Activision Blizzard Announces Better-Than-Expected Third Quarter CY 2009 Financial Results
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SANTA MONICA, Calif., Nov. 5 /PRNewswire-FirstCall/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter 2009.
For the quarter ended September 30, 2009, Activision Blizzard's GAAP net revenues were $703 million, as compared to the company's prior GAAP net revenue outlook of $680 million. On a non-GAAP basis, the company's net revenues were $755 million, as compared with its prior non-GAAP net revenues outlook of $700 million.
For the quarter ended September 30, 2009, Activision Blizzard's GAAP earnings per diluted share were $0.01, as compared to its prior GAAP loss per diluted share outlook of $0.03. On a non-GAAP basis, the company's earnings per diluted share were $0.04, as compared to its prior non-GAAP earnings per diluted share outlook of $0.03.
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.
Robert Kotick, CEO of Activision Blizzard, stated, "Our performance was driven by positive audience response to Activision Publishing's Guitar Hero 5, Marvel: Ultimate Alliance 2, and the Guitar Hero® and Call of Duty® franchises, as well as Blizzard Entertainment®'s World of Warcraft®. Year to date through September 30, the Guitar Hero franchise was the #1 best-selling third-party franchise in North America and Europe. For the month of September, sales of music games in the U.S. increased 72% in dollars year over year, which demonstrates the sustained interest in this new and important game category. During the quarter, we continued to see strong sales for Call of Duty World at War(TM) and associated map packs, which year to date have sold more than seven and half million units. Despite a challenging overall software market, the company grew its quarterly U.S. share by 3.1 points over the previous year to 13.3%. This success is the result of our focus on delivering the highest game quality and the best entertainment experiences possible for our consumers."
Kotick continued, "We believe we have the industry's strongest holiday release schedule which includes Bakugan Battle Brawlers(TM), Band Hero, Infinity Ward's Call of Duty: Modern Warfare® 2, DJ Hero and Tony Hawk®: RIDE(TM). We are committed to making great games and our fall releases deliver against this more than ever before. As of today, our calendar 2009 financial outlook remains unchanged, and we still expect to deliver record non-GAAP operating margins based on the strength of the Call of Duty franchise and high consumer anticipation for Modern Warfare 2, which we project could be the largest entertainment launch of the year. Even though there is a great deal of economic uncertainty in the marketplace and the consumer risks around the holiday season are high, we believe that our strong balance sheet and solid cash position, coupled with our leading franchises, operational capabilities and broad global reach will enable us to take advantage of the long-term opportunities afforded by our industry."
Business Highlights
For the third quarter, Activision Blizzard increased its U.S. and European share 1.2 points over the previous year across all platforms to 12.3% and had two of the top-10 best-selling titles in the U.S., Guitar Hero 5 and Guitar Hero World Tour(TM), according to the NPD Group (U.S. data) and Charttrack and Gfk (European data).
For the first nine months of the calendar year, with Guitar Hero World Tour and Call of Duty: World at War respectively, Activision Blizzard had the #1 and #2 best-selling third-party titles in North America, according to the NPD Group and in Europe, according to Charttrack and Gfk. Additionally, year to date, the company grew its U.S. share of the music/dance category 5 points over the previous year to 51%, according to the NPD Group.
Other highlights are as follows:
-- For the quarter, Activision Blizzard had two of the top-10 best selling
franchises in the U.S. with Guitar Hero ® and Call of Duty, according
to the NPD Group.
-- During the quarter, Guitar Hero was the #1 third-party console and
handheld franchise in Europe, according to Charttrack and Gfk.
-- For the first nine months of the calendar year, Blizzard Entertainment
had three of the top-five bestselling PC games in units in North
America, according to the NPD Group, and four of the top-10 bestselling
PC games in units between North America and Europe combined, according
to the NPD Group, Charttrack, and Gfk.
-- For the first nine months of the calendar year, Guitar Hero was the #1
third-party console and handheld franchise and Call of Duty was the #2
third-party franchise, in North America, according to the NPD Group, and
in Europe, according to Charttrack and Gfk.
-- For the first nine months of the calendar year, sales of the Guitar Hero
franchise for the Xbox 360(TM) and PLAYSTATION® 3 increased on a
combined basis 20% year over year in the U.S. according to the NPD
Group, and Europe, according to Charttrack and Gfk.
-- On September 19, 2009, Blizzard Entertainment's massively multiplayer
online role-playing game (MMORPG) World of Warcraft was relaunched in
China.
-- As of September 30, 2009, Activision Blizzard had purchased $960
million, or approximately 89 million shares, of common stock at an
average price of $10.81, under its stock repurchase program since the
program's inception in November 2008.
