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Activision Blizzard Announces Better-Than-Expected Fourth Quarter and Calendar Year 2013 Results

  Activision Blizzard Announces Better-Than-Expected Fourth Quarter and   Calendar Year 2013 Results     Company Generated More Than $1.26 Billion in Operating Cash Flow in 2013           Board of Directors Authorizes Debt Repayment of $375 Million            Company Increases Cash Dividend to $0.20 Per Common Share     Company Announces 2014 Outlook Driven by Strongest Slate in its History  Business Wire  SANTA MONICA, Calif. -- February 6, 2014  Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the fourth quarter and calendar year 2013.                      Fourth Quarter                        Calendar Year                                   Prior                          (in millions,      2013          Outlook*   2012     2013      2012 except EPS) GAAP Net Revenues        $   1,518       $  1,255     $ 1,768   $ 4,583     $ 4,856 EPS                $   0.22      $  0.05    $ 0.31   $ 0.95    $ 1.01 Non-GAAP Net Revenues        $   2,272       $  2,215     $ 2,595   $ 4,342     $ 4,987 EPS                $   0.79      $  0.72    $ 0.78   $ 0.94    $ 1.18  *Prior outlook was provided by the company on November 6, 2013 in its earnings release   For calendar year 2013, Activision Blizzard delivered GAAP net revenues of $4.58 billion, as compared with $4.86 billion for 2012. On a non-GAAP basis, the company’s net revenues were $4.34 billion, as compared with $4.99 billion for 2012. For the calendar year 2013, GAAP net revenues from digital channels were $1.56 billion and represented 34% of the company’s total revenues. On a non-GAAP-basis, for the calendar year 2013, net revenues from digital channels were $1.57 billion and represented a record 36% of the company’s total net revenues.  For calendar year 2013, Activision Blizzard delivered GAAP earnings per diluted share of $0.95, as compared with $1.01 per diluted share for 2012. On a non-GAAP basis, the company delivered earnings per diluted share of $0.94, as compared with $1.18 per diluted share for 2012.  For the quarter ended December 31, 2013, the company delivered GAAP net revenues of $1.52 billion, as compared with $1.77 billion for the fourth quarter of 2012. On a non-GAAP basis, the company’s net revenues were $2.27 billion, as compared with $2.60 billion for the fourth quarter of 2012.  For the quarter ended December 31, 2013, Activision Blizzard’s GAAP earnings per diluted share were $0.22, as compared with earnings per diluted share of $0.31 for the fourth quarter of 2012. On a non-GAAP basis, the company’s earnings per diluted share were a record $0.79, as compared with $0.78 for the fourth quarter of 2012.  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, “2013 was a transformational year for Activision Blizzard and for our industry. Our transaction with Vivendi returned us to independence and eliminated the challenges and constraints of being a controlled company. The continued success of our games delivered better-than-expected financial results, including stronger net revenues and earnings per share, and over $1.26 billion in operating cash flow.”  Kotick continued, “As we look to 2014 and beyond, we have the strongest and most diverse pipeline of games in our history. In 2014, we expect these releases to enable us to grow non-GAAP revenues year over year and generate record non-GAAP earnings per share. We expect Bungie’s Destiny™, an innovative shared-world, first-person action game to be Activision Publishing’s next billion dollar franchise. Activision Publishing also has terrific new games planned for the Call of Duty® and Skylanders™ franchises, and Blizzard Entertainment has an expansion to the top-selling PC and console game Diablo® III and another major new release. Also in our pipeline for 2014 and the next few years are at least three potentially groundbreaking new free-to-play franchises—Blizzard’s Hearthstone™: Heroes of Warcraft™ and Heroes of the Storm™, and Activision Publishing’s Call of Duty Online. We believe these games have great global potential. Free-to-play as a business model has now achieved scale, both in the West and in China. Hearthstone, which released in open beta on PC last month and which Blizzard Entertainment plans to expand this year to tablets and smartphones, is already attracting millions of players with strong engagement and monetization in the West and China, putting it on track to join World of Warcraft®, Diablo, and StarCraft® as their fourth mega franchise.”  Kotick added, “Over the last five years, through dividends and share buybacks, we have returned almost $10 billion dollars to our shareholders and today we announced an increase to our annual dividend and repayment of $375 million of debt. As we look to our newly independent future, we expect to continue to deliver strong returns to our stakeholders through the development and sale of the world’s best games, as we have for more than twenty years.”  Selected Business Highlights:    *In North America and Europe combined, Activision Publishing was the #1     console and handheld publisher for the calendar year with the #2 and #3     best-selling franchises—Call of Duty and Skylanders, including toys and     accessories.^1   *In North America and Europe combined, for the calendar year, Activision     Publishing had four of the top-10 titles overall.^1   *For the fourth quarter, in aggregate across all platforms in the U.S. and     Europe combined, Activision Publishing’s Call of Duty: Ghosts was the  #1     best-selling title in both units and dollars and the #1 best-selling game     on both next-gen platforms in both units and dollars. Additionally, for     the calendar year, Call of Duty: Black Ops II was the #9 best-selling     title in both units and dollars.^2   *For the calendar year, in North America and Europe combined, Skylanders     Giants™, including toys and accessories,  was the #4 best-selling handheld     and console game in dollars overall and Skylanders SWAP Force™, including     toys and accessories, was the #6 best-selling handheld and console game in     dollars overall.^1   *As of December 31, 2013, the Skylanders franchise has generated,     life-to-date, more than $2 billion in worldwide sales^1 and, at the end of     the year, Activision had sold approximately 175 million Skylanders toys     worldwide.^3   *For the calendar year in North America, Blizzard Entertainment’s     StarCraft® II: Heart of the Swarm® was  the #1 best-selling PC game.⁴   *As of December 31, 2013, Blizzard Entertainment’s World of Warcraft     remains the #1 subscription-based MMORPG, with approximately 7.8 million     subscribers.