UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

 

Date of report (Date of earliest event reported):  February 12, 2019

 

 

 

                 ACTIVISION BLIZZARD, INC.                 

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware

 

001-15839

 

95-4803544

(State or Other Jurisdiction of
Incorporation)

 

(Commission File Number)

 

(IRS Employer
Identification No.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3100 Ocean Park Boulevard,

 

 

 

Santa Monica, CA

 

 

90405

(Address of Principal Executive
Offices)

 

 

(Zip Code)

 

 

 

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

 

 

 

 

 

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

 

 

 

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

 

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

 

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

 

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

 

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

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company             o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.             o

 


 

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

 

Item 2.02.                              Results of Operations and Financial Condition.

 

On February 12, 2019, Activision Blizzard, Inc. (the “Company”) issued a press release announcing results for the Company for the fiscal quarter and year ended December 31, 2018. A copy of the press release is attached hereto as Exhibit 99.1. As previously announced, the Company is hosting a conference call and webcast in conjunction with that release.

 

Item 8.01.                              Other Events.

 

Cash Dividend.  On February 12, 2019, the Company’s Board of Directors declared a cash dividend of $0.37 per share of the Company’s outstanding common stock, payable on May 9, 2019, to shareholders of record at the close of business on March 28, 2019.

 

Share Repurchase.  On January 31, 2019, the Company’s Board of Directors authorized the Company to repurchase up to $1.5 billion of the Company’s common stock on terms and conditions to be determined by the Company from February 14, 2019 until the earlier of February 13, 2021 and a determination by the Board of Directors to discontinue the repurchase program.

 

Item 9.01.                              Financial Statements and Exhibits.

 

(d)  Exhibits

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release dated February 12, 2019 (furnished not filed)

 

2


 

SIGNATURE

 

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

 

Date: February 12, 2019

ACTIVISION BLIZZARD, INC.

 

 

 

By:

/s/ Dennis Durkin

 

 

Dennis Durkin

 

 

Chief Financial Officer

 

3


Exhibit 99.1

 

ACTIVISION BLIZZARD ANNOUNCES FOURTH-QUARTER AND 2018 FINANCIAL RESULTS

 

 

Record Q4 and Full Year Results

 

 

Santa Monica, CA – February 12, 2019 – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced fourth-quarter 2018 results.

 

Financial Metrics

 

 

 

Q4

 

CY

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions, except EPS)

 

2018

 

Prior

Outlook*

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Net Revenues

 

   $

2,381

 

  $

2,236

 

  $

2,043

 

  $

7,500

 

  $

7,017

 

Impact of GAAP deferralsA

 

   $

454

 

  $

812

 

  $

597

 

  $

(238)

 

  $

139

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP EPS**

 

   $

0.84

 

  $

0.43

 

  $

(0.77)

 

  $

2.35

 

  $

0.36

 

Non-GAAP EPS

 

   $

0.90

 

  $

0.64

 

  $

0.49

 

  $

2.72

 

  $

2.21

 

Impact of GAAP deferralsA

 

   $

0.39

 

  $

0.63

 

  $

0.45

 

  $

(0.12)

 

  $

0.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Prior outlook was provided by the company on November 8, 2018 in its earnings release.

** GAAP EPS includes the impact of significant discrete tax related items. Refer to the tables at the end of this press release for details.

 

For the year ended December 31, 2018, Activision Blizzard’s net revenues presented in accordance with GAAP were a record $7.50 billion, as compared with $7.02 billion for 2017. GAAP net revenues from digital channels were a record $5.79 billion. GAAP operating margin was 27%. GAAP earnings per diluted share were a record $2.35, as compared with $0.36 for 2017. On a non-GAAP basis, Activision Blizzard’s operating margin was 34% and earnings per diluted share were a record $2.72, as compared with $2.21 for 2017.

 

For the quarter ended December 31, 2018, Activision Blizzard’s net revenues presented in accordance with GAAP were a record $2.38 billion, as compared with $2.04 billion for the fourth quarter of 2017. GAAP net revenues from digital channels were a record $1.79 billion. GAAP operating margin was a Q4 record of 29%. GAAP earnings per diluted share were a record $0.84, as compared with loss per share of $0.77 for the fourth quarter of 2017. On a non-GAAP basis, Activision Blizzard’s operating margin was a Q4 record of 35% and earnings per diluted share were a record $0.90, as compared with $0.49 for the fourth quarter of 2017.

 

Activision Blizzard generated $1.79 billion in operating cash flow for the year ended December 31, 2018, as compared to $2.21 billion for 2017. For the quarter, operating cash flow was $999 million.

