Activision Blizzard Announces Record Fourth Quarter and Full Year Earnings Per Share

Exceeds Outlook for Fourth Quarter and Full Year 2014

Achieved More Than 50% Non-GAAP Earnings Per Share Growth and Double-Digit Non-GAAP Revenue Growth in 2014

Digital Revenues At All-Time High, Representing 46% of Full Year Non-GAAP Revenues

Generated Operating Cash Flow of $1.3 Billion in 2014

Announces Two-Year Stock Repurchase Plan of $750 Million and Debt Paydown of $250 Million

Increases Cash Dividend By 15% to $0.23 Per Common Share

SANTA MONICA, Calif.--()--Activision Blizzard, Inc. (Nasdaq: ATVI) today announced record fourth quarter and full year earnings per share.

  Fourth Quarter     Calendar Year

(in millions, except EPS)
  2014   Prior

Outlook*

  2013      
2014
   
2013

GAAP

     
Net Revenues $ 1,575 $ 1,492 $ 1,518 $ 4,408 $ 4,583
EPS   $ 0.49   $ 0.28   $ 0.22     $ 1.13   $ 0.95

Non-GAAP

Net Revenues $ 2,213 $ 2,200 $ 2,272 $ 4,813 $ 4,342
EPS   $ 0.94   $ 0.86   $ 0.79     $ 1.42   $ 0.94
 

*Prior outlook was provided by the company on November 4, 2014 in its earnings release

For calendar year 2014, Activision Blizzard delivered record non-GAAP earnings per diluted share of $1.42, as compared with $0.94 per diluted share for 2013. On a GAAP basis, the company delivered record earnings per diluted share of $1.13, as compared with $0.95 per diluted share for 2013.

For calendar year 2014, Activision Blizzard delivered non-GAAP net revenues of $4.81 billion, as compared with $4.34 billion for 2013. On a GAAP basis, the company delivered net revenues of $4.41 billion, as compared with $4.58 billion for 2013. For the calendar year, non-GAAP net revenues from digital channels were $2.20 billion and represented a record 46% of the company’s total net revenues. On a GAAP basis, for the calendar year 2014, net revenues from digital channels were $1.90 billion and represented 43% of the company’s total revenues.

For the quarter ended December 31, 2014, Activision Blizzard’s non-GAAP earnings per diluted share were a record $0.94, as compared with $0.79 for the fourth quarter of 2013. On a GAAP basis, the company’s earnings per diluted share were a record $0.49, more than double the earnings per diluted share of $0.22 for the fourth quarter of 2013.

For the quarter ended December 31, 2014, the company delivered non-GAAP net revenues of $2.21 billion, as compared with $2.27 billion for the fourth quarter of 2013. On a GAAP basis, the company’s net revenues were $1.58 billion, as compared with $1.52 billion for the fourth quarter of 2013.

Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “2014 was another successful year as we achieved record results and introduced new franchises with outstanding gameplay, expanded on exciting new business models and continued investing in some of the world’s most important entertainment franchises. We delivered record earnings per share which increased more than 50% from the previous year, double-digit revenue growth, and record high-margin digital revenues that represent an all-time high of 46% of total revenues (all non-GAAP).”

Kotick, added, “We expanded our franchise portfolio by launching two of the industry’s most successful new brands, Blizzard’s Hearthstone®: Heroes of Warcraft, and the biggest new IP launch in industry history, Destiny®. Combined, these franchises attracted over 40 million registered players worldwide and generated more than $850 million in non-GAAP revenue.1 This year, we expect to expand our franchise portfolio to 10 blockbusters, up from five franchises at the beginning of 2014. Our amazingly talented teams will continue to produce the world’s best content for gamers.”

Kotick, continued, “We have a growing portfolio of the very best franchises and great confidence in our future. Our Board has once again increased our dividend, authorized a $750 million share repurchase program and the repayment of another $250 million of our debt, and we have returned nearly $10 billion to our shareholders in dividends and repurchases since 2008.”

