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Activision Blizzard Announces Second Quarter 2013 Financial Results

Factors that could cause Activision Blizzard’s actual future results to differ materially from those expressed in the forward-looking statements set forth in this release include, but are not limited to, sales levels of Activision Blizzard’s titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres such as first-person action and massively multiplayer online games and preferences among 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 upcoming 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, 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 pending transactions with Vivendi and ASAC II LP may not materialize as expected, the pending transactions not being timely completed, if completed at all, 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 June 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 June 30,   Six Months Ended June 30,
    2013   2012   2013   2012
       
Net revenues:
Product sales $ 727 $ 798 $ 1,717 $ 1,672
Subscription, licensing and other revenues 1     323     277     658     575
Total net revenues     1,050     1,075     2,375     2,247
 
Costs and expenses:
Cost of sales - product costs 179 229 440 486
Cost of sales - online subscriptions 54 71 111 140
Cost of sales - software royalties and amortization 38 57 99 88
Cost of sales - intellectual property licenses 14 20 52 27
Product development 123 145 247 259
Sales and marketing 116 136 223 216
General and administrative     96     190     186     291
Total costs and expenses     620     848     1,358     1,507
Operating income 430 227 1,017 740
Investment and other income (expense), net     -     2     3     3
Income before income tax expense 430 229 1,020 743
Income tax expense     106     44     240     174
Net income   $ 324   $ 185   $ 780   $ 569
 
                 
Basic earnings per common share $ 0.28 $ 0.16 $ 0.68 $ 0.50
Weighted average common shares outstanding     1,118     1,109     1,116     1,115
 
                 
Diluted earnings per common share 2 $ 0.28 $ 0.16 $ 0.68 $ 0.50
Weighted average common shares outstanding assuming dilution     1,127     1,115     1,124     1,121
 
 
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 24 million and 25 million for the three and six months ended June 30, 2013, respectively. We had, on a weighted-average basis, participating securities of approximately 24 million and 22 million for the three and six months ended June 30, 2012, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $318 million and $764 million for the three and six months ended June 30, 2013 as compared to the total net income of $324 million and $780 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 $181 million and $558 million for the three and six months ended June 30, 2012 as compared to total net income of $185 million and $569 million for the same periods, respectively.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
         
  June 30,   December 31,
    2013   2012
ASSETS        
Current assets:
Cash and cash equivalents $ 4,341 $ 3,959
Short-term investments 205 416
Accounts receivable, net 117 707
Inventories, net 131 209
Software development 304 164
Intellectual property licenses 11 11
Deferred income taxes, net 335 487
Other current assets     185       321  
Total current assets     5,629       6,274  
Long-term investments 9 8
Software development 35 129
Intellectual property licenses --- 30
Property and equipment, net 132 141
Other assets 10 11
Intangible assets, net 61 68
Trademark and trade names 433 433
Goodwill     7,102       7,106  
Total assets   $ 13,411     $ 14,200  
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:
Accounts payable $ 139 $ 343
Deferred revenues 665 1,657
Accrued expenses and other liabilities     389       652  
Total current liabilities     1,193       2,652  
Deferred income taxes, net 77 25
Other liabilities     206       206  
Total liabilities     1,476       2,883  
 
Shareholders’ equity:
Common stock --- ---
Additional paid-in capital 9,541 9,450
Retained earnings 2,456 1,893
Accumulated other comprehensive income (loss)     (62 )     (26 )
Total shareholders’ equity     11,935       11,317  
Total liabilities and shareholders’ equity   $ 13,411     $ 14,200  
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)
 
Three months ended June 30, 2013   Net Revenues   Cost of Sales - Product Costs   Cost of Sales - Online Subscriptions   Cost of Sales - Software Royalties and Amortization   Cost of Sales - Intellectual Property Licenses   Product Development   Sales and Marketing   General and Administrative   Total Costs and Expenses
GAAP Measurement $ 1,050   $ 179   $ 54   $ 38   $ 14   $ 123   $ 116   $ 96   $ 620
Less: Net effect from deferral in net revenues and related cost of sales (a) (442 ) (77 ) - (26 ) (1 ) - - - (104 )
Less: Stock-based compensation (b) - - - (3 ) - (7 ) (2 ) (12 ) (24 )
Less: Amortization of intangible assets (c)   -       -       -       -       (3 )     -       -       -       (3 )
Non-GAAP Measurement   $ 608     $ 102     $ 54     $ 9     $ 10     $ 116     $ 114     $ 84     $ 489  
                                     