Additionally, on September 16, Activision Blizzard announced that George L. Rose was appointed to the newly created position of Executive Vice President and Chief Public Policy Officer. The company also announced that Christopher B. Walther, Procter & Gamble's general counsel for Western Europe, has been named to succeed Mr. Rose as the company's Chief Legal Officer.
Company Outlook
During the fourth quarter of calendar year 2009, Activision Publishing plans to release five holiday titles. Bakugan Battle Brawlers is one of the most anticipated kids titles of the year and leverages the tremendous popularity of the award-winning toy line and television show. DJ Hero introduces an innovative turntable controller and expands Guitar Hero's signature social gaming with the debut of new music genres including hip-hop, R&B, Motown, electronica and dance. Band Hero delivers an exciting music collection featuring top-40 hits designed to appeal to broad family audiences.
In November, Activision Publishing plans to release Infinity Ward's highly anticipated first-person action game Call of Duty: Modern Warfare 2 globally. The company expects the title will be one of the top entertainment properties of the holiday season and pre-orders for the game are higher than for any previous Activision title. The company also plans to release Tony Hawk: Ride in the U.S., U.K. and Germany. The game features an innovative skateboard controller that lets consumers experience the thrill of skating in an entirely new way.
Activision Blizzard's outlook is subject to significant risks and uncertainties including declines in demand for its products, fluctuations in foreign exchange and tax rates, counterparty risks relating to customers, licensees, licensors and manufacturers and risks relating to the ongoing ability of Blizzard's licensee, NetEase.com, Inc., to operate World of Warcraft in China on a paying basis without interruption.
The company's outlook is also based on assumptions about sell through rates for its products, and the launch timing, success and pricing of its new slate of products. Current macroeconomic conditions increase those risks and uncertainties. As a result of these and other factors, actual results may deviate materially from the outlook presented below.
As of today, for calendar year 2009, Activision Blizzard's financial outlook remains unchanged. The company expects to deliver GAAP net revenues of $4.05 billion and GAAP earnings per diluted share of $0.26. On a non-GAAP basis, the company expects net revenues of $4.5 billion and non-GAAP earnings per diluted share of $0.63.
For the fourth quarter, Activision Blizzard expects to deliver GAAP net revenues of $1.33 billion and GAAP loss per share of $0.04. On a non-GAAP basis, the company expects net revenues of $2.22 billion and $0.43 earnings per diluted share for the fourth quarter.
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 ended September 30, 2009 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 the "Investor Relations" area of www.activisionblizzard.com to listen to the conference call and view a brief supporting slide presentation via live Webcast or to listen to the call live by dialing into 800-327-5138 in the U.S. with passcode 1549879.
Non-GAAP Financial Measures
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): the impact of the change in deferred net revenues and related cost of sales with respect to certain of the company's online-enabled games; expenses related to share-based payments; Activision Blizzard's non-core exit operations (which are the operating results of products and operations of the historical Vivendi Games, Inc. businesses that the company has exited or substantially wound down); one-time costs related to the business combination between Activision, Inc. and Vivendi Games, Inc. (including transaction costs, integration costs, and restructuring activities); the amortization of intangibles and the associated changes in cost of sales resulting from purchase price accounting adjustments from the business combination; and the associated tax benefits.
As online functionality becomes a more important component of gameplay, certain of the company's online-enabled games for certain platforms contain a more-than-inconsequential separate service deliverable in addition to the product, and the company's performance obligations for these games extend beyond the sale of the games. Vendor-specific objective evidence of fair value does not exist for the online services, as the company does not separately charge for this component of online-enabled games. As a result, the company recognizes all of the revenues from the sale of these games ratably over the estimated service period. In addition, the company defers the cost of sales of these titles to match revenues.
Revenue related to the sale of Blizzard Entertainment's World of Warcraft boxed software, including the sale of expansion packs and other ancillary revenues, is deferred and recognized ratably over the estimated subscription life beginning upon activation of the software and delivery of the services.
As a consequence, the company's non-GAAP results exclude the impact of the change in deferred net revenues and related cost of sales associated with certain of the company's online-enabled games for certain of the Microsoft, Sony, Nintendo and PC platforms and for World of Warcraft boxed software, including the sale of expansion packs and other ancillary revenues, to provide comparable year-over-year performance.
Management believes that the use of non-GAAP measures that eliminate the impact of the change in deferred net revenues and related cost of sales in its operating results is important when evaluating Activision Blizzard's operating performance, and when planning, forecasting and analyzing future periods.