Selected Business Highlights:

  • In North America and Europe combined, Activision Publishing was the #1 retail publisher and had three of the top five best-selling new releases for the calendar year — #1 Call of Duty®: Advanced Warfare, #3 Destiny, and #5 Skylanders® Trap Team.2
  • Activision Publishing’s Call of Duty: Advanced Warfare was the #1 top-selling console game globally for the calendar year.3 Additionally, in 2014, Call of Duty was the #1 franchise in North America for the sixth year in a row.4 Call of Duty franchise revenues now exceed $11 billion in retail sales worldwide since it first launched in 2003.5
  • Activision Publishing’s Destiny was the most successful launch of a new video game franchise in history.2 Destiny was also the #1 top-selling new video game IP and the #3 top-selling new release in North America and Europe, combined, for the calendar year.2 To date, Destiny has more than 16 million registered users and active players are playing the game an average of over three hours per day.
  • Activision Publishing’s Skylanders Trap Team was the #1 top-selling kids console game globally for the calendar year. For the third consecutive year, Skylanders was the #1 kids video game franchise of the year in the U.S., and globally.3
  • At BlizzCon® on November 7, 2014, Blizzard Entertainment announced a new intellectual property, Overwatch — a highly accessible multi-player game featuring an amazing cast of heroes and set in an all-new Blizzard game universe.
  • On November 13, 2014, Blizzard Entertainment launched Warlords of Draenor, the fifth expansion for the #1 subscription-based MMORPG in the world, World of Warcraft®. The expansion sold-through more than 3.3 million copies as of the first 24 hours of its availability and helped drive World of Warcraft to more than 10 million global subscribers at the end of 2014.
  • On December 8, 2014, Blizzard Entertainment launched Goblins vs Gnomes, the first expansion for Hearthstone: Heroes of Warcraft. The release of Hearthstone: Heroes of Warcraft on Android tablets followed on December 15, 2014.

Company Outlook:

On January 11, 2015, Activision Publishing and Tencent launched a public open beta for Call of Duty® Online, making the game available to millions of Chinese gamers. The open beta marks a historic first for the Call of Duty series as it expands into the world’s largest gaming market.

On January 13, 2015, Blizzard Entertainment began the closed beta test for Heroes of the Storm, its upcoming free-to-play online team brawler featuring iconic heroes from more than 20 years of Blizzard gaming history. To date, more than nine million players have signed up to beta test the game.

On January 27, 2015, Activision Publishing launched the first DLC for Call of Duty®: Advanced Warfare – Havoc, available first on the Xbox Live online entertainment network from Microsoft for Xbox One and Xbox 360. The DLC offers four new multi-player maps, exclusive weapon, custom weapon variant and a new zombies cooperative mode called Exo Zombies.

In January 2015, Blizzard Entertainment’s Hearthstone: Heroes of Warcraft reached more than 25 million registered players.

Additionally, in 2015, Blizzard Entertainment expects to begin beta testing Overwatch.

Given the significant weakening of foreign currencies versus the U.S. dollar, the company’s 2015 international revenues and earnings are expected to be translated at much lower rates than in 2014. This will impact the company’s 2015 outlook as compared to 2014 actual results given approximately 50% of the company’s revenues, and a higher percentage of profits, are generated outside the U.S. See reconciliation table, below.

Activision Blizzard’s first quarter and calendar year 2015 outlook is, as follows:

(in millions, except EPS)

 

 

GAAP
Outlook

 

Non-GAAP
Outlook

 

 

CY 2015

Net Revenues

$ 4,140 $ 4,400
EPS $ 0.89 $ 1.15
Fully Diluted Shares** 750 750
 

Q1 2015

Net Revenues

$ 1,140 $ 640
EPS $ 0.37 $ 0.05
Fully Diluted Shares** 745 745
 

The following table reconciles our CY14 actual earnings per share to CY15 outlook earnings per share.

EPS     GAAP       Non-GAAP
CY14 – Actuals $ 1.13   $ 1.42
Slate / Operations*** 0.01 (0.05 )
Foreign Currency (0.17 ) (0.14 )
Tax Rate & Share Count   (0.08 )   (0.08 )
CY15 – Outlook $ 0.89 $ 1.15
 

Currency Assumptions for 2015 Outlook:

  • $1.13 USD/Euro (vs. a $1.33 average for 2014)
  • $1.51 USD/British Pound Sterling (vs. a $1.65 average for 2014)
  • Revenue and EPS increase if the Euro or British Pound Sterling strengthens vs. USD

** Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis.
*** For GAAP purpose, it includes the net change in deferred net revenues and related cost of sales.

Board Authorizes Stock Repurchase Program and Debt Repayment and Declares Cash Dividend

The company also announced that its Board of Directors authorized a new two-year stock repurchase program under which the company is authorized to repurchase up to $750 million of its outstanding common stock during the period from February 9, 2015 through February 8, 2017.

Additionally, the company announced that its Board of Directors has approved a repayment of $250 million of the company’s outstanding “Term Loan B,” which is expected to occur during the first quarter of 2015.

The Board of Directors also declared a cash dividend of $0.23 per common share, payable on May 13, 2015 to shareholders of record at the close of business on March 30, 2015, which represents a 15% increase from 2014.

