ocean Park Boulevard,

Santa Monica, CA

 

90405

(Address of Principal Executive
Offices)

 

(Zip Code)

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 



 

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

 

Item 2.02.                                        Results of Operations and Financial Condition.

 

On November 7, 2012, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter ended September 30, 2012. A copy of the press release is attached hereto as Exhibit 99.1.  As previously announced, the Company is hosting a conference call and webcast in conjunction with that release.

 

Item 9.01.                                        Financial Statements and Exhibits.

 

(d)  Exhibits

 

99.1                        Press Release dated November 7, 2012 (furnished not filed)

 

2



 

SIGNATURE

 

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

 

Date: November 7, 2012

 

 

 

 

 

 

ACTIVISION BLIZZARD, INC.

 

 

 

 

 

 

 

By:

/s/ Dennis Durkin

 

 

Dennis Durkin

 

 

Chief Financial Officer

 

3



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release dated November 7, 2012 (furnished not filed)

 

4


Exhibit 99.1

 

FOR IMMEDIATE RELEASE

 

ACTIVISION BLIZZARD ANNOUNCES BETTER-THAN-EXPECTED
THIRD QUARTER 2012 FINANCIAL RESULTS

 

Company Had Three of the Top Four Best-Selling Games in North America and Europe
for the First Nine Months of 2012(1)

 

Company Raises 2012 Net Revenues and EPS Outlook

 

Santa Monica, CA — November 7, 2012 — Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter of 2012.

 

 

 

Third Quarter

 

Nine Months

 

(in millions, except EPS)

 

2012

 

Prior
Outlook*

 

2011

 

2012

 

2011

 

GAAP

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

841

 

$

740

 

$

754

 

$

3,088

 

$

3,348

 

EPS

 

$

0.20

 

$

0.06

 

$

0.13

 

$

0.70

 

$

0.84

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

Net Revenues

 

$

751

 

$

690

 

$

627

 

$

2,393

 

$

2,080

 

EPS

 

$

0.15

 

$

0.07

 

$

0.07

 

$

0.40

 

$

0.31

 


*Prior Outlook was provided by the company in its August 2, 2012 earnings release

 

For the quarter ended September 30, 2012, the company delivered record GAAP net revenues of $841 million, as compared with $754 million for the third quarter of 2011.   On a non-GAAP basis, the company’s net revenues were $751 million, as compared with $627 million for the third quarter of 2011.  For the third-quarter, GAAP net revenues from digital channels were $430 million and represented 51% of the company’s total net revenues.  On a non-GAAP basis, net revenues from digital channels were $427 million and represented 57% of the quarter’s total net revenues.

 

For the quarter ended September 30, 2012, Activision Blizzard delivered record GAAP earnings per diluted share of $0.20, as compared with $0.13 for the third quarter of 2011.  On a non-GAAP basis, the company also delivered record earnings per diluted share of $0.15, as compared with $0.07 for the third quarter of 2011.  Both GAAP and non-GAAP earnings include a one-time tax benefit of $46 million, or $0.04 per diluted share, resulting from the closure of an IRS audit related to pre-merger net operating losses from Vivendi Games.

 


(1) According to The NPD Group, Chart-Track and GfK

 

1



 

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

 

Robert Kotick, Chief Executive Officer, Activision Blizzard, said, “Our unyielding commitment to excellence, the strength of our employees around the globe and our focus on creating great entertainment experiences have enabled us to once again deliver better-than-expected financial results.  We have, for the third straight year, generated over $1 billion of operating cash flow for the trailing twelve month period ending September 30. Our performance was driven by the launch of Blizzard Entertainment’s World of Warcraft®: Mists of Pandaria™ and continued sales of its top-selling PC game, Diablo® III, as well as Activision Publishing’s new entertainment property, Skylanders Spyro’s Adventure®, and sales of titles in the Call of Duty® franchise.  Based on our strong third-quarter performance and increased visibility into the remainder of the year, we are raising our full-year financial outlook and expect to deliver record non-GAAP operating margins and the highest non-GAAP earnings per share in our company’s history.  We now expect non-GAAP earnings per share will increase more than 18% year over year.”

 

Kotick added, “Skylanders Giantsis off to a great start and next week the company will release Call of Duty®: Black Ops II, which we believe will be one of the most successful launches of any form of entertainment in history.”

