Record Quarterly and Full-Year
RevenuesRecord Full-Year Digital, Mobile and In-Game
RevenuesRecord Full-Year Operating Cash Flow of $2.2
Billion
Activision Blizzard, Inc. (Nasdaq: ATVI) today announced
fourth-quarter and 2017 results.
“This was a record quarter to cap off a record year for
Activision Blizzard,” said Bobby Kotick, Chief Executive Officer of
Activision Blizzard. “In 2017, our community reached new milestones
for engagement, our business delivered record revenues and cash
flows, and we made important progress in building future growth
opportunities such as the Overwatch League™. We couldn't be more
excited for the opportunities ahead in 2018 to continue serving our
players and fans.”
Financial Metrics:
Fourth Quarter Calendar Year
Prior (in
millions, except EPS) 2017
Outlook*
2016
2017
2016 GAAP Net Revenues $
2,043 $ 1,700 $
2,014 $ 7,017 $ 6,608 Impact
of GAAP deferralsA $ 597 $
635 $ 438 $ 139 $
(9 ) GAAP EPS $ (0.77)**
$ 0.10 $ 0.33 $ 0.36**
$ 1.28 Non-GAAP EPS $ 0.49
$ 0.36 $ 0.65 $ 2.21
$ 2.18 Impact of GAAP deferralsA
$ 0.45 $ 0.46
$ 0.27 $ 0.07
$ 0.02
* Prior outlook was provided by the company
on November 2, 2017 in its earnings release.** GAAP EPS includes
incremental expense ($1.03 for the fourth quarter and $1.04 for the
full year 2017) due to the impact of significant discrete
tax-related items, including amounts related to changes in tax laws
(including a reasonable estimate of 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 amounts
related to the potential or final resolution of tax positions, and
other unusual or unique tax-related items and activities.
Activision Blizzard will provide additional information relating to
these items in our Form 10-K for the year ending December 31,
2017.
For the year ended December 31, 2017, Activision Blizzard’s net
revenues presented in accordance with GAAP were a record $7.02
billion, as compared with $6.61 billion for 2016. GAAP net revenues
from digital channels were a record $5.48 billion. GAAP operating
margin was 19%. For the year ended December 31, 2017, Activision
Blizzard recognized approximately $1.04 per share in incremental
GAAP expense due to the impact of significant discrete tax-related
items, primarily related to the impact of the Tax Cuts and Jobs Act
enacted in December 2017. GAAP earnings per diluted share were
$0.36, which would have been a record $1.39 when adjusted to
exclude significant discrete tax-related items, as compared with
$1.28 for 2016. On a non-GAAP basis, Activision Blizzard’s
operating margin was 33% and earnings per diluted share were a
record $2.21, as compared with $2.18 for 2016.
For the quarter ended December 31, 2017, Activision Blizzard’s
net revenues presented in accordance with GAAP were an all-quarter
record $2.04 billion, as compared with $2.01 billion for the fourth
quarter of 2016. GAAP net revenues from digital channels were $1.43
billion. GAAP operating margin was 11%. For the quarter ended
December 31, 2017, Activision Blizzard recognized approximately
$1.03 per share in incremental GAAP expense due to the impact of
significant discrete tax-related items, primarily related to the
impact of the Tax Cuts and Jobs Act enacted in December 2017. GAAP
loss per share was $0.77, or earnings per diluted share of $0.27
when adjusted to exclude significant discrete tax-related items, as
compared with earnings per diluted share of $0.33 for the fourth
quarter of 2016. On a non-GAAP basis, Activision Blizzard’s
operating margin was 25% and earnings per diluted share were $0.49,
as compared with $0.65 for the fourth quarter of 2016.
Activision Blizzard generated a record $2.21 billion in
operating cash flow for the year ended December 31, 2017, as
compared to $2.16 billion for 2016. For the quarter, operating cash
flows were $1.16 billion.
Please refer to the tables at the back of this press release for
a reconciliation of the company’s GAAP and non-GAAP results.
Operating Metric:
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.
For the year ended December 31, 2017, Activision Blizzard’s net
bookingsB were a record $7.16 billion, as compared with $6.60
billion for 2016. Net bookingsB from digital channels were a record
$5.43 billion, as compared with $5.22 billion for 2016.
For the quarter ended December 31, 2017, Activision Blizzard’s
net bookingsB were an all-quarter record $2.64 billion, as compared
with $2.45 billion for the fourth quarter of 2016. Net bookingsB
from digital channels were an all-quarter record $1.62 billion, as
compared with $1.52 billion for the fourth quarter of 2016.