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, 2014 and management’s outlook for 2015. The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 877-741-4239 in the U.S. with passcode 3638929.

About Activision Blizzard

Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, Call of Duty Online, Destiny, Skylanders, World of Warcraft, StarCraft®, Diablo®, and Hearthstone.

Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.

1 During calendar year 2014, combined GAAP revenues from Hearthstone: Heroes of Warcraft and Destiny were more than $450 million. The difference in GAAP and non-GAAP revenues represents the net change in deferrals of revenues of approximately $400 million.
2 The NPD Group and GfK Chart-Track, including toys and accessories
3 The NPD Group and GfK Chart-Track and Activision Blizzard internal estimates, including toys and accessories
4 The NPD Group
5 The NPD Group and GfK Chart-Track

Subscriber Definition: World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to play World of Warcraft, as well as those who have purchased the game and are within their free month of access. Internet Game Room players who have accessed the game over the last thirty days are also counted as subscribers. The above definition excludes all players under free promotional subscriptions, expired or cancelled subscriptions, and expired prepaid cards. Subscribers in licensees' territories are defined along the same rules.

Non-GAAP Financial Measures: As a supplement to our financial measures presented in accordance with Generally Accepted Accounting Principles (“GAAP”), Activision Blizzard presents certain non-GAAP measures of financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than, the financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the company’s results of operations as determined in accordance with GAAP.

Activision Blizzard provides net revenues, net income (loss), earnings (loss) per share and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. In addition, Activision Blizzard provides EBITDA (defined as GAAP net income (loss) before interest (income) expense, income taxes, depreciation and amortization) and adjusted EBITDA (defined as non-GAAP operating margin (see non-GAAP financial measure below) before depreciation). The non-GAAP financial measures exclude the following items, as applicable in any given reporting period:

  • the change in deferred revenues and related cost of sales with respect to certain of the company’s online-enabled games;
  • expenses related to stock-based compensation;
  • the amortization of intangibles from purchase price accounting;
  • fees and other expenses (including legal fees, costs, expenses and accruals) related to the acquisition of 429 million shares of our common stock on October 11, 2013 from Vivendi, pursuant to the stock purchase agreement dated July 25, 2013 and the $4.75 billion debt financings related thereto; and
  • the income tax adjustments associated with any of the above items.

In the future, Activision Blizzard may also consider whether other significant non-recurring items should also be excluded in calculating the non-GAAP financial measures used by the company. Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard’s financial and operating performance. In particular, the measures facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard by excluding certain items that may not be indicative of the company’s core business, operating results or future outlook. Internally, management uses these non-GAAP financial measures in assessing the company’s operating results, and measuring compliance with the requirements of the company’s debt financing agreements, as well as in planning and forecasting.

Activision Blizzard’s non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP earnings per share, non-GAAP operating margin, and non-GAAP or adjusted EBITDA do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard’s performance in relation to other companies.

Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard’s GAAP, as well as non-GAAP, results and outlook, and by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.

In addition to the reasons stated above, which are generally applicable to each of the items Activision Blizzard excludes from its non-GAAP financial measures, there are additional specific reasons why the company believes it is appropriate to exclude the change in deferred revenues and related cost of sales with respect to certain of the company’s online-enabled games.

Since Activision Blizzard has determined that some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable, we recognize revenues attributed to these game titles over their estimated service periods, which may range from five months to a maximum of less than a year. The related cost of sales is deferred and recognized as the related revenues are recognized. Internally, management excludes the impact of this change in deferred revenues and related cost of sales in its non-GAAP financial measures when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers, which is consistent with the way the company is measured by investment analysts and industry data sources. In addition, excluding the change in deferred revenues and the related cost of sales provides a much more timely indication of trends in our operating results.

Cautionary Note Regarding Forward-looking Statements: Information in this press release that involves Activision Blizzard’s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (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 relating to product releases; and (3) statements of future financial or operating performance.

