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Activision Blizzard Announces Better-Than-Expected Fourth Quarter and Calendar Year 2012 Results


Attachment:

  Activision Blizzard Announces Better-Than-Expected Fourth Quarter and
  Calendar Year 2012 Results

Full Year Non-GAAP EPS Increased 27% to a Record $1.18 Company Generated More
 Than $1.3 Billion in Operating Cash Flow Company Increases Cash Dividend to
                            $0.19 per Common Share

Business Wire

SANTA MONICA, Calif. -- February 7, 2013

Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected
financial results for the fourth quarter and calendar year 2012.

                Fourth Quarter                                Calendar Year
(in millions,                   Prior
except EPS)     2012                          2011            2012       2011
                                Outlook*
GAAP                                                                  
Net Revenues    $   1,768       $   1,485     $  1,407     $  4,856    $ 4,755
EPS             $   0.31        $   0.19      $  0.08      $  1.01     $ 0.92
Non-GAAP
Net Revenues    $   2,595       $   2,412     $  2,408     $  4,987    $ 4,489
EPS             $   0.78        $   0.70      $  0.62      $  1.18     $ 0.93
*Prior Outlook was provided by the company on November 7, 2012 in its earnings
release

For calendar year 2012, Activision Blizzard delivered record GAAP net revenues
of $4.86 billion, as compared with $4.76 billion for 2011. On a non-GAAP
basis, the company’s net revenues were $4.99 billion, as compared with $4.49
billion for 2011. For the calendar year 2012, GAAP net revenues from digital
channels were $1.54 billion and represented 32% of the company’s total
revenues. On a non-GAAP-basis, for the calendar year 2012, net revenues from
digital channels were a record $1.60 billion and represented 32% of the
company’s total net revenues.

For calendar year 2012, Activision Blizzard delivered record GAAP earnings per
diluted share of $1.01, as compared with $0.92 per diluted share for 2011. On
a non-GAAP basis, the company also delivered record earnings per diluted share
of $1.18, as compared with $0.93 per diluted share for 2011.

For the quarter ended December 31, 2012, the company delivered record GAAP net
revenues of $1.77 billion, as compared with $1.41 billion for the fourth
quarter of 2011. On a non-GAAP basis, the company’s net revenues were a record
$2.60 billion, as compared with $2.41 billion for the fourth quarter of 2011.

For the quarter ended December 31, 2012, Activision Blizzard’s GAAP earnings
per diluted share set a fourth quarter record of $0.31, as compared with
earnings per diluted share of $0.08 for the fourth quarter of 2011. On a
non-GAAP basis, the company’s earnings per diluted share were a record $0.78,
as compared with $0.62 for the fourth quarter of 2011.

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

Bobby Kotick, Chief Executive Officer, Activision Blizzard, said, “We are very
pleased to report that Activision Blizzard delivered the best performance in
its history. With better-than-expected net revenues, record operating margins
and record earnings, and over $1.3 billion in operating cash flow, we continue
to set the industry success bar. I would like to thank our incredibly talented
employees around the world for their passion, drive and creativity, which
continues to fuel our success.”

Kotick added, “As we look to 2013, we will continue to invest in our
established franchises, as well as several new properties. We expect these
investments to drive our growth over the long term and to enable us to deliver
superior returns to our shareholders in the years to come. In the short-term,
we expect to continue delivering strong profitability, but below our record
setting 2012 performance, due to a challenged global economy, the ongoing
console transition and a difficult year-over-year comparison because of
Blizzard’s record-shattering Diablo® III success in 2012.”

Selected Business Highlights:

  * In North America and Europe combined Activision Publishing was the #1
    console and handheld publisher for the calendar year with the #1 and #3
    best-selling franchises—Call of Duty and Skylanders.^1
  * Activision Blizzard reported record digital revenues for the calendar year
    and was the #1 third-party interactive entertainment Western digital
    publisher.^2
  * For the calendar year, in aggregate across all platforms in the U.S. and
    Europe, Activision Publishing’s Black Ops II was the #1 best-selling title
    in dollars and Modern Warfare 3®  was the #9 best-selling title in
    dollars.^1
  * In November 2012, Black Ops II became the first video game ever to cross
    the $1 billion mark in 15-days, eclipsing “Avatar’s” 17-day movie
    record.^4
  * In both North America and Europe, Skylanders Giants™ was the #1
    best-selling kids’ title in dollars for the fourth quarter.¹ Additionally,
    for the calendar year, in North America and Europe combined, Skylanders
    Giants was the #5 best-selling game in dollars, and Skylanders Spyro’s
    Adventure® was the #4 best-selling game in dollars.^1
  * As of December 31, 2012, the Skylanders franchise has generated,
    life-to-date, more than $1 billion in worldwide sales,¹ and through
    January 2013, Activision has sold more than 100 million Skylanders toys
    worldwide.^2
  * For the calendar year, Blizzard Entertainment had two top-10 PC games in
    North America and Europe. Diablo III was the #1 best-selling PC game at
    retail, breaking PC-game sales records with more than 12 million copies
    sold worldwide through December 31, 2012,  and World of Warcraft®: Mists
    of Pandaria® was  the #3 best-selling PC game at retail.^5
  * As of December 31, 2012, Blizzard Entertainment’s World of Warcraft
    remains the #1 subscription-based MMORPG, with more than 9.6 million
    subscribers.^2