^3  Company Outlook  On January 28, 2014, Activision Publishing released Onslaught, the first downloadable map pack for Call of Duty: Ghosts, on both Xbox One, the all-in-one games and entertainment system from Microsoft, and the Xbox 360 entertainment system from Microsoft. The company expects to release Onslaught on other platforms later in the first quarter.  Additionally, on March 25, 2014, Blizzard Entertainment expects to release Diablo ^  III: Reaper of Souls™, an expansion to Blizzard’s award-winning action-role-playing game, Diablo III.  Activision Blizzard’s first quarter and calendar year 2014 outlook is as follows:                                     GAAP       Non-GAAP     (in millions, except EPS)       Outlook       Outlook     CY 2014     Net Revenues                    $ 4,000       $  4,600     EPS                             $ 0.76        $  1.26     Fully Diluted Shares**            750            750     Q1 2014     Net Revenues                    $ 885         $  675     EPS                             $ 0.15        $  0.09     Fully Diluted Shares**            745            745                                                     ** Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis.  Board Declares Cash Dividend and Debt Repayment  The Board of Directors declared a cash dividend of $0.20 per common share payable on May 14, 2014 to shareholders of record at the close of business on March 19, 2014. Additionally, the Board of Directors approved a repayment of $375 million of the company’s outstanding Term Loan B.  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, 2013 and management’s outlook for 2014. The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 877-857-6161 in the U.S. with passcode 2197679.  About Activision Blizzard  Activision Blizzard, Inc. is the world’s largest and most profitable independent interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, Skylanders, World of Warcraft, StarCraft and Diablo.  Headquartered in Santa Monica, California, Activision Blizzard maintains operations throughout the United States, Europe, and Asia. It develops and publishes games on all leading interactive platforms and its games are available in most countries around the world. More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.  ^1 According to The NPD Group, GfK Chart-Track and Activision Blizzard internal estimates, including toys and accessories ^2 According to The NPD Group and GfK Chart-Track ^3 According to Activision Blizzard internal estimates ^4 According 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. In addition, Activision Blizzard provides EBITDA (defined as GAAP net income (loss) before interest (income) expense, income taxes, depreciation and amortization) and adjusted EBITDA (defined as non-GAAP operating margin (see non-GAAP financial measure below) before depreciation). The non-GAAP financial measures exclude the following items, as applicable in any given reporting period:    *the change in deferred revenues and related cost of sales with respect to     certain of the company’s online-enabled games;   *expenses related to stock-based compensation;   *the amortization of intangibles from purchase price accounting;   *fees and other expenses related to the acquisition of 429 million shares     of our common stock on October 11, 2013 from Vivendi, pursuant to the     stock purchase agreement dated July 25, 2013 and the $4.75 billion debt     financings related thereto; and   *the income tax adjustments associated with any of the above items.  In the future, Activision Blizzard may also consider whether other significant non-recurring items should also be excluded in calculating the non-GAAP financial measures used by the company. Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard’s financial and operating performance. In particular, the measures facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard by excluding certain items that may not be indicative of the company’s core business, operating results or future outlook. Internally, management uses these non-GAAP financial measures in assessing the company’s operating results, and measuring compliance with the requirements of the company’s debt financing agreements, as well as in planning and forecasting.  Activision Blizzard’s non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP earnings per share, non-GAAP operating margin, and non-GAAP or adjusted EBITDA do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard’s performance in relation to other companies.  Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard’s GAAP, as well as non-GAAP, results and outlook, and by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.  In addition to the reasons stated above, which are generally applicable to each of the items Activision Blizzard excludes from its non-GAAP financial measures, there are additional specific reasons why the company believes it is appropriate to exclude the change in deferred revenues and related cost of sales with respect to certain of the company’s online-enabled games.  Since Activision Blizzard has determined that some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable, we recognize revenues attributed to these game titles over their estimated service periods, which may range from five months to a maximum of less than a year. The related cost of sales is deferred and recognized as the related revenues are recognized. Internally, management excludes the impact of this change in deferred revenues and related cost of sales in its non-GAAP financial measures when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.  Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers, which is consistent with the way the company is measured by investment analysts and industry data sources. In addition, excluding the change in deferred revenues and the related cost of sales provides a much more timely indication of trends in our operating results.  