Selected Business Highlights:
Activision Blizzard’s success in 2017 shows the enduring nature
of our franchises, and that our communities value innovation and
new experiences from our inspired teams.
Audience Reach
- Activision Blizzard had 385 million
Monthly Active Users (MAUs)C in the quarter, up from 384 million
last quarter.
- King had 290 million MAUsC, down 1%
quarter-over-quarter, while time spent per player reached a record
of 37 minutes per day. MAUsC for the Candy CrushTM
franchise grew slightly quarter-over-quarter while also driving
increased time spent per player.
- Activision had 55 million MAUsC for the
quarter, up 12% quarter-over-quarter and matching its prior
quarterly record, driven by the successful launches of Call of
Duty®: WWII and Destiny 2. For the year,
Activision had the top two-grossing console game releases in North
America and two of the top-five grossing console game releases
worldwide.1
- Activision’s Call of Duty: WWII
was the top-grossing console game of the year globally1, with the
franchise’s biggest launch quarter sell-through on
current-generation consoles. The game set a Sony PlayStation
milestone as the biggest day 1 digital release ever.2 Call of
Duty has been the number one franchise globally for 8 of the
last 9 years.1
- Activision and Bungie’s Destiny
2 was the second-highest-grossing console game in North America
for the year1, had the largest PC launch in Activision history
based on units, and had a higher attach rate on its first expansion
than Destiny 1.
- Activision’s Crash
BandicootTM N. Sane Trilogy was the number
one-selling remastered collection in PS4 history.1
- Blizzard had 40 million MAUsC for the
quarter. While down sequentially, this is the 6th quarter in a row
with 40 million or more MAUsC, primarily driven by
Overwatch® and Hearthstone®.
Deep Engagement
- For the second quarter in a row,
players spent over 50 minutes per day in Activision, Blizzard, and
King games, in line with some of the most engaging online connected
platforms in the world.
- The inaugural season of the
Overwatch League started on January 10 with 12 world-class
team owners from across the globe, multiple league and team-level
sponsors, a premium viewing experience and a robust distribution
strategy. In its first week, the Overwatch League reached
more than 10 million unique viewers across the world with an
average audience of more than 280,000 on a per minute basis.
- The Call of Duty World League,
which kicked off in December, has sold out each of its World League
Global Open events. The launch event in Dallas had more than double
the viewership hours of last year’s launch event.
Player Investment
- Activision Blizzard delivered a
fourth-quarter record of over $1 billion of in-game net bookingsB,
and an annual record of over $4 billion of in-game net
bookingsB.
- King grew segment revenues and
operating income year-over-year, delivered record mobile net
bookingsB in 2017, and increased its average net bookingsB per
paying user by a double-digit percentage year-over-year. This
quarter, King had two of the top-10 highest-grossing titles in the
U.S. mobile app stores for the seventeenth quarter in a row, with
Candy Crush Saga™ and Candy Crush Soda
SagaTM at #1 and #2, respectively.3 The Candy
Crush franchise grew consumer spend sequentially for the fourth
quarter in a row.
- Activision delivered record segment
operating income of over $1 billion with record operating margin of
38%. Activision offered compelling downloadable content offerings,
including Zombies Chronicles for Call of Duty: Black Ops
III, Destiny 2’s expansion pass, Call of Duty:
WWII’s season pass, and additional live features, services and
content.
- Blizzard delivered record segment
revenues and operating income for a year with no major game
release, as they continued to deliver continuous content across
franchises including Overwatch, Hearthstone, and
World of Warcraft®.
Company Outlook:
(in millions, except EPS)
GAAP Outlook
Non-GAAP Outlook
Impact of GAAP
deferralsA
CY
2018
Net Revenues $ 7,350 $ 7,350 $ 100
EPS $ 1.78 $ 2.45
$ 0.05
Fully Diluted Shares 776 776
Q1
2018
Net Revenues $ 1,820 $ 1,820 $ (540 )
EPS $ 0.47 $
0.65 $ (0.34 )
Fully Diluted Shares 771
771
Net bookingsB (operating metric) is expected to be $7.45 billion
for 2018 and $1.28 billion for the first quarter of 2018.
Currency Assumptions for 2018 Outlook:
- $1.20 USD/Euro for current outlook (vs.
average of $1.12 for 2017 and $1.11 for 2016); and
- $1.37 USD/British Pound Sterling for
current outlook (vs. average of $1.30 for 2017 and $1.36 for
2016).
- Note: Our financial guidance includes
the forecasted impact of our FX cash flow hedging program.
Capital Allocation:
The Board of Directors declared a cash dividend of $0.34 per
common share, payable on May 9, 2018 to shareholders of record at
the close of business on March 30, 2018, which represents a 13%
increase from 2017. Additionally, the Board of Directors authorized
over $1 billion of further debt paydown during 2018.