Management also believes that non-GAAP measures that exclude Activision Blizzard's non-core exit operations, one-time costs related to the business combination between Activision, Inc. and Vivendi Games, Inc. (including transaction costs, integration costs, and restructuring activities), the amortization of intangibles and the associated changes in cost of sales resulting from purchase price accounting adjustments from the business combination, provide a better comparison to prior periods in which Activision, Inc. and Vivendi Games, Inc. were operating as stand-alone companies, and that the resulting effects arising from the business combination do not affect the on-going economics of the combined entity.
Management also believes that excluding expenses related to share-based payments provides more comparable operating performance results. 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 because they facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard. Internally, management uses these non-GAAP financial measures in assessing the company's operating results, as well as in planning and forecasting.
Activision Blizzard recognizes that there are limitations associated with the use of these non-GAAP financial measures as they do not reflect net revenues, net income (loss), earnings (loss) per share and operating margin as determined in accordance with GAAP, and this may reduce comparability with other companies that calculate similar non-GAAP measures differently. Management compensates for the limitations resulting from the exclusion of these items by considering the impact of these items separately and by considering Activision Blizzard's GAAP as well as non-GAAP results and outlook and, in this release, 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.
Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.
Activision Blizzard's non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP earnings per share, and non-GAAP operating margin do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard's performance in relation to other companies.
Comparable-Basis Presentation by Segment -- Non-GAAP Comparable Measures
On July 9, 2008, the business combination between Activision, Inc. and Vivendi Games, Inc. was consummated. As a result of the consummation of the business combination, Activision, Inc. was renamed Activision Blizzard, Inc.
For accounting purposes, because the business combination resulted in Vivendi S.A. obtaining control of Activision, Inc. through the acquisition of a majority of common stock of Activision, Inc., the business combination is treated as a "reverse acquisition," with Vivendi Games, Inc. deemed to be the accounting acquirer. As a result, the historical financial statements of Activision Blizzard prior to July 10, 2008 are those of Vivendi Games, Inc. and the results of Activision, Inc. prior to July 10, 2008 are not included as part of Activision Blizzard's historical financial statements.
As one means of analyzing Activision Blizzard's performance, the company presents data that combines: (1) the company's results after July 9, 2008, (2) Vivendi Games, Inc.'s results prior to July 10, 2008 and (3) Activision, Inc.'s results prior to July 10, 2008. Management uses information prepared on this comparable basis internally to compare results and believes that this presentation provides investors with additional useful information to understand the company's performance on a year-over-year comparable basis. However, the data is not presented in accordance with GAAP and is not presented in accordance with Article 11 of Regulation S-X relating to pro forma financial statements.
The non-GAAP information presented should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.
The following data is presented in the attachments to this press release:
-- Non-GAAP Comparable Basis Segment Net Revenues for the three and nine
months ended September 30, 2009 and 2008
-- Non-GAAP Comparable Basis Segment Operating Income (Loss) for the three
and nine months ended September 30, 2009 and 2008
In conjunction with the business combination, Activision Blizzard changed the manner in which senior management assesses the operating performance of, and allocates resources to, its operating segments. As a result, the company now operates in three segments:
1. Activision Publishing ("Activision") -- publishes interactive
entertainment software and peripherals, which includes the Activision
business conducted by Activision, Inc. prior to the business combination
and certain studios, assets, and titles previously included in Vivendi
Games Inc.'s "Sierra Entertainment" operating segment prior to the
business combination;
2. Blizzard -- Blizzard Entertainment, Inc. and its subsidiaries
("Blizzard") -- publishes traditional games and online subscription-based
games in the MMORPG category; and
3. Activision Blizzard Distribution ("Distribution") -- distribution of
interactive entertainment software and hardware products.
With respect to periods prior to July 10, 2008, results for historical Activision, Inc. are reported in the Activision and Distribution segments. Prior to July 1, 2009, Activision Blizzard also presented a fourth segment, representing its non-core exit operations. These operations are now insignificant and no longer are presented as a separate operating segment. Therefore, all prior period segment information has been reclassified to conform to the current period's presentation.
About Activision Blizzard
Headquartered in Santa Monica, California, Activision Blizzard, Inc. is a worldwide online, PC, console and handheld game publisher with leading market positions across every major category of the rapidly growing interactive entertainment software industry.
Activision Blizzard maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, Norway, Denmark, the Netherlands, Australia, Russia, South Korea, China, and the region of Taiwan. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.