Company Outlook

On January 29, 2013, Activision Publishing released Revolution, the first
downloadable map pack for Black Ops II, on the Xbox 360 video game and
entertainment system from Microsoft. The company expects to release Revolution
on other platforms during the first quarter.

Additionally, on March 12, 2013, Blizzard Entertainment expects to release
StarCraft^® II: Heart of the Swarm™, the first expansion to Blizzard’s
award-winning real-time strategy game StarCraft II: Wings of Liberty^®.

The company is considering or may consider during 2013, substantial stock
repurchases, dividends, acquisitions, licensing or other non-ordinary course
transactions, and significant debt financings relating thereto. The company’s
first quarter and full year 2013 outlooks do not take into account any such
transactions or financings that may or may not occur during the year, with the
exception of the $0.19 cent per share cash dividend announced below.

(in millions, except EPS)   GAAP        Non-GAAP Outlook
                            Outlook
CY 2013                                     
Net Revenues                $ 4,085            $  4,175
EPS                         $ 0.68             $  0.80
Q1 2013
Net Revenues                $ 1,160            $  690
EPS                         $ 0.29             $  0.10

Board Declares Cash Dividend

The Board of Directors declared a cash dividend of $0.19 per common share
payable on May 15, 2013 to shareholders of record at the close of business on
March 20, 2013.

Conference Call

Today at 4:30 p.m. EST, Activision Blizzard’s management will host a
conference call and Webcast to discuss the company’s results for the quarter
and year ended December 31, 2012 and management’s outlook for 2013. 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 888-427-9414 in the U.S. with
passcode 3168482.

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.

^1According to The NPD Group, GfK Chart-Track and Activision Blizzard internal
estimates, including toys and accessories

^2According to Activision Blizzard internal estimates

^3According to The NPD Group and Gfk Chart-Track

^4According to Chart-Track retail customer sell-through information, internal
company estimates and screenrant.com

^5According to The NPD Group, GfK Chart-Track and Activision Blizzard internal
estimates

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

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

Activision Blizzard provides net revenues, net income (loss), earnings (loss)
per share and operating margin data and guidance both including (in accordance
with GAAP) and excluding (non-GAAP) certain items. 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.

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, increasing
concentration of titles, shifts in consumer spending trends, the impact of the
current macroeconomic environment, Activision Blizzard’s ability to predict
consumer preferences, including interest in specific genres such as
first-person action and massively multiplayer online games and preferences
among competing hardware platforms, the seasonal and cyclical nature of the
interactive game market, changing business models including digital delivery
of content, competition, including from used games and other forms of
entertainment, possible declines in software pricing, product returns and
price protection, product delays, the console transition, adoption rate and
availability of new hardware (including peripherals) and related software,
rapid changes in technology and industry standards, the current regulatory
environment, litigation risks and associated costs, protection of proprietary
rights, maintenance of relationships with key personnel, customers, licensees,
licensors, vendors, and third-party developers, including the ability to
attract, retain and develop key personnel and developers that can create high
quality "hit" titles, counterparty risks relating to customers, licensees,
licensors and manufacturers, domestic and international economic, financial
and political conditions and policies, foreign exchange rates and tax rates,
and the identification of suitable future acquisition opportunities and
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. 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.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
 
                        Three Months Ended December      Year Ended December
                        31,                              31,
                        2012            2011             2012          2011
Net revenues:
   Product sales        $  1,413        $  1,060         $  3,620      $ 3,257
   Subscription,
   licensing and           355             347              1,236        1,498
   other revenues^1
   Total net               1,768           1,407            4,856        4,755
   revenues
Costs and expenses:
   Cost of sales -         483             483              1,116        1,134
   product costs
   Cost of sales -
   online                  60              65               263          255
   subscriptions
   Cost of sales -
   software                87              85               194          218
   royalties and
   amortization
   Cost of sales -
   intellectual            52              96               89           165
   property
   licenses
   Product                 222             249              604          629
   development
   Sales and               232             281              578          545
   marketing
   General and             148             122              561          456
   administrative
   Restructuring           -               1                -            25
   Total costs and         1,284           1,382            3,405        3,427
   expenses
Operating income           484             25               1,451        1,328
Investment and
other income               3               (5     )         7            3
(expense), net
Income before              487             20               1,458        1,331
income tax expense
Income tax expense         133             (79    )         309          246
Net income              $  354          $  99            $  1,149      $ 1,085
                                                                          