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 December 31, 2017 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 via
live Webcast or to listen to the call live by dialing into
888-515-2235 in the U.S. with passcode 1423198.
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®, Destiny and Skylanders®, 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, and its games are played in 196 countries. More
information about Activision Blizzard and its products can be found
on the company's website, www.activisionblizzard.com.
Please see the “Investor Relations” area of
www.activisionblizzard.com for answers to frequently asked
questions regarding the upcoming adoption in the first quarter of
2018 of ASC 606, a new accounting standard related to GAAP revenue
recognition.
1 Based on data from the NPD Group, GfK, GSD and internal
estimates.2 Based on blog.us.playstation.com.3 U.S. ranking for
Apple App Store and Google Play Store combined, per App Annie
Intelligence for fourth quarter 2017.
A Net effect of accounting treatment from revenue deferrals on
certain of our online enabled products. Some of our games’ online
functionality represents an essential component of gameplay and, as
a result, a more-than-inconsequential separate deliverable. As a
result, we recognize revenues attributed to these game titles over
their estimated service periods, which is 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.
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.
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, inclusive of 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; (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.
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 preferences
among platforms; the diversion of management time and attention to
issues relating to the operations of our acquired or newly started
businesses; the amount of our debt and the limitations imposed by
the covenants in the agreements governing our debt; the adoption
rate and availability of new hardware (including peripherals) and
related software; 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 develop
key personnel and developers that can create high-quality titles,
products and services; risks relating to the expansion into new
businesses, including the potential impact on our existing
businesses; 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;
shifts in consumer spending trends; capital market risks; the
impact of applicable 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, 2016.
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. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(Amounts in millions, except per share
data)
Three Months Ended December 31,
Year Ended December 31, 2017
2016 2017 2016 Net
revenues Product sales $ 737 $ 696 $ 2,110 $ 2,196
Subscription, licensing, and other revenues1 1,306 1,318
4,907 4,412 Total net revenues 2,043 2,014 7,017
6,608
Costs and expenses Cost of revenues—product
sales: Product costs 310 313 733 741 Software royalties,
amortization, and intellectual property licenses 101 80 300 331
Cost of revenues—subscription, licensing, and other: Game
operations and distribution costs 268 230 984 851 Software
royalties, amortization, and intellectual property licenses 124 153
484 471 Product development 318 285 1,069 958 Sales and marketing
479 380 1,378 1,210 General and administrative 222 148
760 634 Total costs and expenses 1,822 1,589
5,708 5,196 Operating income 221 425 1,309 1,412
Interest and other expense (income), net 36 43 146 214 Loss
on extinguishment of debt — 82 12 92
Income before income tax expense 185 300 1,151 1,106 Income
tax expense 769 46 878 140 Net income
(loss) $ (584 ) $ 254 $ 273 $ 966 Basic
earnings (loss) per common share $ (0.77 ) $ 0.34 $ 0.36 $ 1.30
Weighted average common shares outstanding 757 744 754 740
Diluted earnings (loss) per common share $ (0.77 ) $ 0.33 $ 0.36 $
1.28 Weighted average common shares outstanding assuming dilution
757 757 766 754 1 Subscription, licensing, and other
revenues represent revenues from World of Warcraft subscriptions,
licensing royalties from our products and franchises, value-added
services, downloadable content, microtransactions, and other
miscellaneous revenues.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(Amounts in millions)
December 31, 2017
December 31, 2016 Assets Current assets Cash
and cash equivalents $ 4,713 $ 3,245 Accounts receivable, net 918
732 Inventories, net 46 49 Software development 367 412 Other
current assets 476 392 Total current assets 6,520
4,830 Software development 86 54 Property and equipment, net 294
258 Deferred income taxes, net 459 283 Other assets 489 401
Intangible assets, net 1,106 1,858 Goodwill 9,763 9,768
Total assets $ 18,717 $ 17,452
Liabilities and Shareholders' Equity Current liabilities
Accounts payable $ 323 $ 222 Deferred revenues 1,929 1,628 Accrued
expenses and other liabilities 1,411 806 Total
current liabilities 3,663 2,656 Long-term debt, net 4,390 4,887