Cautionary Note Regarding Forward-looking Statements: Information in this press release that involves Activision Blizzard’s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements 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 macroeconomic environment, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres such as first-person action, “toys to life” and massively multiplayer online games and preferences among hardware platforms, the seasonal and cyclical nature of the interactive game market, changing business models including digital delivery of content, competition, including from used games and other forms of entertainment, possible declines in software pricing, product returns and price protection, product delays, adoption rate and availability of new hardware (including peripherals) and related software, particularly during the ongoing console transition, rapid changes in technology and industry standards, the current regulatory environment, litigation risks and associated costs, protection of proprietary rights, maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality “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, the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, capital market risks, the possibility that expected benefits related to the recently completed transactions with Vivendi may not materialize as expected, the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt, and the other factors identified in the risk factors section of Activision Blizzard’s most recent annual report on Form 10-K as amended, and our quarterly report on Form 10-Q for the quarter ended September 30, 2013. 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         Year Ended December 31,                          December 31,                      2013         2012       2013         2012                                                            Net revenues: Product sales            $ 1,152         $ 1,413       $ 3,201         $ 3,620 Subscription, licensing and          366        355       1,382      1,236 other revenues ^1 Total net              1,518      1,768     4,583      4,856 revenues                                                                           Costs and expenses: Cost of sales -            502             483           1,053           1,116 product costs Cost of sales - online                     50              60            204             263 subscriptions Cost of sales - software                   72              87            187             194 royalties and amortization Cost of sales - intellectual               31              52            87              89 property licenses Product                    197             222           584             604 development Sales and                  239             232           606             578 marketing General and            143        148       490        561 administrative Total costs and        1,234      1,284     3,211      3,405 expenses Operating                  284             484           1,372           1,451 income Interest and other investment             (51   )     3         (53   )     7 income (expense), net Income before income tax                 233             487           1,319           1,458 expense Income tax             59         133       309        309 expense Net income            $ 174       $ 354      $ 1,010     $ 1,149                                                                                                                                 Basic earnings per common               $ 0.23          $ 0.31        $ 0.96          $ 1.01 share ^2 Weighted average common         745        1,111     1,024      1,112 shares outstanding                                                                                                                                 Diluted earnings per             $ 0.22          $ 0.31        $ 0.95          $ 1.01 common share ^2 Weighted average common shares                 757        1,115     1,035      1,118 outstanding assuming dilution                                                                                                                                 ^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 23 million and 24 million for the three months and year ended December 31, 2013, respectively. 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. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $168 million and $987 million for the three months and year ended December 31, 2013 as compared to total net income of $174 million and $1,010 million for the same periods, respectively. Net income attributable to Activision 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 total net income of $354 million and $1,149 million for the same periods, respectively.     ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in millions)                                                                                           December 31,         December 31,                                   2013                2012 ASSETS                                                 Current assets: Cash and cash equivalents            $ 4,410                    $ 3,959 Short-term investments                 33                         416 Accounts receivable, net               515                        707 Inventories, net                       171                        209 Software development                   367                        164 Intellectual property licenses         11                         11 Deferred income taxes, net             321                        487 Other current assets               413                321       Total current assets               6,241              6,274     Long-term investments                  9                          8 Software development                   21                         129 Intellectual property licenses         ---                        30 Property and equipment, net            138                        141 Other assets                           35                         11 Intangible assets, net                 43                         68 Trademark and trade names              433                        433 Goodwill                           7,092              7,106     Total assets                      $ 14,012            $ 14,200                                                          LIABILITIES AND SHAREHOLDERS’                          EQUITY Current liabilities: Accounts payable                     $ 355                      $ 343 Deferred revenues                      1,389                      1,657 Accrued expenses and other             636                        652 liabilities Current portion of long-term       25                 ---       debt Total current liabilities          2,405              2,652     Long-term debt, net                    4,668                      --- Deferred income taxes, net             20                         25 Other liabilities                  297                206       Total liabilities                  7,390              2,883     Shareholders’ equity: Common stock                           ---                        --- Additional paid-in capital             9,682                      9,450 Treasury stock                         (5,814   )                 --- Retained earnings                      2,686                      