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," "remains," "to be," "plans," "believes," "may," "expects," "intends," 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, shifts in consumer spending trends, the impact of the current macroeconomic environment, the seasonal and cyclical nature of the interactive game market, any further difficulties related to World of Warcraft in China, Activision Blizzard's ability to predict consumer preferences among competing hardware platforms, declines in software pricing, product returns and price protection, product delays, retail acceptance of Activision Blizzard's products, adoption rate and availability of new hardware (including peripherals) and related software, industry competition, rapid changes in technology, industry standards and consumer preferences, protection of proprietary rights, litigation against Activision Blizzard, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, 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, integration of recent acquisitions and the identification of suitable future acquisition opportunities, and the other factors identified in the risk factors sections of Activision Blizzard's annual report on Form 10-K for the year ended December 31, 2008 and subsequent filed quarterly reports on Form 10-Q. 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. Forward-looking statements believed to be true when made 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.
(Tables to Follow)
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
Three months Nine months
ended ended
September 30, September 30,
------------ ------------
2009 2008(1) 2009 2008(1)
---- ------ ---- ------
Net revenues:
Product sales $411 $413 $1,848 $553
Subscription, licensing and other
revenues 292 298 874 834
--- --- --- ---
Total net revenues 703 711 2,722 1,387
--- --- ----- -----
Costs and expenses:
Cost of sales - product costs 185 279 762 350
Cost of sales - software royalties and
amortization 54 50 212 88
Cost of sales - intellectual property
licenses 45 36 163 45
Cost of sales - massively multi-player
online role playing game ("MMORPG") 55 43 158 123
Product development 122 200 362 414
Sales and marketing 128 142 329 220
General and administrative 106 94 301 172
Restructuring (1) 61 29 61
--- --- --- ---
Total costs and expenses 694 905 2,316 1,473
--- --- ----- -----
Operating income (loss) 9 (194) 406 (86)
Investment and other income, net 11 24 21 28
--- --- --- ---
Income (loss) before income tax provision
(benefit) 20 (170) 427 (58)
Income tax provision (benefit) 5 (62) 28 (22)
--- --- --- ---
Net income (loss) $15 $(108) $399 $(36)
=== ===== ==== ====
----- ------ ----- ------
Basic earnings (loss) per common share $0.01 $(0.08) $0.31 $(0.04)
Weighted average common shares outstanding 1,271 1,271 1,289 816
----- ----- ----- ---
----- ------ ----- ------
Diluted earnings (loss) per common share $0.01 $(0.08) $0.30 $(0.04)
Weighted average common shares outstanding
assuming dilution 1,297 1,271 1,320 816
----- ----- ----- ---
(1) On July 9, 2008, a business combination (the "Business Combination")
by and among Activision, Inc., Sego Merger Corporation, a wholly-owned
subsidiary of Activision, Inc., Vivendi S.A. ("Vivendi"), VGAC LLC, a
wholly-owned subsidiary of Vivendi ("VGAC"), and Vivendi Games, Inc.,
a wholly-owned subsidiary of VGAC ("Vivendi Games" or "VG"), was
consummated. As a result of the consummation of the Business
Combination, Activision, Inc. was renamed Activision Blizzard, Inc.
For accounting purposes, because the Business Combination resulted in
Vivendi obtaining control of Activision, Inc. through the acquisition
of a majority of common stock of Activision, Inc., the Business
Combination is treated as a "reverse acquisition," with Vivendi Games
deemed to be the acquirer. As a result, (i) the historical financial
statements of the company prior to July 10, 2008 are those of Vivendi
Games, Inc. and (ii) the results of Activision, Inc. prior to July 10,
2008 are not included as part of the company's historical financial
statements.