Deferred income taxes, net 21 44 Other liabilities 1,181 746
Total liabilities 9,255 8,333
Shareholders' equity Common stock — — Additional paid-in capital
10,747 10,442 Treasury stock (5,563 ) (5,563 ) Retained earnings
4,916 4,869 Accumulated other comprehensive loss (638 ) (629 )
Total shareholders’ equity 9,462 9,119 Total
liabilities and shareholders’ equity $ 18,717 $ 17,452
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
(Amounts in millions)
Year Ended December 31,
2017 2016 Cash flows from operating
activities: Net income $ 273 $ 966 Adjustments to reconcile net
income to net cash provided by operating activities: Deferred
income taxes (181 ) (9 ) Provision for inventories 33 42
Depreciation and amortization 888 829 Amortization of capitalized
software development costs and intellectual property licenses1 311
321 Premium payment for early redemption of note — 63 Amortization
of debt discount, financing costs, and non-cash write-off due to
extinguishment of debt 24 50 Share-based compensation expense2 176
147 Other 28 4 Changes in operating assets and liabilities, net of
effect from business acquisitions: Accounts receivable, net (165 )
84 Inventories (26 ) 32 Software development and intellectual
property licenses (301 ) (362 ) Other assets (146 ) (10 ) Deferred
revenues 220 (35 ) Accounts payable 85 (50 ) Accrued expenses and
other liabilities 994 83 Net cash provided by
operating activities 2,213 2,155 Cash flows
from investing activities: Proceeds from maturities of
available-for-sale investments 80 — Purchases of available-for-sale
investments (135 ) — Acquisition of King, net of cash acquired —
(4,588 ) Release of cash in escrow — 3,561 Capital expenditures
(155 ) (136 ) Other investing activities 13 (14 ) Net cash
used in investing activities (197 ) (1,177 ) Cash flows from
financing activities: Proceeds from issuance of common stock to
employees 178 106 Tax payment related to net share settlements on
restricted stock units (56 ) (115 ) Dividends paid (226 ) (195 )
Proceeds from debt issuances, net of discounts 3,741 6,878
Repayment of long-term debt (4,251 ) (6,104 ) Premium payment for
early redemption of note — (63 ) Other financing activities (10 )
(7 )
Net cash (used in) provided by financing
activities
(624 ) 500 Effect of foreign exchange rate changes on
cash and cash equivalents 76 (56 ) Net increase in cash and
cash equivalents 1,468 1,422 Cash and cash
equivalents at beginning of period 3,245 1,823 Cash
and cash equivalents at end of period $ 4,713 $ 3,245
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.
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 2015 2016 2016
2016 2016 (Decrease) 2017 2017
2017 2017 (Decrease) Cash Flow Data
Operating Cash Flow $ 1,063 $ 337 $ 503 $ 456 $ 859 (19 )% $ 411 $
265 $ 379 $ 1,158 35 % Capital Expenditures 16 27 44
28 37 131 21 31 34 69
86 Non-GAAP Free Cash Flow1 1,047 310 459 428 822 (21 ) 390
234 345 1,089 32 Operating Cash Flow - TTM2 1,259 1,373
1,732 2,359 2,155 71 2,229 1,991 1,914 2,213 3 Capital Expenditures
- TTM2 111 117 133 115 136 23
130 117 123 155 14 Non-GAAP Free Cash
Flow - TTM2 $ 1,148 $ 1,256 $ 1,599 $ 2,244 $ 2,019 76 % $ 2,099 $
1,874 $ 1,791 $ 2,058 2 % 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, 2015, three months ended June 30,
2015, and three months ended September 30, 2015 was $223 million,
$144 million, and $(171) million, respectively. Capital
Expenditures for the three months ended March 31, 2015, three
months ended June 30, 2015, and three months ended September 30,
2015, was $21 million, $28 million, and $46 million, respectively.
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 ofRevenues—Product
Sales:Product Costs
Cost ofRevenues—Product
Sales:SoftwareRoyalties
andAmortization
Cost
ofRevenues—Subs/Lic/Other:Game
Operationsand DistributionCosts
Cost
ofRevenues—Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
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"), inclusive of 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 of the impact of the Tax
Cuts and Jobs Act enacted in December 2017, as provided for in
accordance with Securities and Exchange Commission guidance),
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,
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.
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 ofRevenues—Product
Sales:Product Costs
Cost ofRevenues—Product
Sales:SoftwareRoyalties
andAmortization
Cost
ofRevenues—Subs/Lic/Other:Game
Operationsand DistributionCosts
Cost
ofRevenues—Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
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, inclusive of 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 of the impact of the Tax
Cuts and Jobs Act enacted in December 2017, as provided for in
accordance with Securities and Exchange Commission guidance),
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,
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.