 

Kotick continued, “As we look to 2013, we are cautious about business prospects given a continuingly challenged global economy, the ongoing console transition and very difficult year-over-year comparables due to Blizzard’s record-shattering Diablo III sales in 2012.  We expect that over the long-term, we will maintain our leadership position as the world’s leading interactive entertainment company and continue to provide strong returns to our shareholders by delivering great games to audiences around the world.”

 

Selected Business Highlights

 

·                  Activision Publishing’s Skylanders Spyro’s Adventure has been the #1 best-selling console and handheld game overall in dollars, including accessory packs and figures, in North America and Europe for the first nine months of 2012.(1)  Additionally, Skylanders Spyro’s Adventure was the #1 action-figure line in the U.S., outselling all other action—figure lines for the first nine months of 2012.(2)

 


(1) According to The NPD Group, Chart-Track and GfK

(2) According to The NPD Group

 

2



 

·                  For the first nine months, Activision Blizzard was the #1 PC publisher in the U.S. and Europe.  Additionally, for the third quarter, Blizzard Entertainment had two of the top five PC games with Diablo III and World of Warcraft: Mists of Pandaria.(1)

 

·                  Since its release in May 2012, Blizzard Entertainment’s Diablo III was the #1 best-selling game in dollars and units on the PC in the U.S. and Europe.(1)

 

·                  On September 25, 2012, Blizzard Entertainment released World of Warcraft: Mists of Pandaria, and sold through approximately 2.7 million copies of the game as of its first week of release.(3) Additionally, on October 2, 2012, World of Warcraft: Mists of Pandaria was released in China, marking what the company believes to be the first time any game has officially released in China as part of a global launch.

 

·                  As of September 30, 2012, Blizzard Entertainment’s World of Warcraft remains the #1 subscription-based MMORPG, with more than 10 million subscribers.(3)

 

Company Outlook

 

During October, Activision Publishing released several new titles including:  007TM Legends on October 16, 2012; Skylanders Giants on October 22, 2012; Cabela’s Dangerous Hunts 2013 and Cabela’s Hunting Expeditions on October 23, 2012; and Transformers Primeon October 30, 2012.

 

On November 13, 2012, Activision Publishing expects to release its highly anticipated game, Call of Duty: Black Ops II, the most ambitious Call of Duty game everAdditionally, Activision Publishing expects to release Wipeout 3 on November 18, 2012 and Family Guy: Back to the Multiverse on November 20, 2012.

 

Based on better-than-expected third-quarter results, Activision Blizzard is raising its outlook for calendar year 2012 from the estimates it provided on August 2, 2012, as follows:

 


(1) According to The NPD Group, Chart-Track and GfK

(3) According to Activision Blizzard internal estimates

 

3



 

 

 

GAAP
Outlook

 

Prior*
GAAP
Outlook

 

Non-GAAP
Outlook

 

Prior*
Non-GAAP
Outlook

 

CY 2012

 

 

 

 

 

 

 

 

 

Net Revenues (in millions)

 

$

4,574

 

$

4,330

 

$

4,805

 

$

4,630

 

EPS

 

$

0.88

 

$

0.69

 

$

1.10

 

$

0.99

 

Q4 2012

 

 

 

 

 

 

 

 

 

Net Revenues (in millions)

 

$

1,485

 

$

n/a

 

$

2,412

 

$

n/a

 

EPS

 

$

0.19

 

$

n/a

 

$

0.70

 

$

n/a

 


*Prior outlook was provided by the company in its August 2, 2012 earnings release.

 

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 September 30, 2012 and management’s outlook for the remainder of the calendar year. The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 888-455-2265 in the U.S. with passcode 7041557.

 

About Activision Blizzard

 

Headquartered in Santa Monica, California, Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile device game publisher with leading positions across the major categories of the interactive entertainment software industry.

 

Activision Blizzard maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea and China.  More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.

 

4



 

Subscriber Definition:  Consistent with past practice, World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to play World of Warcraft, as well as those who have purchased the game and are within their free month of access. Internet Game Room players who have accessed the game over the last thirty days are also counted as subscribers. The above definition excludes all players under free promotional subscriptions, expired or cancelled subscriptions, and expired prepaid cards. Subscribers in licensees’ territories are defined along the same rules.