Further, earnings (loss) per share for periods prior to the Business
Combination are retrospectively adjusted to reflect the number of
equivalent shares received by Vivendi, former parent of Vivendi Games,
Inc.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
September 30, December 31,
2009 2008(2)
---- ------
ASSETS
Current assets:
Cash and cash equivalents $2,360 $2,958
Short-term investments 361 44
Accounts receivable, net 228 974
Inventories 351 262
Software development 253 235
Intellectual property licenses 65 35
Deferred income taxes, net 727 536
Intangible assets, net 1 14
Other current assets 162 201
--- ---
Total current assets 4,508 5,259
----- -----
Long-term investments 22 78
Software development 15 1
Intellectual property licenses - 5
Property and equipment, net 133 149
Other assets 12 30
Intangible assets, net 1,168 1,283
Trademark and trade names 433 433
Goodwill 7,161 7,227
----- -----
Total assets $13,452 $14,465
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $282 $319
Deferred revenues 471 923
Accrued expenses and other liabilities 532 842
--- ---
Total current liabilities 1,285 2,084
----- -----
Deferred income taxes, net 685 615
Other liabilities 190 239
--- ---
Total liabilities 2,160 2,938
----- -----
Shareholders' equity:
Common stock - -
Additional paid-in capital 12,332 12,170
Treasury stock (960) (126)
Accumulated deficit (75) (474)
Accumulated other comprehensive loss (5) (43)
--- ---
Total shareholders' equity 11,292 11,527
------ ------
Total liabilities and
shareholders' equity $13,452 $14,465
======= =======
(2) The prior year condensed consolidated balance sheet has been
adjusted to reflect correction of an immaterial error related to the
elimination of intercompany receivables and payables. The adjustment
reduced accounts receivable and accounts payable in the December 31,
2008 condensed consolidated balance sheet by approximately $236
million, and had no impact on Net Income, Earnings per Share, Working
Capital or Net Cash Flow. This correction will be made upon filing of
our report on Form 10-Q for the quarterly period ended September 30,
2009.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME
(Amounts in millions, except earnings (loss) per share data)
Cost of
Sales - Cost of
Software Sales -
Cost of Royalties Intell-
Sales - and ectual Cost of
Three Months ended Net Product Amorti- Property Sales -
September 30, 2009 Revenues costs zation licenses MMORPG
-------- ------- ------- ------- -----
GAAP Measurement $703 $185 $54 $45 $55
Less: Net effect from
deferral in net
revenues and related
cost of sales (a) 52 20 31 5 -
Less: Stock-based
compensation
(including purchase
price accounting
related adjustments) (b) - - (3) - -
Less: One time costs
related to the
Business Combination,
integration and
restructuring (d) - - - - -
Less: Amortization of
intangible assets
and purchase price
accounting related
adjustments (e) - (1) (8) (24) -
--- --- --- --- ---
Non-GAAP Measurement $755 $204 $74 $26 $55
=== === === === ===
General and Total
Three Months ended Product Sales and Admini- Restruc- Costs and
September 30, 2009 Development Marketing strative turing Expenses
----------- --------- -------- ------ --------
GAAP Measurement $122 $128 $106 $(1) $694
Less: Net effect
from deferral in
net revenues and
related cost of
sales (a) - 5 - - 61
Less: Stock-based
compensation
(including
purchase price
accounting
related
adjustments) (b) (11) (2) (20) - (36)
Less: One time
costs related to
the Business
Combination,