 

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 of Activision Blizzard said “While our financial results for 2018 were the best in our history, we didn’t realize our full potential. To help us reach our full potential, we have made a number of important leadership changes. These changes should enable us to achieve the many opportunities our industry

 

1


 

Activision Blizzard Announces Q4 2018 Financial Results

 

affords us, especially with our powerful owned franchises, our strong commercial capabilities, our direct digital connections to hundreds of millions of players, and our extraordinarily talented employees.”

 

Operating Metrics

 

For the year ended December 31, 2018, Activision Blizzard’s net bookingsB were a record $7.26 billion, as compared with $7.16 billion for 2017, below our prior outlook. Net bookingsB from digital channels were a record $5.72 billion, as compared with $5.43 billion for 2017, and in-game net bookingsB were a record of $4.2 billion.

 

For the quarter ended December 31, 2018, Activision Blizzard’s net bookingsB were a record $2.84 billion, compared with $2.64 billion for the fourth quarter of 2017, below our prior outlook. Net bookingsB from digital channels were a record $1.88 billion, as compared with $1.62 billion for the fourth quarter of 2017, and in-game net bookingsB were a record of $1.2 billion.

 

Selected Business Highlights

 

Activision

·     Activision had 53 million Monthly Active Users (MAUs)C in the quarter, growing double-digits quarter-over-quarter. Fourth quarter segment revenues grew 6% year-over-year to $1.41 billion and operating income increased 14% year-over-year to $723 million.

 

·     Call of Duty® was again the number-one selling console franchise worldwide for the year, a franchise feat accomplished for nine of the last 10 years.1 In its launch quarter, Call of Duty: Black Ops 4 sold-through more units than Call of Duty: Black Ops III, with PC units more than tripling. Full-game downloads were over 40% of Call of Duty: Black Ops 4 console sell-through, versus approximately 30% for the prior release, Call of Duty: WWII.

 

·     The successful launch of Spyro®  Reignited Trilogy in the fourth quarter and the ongoing contribution of Crash Bandicoot™ N. Sane Trilogy, which has sold-in over 10 million units since its 2017 release, highlight the enduring nature of Activision’s classic franchises.

 

Blizzard

·     Blizzard had 35 million MAUsC in the quarter, as Overwatch® and Hearthstone® saw sequential stability and World of Warcraft® saw expected declines post-expansion-launch. Fourth quarter segment revenues grew 15% year-over-year to $686 million and operating income increased 51% year-over-year to $241 million.

 

·     Building on an 11-year partnership, Blizzard extended its joint venture with NetEase to publish its games in China through January 2023.

 

King

·     King had 268 million MAUsC in the quarter, growing sequentially, driven by the successful launch of Candy Crush Friends SagaTM. Fourth quarter segment revenues grew 5% year-over-year to $543 million and operating income increased 28% year-over-year to $207 million.

 

2


 

Activision Blizzard Announces Q4 2018 Financial Results

 

·     Candy Crush Friends Saga saw strong monetization and retention trends, contributing incremental growth for the Candy CrushTM franchise, which grew net bookingsB and MAUsC year-over-year and quarter-over-quarter. This quarter, King had two of the top-10 highest-grossing titles in the U.S. mobile app stores for twenty-one quarters in a row, with Candy Crush SagaTM at #1 again.2

 

·     Advertising in the King network was again profitable with net bookingsB growing over 50% sequentially.

 

Company Outlook

 

In 2019, the company will increase development investment in its biggest franchises, enabling teams to accelerate the pace and quality of content for their communities and supporting a number of new product initiatives. The number of developers working on Call of Duty, Candy Crush, Overwatch, Warcraft®, Hearthstone and Diablo® in aggregate will increase approximately 20% over the course of 2019. The company will fund this greater investment by de-prioritizing initiatives that are not meeting expectations and reducing certain non-development and administrative-related costs across the business. The company is also integrating its global and regional sales and go-to-market, partnerships, and sponsorships capabilities. As part of these restructuring actions, the company expects to incur a GAAP-only pre-tax charge of approximately $150 million, the majority of which is expected to be incurred this year.

 

(in millions, except EPS)

 

GAAP
Outlook

 

Non-GAAP
Outlook

 

Impact of GAAP
deferrals
A

 

 

 

 

 

 

 

CY 2019

 

 

 

 

 

 

Net Revenues

 

$

6,025

 

$

6,025

 

$

275

EPS

 

$

1.18

 

$

1.85

 

$

0.25

Fully Diluted Shares

 

775

 

775

 

 

Q1 2019

 

 

 

 

 

 

Net Revenues

 

$

1,715

 

$

1,715

 

$

(540)

EPS

 

$

0.39

 

$

0.63

 

$

(0.43)

Fully Diluted Shares

 

772

 

772

 

 

 

Net bookingsB are expected to be $6.30 billion for 2019 and $1.18 billion for the first quarter of 2019.