 

Non-GAAP Financial Measures:  As a supplement to our financial measures presented in accordance with Generally Accepted Accounting Principles (“GAAP”), Activision Blizzard presents certain non-GAAP measures of financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than, the financial information prepared and presented in accordance with GAAP.  In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the company’s results of operations as determined in accordance with GAAP.

 

Activision Blizzard provides net revenues, net income (loss), earnings (loss) per share and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. The non-GAAP financial measures exclude the following items, as applicable in any given reporting period:

 

·                  the change in deferred net revenue and related cost of sales with respect to certain of the company’s online-enabled games;

 

·                  expenses related to stock-based compensation;

 

·                  expenses related to restructuring;

 

·                  the amortization of intangibles, and impairment of intangible assets and goodwill; 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, 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, and non-GAAP operating margin 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 net revenue and related cost of sales with respect to certain of the company’s online-enabled games.

 

5



 

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 revenue 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 net revenue and related cost of sales in its non-GAAP financial measures when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.

 

Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers, which is consistent with the way the company is measured by investment analysts and industry data sources. In addition, excluding the change in deferred net revenue and the related cost of sales provides a much more timely indication of trends in our operating results.

 

Cautionary Note Regarding Forward-looking Statements:  Information in this press release that involves Activision Blizzard’s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements that are not facts and involve a number of risks and uncertainties.

 

Activision Blizzard generally uses words such as “outlook,” “will,”  “could,” “should,” “would,” “might,” “to be,” “plans,” “believes,” “may,” “expects,” “intends,” “anticipates,” “estimate,” “future,” “plan,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and similar expressions to identify forward-looking statements.  Factors that could cause Activision Blizzard’s actual future results to differ materially from those expressed in the forward-looking statements set forth in this release include, but are not limited to, sales levels of Activision Blizzard’s titles, the impact of the current macroeconomic environment and market conditions within the video game industry, increasing concentration of titles, shifts in consumer spending trends, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres such as first-person action and massively multiplayer online games and preferences among competing hardware platforms, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality “hit” titles, the seasonal and cyclical nature of the interactive entertainment 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, rapid changes in technology and industry standards, litigation risks and associated costs, protection of proprietary rights, 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, potential challenges associated with geographic expansion, and the other  factors  identified in the risk factors section of Activision Blizzard’s most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission.  The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes no obligation to update any such forward-looking statements.  Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Activision Blizzard and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.

 

###

 

 

(Tables to Follow)

 

For Information Contact:

 

 

 

Kristin Southey

Maryanne Lataif

SVP, Investor Relations

SVP, Corporate Communications

(310) 255-2635

(310) 255-2704

ksouthey@activision.com

mlataif@activision.com

 

6


 


 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

Product sales

 

$

536

 

$

369

 

$

2,208

 

$

2,197

 

Subscription, licensing and other revenues (1) 

 

305

 

385

 

880

 

1,151

 

Total net revenues

 

841

 

754

 

3,088

 

3,348

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales - product costs

 

146

 

138

 

633

 

650

 

Cost of sales - online subscriptions

 

56

 

59

 

178

 

181

 

Cost of sales - software royalties and amortization

 

19

 

24

 

107

 

133

 

Cost of sales - intellectual property licenses

 

10

 

16

 

37

 

69

 

Product development

 

131

 

133

 

407

 

390

 

Sales and marketing

 

131

 

115

 

346

 

264

 

General and administrative

 

121

 

104

 

413

 

333

 

Restructuring

 

 

3

 

 

24

 

Total costs and expenses

 

614

 

592

 

2,121

 

2,044

 

Operating income

 

227

 

162

 

967

 

1,304

 

Investment and other income (expense), net

 

1

 

3

 

4

 

7

 

Income before income tax expense

 

228

 

165

 

971

 

1,311

 

Income tax expense

 

2

 

17

 

176

 

325

 

Net income

 

$

226

 

$

148

 

$

795

 

$

986

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.20

 

$

0.13

 

$

0.70

 

$

0.84

 

Weighted average common shares outstanding

 

1,109

 

1,140

 

1,113

 

1,151

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share (2)

 

$

0.20

 

$

0.13

 

$

0.70

 

$

0.84

 

Weighted average common shares outstanding assuming dilution

 

1,114

 

1,148

 

1,118

 

1,160

 

 


(1) Subscription, licensing and other revenues represents revenues from World of Warcraft subscriptions, Call of Duty Elite memberships, licensing royalties from our products and franchises, value-added services, downloadable content, and other miscellaneous revenues.