 
                 
Three months ended June 30, 2013   Operating Income   Net Income   Basic Earnings per Share   Diluted Earnings per Share
GAAP Measurement $ 430 $ 324 $ 0.28 $ 0.28
Less: Net effect from deferral in net revenues and related cost of sales (a) (338 ) (251 ) (0.22 ) (0.22 )
Less: Stock-based compensation (b) 24 15 0.01 0.01
Less: Amortization of intangible assets (c)   3       2       -       -  
Non-GAAP Measurement   $ 119     $ 90     $ 0.08     $ 0.08  
 
 
Six months ended June 30, 2013   Net Revenues   Cost of Sales - Product Costs   Cost of Sales - Online Subscriptions   Cost of Sales - Software Royalties and Amortization   Cost of Sales - Intellectual Property Licenses   Product Development   Sales and Marketing   General and Administrative   Total Costs and Expenses
GAAP Measurement $ 2,375   $ 440   $ 111   $ 99   $ 52   $ 247   $ 223   $ 186   $ 1,358
Less: Net effect from deferral in net revenues and related cost of sales (a) (962 ) (192 ) - (60 ) (3 ) - - - (255 )
Less: Stock-based compensation (b) - - - (8 ) - (13 ) (4 ) (25 ) (50 )
Less: Amortization of intangible assets (c)   -       -       -       -       (6 )     -       -       -       (6 )
Non-GAAP Measurement   $ 1,413     $ 248     $ 111     $ 31     $ 43     $ 234     $ 219     $ 161     $ 1,047  
                                     
 
                 
Six months ended June 30, 2013   Operating Income   Net Income   Basic Earnings per Share   Diluted Earnings per Share
GAAP Measurement $ 1,017 $ 780 $ 0.68 $ 0.68
Less: Net effect from deferral in net revenues and related cost of sales (a) (707 ) (528 ) (0.46 ) (0.46 )
Less: Stock-based compensation (b) 50 32 0.03 0.03
Less: Amortization of intangible assets (c)   6       4       -       -  
Non-GAAP Measurement   $ 366     $ 288     $ 0.25     $ 0.25  
 
 
(a) Reflects the net change in deferred net revenues and related cost of sales.
(b) Includes expense related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price accounting.
 

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $88 million and $282 million for the three and six months ended June 30, 2013 as compared to the total non-GAAP net income of $90 million and $288 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)
 
Three months ended June 30, 2012 Net Revenues   Cost of Sales - Product Costs   Cost of Sales - Online Subscriptions   Cost of Sales - Software Royalties and Amortization   Cost of Sales - Intellectual Property Licenses   Product Development   Sales and Marketing   General and Administrative   Total Costs and Expenses
GAAP Measurement $ 1,075   $ 229   $ 71   $ 57   $ 20   $ 145   $ 136   $ 190   $ 848
Less: Net effect from deferral in net revenues and related cost of sales (a) (21 ) (61 ) - - - - - - (61 )
Less: Stock-based compensation (b) - - - (3 ) - (5 ) (1 ) (22 ) (31 )
Less: Amortization of intangible assets (c)   -       -       -     -       (2 )     -       -       -       (2 )
Non-GAAP Measurement $ 1,054     $ 168     $ 71   $ 54     $ 18     $ 140     $ 135     $ 168     $ 754  
                                     
 
                 
Three months ended June 30, 2012 Operating Income   Net Income   Basic Earnings per Share   Diluted Earnings per Share
GAAP Measurement $ 227 $ 185 $ 0.16 $ 0.16
Less: Net effect from deferral in net revenues and related cost of sales (a) 40 17 0.02 0.02
Less: Stock-based compensation (b) 31 21 0.02 0.02
Less: Amortization of intangible assets (c)   2       1       -     -  
Non-GAAP Measurement $ 300     $ 224     $ 0.20   $ 0.20  
 