integration and
restructuring (d) - - (7) 1 (6)
Less: Amortization
of intangible
assets and
purchase price
accounting related
adjustments (e) - - - - (33)
--- --- --- --- ---
Non-GAAP Measurement $111 $131 $79 $- $680
=== === === === ===
Diluted
Three Months ended Operating Basic Earnings Earnings
September 30, 2009 Income (loss) Net Income per Share per Share
------------ ---------- --------- ---------
GAAP Measurement $9 $15 $0.01 $0.01
Less: Net effect
from deferral in
net revenues and
related cost
of sales (a) (9) 5 - -
Less: Stock-based
compensation
(including
purchase price
accounting related
adjustments) (b) 36 23 0.02 0.02
Less: One time
costs related
to the Business
Combination,
integration and
restructuring(d) 6 3 - -
Less: Amortization
of intangible
assets and purchase
price accounting
related
adjustments(e) 33 9 0.01 0.01
--- --- ---- ----
Non-GAAP Measurement $75 $55 $0.04 $0.04
=== === ==== ====
Cost of
Sales - Cost of
Software Sales -
Cost of Royalties Intell-
Sales - and ectual Cost of
Three Months ended Net Product Amorti- Property Sales -
September 30, 2008 Revenues costs zation licenses MMORPG
-------- ------- ------- ------- -----
GAAP Measurement $711 $279 $50 $36 $43
Less: Net effect from
deferral in net
revenues and related
cost of sales (a) 12 - - - -
Less: Stock-based
compensation
(including purchase
price accounting
related adjustments) (b) - - - - -
Less: Results of
Activision Blizzard's
non-core exit
operations (c) (6) (1) (1) - -
Less: One time costs
related to the
Business Combination,
integration and
restructuring (d) - - - - -
Less: Amortization of
intangible assets
and purchase price
accounting related
adjustments (e) - (8) (24) (22) -
--- --- --- --- ---
Non-GAAP Measurement $717 $270 $25 $14 $43
=== === === === ===
General and Total
Three Months ended Product Sales and Admini- Restruc- Costs and
September 30, 2008 Development Marketing strative turing Expenses
----------- --------- -------- ------ --------
GAAP Measurement $200 $142 $94 $61 $905
Less: Net effect
from deferral in
net revenues and
related cost of
sales (a) - - - - -
Less: Stock-based
compensation
(including
purchase price
accounting
related
adjustments) (b) (7) (4) (15) - (26)
Less: Results of
Activision
Blizzard's
non-core exit
operations (c) (91) (12) (11) - (116)
Less: One time
costs related to
the Business
Combination,
integration and
restructuring (d) - - (17) (61) (78)
Less: Amortization
of intangible
assets and
purchase price
accounting related
adjustments (e) - (35) (1) - (90)
--- --- --- --- ---
Non-GAAP Measurement $102 $91 $50 $- $595
=== === === === ===
Basic Diluted
Earnings Earnings
Three Months ended Operating Net Income (Loss) (Loss)
September 30, 2008 Income (loss) (Loss) per Share per Share
------------ ---------- --------- ---------
GAAP Measurement $(194) $(108) $(0.08) $(0.08)
Less: Net effect
from deferral in
net revenues and
related cost
of sales (a) 12 7 0.01 0.01
Less: Stock-based
compensation
(including purchase
price accounting
related
adjustments)(b) 26 16 0.01 0.01
Less: Results of
Activision
Blizzard's non-core
exit operations(c) 110 67 0.05 0.05
Less: One time
costs related to
the Business
Combination,
integration and
restructuring(d) 78 56 0.04 0.04
Less: Amortization
of intangible
assets and
purchase price
accounting related
adjustments(e) 90 54 0.04 0.04
--- --- ---- ----
Non-GAAP Measurement $122 $92 $0.07 $0.07
=== === ==== =====
(a) Reflects the net change in deferred net revenues and related cost
of sales.