(2) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. We had, on a weighted-average basis, participating securities of approximately 27 million and 23 million for the three and nine months ended September 30, 2012, respectively, and we had, on a weighted-average basis, participating securities of approximately 17 million for the three and nine months ended September 30, 2011. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $221 million and $779 million for the three and nine months ended September 30, 2012, as compared to the total net income of $226 million and $795 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 $146 million and $972 million for the three and nine months ended September 30, 2011, as compared to total net income of $148 million and $986 million for the same periods, respectively.

 

1



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

2,909

 

$

3,165

 

Short-term investments

 

455

 

360

 

Accounts receivable, net

 

200

 

649

 

Inventories, net

 

291

 

144

 

Software development

 

164

 

137

 

Intellectual property licenses

 

13

 

22

 

Deferred income taxes, net

 

497

 

507

 

Other current assets

 

173

 

396

 

Total current assets

 

4,702

 

5,380

 

Long-term investments

 

19

 

16

 

Software development

 

156

 

62

 

Intellectual property licenses

 

4

 

12

 

Property and equipment, net

 

148

 

163

 

Other assets

 

12

 

12

 

Intangible assets, net

 

80

 

88

 

Trademark and trade names

 

433

 

433

 

Goodwill

 

7,107

 

7,111

 

Total assets

 

$

12,661

 

$

13,277

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

253

 

$

390

 

Deferred revenues

 

847

 

1,472

 

Accrued expenses and other liabilities

 

455

 

694

 

Total current liabilities

 

1,555

 

2,556

 

Deferred income taxes, net

 

60

 

55

 

Other liabilities

 

163

 

174

 

Total liabilities

 

1,778

 

2,785

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock

 

 

 

Additional paid-in capital

 

9,418

 

9,616

 

Retained earnings

 

1,539

 

948

 

Accumulated other comprehensive income (loss)

 

(74

)

(72

)

Total shareholders’ equity

 

10,883

 

10,492

 

Total liabilities and shareholders’ equity

 

$

12,661

 

$

13,277

 

 

2


 


 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)

 

Three months ended September 30, 2012

 

Net Revenues

 

Cost of Sales -
Product Costs

 

Cost of Sales -
Online
Subscriptions

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

$

841

 

$

146

 

$

56

 

$

19

 

$

10

 

$

131

 

$

131

 

$

121

 

$

614

 

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

(a)

 

(90

)

(5

)

 

23

 

2

 

 

 

 

20

 

Less: Stock-based compensation

(b)

 

 

 

 

(1

)

 

(5

)

(2

)

(26

)

(34

)

Less: Amortization of intangible assets

(c)

 

 

 

 

 

(3

)

 

 

 

(3

)

Non-GAAP Measurement

 

 

$

751

 

$

141

 

$

56

 

$

41

 

$

9

 

$

126

 

$

129

 

$

95

 

$

597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2012

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

$

227

 

$

226

 

$

0.20

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

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

(a)

 

(110

)

(83

)

(0.07

)

(0.07

)

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

(b)

 

34

 

23

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

(c)

 

3

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

$

154

 

$

168

 

$

0.15

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2012

 

Net Revenues

 

Cost of Sales -
Product Costs

 

Cost of Sales -
Online
Subscriptions

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

$

3,088

 

$

633

 

$

178

 

$

107

 

$

37

 

$

407

 

$

346

 

$

413

 

$

2,121

 

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

(a)

 

(695

)

(186

)

 

5

 

 

 

 

 

(181

)

Less: Stock-based compensation

(b)

 

 

 

 

(6

)

 

(14

)

(5

)

(60

)

(85

)

Less: Amortization of intangible assets

(c)

 

 

 

 

 

(7

)

 

 

 

(7

)

Non-GAAP Measurement

 

 

$

2,393

 

$

447

 

$

178

 

$

106

 

$

30

 

$

393

 

$

341

 

$

353

 

$

1,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2012

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

$

967

 

$

795

 

$

0.70

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

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

(a)

 

(514

)

(401

)

(0.35

)

(0.35

)

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

(b)

 

85

 

60

 

0.05

 

0.05

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

(c)

 

7

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

$

545

 

$

459

 

$

0.40

 

$

0.40

 

 

 

 

 

 

 

 

 

 

 

 


(a) Reflects the net change in deferred net revenues and related cost of sales.

