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

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