 

Currency Assumptions for 2019 Outlook:

·                 $1.13 USD/Euro for current outlook (vs. average of $1.12 for 2018, $1.12 for 2017, and $1.11 for 2016); and

·                 $1.26 USD/British Pound Sterling for current outlook (vs. average of $1.30 for 2018, $1.30 for 2017 and $1.36 for 2016).

·                 Note: Our financial guidance includes the forecasted impact of our FX hedging program.

 

Capital Allocation

 

The Board of Directors declared a cash dividend of $0.37 per common share, payable on May 9, 2019 to shareholders of record at the close of business on March 28, 2019, which represents a 9% increase from 2018. Additionally, the Board of Directors authorized a new two-year stock repurchase program under which the company is authorized to repurchase up to $1.5 billion of its outstanding common stock during the period.

 

3


 

Activision Blizzard Announces Q4 2018 Financial Results

 

Conference Call

 

Today at 4:30 p.m. EDT, Activision Blizzard’s management will host a conference call and webcast to discuss the company’s results for the quarter ended December 31, 2018 and management’s outlook for the remainder of the calendar year. The company welcomes all members of the financial and media communities and other interested parties to visit https://investor.activision.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 866-548-4713 in the U.S. with passcode 9678578. A replay of the call will also be available after the call’s conclusion and archived for one year at https://investor.activision.com/events.cfm.

 

About Activision Blizzard

 

Activision Blizzard, Inc., a member of the Fortune 500 and S&P 500, is the world’s most successful standalone interactive entertainment company. We delight hundreds of millions of monthly active users around the world through franchises including Activision’s Call of Duty®, Spyro™, and Crash™, Blizzard Entertainment’s World of Warcraft®, Overwatch®, Hearthstone®, Diablo®, StarCraft®, and Heroes of the Storm®, and King’s Candy Crush™, Bubble Witch™, and Farm Heroes™. The company is one of the Fortune “100 Best Companies To Work For®.” Headquartered in Santa Monica, California, Activision Blizzard has operations throughout the world. More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.

 

1 The NPD Group, GfK, GSD and internal estimates, based on dollar sales of front line games.

 

2 U.S. ranking for Apple App Store and Google Play Store combined, per App Annie Intelligence for fourth quarter of 2018.

 

A Net effect of accounting treatment from revenue deferrals on certain of our online-enabled products. Since certain of our games are hosted online or include significant online functionality that represents a separate performance obligation, we defer the transaction price allocable to the online functionality from the sale of these games and recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized. Impact from changes in deferrals refers to the net effect from revenue deferrals accounting treatment for the purposes of revenues, along with, for the purposes of EPS, the related cost of revenues deferrals treatment and the related tax impacts. Internally, management excludes the impact of this change in deferred revenues and related cost of revenues 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. In addition, management believes excluding the change in deferred revenues and the related cost of revenues provides a much more timely indication of trends in our operating results.

 

B Net bookings is an operating metric that is defined as the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others, and is equal to net revenues excluding the impact from deferrals.

 

C Monthly Active User (“MAU”) Definition: We monitor MAUs as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user.

 

4


 

Activision Blizzard Announces Q4 2018 Financial Results

 

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 income (loss), earnings (loss) per share, and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. When relevant, the company also provides constant FX information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. 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 and our outlook:

 

·                  expenses related to stock-based compensation;

·                  the amortization of intangibles from purchase price accounting;

·                  fees and other expenses related to the King acquisition, including related debt financings, and refinancing of long-term debt, including penalties and the write off of unamortized discount and deferred financing costs;

·                  restructuring charges;

·                  other non-cash charges from reclassification of certain cumulative translation adjustments into earnings as required by GAAP;

·                  the income tax adjustments associated with any of the above items (tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results); and

·                  significant discrete tax-related items, including amounts related to changes in tax laws (including the Tax Cuts and Jobs Act enacted in December 2017), amounts related to the potential or final resolution of tax positions, and other unusual or unique tax-related items and activities.

 

In the future, Activision Blizzard may also consider whether other 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. Additionally, we consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Internally, management uses these non-GAAP financial measures, along with others, 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 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.