(b) Includes expense related to stock-based compensation.
(c) Reflects the results of products and operations from the historical
Vivendi Games businesses that the Company has exited, divested or
wound down.
(d) Reflects one-time costs related to the Business Combination with
Vivendi Games (including transaction costs, integration costs and
restructuring activities). Restructuring activities includes severance
costs, facility exit costs and balance sheet write down and exit costs
from the cancellation of projects.
(e) Reflects amortization of intangible assets, and the change in the fair
value of assets and liabilities from purchase price accounting related
adjustments.
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.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months and Nine Months Ended September 30, 2009
(Amounts in millions)
Three Months Ended Nine Months Ended
-------------------- -------------------
September 30, 2009 September 30, 2009
Amount % of Total Amount % of Total
-------- ---------- -------- ----------
GAAP Net Revenues by
Segment/Platform Mix
Activision and Blizzard:
MMORPG $301 43% $939 35%
PC and other 32 5 119 4
Sony PlayStation 3 73 10 356 13
Sony PlayStation 2 37 5 121 4
Microsoft Xbox 360 104 15 533 20
Nintendo Wii 72 10 324 12
--- --- --- ---
Total console 286 40 1,334 49
Sony PlayStation Portable 9 1 32 1
Nintendo Dual Screen 21 3 95 4
--- --- --- ---
Total handheld 30 4 127 5
--- --- --- ---
Total Activision and Blizzard 649 92 2,519 93
--- --- ----- ---
Distribution:
Total Distribution 54 8 202 7
--- --- --- ---
Total net revenues core
operations 703 100 2,721 100
Other - - 1 -
--- --- --- ---
Total consolidated GAAP net
revenues $703 100% $2,722 100%
---- --- ------ ---
Changes in Deferred
Net Revenues(1)
Activision and Blizzard:
MMORPG $(39) $(114)
PC and other 11 (18)
Sony PlayStation 3 32 (86)
Sony PlayStation 2 2 2
Microsoft Xbox 360 38 (145)
Nintendo Wii 8 (80)
--- ---
Total console 80 (309)
--- ----
Total changes in deferred
net revenues 52 (441)
--- ----
Other(1) $- $(1)
--- ---
Non-GAAP Net Revenues by
Segment/Platform Mix
Activision and Blizzard:
MMORPG $262 35% $825 36%
PC and other 43 6 101 4
Sony PlayStation 3 105 14 270 12
Sony PlayStation 2 39 5 123 5
Microsoft Xbox 360 142 19 388 17
Nintendo Wii 80 10 244 11
--- --- --- --
Total console 366 48 1,025 45
Sony PlayStation Portable 9 1 32 2
Nintendo Dual Screen 21 3 95 4
--- --- --- ---
Total handheld 30 4 127 6
--- --- --- ---
Total Activision and
Blizzard 701 93 2,078 91
--- --- ----- ---
Total Distribution 54 7 202 9
--- --- --- ---
Total non-GAAP net revenues $755 100% $2,280 100%
---- --- ------ ---
(1) We provide net revenues including (in accordance with GAAP) and
excluding (non-GAAP) the impact of change in deferred net revenues and
other.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months and Nine Months Ended September 30, 2009
(Amounts in millions)
Three Months Ended Nine Months Ended
-------------------- -------------------
September 30, 2009 September 30, 2009
Amount % of Total Amount % of Total
-------- ---------- -------- ----------
GAAP Net Revenues by
Geographic Region
North America $378 54% $1,458 54%
Europe 287 41 1,088 40
Asia Pacific 38 5 175 6
--- --- --- ---
Total net revenues core
operations 703 100 2,721 100
Other - - 1 -
--- --- --- ---
Total consolidated GAAP net
revenues $703 100% $2,722 100%
---- --- ------ ---
Changes in Deferred Net Revenues(1)
North America $26 $(287)
Europe 22 (147)
Asia Pacific 4 (7)
--- ---
Total changes in net revenues 52 (441)
--- ----
Other(1) $- $(1)
--- ---
Non-GAAP Net Revenues by
Geographic Region
North America $404 54% $1,171 52%
Europe 309 41 941 41
Asia Pacific 42 5 168 7
--- --- --- ---
Total non-GAAP net revenues $755 100% $2,280 100%
---- --- ------ ---
(1) We provide net revenues including (in accordance with GAAP) and
excluding (non-GAAP) the impact of change in deferred net revenues and
other.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
For the Three Months Ended September 30, 2009 and 2008
GAAP to Non-GAAP Reconciliations
Segment Information - Comparable Basis Net Revenues (amounts in millions)
Segments/
Distri- Consol-
Three months ended Activision Blizzard bution Core idated
September 30, 2009 (i) (ii) (iii) (iv) Total
---------- -------- ------ ---- -------
Segment net revenues $415 $286 $54 $755 $755
Reconciliation to GAAP
consolidated net revenues
- Net effect from
deferral of net revenues (52)
----
Consolidated net
revenues (GAAP) $703
---- ---- --- ----
Non-GAAP Comparable Basis
Segment Net Revenues $415 $286 $54 $755
---- ---- --- ----
Segments/
Distri- Consol-
Three months ended Activision Blizzard bution Core idated
September 30, 2008 (i) (ii) (iii) (iv) Total
---------- -------- ------ ---- -------
Segment net revenues
(VG July 1-Sept 30,
Activision
July 10-Sept 30) $364 $297 $56 $717 $717
Reconciliation to GAAP
consolidated net revenues
- Net effect from
deferral of net
revenues (12)
- Other (v) 6
---
Consolidated net
revenues (GAAP) $711
Comparable Presentation
Adjustment:
Including Activision,
Inc. prior period from
July 1 to July 9, 2008
Segment net revenues 35 - 18 53
---- ---- --- ----
Non-GAAP Comparable
Basis Segment Net
Revenues $399 $297 $74 $770
---- ---- --- ----
- Change in Comparable
Basis - Three Months
Ended September 30,
2009 vs. 2008 -2%
---
(i) Activision Publishing ("Activision") -- publishes interactive
entertainment software and peripherals, which includes the
Activision business conducted by Activision, Inc. prior to the
business combination and certain studios, assets, and titles
previously included in Vivendi Games' "Sierra Entertainment"
operating segment prior to the business combination.
(ii) Blizzard -- Blizzard Entertainment, Inc. and its subsidiaries
("Blizzard") publishes traditional games and online subscription-
based games in the MMORPG category.
(iii) Activision Blizzard Distribution ("Distribution") -- distribution
of interactive entertainment software and hardware products.
(iv) Activision, Blizzard and Distribution are referred to collectively
as Activision Blizzard Inc.'s core operations ("Core").