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, 2016
Net Revenues
Cost ofRevenues—Product
Sales:Product Costs
Cost ofRevenues—Product
Sales:SoftwareRoyalties
andAmortization
Cost
ofRevenues—Subs/Lic/Other:Game
Operationsand DistributionCosts
Cost
ofRevenues—Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 2,014 $ 313 $
80 $ 230 $ 153 $ 285 $ 380 $ 148
$ 1,589 Share-based compensation1 — — (4 ) — (2 ) (13 ) (3 )
(18 ) (40 ) Amortization of intangible assets2 — — (5 ) — (127 ) —
(78 ) (2 ) (212 ) Fees and other expenses related to the King
Acquisition3 — — — —
— — — (4 )
(4 ) Non-GAAP Measurement $ 2,014 $ 313
$ 71 $ 230 $ 24 $
272 $ 299 $ 124 $ 1,333
Net effect of deferred revenues and related cost of
revenues4 $ 438 $ 102 $ 99 $ 5 $ (6 ) $ — $ — $ — $ 200
Operating Income
Net Income Basic Earnings per Share
Diluted Earnings per Share GAAP Measurement $ 425 $
254 $ 0.34 $ 0.33 Share-based compensation1 40 40 0.05 0.05
Amortization of intangible assets2 212 212 0.28 0.28 Fees and other
expenses related to the King Acquisition3 4 6 0.01 0.01 Loss on
extinguishment of debt5 — 82 0.11 0.11 Income tax impacts from
items above6 — (98 ) (0.13 ) (0.13 )
Non-GAAP Measurement $ 681 $ 496 $ 0.66
$ 0.65 Net effect of deferred revenues
and related cost of revenues4 $ 238 $ 200 $ 0.27 $ 0.27 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, inclusive of related debt financings and integration
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 refinancing 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.
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.
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, 2016
Net Revenues
Cost ofRevenues—Product
Sales:Product Costs
Cost ofRevenues—Product
Sales:SoftwareRoyalties
andAmortization
Cost
ofRevenues—Subs/Lic/Other:Game
Operationsand DistributionCosts
Cost
ofRevenues—Subs/Lic/Other:SoftwareRoyalties
andAmortization
ProductDevelopment
Sales andMarketing
General
andAdministrative
Total Costs andExpenses
GAAP Measurement $ 6,608 $ 741 $
331 $ 851 $ 471 $ 958 $ 1,210 $
634 $ 5,196 Share-based compensation1 — — (20 ) (2 ) (2 )
(47 ) (15 ) (73 ) (159 ) Amortization of intangible assets2 — — (8
) — (424 ) — (266 ) (8 ) (706 ) Fees and other expenses related to
the King Acquisition3 — — —
— — — —
(47 ) (47 ) Non-GAAP Measurement $ 6,608
$ 741 $ 303 $ 849
$ 45 $ 911 $ 929 $ 506
$ 4,284 Net effect of deferred revenues
and related cost of revenues4 $ (9 ) $ (39 ) $ 3 $ 12 $ 5 $ — $ — $
— $ (19 )
Operating Income Net Income Basic
Earnings per Share Diluted Earnings per Share
GAAP Measurement $ 1,412 $ 966 $ 1.30 $ 1.28 Share-based
compensation1 159 159 0.21 0.21 Amortization of intangible assets2
706 706 0.95 0.93 Fees and other expenses related to the King
Acquisition3 47 54 0.07 0.07 Loss on extinguishment of debt5 — 92
0.12 0.12 Income tax impacts from items above6 — (327
) (0.44 ) (0.43 ) Non-GAAP Measurement $ 2,324
$ 1,650 $ 2.22 $ 2.18
Net effect of deferred revenues and related cost of
revenues4 $ 10 $ 20 $ 0.03 $ 0.02 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, inclusive of
related debt financings and integration 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 refinancing 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.
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.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY DISTRIBUTION
CHANNEL
For the Three Months and Year Ended
December 31, 2017 and 2016
(Amounts in millions)
Three Months Ended December
31, 2017 December 31, 2016
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by Distribution
Channel Digital online channels2 $ 1,431 70 % $
1,454 72 % $ (23 ) (2 )% Retail channels 335 16 372 18 (37 ) (10 )
Other3 277 14 188 9 89 47 Total
consolidated net revenues $ 2,043 100 % $ 2,014 100 %
$ 29 1
Change in deferred revenues4
Digital online channels2 $ 184 $ 61 Retail channels 417 369 Other3
(4 ) 8 Total changes in deferred revenues $ 597 $ 438
Year Ended December 31, 2017
December 31, 2016
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount % of
Total1 Net Revenues by Distribution Channel
Digital online channels2 $ 5,479 78 % $ 4,865 74 % $ 614 13 %
Retail channels 1,033 15 1,386 21 (353 ) (25 ) Other3 505 7
357 5 148 41 Total consolidated net
revenues $ 7,017 100 % $ 6,608 100 % $ 409 6
Change in deferred revenues4 Digital online
channels2 $ (53 ) $ 351 Retail channels 210 (368 ) Other3 (18 ) 8
Total changes in deferred revenues $ 139 $ (9 ) 1
The percentages of total are presented as calculated.