 
Six months ended June 30, 2012 Net Revenues   Cost of Sales - Product Costs   Cost of Sales - Online Subscriptions   Cost of Sales - Software Royalties and Amortization   Cost of Sales - Intellectual Property Licenses   Product Development   Sales and Marketing   General and Administrative   Total Costs and Expenses
GAAP Measurement $ 2,247   $ 486   $ 140   $ 88   $ 27   $ 259   $ 216   $ 291   $ 1,507
Less: Net effect from deferral in net revenues and related cost of sales (a) (606 ) (181 ) - (17 ) (1 ) - - - (199 )
Less: Stock-based compensation (b) - - - (6 ) - (9 ) (4 ) (33 ) (52 )
Less: Amortization of intangible assets (c)   -       -       -       -       (5 )     -       -       -       (5 )
Non-GAAP Measurement $ 1,641     $ 305     $ 140     $ 65     $ 21     $ 250     $ 212     $ 258     $ 1,251  
                                     
 
                 
Six months ended June 30, 2012 Operating Income   Net Income   Basic Earnings per Share   Diluted Earnings per Share
GAAP Measurement $ 740 $ 569 $ 0.50 $ 0.50
Less: Net effect from deferral in net revenues and related cost of sales (a) (407 ) (317 ) (0.28 ) (0.28 )
Less: Stock-based compensation (b) 52 36 0.03 0.03
Less: Amortization of intangible assets (c)   5       3       -       -  
Non-GAAP Measurement $ 390     $ 291     $ 0.26     $ 0.25  
 
 
(a) Reflects the net change in deferred net revenues and related cost of sales.
(b) Includes expense related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price accounting.
 

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $219 million and $285 million for the three and six months ended June 30, 2012 as compared to total non-GAAP net income of $224 million and $291 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 And Six Months Ended June 30, 2013 and 2012
(Amounts in millions)
 
  Three Months Ended
June 30, 2013   June 30, 2012   $ Increase   % Increase
Amount   % of Total 4 Amount   % of Total 4 (Decrease) (Decrease)
GAAP Net Revenues by Distribution Channel
Retail channels $ 626 60 % $ 685 64 % $ (59 ) (9 )%
Digital online channels 1   387   37     343   32     44   13
Total Activision and Blizzard 1,013 96 1,028 96 (15 ) (1 )
 
Distribution   37   4     47   4     (10 ) (21 )
Total consolidated GAAP net revenues   1,050   100     1,075   100     (25 ) (2 )
 
Change in Deferred Net Revenues 2
Retail channels (438 ) (175 )
Digital online channels 1   (4 )   154  
Total changes in deferred net revenues   (442 )   (21 )
 
Non-GAAP Net Revenues by Distribution Channel
Retail channels 188 31 510 48 (322 ) (63 )
Digital online channels 1   383   63     497   47     (114 ) (23 )
Total Activision and Blizzard 571 94 1,007 96 (436 ) (43 )
 
Distribution   37   6     47   4     (10 ) (21 )
Total non-GAAP net revenues 3 $ 608   100 % $ 1,054   100 % $ (446 ) (42 )%
 
 
Six Months Ended
June 30, 2013 June 30, 2012 $ Increase % Increase
Amount % of Total 4 Amount % of Total 4 (Decrease) (Decrease)
GAAP Net Revenues by Distribution Channel
Retail channels $ 1,522 64 % $ 1,479 66 % $ 43 3 %
Digital online channels 1   765   32     656   29     109   17
Total Activision and Blizzard 2,287 96 2,135 95 152 7
 
Distribution   88   4     112   5     (24 ) (21 )
Total consolidated GAAP net revenues   2,375   100     2,247   100     128   6
 
Change in Deferred Net Revenues 2
Retail channels (1,009 ) (746 )
Digital online channels 1   47     140  
Total changes in deferred net revenues   (962 )   (606 )
 
Non-GAAP Net Revenues by Distribution Channel
Retail channels 513 36 733 45 (220 ) (30 )
Digital online channels 1   812   57     796   49     16   2
Total Activision and Blizzard 1,325 94 1,529 93 (204 ) (13 )
 