Basic earnings per      $  0.31         $  0.09          $  1.01       $ 0.93
common share
Weighted average
common shares              1,111           1,139            1,112        1,148
outstanding
                                                                          
Diluted earnings        $  0.31         $  0.08          $  1.01       $ 0.92
per common share^2
Weighted average
common shares              1,115           1,147            1,118        1,156
outstanding
assuming dilution
 

     Subscription, licensing and other revenues represents revenues from World
^1   of Warcraft subscriptions, Call of Duty Elite memberships, licensing
     royalties from our products and franchises, value-added services,
     downloadable content, and other miscellaneous revenues.
 
     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 24 million for the three months and year ended December 31,
     2012, respectively, and we had, on a weighted-average basis,
     participating securities of approximately 17 million for the three months
     and year ended December 31, 2011. Net income attributable to Activision
^2   Blizzard Inc. common shareholders used to calculate earnings per common
     share assuming dilution was $345 million and $1,125 million for the three
     months and year ended December 31, 2012, as compared to the total net
     income of $354 million and $1,149 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 $97 million and $1,069 million for the three months and year
     ended December 31, 2011, as compared to total net income of $99 million
     and $1,085 million for the same periods, respectively.
      
      

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
 
                                                 December 31,     December 31,
                                                 2012             2011
ASSETS                                                                
  Current assets:
    Cash and cash equivalents                    $  3,959         $  3,165
    Short-term investments                          416              360
    Accounts receivable, net                        707              649
    Inventories, net                                209              144
    Software development                            164              137
    Intellectual property licenses                  11               22
    Deferred income taxes, net                      487              507
    Other current assets                            321              396      
    Total current assets                            6,274            5,380    
    Long-term investments                           8                16
    Software development                            129              62
    Intellectual property licenses                  30               12
    Property and equipment, net                     141              163
    Other assets                                    11               12
    Intangible assets, net                          68               88
    Trademark and trade names                       433              433
    Goodwill                                        7,106            7,111    
    Total assets                                 $  14,200        $  13,277   
                                                                      
LIABILITIES AND SHAREHOLDERS’ EQUITY                                  
  Current liabilities:
    Accounts payable                             $  343           $  390
    Deferred revenues                               1,657            1,472
    Accrued expenses and other liabilities          652              694      
    Total current liabilities                       2,652            2,556    
    Deferred income taxes, net                      25               55
    Other liabilities                               206              174      
    Total liabilities                               2,883            2,785    
                                                                      
  Shareholders’ equity:
    Common stock                                    ---              ---
    Additional paid-in capital                      9,450            9,616
    Retained earnings                               1,893            948
    Accumulated other comprehensive income          (26     )        (72     )
    (loss)
    Total shareholders’ equity                      11,317           10,492   
    Total liabilities and shareholders’          $  14,200        $  13,277   
    equity
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
 
                        Three Months Ended             Year Ended December 31,
                        December 31,
                        2012             2011          2012          2011
                                                                        
Cash flows from
operating
activities:
Net income              $  354           $ 99          $ 1,149       $ 1,085
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Deferred income            (30    )        (49   )       (10   )       75
taxes
Impairment of
goodwill /                 ---             12            ---           12
intangible assets
Depreciation and           51              71            120           148
amortization
Loss on disposal of
property and               1               3             1             4
equipment
Amortization and
write-off of
capitalized
software                   85              136           208           287
development costs
and intellectual
property licenses
(1)
Stock-based
compensation               43              42            126           103
expense (2)
Excess tax benefits
from stock options         (1     )        (3    )       (5    )       (24   )
exercises
Changes in
operating assets
and liabilities:
Accounts                   (496   )        (503  )       (46   )       13
receivable, net
Inventories, net           83              62            (62   )       (34   )
Software
development and            (83    )        (73   )       (301  )       (254  )
intellectual
property licenses
Other assets               (140   )        (237  )       88            (67   )
Deferred revenues          792             1,020         153           (248  )
Accounts payable           87              148           (54   )       31
Accrued expenses
and other                  230             122           (22   )       (179  )
liabilities
Net cash provided
by operating               976             850           1,345         952    
activities
                                                                        