1,893 Accumulated other                  68                 (26      ) comprehensive income (loss) Total shareholders’ equity         6,622              11,317    Total liabilities and             $ 14,012            $ 14,200    shareholders’ equity                                                                                                                                         ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in millions)                                                                                                      Year Ended December 31,                                           2013             2012                                                             Cash flows from operating activities: Net income                                    $ 1,010                $ 1,149 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes                           185                    (10   ) Depreciation and amortization                   108                    120 Loss on disposal of property and                ---                    1 equipment Amortization and write-off of capitalized software development costs          207                    208 and intellectual property licenses (1) Amortization of debt discount and debt          1                      --- financing costs Stock-based compensation expense (2)            108                    126 Excess tax benefits from stock awards           (29    )               (5    ) Changes in operating assets and liabilities: Accounts receivable, net                        198                    (46   ) Inventories, net                                39                     (62   ) Software development and intellectual           (268   )               (301  ) property licenses Other assets                                    (91    )               88 Deferred revenues                               (275   )               153 Accounts payable                                7                      (54   ) Accrued expenses and other liabilities      64             (22   ) Net cash provided by operating              1,264          1,345  activities                                                                         Cash flows from investing activities: Proceeds from maturities of                     304                    444 available-for-sale investments Proceeds from auction rate securities           ---                    10 called at par Proceeds from sales of                          98                     --- available-for-sale investments Purchases of available-for-sale                 (26    )               (503  ) investments Capital expenditures                            (74    )               (73   ) Decrease (increase) in restricted cash      6              (2    ) Net cash provided by (used in)              308            (124  ) investing activities                                                                         Cash flows from financing activities: Proceeds from issuance of common stock          158                    33 to employees Tax payment related to net share                (49    )               (16   ) settlements on restricted stock rights Repurchase of common stock                      (5,830 )               (315  ) Dividends paid                                  (216   )               (204  ) Proceeds from issuance of long-term             4,750                  --- debt Repayment of long-term debt                     (6     )               --- Payment of debt discount and financing          (59    )               --- costs Excess tax benefits from stock awards       29             5      Net cash used in financing activities       (1,223 )        (497  )                                                                         Effect of foreign exchange rate changes     102            70     on cash and cash equivalents Net increase in cash and cash                   451                    794 equivalents                                                                         Cash and cash equivalents at beginning      3,959          3,165  of period                                                                         Cash and cash equivalents at end of        $ 4,410         $ 3,959  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      September   December   % Increase     March     June      September   December   % Increase                31,        31,     30,       30,         31,                       31,       30,       30,         31,                2011       2012    2012      2012        2012       (Decrease)     2013      2013      2013       2013       (Decrease) Cash Flow Data Operating      $   850    $ 154   $ 93      $  122      $  976     15         %   $ 325     $ 109     $ (50   )   $  880     (10    )   % Cash Flow Capital            25       8       17         21          27      8                17        19        22           16      (41    ) Expenditures Non-GAAP Free Cash          825      146     76         101         949     15               308       90        (72   )      864     (9     ) Flow^2                                                                                                                                          Operating Cash Flow -        952      972     1,143      1,219       1,345   41               1,516     1,532     1,360        1,264   (6     ) TTM^1 Capital Expenditures       72       76      79         71          73      1                82        84        85           74      1 - TTM^1 Non-GAAP Free Cash      $   880    $ 896   $ 1,064   $  1,148    $  1,272   45         %   $ 1,434   $ 1,448   $ 1,275     $  1,190   (6     )   % Flow - TTM^1                                                                                                                                                  TTM represents trailing twelve months. Operating Cash Flow for the        three months ended December 31, 2011, three months ended September 30,        2011, three months ended June 30, 2011, and three months ended March ^1   31, 2011 was $850 million, $46 million, $(78) million, and $134        million, respectively. Capital expenditures for the three months ended        December 31, 2011, three months ended September 30, 2011, three months        ended June 30, 2011, and three months ended March 31, 2011 was $25        million, $29 million, $14 million, and $4 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 - Three Months                       Sales -     -                                             Product       Sales and   General and      Total Ended December      Net                                  Software      Intellectual                                          