(b) Includes expense related to stock-based compensation.

(c) Reflects amortization of intangible assets.

 

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 $164 million and $449 million for the three and nine months ended September 30, 2012 as compared to the total non-GAAP net income of $168 million and $459 million for the same periods, respectively.

 

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.

 

3



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)

 

Three months ended September 30, 2011

 

 

Net Revenues

 

Cost of Sales -
Product Costs

 

Cost of Sales -
Online
Subscriptions

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Restructuring

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

$

754

 

$

138

 

$

59

 

$

24

 

$

16

 

$

133

 

$

115

 

$

104

 

$

3

 

$

592

 

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

(a)

 

(127

)

(10

)

 

(10

)

(2

)

 

 

 

 

(22

)

Less: Stock-based compensation

(b)

 

 

 

 

 

 

(5

)

(2

)

(11

)

 

(18

)

Less: Restructuring

(c)

 

 

 

 

 

 

 

 

 

(3

)

(3

)

Less: Amortization of intangible assets

(d)

 

 

 

 

 

(7

)

 

 

 

 

(7

)

Non-GAAP Measurement

 

 

$

627

 

$

128

 

$

59

 

$

14

 

$

7

 

$

128

 

$

113

 

$

93

 

$

 

$

542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2011

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

$

162

 

$

148

 

$

0.13

 

$

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

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

(a)

 

(105

)

(81

)

(0.07

)

(0.07

)

 

 

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

(b)

 

18

 

13

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Restructuring

(c)

 

3

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

(d)

 

7

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

$

85

 

$

87

 

$

0.07

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2011

 

 

Net Revenues

 

Cost of Sales -
Product Costs

 

Cost of Sales -
Online
Subscriptions

 

Cost of Sales -
Software Royalties
and Amortization

 

Cost of Sales -
Intellectual
Property Licenses

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Restructuring

 

Total Costs and
Expenses

 

GAAP Measurement

 

 

$

3,348

 

$

650

 

$

181

 

$

133

 

$

69

 

$

390

 

$

264

 

$

333

 

$

24

 

$

2,044

 

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

(a)

 

(1,268

)

(220

)

 

(84

)

(21

)

 

 

 

 

(325

)

Less: Stock-based compensation

(b)

 

 

 

 

(8

)

 

(15

)

(4

)

(34

)

 

(61

)

Less: Restructuring

(c)

 

 

 

 

 

 

 

 

 

(24

)

(24

)

Less: Amortization of intangible assets

(d)

 

 

 

 

(1

)

(21

)

 

 

 

 

(22

)

Non-GAAP Measurement

 

 

$

2,080

 

$

430

 

$

181

 

$

40

 

$

27

 

$

375

 

$

260

 

$

299

 

$

 

$

1,612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2011

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 

$

1,304

 

$

986

 

$

0.84

 

$

0.84

 

 

 

 

 

 

 

 

 

 

 

 

 

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

(a)

 

(943

)

(699

)

(0.60

)

(0.59

)

 

 

 

 

 

 

 

 

 

 

 

 

Less: Stock-based compensation

(b)

 

61

 

43

 

0.04

 

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Restructuring

(c)

 

24

 

18

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Amortization of intangible assets

(d)

 

22

 

14

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 

$

468

 

$

362

 

$

0.31

 

$

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(a) Reflects the net change in deferred net revenues and related cost of sales.

(b) Includes expense related to stock-based compensation.

(c) Reflects restructuring related to our Activision Publishing operations.

(d) Reflects amortization of intangible assets.

 

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 $85 million and $357 million for the three and nine months ended September 30, 2011 as compared to total non-GAAP net income of $87 million and $362 million for the same periods, respectively.

 

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.