Therefore, the sum of these percentages, as presented, may differ
due to the impact of rounding. 2 Net revenues from Digital online
channels represent revenues from digitally-distributed
subscriptions, licensing royalties, value-added services,
downloadable content, microtransactions, and products. 3
Net revenues from Other include revenues
from our studios and distribution businesses, as well as revenues
from Major League Gaming and the Overwatch League.
4
Reflects the net effect from deferral of
revenues and (recognition) of deferred revenues on certain of our
online enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY PLATFORM
For the Three Months and Year Ended
December 31, 2017 and 2016
(Amounts in millions)
Three Months Ended December
31, 2017 December 31, 2016
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by Platform
Console $ 679 33 % $ 586 29 % $ 93 16 % PC 508 25 704 35
(196 ) (28 ) Mobile and ancillary2 579 28 536 27 43 8 Other3 277
14 188 9 89 47 Total
consolidated net revenues $ 2,043 100 % $ 2,014 100 %
$ 29 1
Change in deferred revenues4
Console $ 520 $ 499 PC 86 (68 ) Mobile and ancillary2 (5 ) (1 )
Other3 (4 ) 8 Total changes in deferred revenues $ 597
$ 438
Year Ended December 31,
2017 December 31, 2016
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount % of
Total1 Net Revenues by Platform Console $ 2,389
34 % $ 2,453 37 % $ (64 ) (3 )% PC 2,042 29 2,124 32 (82 ) (4 )
Mobile and ancillary2 2,081 30 1,674 25 407 24 Other3 505 7
357 5 148 41 Total consolidated net
revenues $ 7,017 100 % $ 6,608 100 % $ 409 6
Change in deferred revenues4 Console $ 210 $
(184 ) PC (67 ) 135 Mobile and ancillary2 14 32 Other3 (18 ) 8
Total changes in deferred revenues $ 139 $ (9 ) 1
The percentages of total are presented as calculated.
Therefore, the sum of these percentages, as presented, may differ
due to the impact of rounding. 2 Net revenues from Mobile and
ancillary include revenues from mobile devices, as well as
non-platform specific game related revenues such as standalone
sales of toys and accessories from the Skylanders franchise and
other physical merchandise and accessories.
3
Net revenues from Other include revenues
from our studios and distribution businesses, as well as revenues
from Major League Gaming and the Overwatch League.
4
Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
NET REVENUES BY GEOGRAPHIC
REGION
For the Three Months and Year Ended
December 31, 2017 and 2016
(Amounts in millions)
Three Months Ended December
31, 2017 December 31, 2016
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount
% of Total1 Net Revenues by Geographic Region
Americas $ 1,021 50 % $ 1,012 50 % $ 9 1 % EMEA2 780
38 693 34 87 13 Asia Pacific 242 12 309 15
(67 ) (22 ) Total consolidated net revenues $ 2,043
100 % $ 2,014 100 % $ 29 1
Change in
deferred revenues3 Americas $ 333 $ 275 EMEA2 247 163
Asia Pacific 17 — Total changes in deferred revenues
$ 597 $ 438
Year Ended December 31,
2017 December 31, 2016
$ Increase(Decrease)
% Increase(Decrease)
Amount % of Total1 Amount % of
Total1 Net Revenues by Geographic Region Americas
$ 3,607 51 % $ 3,423 52 % $ 184 5 % EMEA2 2,464 35 2,221 34 243 11
Asia Pacific 946 13 964 15 (18 ) (2 )
Total consolidated net revenues $ 7,017 100 % $ 6,608
100 % $ 409 6
Change in deferred
revenues3 Americas $ 75 $ (32 ) EMEA2 88 (13 ) Asia
Pacific (24 ) 36 Total changes in deferred revenues $ 139
$ (9 ) 1 The percentages of total are
presented as calculated. Therefore, the sum of these percentages,
as presented, may differ due to the impact of rounding. 2 Consists
of the Europe, Middle East, and Africa geographic regions. 3
Reflects the net effect from deferral of revenues and (recognition)
of deferred revenues on certain of our online enabled products.