Cash flows from
investing
activities:
Proceeds from
maturities of              139             137           444           740
available-for-sale
investments
Proceeds from
auction rate               10              10            10            10
securities ("ARS")
called at par
Payment of
contingent                 ---             ---           ---           (3    )
consideration
Purchases of
available-for-sale         (121   )        (92   )       (503  )       (417  )
investments
Capital                    (27    )        (25   )       (73   )       (72   )
expenditures
Decrease in                20              26            (2    )       8      
restricted cash
Net cash provided
by (used in)               21              56            (124  )       266    
investing
activities
                                                                        
Cash flows from
financing
activities:
Proceeds from
issuance of common         3               27            33            69
stock to employees
Tax payment related
to net share
settlements of             (11    )        (12   )       (16   )       (15   )
restricted stock
awards
Repurchase of              ---             (168  )       (315  )       (692  )
common stock
Dividends paid             ---             ---           (204  )       (194  )
Excess tax benefits
from stock option          1               3             5             24     
exercises
Net cash used in
financing                  (7     )        (150  )       (497  )       (808  )
activities
 
Effect of foreign
exchange rate              60              (60   )       70            (57   )
changes on cash and
cash equivalents
Net increase in
cash and cash              1,050           696           794           353
equivalents
                                                                        
Cash and cash
equivalents at             2,909           2,469         3,165         2,812  
beginning of period
                                                                        
Cash and cash
equivalents at end      $  3,959         $ 3,165       $ 3,959       $ 3,165  
of period
 

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(Amounts in millions)
 
                 Three Months Ended                                      Year over      Three Months Ended                       Year over
                                                                         Year                                                    Year
                 December   March     June 30,    September   December   % Increase     March   June      September   December   % Increase
                 31,        31,                   30,         31,                       31,     30,       30,         31,
                 2010       2011      2011        2011        2011       (Decrease)     2012    2012      2012        2012       (Decrease)
Cash Flow Data
  Operating      $  993     $ 134     $ (78   )   $  46       $   850    (14    )%      $ 154   $ 93      $  122      $  976     15     %
  Cash Flow
  Capital           21        4         14           29           25     19               8       17         21          27      8
  Expenditures
  Non-GAAP
  Free Cash         972       130       (92   )      17           825    (15    )         146     76         101         949     15
  Flow^2
                                                                                                                                         
  Operating
  Cash Flow -       1,376     1,283     1,231        1,095        952    (31    )         972     1,143      1,219       1,345   41
  TTM^1
  Capital
  Expenditures      97        89        76           68           72     (26    )         76      79         71          73      1
  - TTM^1
  Non-GAAP
  Free Cash      $  1,279   $ 1,194   $ 1,155     $  1,027    $   880    (31    )%      $ 896   $ 1,064   $  1,148    $  1,272   45     %
  Flow - TTM^1
 

     TTM represents trailing twelve months. Operating Cash Flow for the year
     ended December 31, 2010, three months ended September 30, 2010, three
     months ended June 30, 2010, and three months ended March 31, 2010 was
^1   $1,376 million, $182 million, $(26) million, and $227 million,
     respectively. Capital expenditures for the year ended December 31, 2010,
     three months ended September 30, 2010, three months ended June 30, 2010,
     and three months ended March 31, 2010 was $97 million, $37 million, $27
     million, and $12 million, respectively.
     Non-GAAP free cash flow represents operating cash flow minus capital
^2   expenditures (which includes payment for acquisition of intangible
     assets).
      
      

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)
   
                                                             Cost of        Cost of
                                   Cost of   Cost of Sales   Sales -        Sales -                                                   Total
Three Months Ended     Net         Sales -   -               Software       Intellectual   Product       Sales and   General and      Costs
December 31, 2012      Revenues    Product   Online          Royalties      Property       Development   Marketing   Administrative   and
                                   Costs     Subscriptions   and            Licenses                                                  Expenses
                                                             Amortization
GAAP                   $   1,768   $ 483     $     60        $   87         $   52         $   222       $  232      $    148         $ 1,284
Measurement
  Less: Net
  effect from
  deferral in
  net revenues   (a)       827       186           -             31             3              -            -             -             220
  and related
  cost of
  sales
  Less:
  Stock-based    (b)       -         -             -             (3    )        -              (6   )       (2   )        (29   )       (40   )
  compensation
  Less:
  Amortization
  of             (c)       -         -             -             -              (23   )        -            -             -             (23   )
  intangible
  assets
Non-GAAP Measurement   $   2,595   $ 669     $     60        $   115        $   32         $   216       $  230      $    119         $ 1,441  
                                                                                                                                         