 

4


 


 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three And Nine Months Ended September 30, 2012 and 2011

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

September 30, 2012

 

September 30, 2011

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total

 

Amount

 

% of Total

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channel

 

$

357

 

43

%

$

250

 

33

%

$

107

 

43

%

Digital online channels(1)

 

430

 

51

 

427

 

57

 

3

 

1

 

Total Activision and Blizzard

 

787

 

94

 

677

 

90

 

110

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

54

 

6

 

77

 

10

 

(23

)

(30

)

Total consolidated GAAP net revenues

 

841

 

100

 

754

 

100

 

87

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Net Revenues(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channel

 

(87

)

 

 

(86

)

 

 

 

 

 

 

Digital online channels(1)

 

(3

)

 

 

(41

)

 

 

 

 

 

 

Total changes in deferred net revenues

 

(90

)

 

 

(127

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channel

 

270

 

36

 

164

 

26

 

106

 

65

 

Digital online channels(1)

 

427

 

57

 

386

 

62

 

41

 

11

 

Total Activision and Blizzard

 

697

 

93

 

550

 

88

 

147

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

54

 

7

 

77

 

12

 

(23

)

(30

)

Total non-GAAP net revenues (3)

 

$

751

 

100

%

$

627

 

100

%

$

124

 

20

%

 

 

 

Nine Months Ended

 

 

 

September 30, 2012

 

September 30, 2011

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total

 

Amount

 

% of Total

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channel

 

$

1,837

 

60

%

$

1,856

 

56

%

$

(19

)

(1

)%

Digital online channels(1)

 

1,085

 

35

 

1,278

 

38

 

(193

)

(15

)

Total Activision and Blizzard

 

2,922

 

95

 

3,134

 

94

 

(212

)

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

166

 

5

 

214

 

6

 

(48

)

(22

)

Total consolidated GAAP net revenues

 

3,088

 

100

 

3,348

 

100

 

(260

)

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Net Revenues(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channel

 

(832

)

 

 

(1,240

)

 

 

 

 

 

 

Digital online channels(1)

 

137

 

 

 

(28

)

 

 

 

 

 

 

Total changes in deferred net revenues

 

(695

)

 

 

(1,268

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Distribution Channel

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail channel

 

1,005

 

42

 

616

 

30

 

389

 

63

 

Digital online channels(1)

 

1,222

 

51

 

1,250

 

60

 

(28

)

(2

)

Total Activision and Blizzard

 

2,227

 

93

 

1,866

 

90

 

361

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

166

 

7

 

214

 

10

 

(48

)

(22

)

Total non-GAAP net revenues (3)

 

$

2,393

 

100

%

$

2,080

 

100

%

$

313

 

15

%

 


(1) Net revenues from digital online channel represent revenues from subscriptions and memberships, licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.

(2) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.

(3) Total non-GAAP net revenues presented also represents our total operating segment net revenues.

 

5



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three Months Ended September 30, 2012 and 2011

(Amounts in millions)

 

 

 

Three Months Ended

 

 

 

September 30, 2012

 

September 30, 2011

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total

 

Amount

 

% of Total

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

$

226

 

27

%

$

336

 

44

%

$

(110

)

(33

)%

PC and Other(5)

 

314

 

37

 

45

 

6

 

269

 

598

 

Sony PlayStation 3

 

81

 

10

 

100

 

14

 

(19

)

(19

)

Microsoft Xbox 360

 

121

 

14

 

144

 

19

 

(23

)

(16

)

Nintendo Wii

 

25

 

3

 

33

 

4

 

(8

)

(24

)

Total console(2)

 

227

 

27

 

277

 

37

 

(50

)

(18

)

Sony PlayStation Portable

 

2

 

 

4

 

1

 

(2

)

(50

)

Nintendo 3DS and DS

 

18

 

2

 

15

 

2

 

3

 

20

 

Total handheld

 

20

 

2

 

19

 

3

 

1

 

5

 

Total Activision and Blizzard

 

787

 

93

 

677

 

90

 

110

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

54

 

7

 

77

 

10

 

(23

)

(30

)

Total consolidated GAAP net revenues

 

841

 

100

 

754

 

100

 

87

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Net Revenues(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

119

 

 

 

(62

)

 

 

 

 

 

 

PC and Other(5)

 

(165

)

 

 

(5

)

 

 

 

 

 

 

Sony PlayStation 3

 