 

Cautionary Note Regarding Forward-looking Statements: The statements contained herein that are not historical facts are forward-looking statements, including, but not limited to, statements about: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those related to releases of products and services and restructuring activities; (3) statements of future financial or operating performance, including the impact of tax items thereon; and (4) statements of assumptions underlying such statements. The company generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,” and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.

 

5


 

Activision Blizzard Announces Q4 2018 Financial Results

 

The company cautions that a number of important factors could cause Activision Blizzard’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: sales levels of Activision Blizzard’s titles, products, and services; concentration of revenue among a small number of titles; Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres and modes, and preferences among platforms; the continued growth in the scope and complexity of our business, including the diversion of management time and attention to issues relating to the operations of our newly acquired or started businesses and the potential impact of our expansion into new businesses on our existing businesses; the execution of our restructuring activities; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; counterparty risks relating to customers, licensees, licensors, and manufacturers; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain, and motivate key personnel and developers that can create high-quality titles, products, and services; changing business models within the video game industry, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from other forms of entertainment; rapid changes in technology and industry standards; possible declines in software pricing; product returns and price protection; the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion; the seasonal and cyclical nature of the interactive entertainment market; the outcome of current or future tax disputes; litigation risks and associated costs; protection of proprietary rights; potential data breaches and other cybersecurity risks; shifts in consumer spending trends; capital market risks; the impact of applicable laws, rules, and regulations, including changes in those laws, rules, and regulations; domestic and international economic, financial, and political conditions and policies; tax rates and foreign exchange rates; the impact of the current macroeconomic environment; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.

 

The forward-looking statements in this press release are based on information available to the company at this time and we assume 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 our future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

 

 

Activision Blizzard, Inc.

 

Investors and Analysts:

ir@activisionblizzard.com

or

Press:

pr@activisionblizzard.com

 

###

 

(Tables to Follow)

 

6


 

1

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

 

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

 

 

2018 1

 

2017

 

2018 1

 

2017

 

Net revenues

 

 

 

 

 

 

 

 

 

Product sales

 

  $

808

 

  $

737

 

  $

2,255

 

  $

2,110

 

Subscription, licensing, and other revenues2

 

1,573

 

1,306

 

5,245

 

4,907

 

Total net revenues

 

2,381

 

2,043

 

7,500

 

7,017

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

Cost of revenues—product sales:

 

 

 

 

 

 

 

 

 

Product costs

 

303

 

310

 

719

 

733

 

Software royalties, amortization, and intellectual property licenses

 

157

 

101

 

371

 

300

 

Cost of revenues—subscription, licensing, and other:

 

 

 

 

 

 

 

 

 

Game operations and distribution costs

 

251

 

268

 

1,028

 

984

 

Software royalties, amortization, and intellectual property licenses

 

121

 

124

 

399

 

484

 

Product development

 

325

 

318

 

1,101

 

1,069

 

Sales and marketing

 

321

 

479

 

1,062

 

1,378

 

General and administrative

 

209

 

222

 

832

 

760

 

Total costs and expenses

 

1,687

 

1,822

 

5,512

 

5,708

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

694

 

221

 

1,988

 

1,309

 

Interest and other expense (income), net

 

4

 

36

 

71

 

146

 

Loss on extinguishment of debt

 

 

 

40

 

12

 

Income before income tax expense

 

690

 

185

 

1,877

 

1,151

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

40

 

769

 

64

 

878

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

  $

650

 

  $

(584)

 

  $

1,813

 

  $

273

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

  $

0.85

 

  $

(0.77)

 

  $

2.38

 

  $

0.36

 

Weighted average common shares outstanding

 

763

 

757

 

762

 

754

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

  $

0.84

 

  $

(0.77)

 

  $

2.35

 

  $

0.36

 

Weighted average common shares outstanding assuming dilution

 

771

 

757

 

771

 

766

 

 

1                    We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three months and year ended December 31, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our forthcoming Form 10-K for the year ending December 31, 2018 for additional information.

 

2                    Subscription, licensing, and other revenues represent revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, downloadable content, microtransactions, and other miscellaneous revenues.