                                                                  
Three Months Ended     Operating   Net       Basic           Diluted
December 31, 2012      Income      Income    Earnings        Earnings            
                                             per Share       per Share
GAAP                   $   484     $ 354     $     0.31      $   0.31
Measurement
  Less: Net
  effect from
  deferral in
  net revenues   (a)       607       485           0.43          0.42
  and related
  cost of
  sales
  Less:
  Stock-based    (b)       40        38            0.03          0.03
  compensation
  Less:
  Amortization
  of             (c)       23        14            0.01          0.01   
  intangible
  assets
Non-GAAP Measurement   $   1,154   $ 891     $     0.78      $   0.78                                                      
                                                                  
                                                                                                                                         
                                                             Cost of        Cost of
                                   Cost of   Cost of Sales   Sales -        Sales -                                                   Total
Year Ended December    Net         Sales -   -               Software       Intellectual   Product       Sales and   General and      Costs
31, 2012               Revenues    Product   Online          Royalties      Property       Development   Marketing   Administrative   and
                                   Costs     Subscriptions   and            Licenses                                                  Expenses
                                                             Amortization
GAAP                   $   4,856   $ 1,116   $     263       $   194        $   89         $   604       $  578      $    561         $ 3,405
Measurement
  Less: Net
  effect from
  deferral in
  net revenues   (a)       131       -             1             36             3              -            -             -             40
  and related
  cost of
  sales
  Less:
  Stock-based    (b)       -         -             -             (9    )        -              (20  )       (8   )        (89   )       (126  )
  compensation
  Less:
  Amortization
  of             (c)       -         -             -             -              (30   )        -            -             -             (30   )
  intangible
  assets
Non-GAAP Measurement   $   4,987   $ 1,116   $     264       $   221        $   62         $   584       $  570      $    472         $ 3,289  
                                                                                                                                         
                                                                  
Year Ended December    Operating   Net       Basic           Diluted
31, 2012               Income      Income    Earnings        Earnings
                                             per Share       per Share
GAAP                   $   1,451   $ 1,149   $     1.01      $   1.01
Measurement
  Less: Net
  effect from
  deferral in
  net revenues   (a)       91        84            0.07          0.07
  and related
  cost of
  sales
  Less:
  Stock-based    (b)       126       98            0.09          0.09
  compensation
  Less:
  Amortization
  of             (c)       30        19            0.02          0.02   
  intangible
  assets
Non-GAAP Measurement   $   1,698   $ 1,350   $     1.19      $   1.18   
                                                                                                                                         

  (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 from purchase price
        accounting.
         

  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 $870 million and $1,322 million for the
  three months and year ended December 31, 2012 as compared to the total
  non-GAAP net income of $891 million and $1,350 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.
   
   

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)
   
                                                                Cost of        Cost of
                                    Cost of     Cost of Sales   Sales -        Sales -                                                                   Total
Three Months Ended      Net         Sales -     -               Software       Intellectual   Product       Sales and   General and      Restructuring   Costs
December 31, 2011       Revenues    Product     Online          Royalties      Property       Development   Marketing   Administrative                   and
                                    Costs       Subscriptions   and            Licenses                                                                  Expenses
                                                                Amortization
GAAP                    $ 1,407     $ 483       $   65          $  85          $   96         $   249       $  281      $    122         $   1           $ 1,382
Measurement
  Less: Net
  effect from
  deferral in     (a)     1,001       209           -              37              (3    )        -            -             -               -             243
  net revenues
  and related
  cost of sales
  Less:
  Stock-based     (b)     -           -             -              (3     )        -              (25  )       (2   )        (13   )         -             (43   )
  compensation
  Less:           (c)     -           -             -              -               -              -            -             (1    )         (1    )       (2    )
  Restructuring
  Less:
  Amortization    (d)     -           (2    )       -              -               (48   )        -            -             -               -             (50   )
  of intangible
  assets
  Less:
  Impairment of   (e)     -           -             -              -               -              -            -             (12   )         -             (12   )
  goodwill
Non-GAAP                $ 2,408     $ 690       $   65          $  119         $   45         $   224       $  279      $    96          $   -           $ 1,518  
Measurement
                                                                                                                                                            
                                                                    
Three Months Ended      Operating   Net         Basic           Diluted
December 31, 2011       Income      Income      Earnings        Earnings
                                                per Share       per Share
GAAP                    $ 25        $ 99        $   0.09        $  0.08
Measurement
  Less: Net
  effect from
  deferral in     (a)     758         549           0.47           0.47
  net revenues
  and related
  cost of sales
  Less:
  Stock-based     (b)     43          33            0.03           0.03
  compensation
  Less:           (c)     2           1             -              -
  Restructuring
  Less:
  Amortization    (d)     50          31            0.03           0.03
  of intangible
  assets
  Less:
  Impairment of   (e)     12          12            0.01           0.01    
  goodwill
Non-GAAP                $ 890       $ 725       $   0.63        $  0.62    
Measurement
                                                                    