Costs and 31, 2013               Revenues    Product     Online          Royalties                     Development   Marketing   Administrative                                    Costs                                      Property                                                  Expenses                                                Subscriptions   and            Licenses                                                                Amortization GAAP                 $ 1,518    $ 502      $   50         $  72         $   31        $   197      $  239     $    143        $ 1,234 Measurement   Less: Net   effect from   deferral of  net revenues   (a)     754         181           -              64              -              -            -             -             245   and related   cost of   sales   Less:   Stock-based    (b)     -           -             -              (7     )        -              (10  )       (2   )        (15   )       (34   )   compensation   Less:   Amortization   of             (c)     -           -             -              -               (15   )        -            -             -             (15   )   intangible   assets   Less: Fees   and other   expenses   related to   the Purchase   (d)    -        -          -           -            -           -         -          (18   )     (18   )   Transaction   and related   debt   financings Non-GAAP            $ 2,272   $ 683     $   50        $  129       $   16       $   187     $  237    $    110       $ 1,412  Measurement                                                                                                                                                                                                                                                                                                             Three Months           Operating               Basic           Diluted Ended December                 Net        Earnings       Earnings 31, 2013               Income      Income                                                per Share       per Share GAAP                   $ 284       $ 174       $   0.23        $  0.22 Measurement   Less: Net   effect from   deferral of   net revenues   (a)     509         401           0.52           0.51   and related   cost of   sales   Less:   Stock-based    (b)     34          23            0.03           0.03   compensation   Less:   Amortization   of             (c)     15          9             0.01           0.01   intangible   assets   Less: Fees   and other   expenses   related to   the Purchase   (d)    18       14         0.02        0.02      Transaction   and related   debt   financings Non-GAAP            $ 860     $ 621     $   0.81      $  0.79    Measurement                                                                                                                                                                                                                                                                                                                                                                             Cost of        Cost of                                    Cost of     Cost of Sales   Sales -        Sales - Year Ended                         Sales -     -                                             Product       Sales and   General and      Total December 31,        Net                                  Software      Intellectual                                          Costs and 2013                   Revenues    Product     Online          Royalties                     Development   Marketing   Administrative                                    Costs                                      Property                                                  Expenses                                                Subscriptions   and            Licenses                                                                Amortization GAAP                   $ 4,583     $ 1,053     $   204         $  187         $   87         $   584       $  606      $    490         $ 3,211 Measurement   Less: Net   effect from   deferral of   net revenues   (a)     (241  )     (10   )       -              2               (4    )        -            -             -             (12   )   and related   cost of   sales   Less:   Stock-based    (b)     -           -             -              (17    )        -              (33  )       (7   )        (53   )       (110  )   compensation   Less:   Amortization   of             (c)     -           -             -              -               (23   )        -            -             -             (23   )   intangible   assets   Less: Fees   and other   expenses   related to   the Purchase   (d)    -        -          -           -            -           -         -          (79   )     (79   )   Transaction   and related   debt   financings Non-GAAP            $ 4,342   $ 1,043   $   204       $  172       $   60       $   551     $  599    $    358       $ 2,987  Measurement                                                                                                                                                                                                                                                                                                             Year Ended             Operating               Basic           Diluted December 31,                   Net        Earnings       Earnings 2013                   Income      Income                                                per Share       per Share GAAP                   $ 1,372     $ 1,010     $   0.96        $  0.95 Measurement   Less: Net   effect from   deferral of   net revenues   (a)     (229  )     (150  )       (0.14  )       (0.14  )   and related   cost of   sales   Less:   Stock-based    (b)     110         71            0.07           0.07   compensation   Less:   Amortization   of             (c)     23          14            0.01           0.01   intangible   assets   Less: Fees   and other   expenses   related to   the Purchase   (d)    79       54         0.05        0.05      Transaction   and related   debt   financings Non-GAAP            $ 1,355   $ 999     $   0.95      $  0.94    Measurement                                                                                                                                              (a) Reflects the net change in deferred revenues and related cost of sales.   (b) Includes expense related to stock-based compensation.   (c) Reflects amortization of intangible assets from purchase price   accounting.   (d) Reflects fees and other expenses related to the repurchase of 429   million shares of our common stock from Vivendi (the "Purchase Transaction")   completed on October 11, 2013 and related debt financings.      The company calculates earnings per share pursuant to the two-class method   which requires the allocation of net income between common shareholders and   participating security holders. Net income attributable to Activision   Blizzard common shareholders used to calculate non-GAAP earnings per common   share assuming dilution was $602 million and $976 million for the three   months and year ended December 31, 2013 as compared to total non-GAAP net   income of $621 million and $999 million for the same periods, respectively.      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 -                                    Sales -   -                                             Product       Sales and   General and      Total Three Months Ended    Net                                Software      Intellectual                                          Costs and December 31, 2012      Revenues    Product   Online          Royalties                     Development   Marketing   Administrative                                    Costs                                    Property                                                  Expenses                                              Subscriptions   and            Licenses                                                              Amortization GAAP                 $   1,768  $ 483    $     60       $   87        $   52        $   222      $  232     $    148        $ 1,284 Measurement   Less: Net   effect from   deferral of  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               $   2,595  $ 669    $     60       $   115      $   32       $   216     $  230    $    119       $ 1,441  Measurement                                                                                                                                                                                                                                                                                                                               Operating             Basic           Diluted Three Months Ended               Net      Earnings       Earnings December 31, 2012      Income      Income                                              per Share       per Share GAAP                   $   484     $ 354     $     0.31      $   0.31 Measurement   Less: Net   effect from   deferral of   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               $   1,154  $ 891    $     0.78     $   0.78   Measurement                                                                                                                                                                                                                                                                                                                                                                     Cost of        Cost of                                    Cost of   Cost of Sales   Sales -        Sales -                                    Sales -   -                                             Product       Sales and   General and      Total Year Ended December   Net                                Software      Intellectual                                          Costs and 31, 2012               Revenues    Product   Online          Royalties                     Development   Marketing   Administrative                                    Costs                                    Property                                                  Expenses                                              Subscriptions   and            Licenses                                                              Amortization GAAP                   $   4,856   $ 1,116   $     263       $   194        $   89         $   604       $  578      $    561         $ 3,405 Measurement   Less: Net   effect from   deferral of   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               $   4,987  $ 1,116  $     264      $   221      $   62       $   584     $  570    $    472       $ 3,289  Measurement                                                                                                                                                                                                                                                                                                                               Operating             Basic           Diluted Year Ended December              Net      Earnings       Earnings 31, 2012               Income      Income                                              per Share       per Share GAAP                   $   1,451   $ 1,149   $     1.01      $   1.01 Measurement   Less: Net   effect from   deferral of   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               $   1,698  $ 1,350  $     1.19     $   1.18   Measurement                                                       (a) Reflects the net change in deferred revenues and related cost of sales.   (b) Includes expense related to stock-based compensation.   (c) Reflects amortization of intangible assets from purchase price   accounting.      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 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 FINANCIAL INFORMATION For the Three Months and Year Ended December 31, 2013 and 2012 (Amounts in millions)                                                                                                    Three Months Ended                      December 31, 2013           December 31, 2012           $ Increase     % Increase                      Amount        % of          Amount        % of          (Decrease)     (Decrease)                                    Total^4                     Total^4 GAAP Net Revenues by Distribution Channel   Retail             $ 953         63      %     $ 1,177       67      %     $  (224  )     (19    )   %   channels   Digital   online              385        25             451        26              (66   )     (15    )   channels^1   Total   Activision           1,338       88              1,628       92               (290  )     (18    )   and Blizzard                                                                                                           Distribution        180        12             140        8               40         29   Total   consolidated        1,518      100            1,768      100             (250  )     (14    )   GAAP net   revenues                                                                                                         Change in Deferred Revenues^2   Retail               786                         900   channels   