Distribution   88   6     112   7     (24 ) (21 )
Total non-GAAP net revenues 3 $ 1,413   100 % $ 1,641   100 % $ (228 ) (14 )%
 
1 Net revenues from digital online channel represent revenues from subscriptions and memberships, licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.
2 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
3 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
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.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended June 30, 2013 and 2012
(Amounts in millions)
 
  Three Months Ended
June 30, 2013   June 30, 2012   $ Increase   % Increase
Amount   % of Total 6 Amount   % of Total 6 (Decrease) (Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online subscriptions 1 $ 233 22 % $ 220 20 % $ 13 6 %
PC 100 10 151 14 (51 ) (34 )
Sony PlayStation 3 265 25 234 22 31 13
Microsoft Xbox 360 307 29 248 23 59 24
Nintendo Wii and Wii U   18   2     32   3     (14 ) (44 )
Total console 2   590   56     514   48     76   15
Other 5   90   9     143   13     (53 ) (37 )
Total Activision and Blizzard   1,013   96     1,028   96     (15 ) (1 )
 
Distribution:
Total Distribution   37   4     47   4     (10 ) (21 )
Total consolidated GAAP net revenues   1,050   100     1,075   100     (25 ) (2 )
 
Change in Deferred Net Revenues 3
Activision and Blizzard:
Online subscriptions 1 (39 ) (21 )
PC (57 ) 314
Sony PlayStation 3 (166 ) (137 )
Microsoft Xbox 360 (175 ) (162 )
Nintendo Wii and Wii U   (5 )   (12 )
Total console 2   (346 )   (311 )
Other 5   ---     (3 )
Total changes in deferred net revenues   (442 )   (21 )
 
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online subscriptions 1 194 32 199 19 (5 ) (3 )
PC 43 7 465 44 (422 ) (91 )
Sony PlayStation 3 99 16 97 9 2 2
Microsoft Xbox 360 132 22 86 8 46 53
Nintendo Wii and Wii U   13   2     20   2     (7 ) (35 )
Total console 2   244   40     203   19     41   20
Other 5   90   15     140   13     (50 ) (36 )
Total Activision and Blizzard   571   94     1,007   96     (436 ) (43 )
 
Distribution:
Total Distribution   37   6     47   4     (10 ) (21 )
Total non-GAAP net revenues 4 $ 608   100 % $ 1,054   100 % $ (446 ) (42 )%
 
1 Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services. It also includes revenues from Call of Duty Elite memberships.
2 Downloadable content and their related revenues are included in each respective console platforms and total console.
3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
5 Revenue from other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.
6 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Six Months Ended June 30, 2013 and 2012
(Amounts in millions)
 
  Six Months Ended
June 30, 2013   June 30, 2012   $ Increase   % Increase
Amount   % of Total 6 Amount   % of Total 6 (Decrease) (Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online subscriptions 1 $ 508 21 % $ 475 21 % $ 33 7 %
PC 195 8 198 9 (3 ) (2 )
Sony PlayStation 3 609 26 536 24 73 14
Microsoft Xbox 360 689 29 584 26 105 18
Nintendo Wii and Wii U   41   2     83   4     (42 ) (51 )
Total console 2   1,339   56     1,203   54     136   11
Other 5   245   10     259   12     (14 ) (5 )
Total Activision and Blizzard   2,287   96     2,135   95     152   7
 
Distribution:
Total Distribution   88   4     112   5     (24 ) (21 )
Total consolidated GAAP net revenues   2,375   100     2,247   100     128   6
 
Change in Deferred Net Revenues 3
Activision and Blizzard:
Online subscriptions 1 (85 ) (27 )
PC (29 ) 292
Sony PlayStation 3 (416 ) (400 )
Microsoft Xbox 360 (421 ) (439 )
Nintendo Wii and Wii U   (10 )   (26 )
Total console 2   (847 )   (865 )
Other 5   (1 )   (6 )
Total changes in deferred net revenues   (962 )   (606 )
 
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online subscriptions 1 423 30 448 27 (25 ) (6 )
PC 166 12 490 30 (324 ) (66 )
Sony PlayStation 3 193 14 136 8 57 42
Microsoft Xbox 360 268 19 145 9 123 85
Nintendo Wii and Wii U   31   2     57   3     (26 ) (46 )
Total console 2   492   35     338   21     154   46
Other 5   244   17     253   15     (9 ) (4 )
Total Activision and Blizzard   1,325   94     1,529   93     (204 ) (13 )
 