 


 

2

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

 

 

 

December 31, 2018 1

 

December 31, 2017

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

  $

4,225

 

  $

4,713

 

Accounts receivable, net

 

1,035

 

918

 

Inventories, net

 

43

 

46

 

Software development

 

264

 

367

 

Other current assets

 

539

 

476

 

Total current assets

 

6,106

 

6,520

 

Software development

 

65

 

86

 

Property and equipment, net

 

282

 

294

 

Deferred income taxes, net

 

403

 

459

 

Other assets

 

482

 

440

 

Intangible assets, net

 

735

 

1,106

 

Goodwill

 

9,762

 

9,763

 

Total assets

 

  $

17,835

 

  $

18,668

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

  $

253

 

  $

323

 

Deferred revenues

 

1,493

 

1,929

 

Accrued expenses and other liabilities

 

896

 

1,411

 

Total current liabilities

 

2,642

 

3,663

 

Long-term debt, net

 

2,671

 

4,390

 

Deferred income taxes, net

 

18

 

21

 

Other liabilities

 

1,147

 

1,132

 

Total liabilities

 

6,478

 

9,206

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock

 

 

 

Additional paid-in capital

 

10,963

 

10,747

 

Treasury stock

 

(5,563)

 

(5,563)

 

Retained earnings

 

6,558

 

4,916

 

Accumulated other comprehensive loss

 

(601)

 

(638)

 

Total shareholders’ equity

 

11,357

 

9,462

 

Total liabilities and shareholders’ equity

 

  $

17,835

 

  $

18,668

 

 

1                    We adopted a new revenue accounting standard in the first quarter of 2018. The impacts of the new revenue accounting standard are reflected in our financial information as of and for the three months and year ended December 31, 2018. Prior period results have not been restated to reflect this change in accounting standards. Refer to our forthcoming Form 10-K for the year ending December 31, 2018 for additional information.

 


 

3

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

 

 

 

Year Ended December 31,

 

 

 

2018

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

  $

1,813

 

  $

273

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Deferred income taxes

 

20

 

(181)

 

Provision for inventories

 

6

 

33

 

Depreciation and amortization

 

509

 

888

 

Amortization of capitalized software development costs and intellectual property licenses1

 

489

 

311

 

Loss on extinguishment of debt

 

40

 

12

 

Amortization of debt discount and financing costs

 

6

 

12

 

Share-based compensation expense2

 

209

 

176

 

Other

 

1

 

28

 

Changes in operating assets and liabilities, net of effect from business acquisitions:

 

 

 

 

 

Accounts receivable, net

 

(114)

 

(165)

 

Inventories

 

(5)

 

(26)

 

Software development and intellectual property licenses

 

(372)

 

(301)

 

Other assets

 

(51)

 

(97)

 

Deferred revenues

 

(122)

 

220

 

Accounts payable

 

(65)

 

85

 

Accrued expenses and other liabilities

 

(574)

 

945

 

Net cash provided by operating activities

 

1,790

 

2,213

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from maturities of available-for-sale investments

 

116

 

80

 

Purchases of available-for-sale investments

 

(209)

 

(135)

 

Capital expenditures

 

(131)

 

(155)

 

Other investing activities

 

(6)

 

3

 

Net cash used in investing activities

 

(230)

 

(207)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock to employees

 

99

 

178

 

Tax payment related to net share settlements on restricted stock units

 

(94)

 

(56)

 

Dividends paid

 

(259)

 

(226)

 

Proceeds from debt issuances, net of discounts

 

 

3,741

 

Repayment of long-term debt

 

(1,740)

 

(4,251)

 

Premium payment for early redemption of note

 

(25)

 

 

Other financing activities

 

(1)

 

(10)

 

Net cash (used in) provided by financing activities

 

(2,020)

 

(624)

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

(31)

 

76

 

 

 

 

 

 

 

Net increase in cash and cash equivalents and restricted cash

 

(491)

 

1,458

 

 

 

 

 

 

 

Cash and cash equivalents and restricted cash at beginning of period

 

4,720

 

3,262

 

 

 

 

 

 

 

Cash and cash equivalents and restricted cash at end of period

 

  $

4,229

 

  $

4,720

 

 

1 Excludes deferral and amortization of share-based compensation expense.

 

2 Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense.

 


 

4

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

SUPPLEMENTAL CASH FLOW INFORMATION

(Amounts in millions)

 

 

 

Three Months Ended

 

Year over Year

 

Three Months Ended

 

Year over Year

 

 

 

December 31,

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

% Increase

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

% Increase

 

 

 

2016

 

2017

 

2017

 

2017

 

2017

 

(Decrease)

 

2018

 

2018

 

2018

 

2018

 

(Decrease)

 

Cash Flow Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

  $

859

 

  $

411

 

  $

265

 

  $

379

 

  $

1,158

 

35

%

  $

529

 

  $

9

 

  $

253

 

  $

999

 

(14)

%

Capital Expenditures

 

37

 

21

 

31

 

34

 

69

 

86

 

31

 

30

 

36

 

34

 

(51)

 

Non-GAAP Free Cash Flow1

 