Digital   online              (32   )                    (73   )   channels^1   Total   changes in          754                       827      deferred   revenues                                                                                                         Non-GAAP Net Revenues by Distribution Channel   Retail               1,739       77              2,077       80               (338  )     (16    )   channels   Digital   online              353        16             378        15              (25   )     (7     )   channels^1   Total   Activision           2,092       92              2,455       95               (363  )     (15    )   and Blizzard                                                                                                           Distribution        180        8              140        5               40         29   Total   non-GAAP net       $ 2,272      100     %     $ 2,595      100     %     $  (323  )     (12    )   %   revenues^3                                                                                                                                                                                                                                      Year Ended                      December 31, 2013           December 31, 2012           $ Increase     % Increase                      Amount        % of          Amount        % of          (Decrease)     (Decrease)                                    Total^4                     Total^4 GAAP Net Revenues by Distribution Channel   Retail             $ 2,701       59      %     $ 3,013       62      %     $  (312  )     (10    )   %   channels   Digital   online              1,559      34             1,537      32              22         1   channels^1   Total   Activision           4,260       93              4,550       94               (290  )     (6     )   and Blizzard                                                                                                           Distribution        323        7              306        6               17         6   Total   consolidated        4,583      100            4,856      100             (273  )     (6     )   GAAP net   revenues                                                                                                         Change in Deferred Revenues^2   Retail               (247  )                     69   channels   Digital   online              6                         62       channels^1   Total   changes in          (241  )                    131      deferred   revenues                                                                                                         Non-GAAP Net Revenues by Distribution Channel   Retail               2,454       57              3,082       62               (628  )     (20    )   channels   Digital   online              1,565      36             1,599      32              (34   )     (2     )   channels^1   Total   Activision           4,019       93              4,681       94               (662  )     (14    )   and Blizzard                                                                                                           Distribution        323        7              306        6               17         6   Total   non-GAAP net       $ 4,342      100     %     $ 4,987      100     %     $  (645  )     (13    )   %   revenues^3                                                                                                           ^1 Net revenues from digital online channels 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 revenues.   ^3 Total non-GAAP net revenues presented also represents our total operating segment net revenues.   ^4 The percentages of total are presented as calculated. Therefore the sum of these percentages, as   presented, may differ due to the impact of rounding.                                                                                                                                                                                                                  <td class="bwp*Story too large* ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the Three Months Ended December 31, 2013 and 2012 (Amounts in millions)                                            Three Months Ended                         December 31, 2013       December 31, 2012         $ Increase   % Increase                         Amount    % of          Amount      % of          (Decrease)     (Decrease)                                     Total^8                     Total^8 GAAP Net Revenues by Segment/Platform Mix Activision and Blizzard:   Online                $ 198       13      %     $ 285         16      %     $  (87   )     (31    )   %   subscriptions^1   PC                      66        4               205         12               (139  )     (68    )     Sony                  236       16              259         15               (23   )     (9     )     PlayStation^3     Microsoft             349       23              314         18               35          11     Xbox^4     Nintendo Wii         160       11             183        10              (23   )     (13    )     and Wii U   Total console^2        745       49             756        43              (11   )     (1     )   Other^7                329       22             382        22              (53   )     (14    )   Total   Activision and         1,338     88             1,628      92              (290  )     (18    )   Blizzard                                                                                                          Distribution:   Total                  180       12             140        8               40         29   Distribution   Total   consolidated           1,518     100            1,768      100             (250  )     (14    )   GAAP net   revenues                                                                                                          Change in Deferred Revenues^5 Activision and Blizzard:   Online                  3                         (8    )   subscriptions^1   PC                      45                        (89   )     Sony                  385                       441     PlayStation^3     Microsoft             318                       467     Xbox^4     Nintendo Wii         3                        16         and Wii U   Total console^2        706                      924      Other^7                ---                      ---      Total changes   in deferred            754                      827      revenues                                                                                                          Non-GAAP Net Revenues by Segment/Platform Mix  [TRUNCATED]