Distribution:
Total Distribution   88   6     112   7     (24 ) (21 )
Total non-GAAP net revenues 4 $ 1,413   100 % $ 1,641   100 % $ (228 ) (14 )%
 
1 Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services. It also includes revenues from Call of Duty Elite memberships.
2 Downloadable content and their related revenues are included in each respective console platforms and total console.
3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
5 Revenue from other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.
6 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended June 30, 2013 and 2012
(Amounts in millions)
 
  Three Months Ended
June 30, 2013   June 30, 2012   $ Increase   % Increase
Amount   % of Total 3 Amount   % of Total 3 (Decrease) (Decrease)
GAAP Net Revenues by Geographic Region
North America $ 562 54 % $ 562 52 % $ - - %
Europe 402 38 403 37 (1 ) ---
Asia Pacific   86   8     110   10     (24 ) (22 )
Total consolidated GAAP net revenues   1,050   100     1,075   100     (25 ) (2 )
 
Change in Deferred Net Revenues 1
North America (248 ) (79 )
Europe (161 ) (9 )
Asia Pacific   (33 )   67  
Total changes in net revenues   (442 )   (21 )
 
Non-GAAP Net Revenues by Geographic Region
North America 314 52 483 46 (169 ) (35 )
Europe 241 40 394 37 (153 ) (39 )
Asia Pacific   53   9     177   17     (124 ) (70 )
Total non-GAAP net revenues 2 $ 608   100 % $ 1,054   100 % $ (446 ) (42 )%
 
 
Six Months Ended
June 30, 2013 June 30, 2012 $ Increase % Increase
Amount % of Total 3 Amount % of Total 3 (Decrease) (Decrease)
GAAP Net Revenues by Geographic Region
North America $ 1,300 55 % $ 1,163 52 % $ 137 12 %
Europe 889 37 888 40 1 -
Asia Pacific   186     8     196     9     (10 ) (5 )
Total consolidated GAAP net revenues   2,375     100     2,247     100     128   6
 
Change in Deferred Net Revenues 1
North America (563 ) (409 )
Europe (330 ) (235 )
Asia Pacific   (69 )   38  
Total changes in net revenues   (962 )   (606 )
 
Non-GAAP Net Revenues by Geographic Region
North America 737 52 754 46 (17 ) (2 )
Europe 559 40 653 40 (94 ) (14 )
Asia Pacific   117   8     234   14     (117 ) (50 )
Total non-GAAP net revenues 2 $ 1,413   100 % $ 1,641   100 % $ (228 ) (14 )%
 
1 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
2 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
3 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
For the Three And Six Months Ended June 30, 2013 and 2012
(Amounts in millions)
 
  Three Months Ended
June 30, 2013   June 30, 2012   $ Increase   % Increase
Amount   % of Total 4 Amount   % of Total 4 (Decrease) (Decrease)
Segment net revenues:
Activision 1 $ 347 33 % $ 373 35 % $ (26 ) (7 )%
Blizzard 2 224 21 634 59 (410 ) (65 )
Distribution 3   37   4     47   4     (10 ) (21 )
Operating segment total 608 58 1,054 98 (446 ) (42 )
 
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues   442   42     21   2  
Consolidated net revenues $ 1,050   100 % $ 1,075   100 % $ (25 ) (2 )%
 
Segment income from operations:
Activision 1 $ 60 $ (71 ) $ 131 185 %
Blizzard 2 60 371 (311 ) (84 )
Distribution 3   (1 )   ---     (1 ) ---
Operating segment total 119 300 (181 ) (60 )
 

Reconciliation to consolidated operating income and consolidated income before income tax expense:

Net effect from deferral of net revenues and related cost of sales 338 (40 )
Stock-based compensation expense (24 ) (31 )
Amortization of intangible assets   (3 )   (2 )
Consolidated operating income 430 227 203 89
Investment and other income (expense), net   ---     2  
Consolidated income before income tax expense $ 430   $ 229   $ 201 88 %
 