822

 

390

 

234

 

345

 

1,089

 

32

 

498

 

(21)

 

217

 

965

 

(11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow - TTM2

 

2,155

 

2,229

 

1,991

 

1,914

 

2,213

 

3

 

2,331

 

2,075

 

1,949

 

1,790

 

(19)

 

Capital Expenditures - TTM2

 

136

 

130

 

117

 

123

 

155

 

14

 

165

 

164

 

166

 

131

 

(15)

 

Non-GAAP Free Cash Flow - TTM2

 

  $

2,019

 

  $

2,099

 

  $

1,874

 

  $

1,791

 

  $

2,058

 

2

%

  $

2,166

 

  $

1,911

 

  $

1,783

 

  $

1,659

 

(19)

%

 

1 Non-GAAP free cash flow represents operating cash flow minus capital expenditures.

2 TTM represents trailing twelve months.  Operating Cash Flow for the three months ended March 31, 2016, three months ended June 30, 2016, and three months ended September 30, 2016 was $337 million, $503 million, and $456 million, respectively.  Capital Expenditures for the three months ended March 31, 2016, three months ended June 30, 2016, and three months ended September 30, 2016, was $27 million, $44 million, and $28 million, respectively.

 


 

5

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

 

Three Months Ended December 31, 2018

 

Net Revenues

 

Cost of
Revenues—
Product Sales:
Product Costs

 

Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization

 

Cost of
Revenues—
Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 $

2,381

 

$

303

 

$

157

 

$

251

 

$

121

 

$

325

 

$

321

 

$

209

 

$

1,687

 

Share-based compensation1

 

 

 

(7)

 

 

(1)

 

(12)

 

(2)

 

(21)

 

(43)

 

Amortization of intangible assets2

 

 

 

 

 

(88)

 

 

 

(3)

 

(91)

 

Restructuring costs3

 

 

 

 

 

 

 

 

(10)

 

(10)

 

Non-GAAP Measurement

 

 $

2,381

 

$

303

 

$

150

 

$

251

 

$

32

 

$

313

 

$

319

 

$

175

 

$

1,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues4

 

 $

454

 

$

74

 

$

26

 

$

(1)

 

$

(13)

 

$

 

$

 

$

 

$

86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
 per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 $

694

 

$

650

 

$

0.85

 

$

0.84

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation1

 

43

 

43

 

0.06

 

0.06

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets2

 

91

 

91

 

0.12

 

0.12

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs3

 

10

 

10

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above5

 

 

(19)

 

(0.03)

 

(0.03)

 

 

 

 

 

 

 

 

 

 

 

Discrete tax-related items6

 

 

(79)

 

(0.10)

 

(0.10)

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 $

838

 

$

696

 

$

0.91

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues4

 

 $

368

 

$

298

 

$

0.39

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

 

1                     Includes expenses related to share-based compensation.

2                     Reflects amortization of intangible assets from purchase price accounting.

3                     Reflects restructuring charges, primarily severance costs.

4                     Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

5                     Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

6                     Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Activision Blizzard will provide additional information in our forthcoming Form 10-K for the year ending December 31, 2018.

 

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

 


 

6

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Year Ended December 31, 2018

 

Net Revenues

 

Cost of
Revenues—
Product Sales:
Product Costs

 

Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization

 

Cost of
Revenues—
Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 $

7,500

 

 $

719

 

 $

371

 

 $

1,028

 

 $

399

 

 $

1,101

 

 $

1,062

 

 $

832

 

 $

5,512

 

Share-based compensation1

 

 

 

(13

)

(2

)

(3

)

(61

)

(15

)

(115

)

(209

)

Amortization of intangible assets2

 

 

 

 

 

(318

)

 

(44

)

(8

)

(370

)

Restructuring costs3

 

 

 

 

 

 

 

 

(10

)

(10

)

Non-GAAP Measurement

 

 $

7,500

 

 $

719

 

 $

358

 

 $

1,026

 

 $

78

 

 $

1,040

 

 $

1,003

 

 $

699

 

 $

4,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues4

 

 $

(238

)

 $

(48

)

 $

(76

)

 $

(2

)

 $

(12

)

 $

 

 $

 

 $

 

 $

(138

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 $

1,988

 

 $

1,813

 

 $

2.38

 

 $

2.35

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation1

 

209

 

209

 

0.27

 

0.27

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets2

 

370

 

370

 

0.48

 

0.48

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs3

 

10

 

10

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt5

 

 

40

 

0.05

 

0.05

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above6

 

 

(167

)

(0.22

)