                                                                                                                                                            
                                                                Cost of        Cost of
                                    Cost of     Cost of Sales   Sales -        Sales -                                                                   Total
Year Ended December     Net         Sales -     -               Software       Intellectual   Product       Sales and   General and      Restructuring   Costs
31, 2011                Revenues    Product     Online          Royalties      Property       Development   Marketing   Administrative                   and
                                    Costs       Subscriptions   and            Licenses                                                                  Expenses
                                                                Amortization
GAAP                    $ 4,755     $ 1,134     $   255         $  218         $   165        $   629       $  545      $    456         $   25          $ 3,427
Measurement
  Less: Net
  effect from
  deferral in     (a)     (266  )     (11   )       -              (48    )        (24   )        -            -             -               -             (83   )
  net revenues
  and related
  cost of sales
  Less:
  Stock-based     (b)     -           -             -              (10    )        -              (40  )       (6   )        (47   )         -             (103  )
  compensation
  Less:           (c)     -           -             -              -               -              -            -             (1    )         (25   )       (26   )
  Restructuring
  Less:
  Amortization    (d)     -           (2    )       -              (1     )        (69   )        -            -             -               -             (72   )
  of intangible
  assets
  Less:
  Impairment of   (e)     -           -             -              -               -              -            -             (12   )         -             (12   )
  goodwill
Non-GAAP Measurement    $ 4,489     $ 1,121     $   255         $  159         $   72         $   589       $  539      $    396         $   -           $ 3,131  
                                                                                                                                                            
                                                                    
Year Ended December     Operating   Net         Basic           Diluted
31, 2011                Income      Income      Earnings        Earnings                                                      
                                                per Share       per Share
GAAP                    $ 1,328     $ 1,085     $   0.93        $  0.92
Measurement
  Less: Net
  effect from
  deferral in     (a)     (183  )     (151  )       (0.13  )       (0.13  )
  net revenues
  and related
  cost of sales
  Less:
  Stock-based     (b)     103         76            0.07           0.06
  compensation
  Less:           (c)     26          19            0.02           0.02
  Restructuring
  Less:
  Amortization    (d)     72          46            0.04           0.04
  of intangible
  assets
  Less:
  Impairment of   (e)     12          12            0.01           0.01    
  goodwill
Non-GAAP                $ 1,358     $ 1,087     $   0.93        $  0.93    
Measurement
                                                                                                                                                            

  (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 from purchase price
        accounting.
  (e)   Reflects impairment of goodwill.
         

  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 $715 million and $1,071 million for the
  three months and year ended December 31, 2011 as compared to the total
  non-GAAP net income of $725 million and $1,087 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.
   
   

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months and Year Ended December 31, 2012 and 2011
(Amounts in millions)
 
                 Three Months Ended
                 December 31, 2012         December 31, 2011     $ Increase     % Increase
                 Amount        % of        Amount      % of      (Decrease)     (Decrease)
                               Total                   Total
GAAP Net
Revenues by
Distribution
Channel
  Retail         $ 1,177       67  %       $ 841       60  %     $  336         40     %
  channel
  Digital
  online           451         25            363       26           88          24
  channels^1
  Total
  Activision       1,628       92            1,204     86           424         35
  and Blizzard
                                                                                 
  Distribution     140         8             203       14           (63   )     (31    )
  Total
  consolidated     1,768       100           1,407     100          361         26
  GAAP net
  revenues
                                                                                 
Change in
Deferred Net
Revenues^2
  Retail           900                       1,055
  channel
  Digital
  online           (73   )                   (54   )
  channels^1
  Total
  changes in       827                       1,001  
  deferred net
  revenues
                                                                                 
Non-GAAP Net
Revenues by
Distribution
Channel
  Retail           2,077       80            1,896     79           181         10
  channel
  Digital
  online           378         15            309       13           69          22
  channels^1
  Total
  Activision       2,455       95            2,205     92           250         11
  and Blizzard
                                                                                 
  Distribution     140         5             203       8            (63   )     (31    )
  Total
  non-GAAP net   $ 2,595       100 %       $ 2,408     100 %     $  187         8      %
  revenues^3
 
 
                 Year Ended
                 December 31, 2012         December 31, 2011     $ Increase     % Increase
                 Amount        % of        Amount      % of      (Decrease)     (Decrease)
                               Total                   Total
GAAP Net
Revenues by
Distribution
Channel
  Retail         $ 3,013       62  %       $ 2,697     57  %     $  316         12     %
  channel
  Digital
  online           1,537       32            1,640     34           (103  )     (6     )
  channels^1
  Total
  Activision       4,550       94            4,337     91           213         5
  and Blizzard
                                                                                 