Operating margin from total operating segments 20 % 28 %
 
 
Six Months Ended
June 30, 2013 June 30, 2012 $ Increase % Increase
Amount % of Total 4 Amount % of Total 4 (Decrease) (Decrease)
Segment net revenues:
Activision 1 $ 771 32 % $ 645 29 % $ 126 20 %
Blizzard 2 554 23 884 39 (330 ) (37 )
Distribution 3   88   4     112   5     (24 ) (21 )
Operating segment total 1,413 59 1,641 73 (228 ) (14 )
 
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues   962   41     606   27  
Consolidated net revenues $ 2,375   100 % $ 2,247   100 % $ 128 6 %
 
Segment income from operations:
Activision 1 $ 173 $ (70 ) $ 243 NM%
Blizzard 2 194 460 (266 ) (58 )
Distribution 3   (1 )   ---     (1 ) ---
Operating segment total 366 390 (24 ) (6 )
 

Reconciliation to consolidated operating income and consolidated income before income tax expense:

Net effect from deferral of net revenues and related cost of sales 707 407
Stock-based compensation expense (50 ) (52 )
Amortization of intangible assets   (6 )   (5 )
Consolidated operating income 1,017 740 277 37
Investment and other income (expense), net   3     3  
Consolidated income before income tax expense $ 1,020   $ 743   $ 277 37 %
 
Operating margin from total operating segments 26 % 24 %
 
1 Activision Publishing (“Activision”) — publishes interactive entertainment products and contents.
2 Blizzard — Blizzard Entertainment, Inc. and its subsidiaries (“Blizzard”) publishes PC games and online subscription-based games in the MMORPG category.
3 Activision Blizzard Distribution (“Distribution”) — distributes interactive entertainment software and hardware products.
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.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
2013 Earnings Per Share
Actual Results For the Quarters Ending March 31 and June 30, 2013
Outlook for the Quarters Ending September 30 and December 31, 2013 and Year Ending December 31, 2013

On a Pre-transaction 1 , Post-transaction, as reported 2 , and Pro-forma 3 Basis (as applicable)

         

Outlook for

Outlook for

Outlook for

Quarter Ending Quarter Ending Quarter Ending Quarter Ending Year Ending
March 31, June 30, September 30, December 31, December 31,
2013 2013 2013 2013 2013
 

Pre-transaction 1

 
Earnings Per Diluted Share (GAAP) $ 0.40 $ 0.28 $ 0.03 $ 0.06 $ 0.77
 
Earnings Per Diluted Share (Non-GAAP) $ 0.17 $ 0.08 $ 0.03 $

0.54

$ 0.82
 
Fully Diluted Weighted Average
Shares (in billions) 1.15 1.15 1.17 1.17 1.16

 

Post-transaction, as reported 2

 

Earnings Per Diluted Share (GAAP) 4

 

 

$ 0.01-0.04 $ 0.80-0.82
 

Earnings Per Diluted Share (Non-GAAP) 4

 

 

$ 0.76-0.79 $ 0.85-0.87
 

Fully Diluted Weighted Average Shares (in billions ("B") or millions ("M"), as noted)

 

743M 1.05B
 

Pro-forma 3

 

Earnings Per Diluted Share (GAAP) 4

$ 0.91-0.99
 

Earnings Per Diluted Share (Non-GAAP) 4

$ 1.01-1.09
 

Fully Diluted Weighted Average Shares (in millions)

725
 

1 Without giving effect to proposed transactions with Vivendi.

 

2 Post-transaction, as reported assumes the transaction and its related financial impact (including interest expense from debt, associated fees and expenses, and lower weighted average share count as a result of the share repurchase) commences on September 30, 2013.

 

3 Pro-forma assumes the transaction and its related financial impact (including interest expense from debt, associated fees and expenses, and lower weighted average share count as a result of the share repurchase) commences on January 1, 2013.

 

4 The range reflects our expectation on interest expense from the debt.

 

GAAP and non-GAAP earnings (loss) per share (EPS) information is presented as calculated. The sum of quarterly EPS would not result in the full year EPS as the number of shares are on a weighted average basis. Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis.