(12

)

 

 

(18

)

 

 

 

 

 

 

Microsoft Xbox 360

 

(30

)

 

 

(36

)

 

 

 

 

 

 

Nintendo Wii

 

(2

)

 

 

(5

)

 

 

 

 

 

 

Total console(2)

 

(44

)

 

 

(59

)

 

 

 

 

 

 

Nintendo 3DS and DS

 

 

 

 

(1

)

 

 

 

 

 

 

Total changes in deferred net revenues

 

(90

)

 

 

(127

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

345

 

46

 

274

 

44

 

71

 

26

 

PC and Other(5)

 

149

 

20

 

40

 

6

 

109

 

273

 

Sony PlayStation 3

 

69

 

9

 

82

 

13

 

(13

)

(16

)

Microsoft Xbox 360

 

91

 

12

 

108

 

17

 

(17

)

(16

)

Nintendo Wii

 

23

 

3

 

28

 

5

 

(5

)

(18

)

Total console(2)

 

183

 

24

 

218

 

35

 

(35

)

(16

)

Sony PlayStation Portable

 

2

 

 

4

 

1

 

(2

)

(50

)

Nintendo 3DS and DS

 

18

 

3

 

14

 

2

 

4

 

29

 

Total handheld

 

20

 

3

 

18

 

3

 

2

 

11

 

Total Activision and Blizzard

 

697

 

93

 

550

 

88

 

147

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

54

 

7

 

77

 

12

 

(23

)

(30

)

Total non-GAAP net revenues(4)

 

$

751

 

100

%

$

627

 

100

%

$

124

 

20

%

 


(1) Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.  It also includes revenues from Call of Duty Elite memberships.

(2) Downloadable content and their related revenues are included in each respective console platforms and total console.

(3) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.

(4) Total non-GAAP net revenues presented also represents our total operating segment net revenues.

(5) Other includes standalone sales of toys and accessories products from Skylanders franchise, mobile sales and other physical merchandise and accessories.

 

6



 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Nine Months Ended September 30, 2012 and 2011

(Amounts in millions)

 

 

 

Nine Months Ended

 

 

 

September 30, 2012

 

September 30, 2011

 

$ Increase

 

% Increase

 

 

 

Amount

 

% of Total

 

Amount

 

% of Total

 

(Decrease)

 

(Decrease)

 

GAAP Net Revenues by Segment/Platform Mix

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

$

701

 

23

%

$

1,090

 

33

%

$

(389

)

(36

)%

PC and Other(5)

 

727

 

24

 

251

 

8

 

476

 

190

 

Sony PlayStation 3

 

617

 

20

 

686

 

20

 

(69

)

(10

)

Microsoft Xbox 360

 

705

 

23

 

840

 

25

 

(135

)

(16

)

Nintendo Wii

 

108

 

3

 

185

 

6

 

(77

)

(42

)

Total console(2)

 

1,430

 

46

 

1,711

 

51

 

(281

)

(16

)

Sony PlayStation Portable

 

5

 

 

12

 

 

(7

)

(58

)

Nintendo 3DS and DS

 

59

 

2

 

70

 

2

 

(11

)

(16

)

Total handheld

 

64

 

2

 

82

 

2

 

(18

)

(22

)

Total Activision and Blizzard

 

2,922

 

95

 

3,134

 

94

 

(212

)

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Distribution

 

166

 

5

 

214

 

6

 

(48

)

(22

)

Total consolidated GAAP net revenues

 

3,088

 

100

 

3,348

 

100

 

(260

)

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Deferred Net Revenues(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Activision and Blizzard:

 

 

 

 

 

 

 

 

 

 

 

 

 

Online subscriptions(1)

 

92

 

 

 

(185

)

 

 

 

 

 

 

PC and Other(5)

 

126

 

 

 

(129

)

 

 

 

 

 

 

Sony PlayStation 3

 

(412

)

 

 

(417

)

 

 

 

 

 

 

Microsoft Xbox 360

 

(469

)

 

 

(440

)

 

 

 

 

 

 

Nintendo Wii

 

(27

)

 

 

(90

)

 

 

 

 

 

 

Total console(2)

 

(908

)

 

 

(947

)

 

 

 

 

 

 

Nintendo 3DS and DS

 

(5

)