  Distribution     306         6             418       9            (112  )     (27    )
  Total
  consolidated     4,856       100           4,755     100          101         2
  GAAP net
  revenues
                                                                                 
Change in
Deferred Net
Revenues^2
  Retail           69                        (185  )
  channel
  Digital
  online           62                        (81   )
  channels^1
  Total
  changes in       131                       (266  )
  deferred net
  revenues
                                                                                 
Non-GAAP Net
Revenues by
Distribution
Channel
  Retail           3,082       62            2,512     56           570         23
  channel
  Digital
  online           1,599       32            1,559     35           40          3
  channels^1
  Total
  Activision       4,681       94            4,071     91           610         15
  and Blizzard
                                                                                 
  Distribution     306         6             418       9            (112  )     (27    )
  Total
  non-GAAP net   $ 4,987       100 %       $ 4,489     100 %     $  498         11     %
  revenues^3
   

       Net revenues from digital online channel represent revenues from
  ^1   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.
        
        

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended December 31, 2012 and 2011
(Amounts in millions)
 
                      Three Months Ended
                      December 31, 2012       December 31, 2011       $ Increase     % Increase
                      Amount        % of      Amount        % of      (Decrease)     (Decrease)
                                    Total                   Total
GAAP Net Revenues
by
Segment/Platform
Mix
Activision and
Blizzard:
  Online              $ 285         16  %     $ 268         19  %     $   17         6      %
  subscriptions^1
  PC and Other^5        487         27          123         9             364        296
     Sony
     PlayStation        259         15          262         19            (3   )     (1     )
     3
     Microsoft          314         18          300         21            14         5
     Xbox 360
     Nintendo Wii       183         10          166         12            17         10
     and Wii U
  Total console^2       756         43          728         52            28         4
     Sony PS Vita       18          1           3           ---           15         500
     Nintendo 3DS       82          5           82          6             -          -
     and DS
  Total handheld        100         6           85          6             15         18
  Total
  Activision and        1,628       92          1,204       86            424        35
  Blizzard
                                                                                      
Distribution:
  Total                 140         8           203         14            (63  )     (31    )
  Distribution
  Total
  consolidated          1,768       100         1,407       100           361        26
  GAAP net
  revenues
                                                                                      
Change in
Deferred Net
Revenues^3
Activision and
Blizzard:
  Online                (8    )                 (18   )
  subscriptions^1
  PC and Other^5        (89   )                 54
     Sony
     PlayStation        441                     453
     3
     Microsoft          467                     483
     Xbox 360
     Nintendo Wii       16                      24     
     and Wii U
  Total console^2       924                     960    
     Nintendo 3DS       ---                     5      
     and DS
  Total changes
  in deferred net       827                     1,001  
  revenues
                                                                                      
Non-GAAP Net
Revenues by
Segment/Platform
Mix
Activision and
Blizzard:
  Online                277         11          250         10            27         11
  subscriptions^1
  PC and Other^5        398         15          177         7             221        125
     Sony
     PlayStation        700         27          715         30            (15  )     (2     )
     3
     Microsoft          781         30          783         32            (2   )     -
     Xbox 360
     Nintendo Wii       199         8           190         8             9          5
     and Wii U
  Total console^2       1,680       65          1,688       70            (8   )     -
     Sony PS Vita       18          1           3           ---           15         500
     Nintendo 3DS       82          3           87          4             (5   )     (6     )
     and DS
  Total handheld        100         4           90          4             10         11
  Total
  Activision and        2,455       95          2,205       91            250        11
  Blizzard
                                                                                      
  Total                 140         5           203         9             (63  )     (31    )
  Distribution
  Total non-GAAP      $ 2,595       100 %     $ 2,408       100 %     $   187        8      %
  net revenues^4
 

       Revenue from online subscriptions consists of revenue from all World of
  ^1   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.
       Other includes standalone sales of toys and accessories products from
  ^5   Skylanders franchise, mobile sales and other physical merchandise and
       accessories.
        