 
GAAP to Non-GAAP reconciliation tables are presented separately.
 
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Actual Results For the Quarters Ending March 31 and June 30, 2013

Outlook for the Quarters Ending September 30 and December 31, 2013 and Year Ending December 31, 2013 on a pre-transaction* basis

GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)
 
    Outlook for   Outlook for   Outlook for
Quarter Ending Quarter Ending Quarter Ending Quarter Ending Year Ending
March 31, June 30, September 30, December 31, December 31,

Pre-transaction *

2013 2013 2013 2013 2013
 
Net Revenues (GAAP)

$

1,324

$ 1,050 $ 635 $ 1,300 $ 4,310
 

Excluding the impact of:

Change in deferred net revenues (a) (520 ) (442 ) (50 ) 952 (60 )
         
Non-GAAP Net Revenues

$

804

$ 608 $ 585 $ 2,252 $ 4,250
 
Earnings Per Diluted Share (GAAP)

$

0.40

$ 0.28 $ 0.03 $ 0.06 $ 0.77
 

Excluding the impact of:

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

(b) (0.24 ) (0.22 ) (0.03 ) 0.44 (0.04 )
Stock-based compensation (c) 0.02 0.01 0.02 0.02 0.07
Amortization of intangible assets (d) - - - 0.01 0.01

Fees and other expenses related to the transaction

(e) - - 0.01 - 0.01
         
Earnings Per Diluted Share (Non-GAAP)

$

0.17

$ 0.08 $ 0.03 $

0.54

$ 0.82
 
 
(a) Reflects the net change in deferred net revenues.
(b) Reflects the net change in deferred net revenues and related cost of sales.
(c) Reflects expenses related to stock-based compensation.
(d) Reflects amortization of intangible assets from purchase price accounting.
(e) Reflects fees and other expenses related to the transaction.
 

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

 

* Without giving effect to proposed transactions with Vivendi.

 
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOK

For the Quarter and Year Ending December 31, 2013 on a post-transaction, as reported* basis

GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)
 

 

Outlook for Outlook for

 

Quarter Ending Year Ending

Post-transaction, as reported*

 

December 31, 2013 December 31, 2013
Low end of range High end of range Low end of range High end of range
 
Earnings Per Diluted Share (GAAP)

 

$ 0.01 $ 0.04 $ 0.80 $ 0.82
 

Excluding the impact of:

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

(a)

 

0.71 0.71 (0.04 ) (0.04 )
Stock-based compensation (b)

 

0.03 0.03 0.07 0.07
Amortization of intangible assets (c)

 

0.01 0.01 0.01 0.01
Fees and other expenses related to the transaction (d)

 

- - 0.01 0.01
       
Earnings Per Diluted Share (Non-GAAP)

 

$ 0.76 $ 0.79 $ 0.85 $ 0.87
 
 
(a) Reflects the net change in deferred net revenues and related cost of sales.
(b) Reflects expenses related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price accounting.
(d) Reflects fees and other expenses related to the transaction.
 

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

 

* Post-transaction, as reported assumes the transaction and its related financial impact (including interest expense from debt, associated fees and expenses, and lower weighted average share count as a result of the share repurchase) commences on September 30, 2013.

 
 
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOK

For the Year Ending December 31, 2013 on a pro-forma* basis

GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)
 
Outlook for
Year Ending

Pro-forma*

December 31, 2013
Low end of range High end of range
 
Earnings Per Diluted Share (GAAP) $ 0.91 $ 0.99
 

Excluding the impact of:

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

(a) (0.05 ) (0.05 )
Stock-based compensation (b) 0.11 0.11
Amortization of intangible assets (c) 0.02 0.02
Fees and other expenses related to the transaction (d) 0.02 0.02
   
Earnings Per Diluted Share (Non-GAAP) $ 1.01 $ 1.09
 
 
(a) Reflects the net change in deferred net revenues and related cost of sales.
(b) Reflects expenses related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price accounting.

(d) Reflects fees and other expenses related to the transaction.

 

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

 

* Pro-forma assumes the transaction and its related financial impact (including interest expense from debt, associated fees and expenses, and lower weighted average share count as a result of the share repurchase) commences on January 1, 2013.

 




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