(0.22

)

 

 

 

 

 

 

 

 

 

 

Discrete tax-related items7

 

 

(176

)

(0.23

)

(0.23

)

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 $

2,577

 

 $

2,099

 

 $

2.76

 

 $

2.72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues4

 

 $

(100

)

 $

(96

)

 $

(0.13

)

 $

(0.12

)

 

 

 

 

 

 

 

 

 

 

 

1                    Includes expenses related to share-based compensation.

2                    Reflects amortization of intangible assets from purchase price accounting.

3                    Reflects restructuring charges, primarily severance costs.

4                    Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

5                    Reflects the loss on extinguishment of debt from redemption activities.

6                    Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

7                    Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws, amounts related to the potential or final resolution of tax positions, and/or other unusual or unique tax-related items and activities. Activision Blizzard will provide additional information in our forthcoming Form 10-K for the year ending December 31, 2018.

 

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

 


 

7

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Three Months Ended December 31, 2017

 

Net Revenues

 

Cost of
Revenues—
Product Sales:
Product Costs

 

Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization

 

Cost of
Revenues—
Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 $

2,043

 

 $

310

 

 $

101

 

 $

268

 

 $

124

 

 $

318

 

 $

479

 

 $

222

 

 $

1,822

 

Share-based compensation1

 

 

 

(2

)

 

(2

)

(16

)

(4

)

(34

)

(58

)

Amortization of intangible assets2

 

 

 

(3

)

 

(104

)

 

(76

)

(2

)

(185

)

Fees and other expenses related to the King Acquisition3

 

 

 

 

 

 

 

 

(3

)

(3

)

Restructuring costs4

 

 

 

 

 

 

 

 

(5

)

(5

)

Discrete tax-related items5

 

 

 

 

(10

)

 

(6

)

(16

)

(7

)

(39

)

Non-GAAP Measurement

 

 $

2,043

 

 $

310

 

 $

96

 

 $

258

 

 $

18

 

 $

296

 

 $

383

 

 $

171

 

 $

1,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues6

 

 $

597

 

 $

95

 

 $

52

 

 $

 

 $

9

 

 $

 

 $

 

 $

 

 $

156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income
(Loss)

 

Basic Earnings
(Loss) per Share

 

Diluted Earnings
(Loss) per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 $

221

 

 $

(584

)

 $

(0.77

)

 $

(0.77

)

 

 

 

 

 

 

 

 

 

 

Share-based compensation1

 

58

 

58

 

0.08

 

0.08

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets2

 

185

 

185

 

0.24

 

0.24

 

 

 

 

 

 

 

 

 

 

 

Fees and other expenses related to the King Acquisition3

 

3

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs4

 

5

 

5

 

0.01

 

0.01

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above7

 

 

(86

)

(0.11

)

(0.11

)

 

 

 

 

 

 

 

 

 

 

Discrete tax-related items5

 

39

 

794

 

1.05

 

1.03

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 $

511

 

 $

375

 

 $

0.50

 

 $

0.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues6

 

 $

441

 

 $

347

 

 $

0.45

 

 $

0.45

 

 

 

 

 

 

 

 

 

 

 

 

1                    Includes expenses related to share-based compensation.

2                    Reflects amortization of intangible assets from purchase price accounting.

3                    Reflects fees and other expenses related to the acquisition of King Digital Entertainment (“King Acquisition”), including related debt financings and integration costs.

4                    Reflects restructuring charges, primarily severance costs..

5                    Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws (including a reasonable estimate for the impact of the Tax Cuts and Jobs Act enacted in December 2017, as provided for in accordance with Securities and Exchange Commission guidance) and the resolution of tax positions, and/or other unusual or unique tax-related items and activities. Activision Blizzard provided additional information in our Form 10-K for the year ended December 31, 2017.

6                    Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

7                    Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 

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

 


 

8

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

 

Year Ended December 31, 2017

 

Net Revenues

 

Cost of
Revenues—

Product Sales:
Product Costs

 

Cost of
Revenues—
Product Sales:
Software
Royalties and
Amortization

 

Cost of
Revenues—
Subs/Lic/Other:
Game Operations
and Distribution
Costs

 

Cost of
Revenues—
Subs/Lic/Other:
Software
Royalties and
Amortization

 

Product
Development

 

Sales and
Marketing

 

General and
Administrative

 

Total Costs and
Expenses

 

GAAP Measurement

 

 $

7,017

 

$

733

 

$

300

 

$

984

 

$

484

 

$

1,069

 

$

1,378

 

$

760

 

$

5,708

 

Share-based compensation1

 