        

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Year Ended December 31, 2012 and 2011
(Amounts in millions)
 
                      Year Ended
                      December 31, 2012       December 31, 2011       $ Increase     % Increase
                      Amount        % of      Amount        % of      (Decrease)     (Decrease)
                                    Total                   Total
GAAP Net Revenues
by
Segment/Platform
Mix
Activision and
Blizzard:
  Online              $ 986         20  %     $ 1,357       29  %     $  (371  )     (27   )%
  subscriptions^1
  PC and Other^5        1,214       25          374         8            840         225
     Sony
     PlayStation        876         18          948         20           (72   )     (8    )
     3
     Microsoft          1,019       21          1,140       24           (121  )     (11   )
     Xbox 360
     Nintendo Wii       291         6           351         7            (60   )     (17   )
     and Wii U
  Total console^2       2,186       45          2,439       51           (253  )     (10   )
     Sony PS Vita       23          1           15          ---          8           53
     Nintendo 3DS       141         3           152         3            (11   )     (7    )
     and DS
  Total handheld        164         4           167         3            (3    )     (2    )
  Total
  Activision and        4,550       94          4,337       91           213         5
  Blizzard
                                                                                      
Distribution:
  Total                 306         6           418         9            (112  )     (27   )
  Distribution
  Total
  Activision and        4,856       100         4,755       100          101         2
  Blizzard
                                                                                      
Change in
Deferred Net
Revenues^3
Activision and
Blizzard:
  Online                85                      (202  )
  subscriptions^1
  PC and Other^5        36                      (75   )
     Sony
     PlayStation        30                      36
     3
     Microsoft          (3    )                 43
     Xbox 360
     Nintendo Wii       (12   )                 (66   )
     and Wii U
  Total console^2       15                      13
     Nintendo 3DS       (5    )                 (2    )
     and DS
  Total changes
  in deferred net       131                     (266  )
  revenues
                                                                                      
Non-GAAP Net
Revenues by
Segment/Platform
Mix
Activision and
Blizzard:
  Online                1,071       22          1,155       26           (84   )     (7    )
  subscriptions^1
  PC and Other^5        1,250       25          299         7            951         318
     Sony
     PlayStation        906         18          984         22           (78   )     (8    )
     3
     Microsoft          1,016       20          1,183       26           (167  )     (14   )
     Xbox 360
     Nintendo Wii       279         6           285         6            (6    )     (2    )
     and Wii U
  Total console^2       2,201       44          2,452       54           (251  )     (10   )
     Sony PS Vita       23          ---         15          ---          8           53
     Nintendo 3DS       136         3           150         4            (14   )     (9    )
     and DS
  Total handheld        159         3           165         4            (6    )     (4    )
  Total
  Activision and        4,681       94          4,071       91           610         15
  Blizzard
                                                                                      
Distribution:
  Total                 306         6           418         9            (112  )     (27   )
  Distribution
  Total non-GAAP      $ 4,987       100 %     $ 4,489       100 %     $  498         11    %
  net revenues^4
 

       Revenue from online subscriptions consists of revenue from all World of
  ^1   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.
       Other includes standalone sales of toys and accessories products from
  ^5   Skylanders franchise, mobile sales and other physical merchandise and
       accessories.
        
        

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months And Year Ended December 31, 2012 and 2011
(Amounts in millions)
 
                        Three Months Ended
                        December 31, 2012     December 31, 2011       $ Increase       % Increase
                        Amount      % of      Amount        % of      (Decrease)       (Decrease)
                                    Total                   Total
GAAP Net
Revenues by
Geographic
Region
  North                 $ 869       49  %     $ 718         51  %     $ 151            21    %
  America
  Europe                  748       42          605         43          143            24
  Asia Pacific            151       9           84          6           67             80
  Total
  consolidated            1,768     100         1,407       100         361            26
  GAAP net
  revenues
                                                                                        
Change in
Deferred Net
Revenues^1
  North                   538                   548
  America
  Europe                  271                   395
  Asia Pacific            18                    58     
  Total
  changes in              827                   1,001  
  net revenues
                                                                                        
Non-GAAP Net
Revenues by
Geographic
Region
  North                   1,407     54          1,266       53          141            11
  America
  Europe                  1,019     39          1,000       41          19             2
  Asia Pacific            169       7           142         6           27             19
  Total
  non-GAAP net          $ 2,595     100 %     $ 2,408       100 %     $ 187            8     %
  revenues^2
   
   
                        Year Ended
                        December 31, 2012     December 31, 2011       $ Increase       % Increase
                        Amount      % of      Amount        % of        (Decrease)     (Decrease)
                                    Total                   Total
GAAP Net
Revenues by
Geographic
Region
  North                 $ 2,436     50  %     $ 2,405       50  %     $ 31             1     %
  America
  Europe                  1,968     41          1,990       42          (22    )       (1    )
  Asia Pacific            452       9           360         8           92             26
  Total
  consolidated            4,856     100         4,755       100         101            2
  GAAP net
  revenues
                                                                                        
Change in
Deferred Net
Revenues^1
  North        *Story
  America      too
               large*

[TRUNCATED]
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