(v) Other represents Non-Core activities, which are handled by certain
functional departments of our Activision segment and are
insignificant to Activision Blizzard's financial condition and
results of operations. Prior to July 1, 2009, we operated a fourth
operating segment, Non-Core, which represented legacy Vivendi Games'
divisions or business units that the Company had exited, divested,
or wound down as part of our restructuring and integration efforts
as a result of the Business Combination. As of July 1, 2009, in
light of the decreasing significance of Non-Core activities, we
ceased the management of Non-Core as a separate operating segment
and consequently we are no longer providing separate operating
segment disclosure with respect to Non-Core and have reclassified
our prior period's segment presentation so that it conforms to the
current period's presentation.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
For the Nine Months Ended September 30, 2009 and 2008
GAAP to Non-GAAP Reconciliations
Segment Information - Comparable Basis Net Revenues (amounts in millions)
Segments/
Distri- Consol-
Nine months ended Activision Blizzard bution Core idated
September 30, 2009 (i) (ii) (iii) (iv) Total
---------- -------- ------ ---- -------
Segment net revenues $1,211 $867 $202 $2,280 $2,280
Reconciliation to GAAP
consolidated net
revenues
- Net effect from
deferral of net
revenues 441
- Other (v) 1
---
Consolidated net
revenues (GAAP) $2,722
----- --- --- -----
Non-GAAP Comparable
Basis Segment
Net Revenues $1,211 $867 $202 $2,280
----- --- --- -----
Segments/
Distri- Consol-
Nine months ended Activision Blizzard bution Core idated
September 30, 2008 (i) (ii) (iii) (iv) Total
---------- -------- ------ ---- -------
Segment net revenues
(VG Jan 1-Sept 30,
Activision July 10-
Sept 30) $457 $866 $56 $1,379 $1,379
Reconciliation to GAAP
consolidated net
revenues
- Net effect from
deferral of net
revenues (8)
- Other (v) 16
---
Consolidated net
revenues (GAAP) $1,387
Comparable Presentation
Adjustments:
Including Activision,
Inc. prior period
from July 1 to
July 9, 2008
Segment net revenues 35 - 18 53
Including Activision,
Inc. prior periods
for the six months
ended June 30, 2008
Segment net revenues 1,092 - 165 1,257
----- --- --- -----
Non-GAAP Comparable
Basis Segment
Net Revenues $1,584 $866 $239 $2,689
----- --- --- -----
- Change in Comparable
Basis - Nine Months
Ended September 30,
2009 vs. 2008 -15%
---
(i) Activision Publishing ("Activision") -- publishes interactive
entertainment software and peripherals, which includes the
Activision business conducted by Activision, Inc. prior to the
business combination and certain studios, assets, and titles
previously included in Vivendi Games' "Sierra Entertainment"
operating segment prior to the business combination.
(ii) Blizzard -- Blizzard Entertainment, Inc. and its subsidiaries
("Blizzard") publishes traditional games and online subscription-
based games in the MMORPG category.
(iii) Activision Blizzard Distribution ("Distribution") -- distribution of
interactive entertainment software and hardware products.
(iv) Activision, Blizzard and Distribution are referred to collectively
as Activision Blizzard Inc.'s core operations ("Core").
(v) Other represents Non-Core activities, which are handled by certain
functional departments of our Activision segment and are
insignificant to Activision Blizzard's financial condition and
results of operations. Prior to July 1, 2009, we operated a fourth
operating segment, Non-Core, which represented legacy Vivendi Games'
divisions or business units that the Company had exited, divested,
or wound down as part of our restructuring and integration efforts
as a result of the Business Combination. As of July 1, 2009, in
light of the decreasing significance of Non-Core activities, we
ceased the management of Non-Core as a separate operating segment
and consequently we are no longer providing separate operating
segment disclosure with respect to Non-Core and have reclassified
our prior period's segment presentation so that it conforms to the
current period's presentation.
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
For the Three Months Ended September 30, 2009 and 2008
GAAP to Non-GAAP Reconciliations
Segment Information - Comparable Basis Segment Operating Income (Loss)
(amounts in millions)
Segments/
Distri- Consol-
Three months ended Activision Blizzard bution Core idated
September 30, 2009 (i) (ii) (iii) (iv) Total
---------- -------- ------ ---- -------
Segment operating
income (loss) $(43) $116 $2 $75 $75
Reconciliation to GAAP
consolidated operating
income (loss)
- Net effect from
deferral of net
revenues and related
cost of sales 9
- Stock-based
compensation expense (36)
- Restructuring expense 1
- Amortization of
intangible assets and
purchase price
accounting related
adjustments (33)
- Integration and
transaction costs (7)
---
Consolidated operating
income (loss) (GAAP) $9
--- --- --- ----
Non-GAAP Comparable Basis
Segment Operating
Income (Loss) $(43) $116 $2 $75
--- --- --- ----
Segments/
Distri- Consol-
Three months ended Activision Blizzard bution Core idated
September 30, 2008 (i) (ii) (iii) (iv) Total
---------- -------- ------ ---- -------
Segment operating
income (loss) (VG July 1
-Sept 30, Activision
July 10-Sept 30) $(26) $146 $2 $122 $122
Reconciliation to GAAP
consolidated operating
income (loss)
- Net effect from
deferral of net
revenues and related
cost of sales (12)
- Stock-based
compensation expense (26)
- Restructuring expenses (61)
- Amortization of
intangible assets and
purchase price
accounting related
adjustments (90)
- Integration and
transaction costs (17)
- Other (v) (110)
---
Consolidated operating
income (loss) (GAAP) $(194)
Comparable Presentation
Adjustment:
Including Activision,
Inc. prior period
from July 1 to
July 9, 2008
Segment operating
income (loss) (10) - 1 (9) $(9)
Reconciliation to
consolidated operating
income (loss)
- Stock-based
Compensation
expense (3)
- Integration and
transaction costs (38)
---
Consolidated operating
income (loss) $(50)
--- --- --- ---
Non-GAAP Comparable
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