 

 

(10)

 

(1)

 

(3)

 

(57)

 

(15)

 

(92)

 

(178)

 

Amortization of intangible assets2

 

 

 

(3)

 

 

(438)

 

 

(308)

 

(8)

 

(757)

 

Fees and other expenses related to the King Acquisition3

 

 

 

 

 

 

 

 

(15)

 

(15)

 

Restructuring costs4

 

 

 

 

 

 

 

 

(15)

 

(15)

 

Other non-cash charges5

 

 

 

 

 

 

 

 

(14)

 

(14)

 

Discrete tax-related items6

 

 

 

 

(10)

 

 

(6)

 

(16)

 

(7)

 

(39)

 

Non-GAAP Measurement

 

 $

7,017

 

$

733

 

$

287

 

$

973

 

$

43

 

$

1,006

 

$

1,039

 

$

609

 

$

4,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues7

 

 $

139

 

$

25

 

$

35

 

$

1

 

$

7

 

$

 

$

 

$

 

$

68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating
Income

 

Net Income

 

Basic Earnings
per Share

 

Diluted Earnings
per Share

 

 

 

 

 

 

 

 

 

 

 

GAAP Measurement

 

 $

1,309

 

$

273

 

$

0.36

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation1

 

178

 

178

 

0.24

 

0.23

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets2

 

757

 

757

 

1.00

 

0.99

 

 

 

 

 

 

 

 

 

 

 

Fees and other expenses related to the King Acquisition3

 

15

 

22

 

0.03

 

0.03

 

 

 

 

 

 

 

 

 

 

 

Restructuring costs4

 

15

 

15

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Other non-cash charges5

 

14

 

14

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt8

 

 

12

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

Income tax impacts from items above9

 

 

(368)

 

(0.49)

 

(0.48)

 

 

 

 

 

 

 

 

 

 

 

Discrete tax-related items6

 

39

 

794

 

1.05

 

1.04

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Measurement

 

 $

2,327

 

$

1,697

 

$

2.25

 

$

2.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of deferred revenues and related cost of revenues7

 

 $

71

 

$

52

 

$

0.07

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

 

1                     Includes expenses related to share-based compensation.

2                     Reflects amortization of intangible assets from purchase price accounting.

3                     Reflects fees and other expenses related to the King Acquisition, including related debt financings and integration costs.

4                     Reflects restructuring charges, primarily severance costs.

5                     Reflects a non-cash accounting charge to reclassify certain cumulative translation (gains) losses into earnings due to the substantial liquidation of certain of our foreign entities.

6                     Reflects the impact of significant discrete tax-related items, including amounts related to changes in tax laws (including a reasonable estimate for the impact of the Tax Cuts and Jobs Act enacted in December 2017, as provided for in accordance with Securities and Exchange Commission guidance) and the resolution of tax positions, and/or other unusual or unique tax-related items and activities. Activision Blizzard provided additional information in our Form 10-K for the year ended December 31, 2017.

7                     Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes.

8                     Reflects the loss on extinguishment of debt from refinancing activities.

9                     Reflects the income tax impact associated with the above items. Tax impact on non-GAAP pre-tax income is calculated under the same accounting principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.

 

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

 


 

9

 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

OPERATING SEGMENTS INFORMATION

For the Three Months and Year Ended December 31, 2018 and 2017

(Amounts in millions)

 

Three Months Ended:

 

December 31, 2018

 

$ Increase / (Decrease)

 

 

 

Activision

 

Blizzard

 

King

 

Total

 

Activision

 

Blizzard

 

King

 

Total

 

Segment Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

1,411

 

$

647

 

$

543

 

$

2,601

 

$

74

 

$

67

 

$

27

 

$

168

 

Intersegment net revenues1

 

 

39

 

 

39

 

 

20

 

 

20

 

Segment net revenues

 

$

1,411

 

$

686

 

$

543

 

$

2,640

 

$

74

 

$

87

 

$

27

 

$

188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

723

 

$

241

 

$

207

 

$

1,171

 

$

89

 

$

81

 

$

45

 

$

215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

44.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Activision

 

Blizzard

 

King

 

Total

 

 

 

 

 

 

 

 

 

Segment Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues from external customers

 

$

1,337

 

$

580

 

$

516

 

$

2,433

 

 

 

 

 

 

 

 

 

Intersegment net revenues1

 

 

19

 

 

19

 

 

 

 

 

 

 

 

 

Segment net revenues

 

$

1,337

 

$

599

 

$

516

 

$

2,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

634

 

$

160

 

$

162

 

$

956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

&nb