OPERATING SEGMENTS INFORMATION
For the Three Months and Year Ended
December 31, 2017 and 2016
(Amounts in millions)
Three Months Ended: December 31, 2017
December 31, 2016 $ Increase /
(Decrease) % Increase / (Decrease)
Activision Blizzard King
Total Activision Blizzard
King Total Activision
Blizzard King Total
Activision Blizzard King
Total Segment Revenues Net revenues from external
customers $ 1,337 $ 580 $ 516 $ 2,433 $ 1,151 $ 672 $ 436 $ 2,259 $
186 $ (92 ) $ 80 $ 174 16 % (14 )% 18 % 8 % Intersegment net
revenues1 — 19 — 19 — — —
— — 19 — 19 — — — —
Segment net revenues $ 1,337 $ 599 $ 516 $
2,452 $ 1,151 $ 672 $ 436 $ 2,259
$ 186 $ (73 ) $ 80 $ 193 16
(11
)
18
9
Segment operating income $ 634 $ 160 $ 162 $ 956 $
479 $ 265 $ 156 $ 900 $ 155 $ (105 ) $ 6 $ 56 32 % (40 )% 4 % 6 %
Operating Margin from Total Reportable Segments 39.0
% 39.8 %
Year Ended: December 31, 2017 December 31,
2016 $ Increase / (Decrease) % Increase /
(Decrease) Activision Blizzard King
Total Activision Blizzard King
Total Activision Blizzard King
Total Activision Blizzard King
Total Segment Revenues Net revenues from external
customers $ 2,628 $ 2,120 $ 1,998 $ 6,746 $ 2,220 $ 2,439 $ 1,586 $
6,245 $ 408 $ (319 ) $ 412 $ 501 18 % (13 )% 26 % 8 % Intersegment
net revenues1 — 19 — 19 — —
— — — 19 — 19 — —
— — Segment net revenues $ 2,628 $ 2,139 $ 1,998
$ 6,765 $ 2,220 $ 2,439 $ 1,586
$ 6,245 $ 408 $ (300 ) $ 412 $ 520 18
(12
)
26
8
Segment operating income $ 1,005 $ 712 $ 700 $ 2,417
$ 788 $ 995 $ 537 $ 2,320 $ 217 $ (283 ) $ 163 $ 97 28 % (28 )% 30
% 4 %
Operating Margin from Total Reportable Segments
35.7 % 37.1 % 1 Intersegment revenues reflect
licensing and service fees charged between segments.
Our operating segments are consistent with the manner in which
our operations are reviewed and managed by our Chief Executive
Officer, who is our chief operating decision maker (“CODM”). The
CODM reviews segment performance exclusive of: the impact of the
change in deferred revenues and related cost of revenues with
respect to certain of our online-enabled games; share-based
compensation expense; amortization of intangible assets as a result
of purchase price accounting; fees and other expenses (including
legal fees, costs, expenses and accruals) related to acquisitions,
associated integration activities, and financings; certain
restructuring costs; and other non-cash charges. See the
following page for the reconciliation tables of segment revenues
and operating income to consolidated net revenues and consolidated
operating income.
Our operating segments are also consistent with our internal
organization structure, the way we assess operating performance and
allocate resources, and the availability of separate financial
information. Due to change in our internal organization and
reporting structure and how we manage the business, commencing with
the second quarter of 2017, our Major League Gaming business, which
was previously included in Other segments, is now included in the
Blizzard segment. We have also revised prior periods to reflect
this change. We do not aggregate operating segments.
OPERATING SEGMENTS INFORMATION
For the Three Months and Year Ended
December 31, 2017 and 2016
(Amounts in millions)
Three Months Ended December 31,
Year Ended December 31, 2017
2016 2017 2016 Reconciliation to
consolidated net revenues: Segment net revenues $ 2,452 $ 2,259
$ 6,765 $ 6,245 Other segments1 207 193 410 354 Net effect from
recognition (deferral) of deferred net revenues2 (597 ) (438 ) (139
) 9 Elimination of intersegment revenues3 (19 ) — (19 ) —
Consolidated net revenues $ 2,043 $ 2,014 $
7,017 $ 6,608
Reconciliation to
consolidated income before income tax expense: Segment
operating income $ 956 $ 900 $ 2,417 $ 2,320 Other segments1 (4 )
19 (19 ) 14 Net effect from recognition (deferral) of deferred net
revenues and related cost of revenues2 (441 ) (238 ) (71 ) (10 )
Share-based compensation expense (58 ) (40 ) (178 ) (159 )
Amortization of intangible assets (185 ) (212 ) (757 ) (706 ) Fees
and other expenses related to the King Acquisition4 (3 ) (4 ) (15 )
(47 ) Restructuring costs5 (5 ) — (15 ) — Other non-cash charges6 —
— (14 ) — Discrete tax-related items7 (39 ) — (39 ) —
Consolidated operating income 221 425 1,309 1,412 Interest and
other expense (income), net 36 43 146 214 Loss on extinguishment of
debt — 82 12 92 Consolidated income
before income tax expense $ 185 $ 300 $ 1,151
$ 1,106 1 Includes other income and expenses
from operating segments managed outside the reportable segments,
including our studios and distribution businesses. Also includes
unallocated corporate income and expenses. 2 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. 3 Intersegment revenues reflect licensing
and service fees charged between segments. 4 Reflects fees and
other expenses related to the King Acquisition, inclusive of
related debt financings and integration costs. 5 Reflects
restructuring charges, primarily severance costs. 6 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. 7 Reflects the
impact of other unusual or unique tax-related items and activities.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
EBITDA AND ADJUSTED EBITDA
For the Trailing Twelve Months Ended
December 31, 2017
(Amounts in millions)
Trailing TwelveMonths
Ended
March 31,2017
June 30,2017
September 30,2017
December 31, 2017
December 31, 2017
GAAP Net Income (Loss)1 $ 426 $ 243 $ 188 $
(584 ) $ 273 Interest and other expense (income), net 40 34 37 36
146 Loss on extinguishment of debt — 12 — — 12 Provision for income
taxes1 27 50 32 769 878 Depreciation and amortization 224
226 220 219 888
EBITDA 717
565 477 440 2,197 Share-based
compensation expense2 33 39 47 58 178 Fees and other expenses
related to the King Acquisition3 4 5 3 3 15 Restructuring costs4 11
— — 5 15 Other non-cash charges5 16 (1 ) (1 ) — 14 Discrete
tax-related items6 — — — 39 39
Adjusted EBITDA $ 781 $
608 $ 526 $ 545
$ 2,458 Change in deferred net revenues
and related cost of revenues7 $ (396 ) $ (105 ) $ 132 $ 441 $ 71 1
We recognized $69 million, $13 million,
$15 million, and $15 million of excess tax benefits from
share-based payments as an income tax benefit in the provision for
income taxes for the three months ended March 31, June 30,
September 30, and December 31, 2017, respectively. Provision for
income taxes for the three months ended December 31, 2017 also
includes an impact from significant discrete tax-related items,
including amounts related to changes in tax laws (including a
reasonable estimate of the impact of the Tax Cuts and Jobs Act
enacted in December 2017, as provided for in accordance with
Securities and Exchange Commission guidance), amounts related to
the potential or final resolution of tax positions, and/or other
unusual or unique tax-related items and activities.
2 Includes expenses related to share-based compensation. 3 Reflects
fees and other expenses related to the King Acquisition, inclusive
of 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 other unusual or unique tax-related items and activities.
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.
Trailing twelve months amounts are presented as calculated.
Therefore, the sum of the four quarters, as presented, may differ
due to the impact of rounding.
ACTIVISION BLIZZARD, INC. AND
SUBSIDIARIES
Outlook for the Three Months Ending
March 31, 2018 and Year Ending December 31, 2018
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share
data)
Outlook for the
Outlook for the Three Months Ending Year
Ending March 31, 2018 December 31, 2018
Net Revenues1 $ 1,820 $
7,350 Change in deferred revenues2 $
(540 ) $ 100 Earnings
Per Diluted Share (GAAP) $ 0.47 $
1.78 Excluding the impact of: Share-based compensation3 0.07
0.32 Amortization of intangible assets4 0.15 0.47 Loss on
extinguishment of debt5 — 0.05 Income tax impacts from items above6
(0.05 ) (0.17 )
Earnings Per Diluted Share (Non-GAAP)
$ 0.65 $ 2.45
Net effect of deferred net revenues and related cost of
revenues on Earnings Per Diluted Share7 $
(0.34 ) $ 0.05 1 Net
Revenues represents the revenue outlook for both GAAP and Non-GAAP
as they are measured the same. 2 Reflects the net effect from
deferral of revenues and (recognition) of deferred revenues on
certain of our online enabled products. 3 Reflects expenses related
to share-based compensation. 4 Reflects amortization of intangible
assets from purchase price accounting, including intangible assets
from the King Acquisition. 5 Reflects losses to be recognized from
early extinguishments of debt. 6 Reflects the income tax impacts
associated with the above items. Due to the inherent uncertainties
in share price and option exercise behavior, we do not generally
forecast excess tax benefits or tax shortfalls. 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 effect of taxes.
The per share adjustments and the GAAP and Non-GAAP earnings per
share information are presented as calculated. Therefore the sum of
these measures, as presented, may differ due to the impact of
rounding.
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