Activision Blizzard 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 risk, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict. Activision Blizzard’s actual future results could differ materially from those expressed in the forward-looking statements set forth in this release. Risks and uncertainties that may affect our future results include, but are not limited to, sales levels of Activision Blizzard’s titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres, such as first-person action, massively multiplayer online and “toys to life” games, and preferences among hardware platforms, the seasonal and cyclical nature of the interactive game market, changing business models, including digital delivery of content, competition including from used games and other forms of entertainment, possible declines in software pricing, product returns and price protection, product delays, adoption rate and availability of new hardware (including peripherals) and related software, particularly during the ongoing console transition, rapid changes in technology and industry standards, the current regulatory environment, litigation risks and associated costs, protection of proprietary rights, maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, capital market risks, the possibility that expected benefits related to the transactions involving the repurchase of shares from Vivendi S.A. may not materialize as expected, the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt, and the other factors identified in “Risk Factors” included in Part I, Item 1A of Activision Blizzard’s most recent annual report on Form 10-K. The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Activision Blizzard and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
                   
    Three Months Ended December 31, Year Ended December 31,
    2014   2013   2014   2013  
 
Net revenues:
Product sales $ 1,094 $ 1,152 $ 2,786 $ 3,201
  Subscription, licensing and other revenues 1   481     366     1,622     1,382  
  Total net revenues   1,575     1,518     4,408     4,583  
 
Costs and expenses:
Cost of sales - product costs 432 502 999 1,053
Cost of sales - online 61 50 232 204
Cost of sales - software royalties and amortization 124 72 260 187
Cost of sales - intellectual property licenses 14 31 34 87
Product development 184 197 571 584
Sales and marketing 247 239 712 606
  General and administrative   75     143     417     490  
  Total costs and expenses   1,137     1,234     3,225     3,211  
Operating income 438 284 1,183 1,372
Interest and other investment income (expense), net   (50 )   (51

)

  (202 )   (53 )
Income before income tax expense 388 233 981 1,319
Income tax expense   27     59     146     309  
Net income $ 361   $ 174   $ 835   $ 1,010  
 
                   
Basic earnings per common share 2 $ 0.49 $ 0.23 $ 1.14 $ 0.96
Weighted average common shares outstanding   720     745     716     1,024  
 
                   
Diluted earnings per common share 2 $ 0.49 $ 0.22 $ 1.13 $ 0.95
Weighted average common shares outstanding assuming dilution   729     757     726     1,035  
                   
 
1 Subscription, licensing and other revenues represents revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, value-added services, downloadable content, and other miscellaneous revenues.
2 The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. We had, on a weighted-average basis, participating securities of approximately 12 million and 15 million for the three months and year ended December 31, 2014, respectively. We had, on a weighted-average basis, participating securities of approximately 23 million and 24 million for the three months and year ended December 31, 2013, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $355 million and $817 million for the three months and year ended December 31, 2014 as compared to total net income of $361 million and $835 million for the same periods, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $168 million and $987 million for the three months and year ended December 31, 2013 as compared to total net income of $174 million and $1,010 million for the same periods, respectively.
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
             
    December 31, December 31,
        2014     2013  
ASSETS        
Current assets:
Cash and cash equivalents $ 4,848 $ 4,410
Short-term investments 10 33
Accounts receivable, net 659 510
Inventories, net 123 171
Software development 452 367
Intellectual property licenses 5 11
Deferred income taxes, net 368 321
    Other current assets   444     418  
    Total current assets   6,909     6,241  
Long-term investments 9 9
Software development 20 21
Intellectual property licenses 18 ---
Property and equipment, net 157 138
Other assets 85 35
Intangible assets, net 29 43
Trademark and trade names 433 433
    Goodwill   7,086     7,092  
    Total assets $ 14,746   $ 14,012  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:
Accounts payable $ 325 $ 355
Deferred revenues 1,797 1,389
Accrued expenses and other liabilities 592 636
    Current portion of long-term debt   ---     25  
    Total current liabilities   2,714     2,405  
Long-term debt, net 4,324 4,668
Deferred income taxes, net 114 66
    Other liabilities   361     251  
    Total liabilities   7,513     7,390  
Shareholders’ equity:
Common stock --- ---
Additional paid-in capital 9,924 9,682
Treasury stock (5,762 ) (5,814 )
Retained earnings 3,374 2,686
    Accumulated other comprehensive income (loss)   (303 )   68  
    Total shareholders’ equity   7,233     6,622  
    Total liabilities and shareholders’ equity $ 14,746   $ 14,012  
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
               
        Year Ended December 31,
        2014   2013  
     
Cash flows from operating activities:
Net income $ 835 $ 1,010
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes (44 ) 161
Provision for inventories 39 33
Depreciation and amortization 90 108
Loss on disposal of property and equipment 1 ---
Amortization and write-off of capitalized software development costs and
intellectual property licenses (1) 256 207
Amortization of debt discount and debt financing costs 7 1
Stock-based compensation expense (2) 104 108
Excess tax benefits from stock awards (39 ) (29 )
Changes in operating assets and liabilities:
Accounts receivable, net (177 ) 198
Inventories (2 ) 6
Software development and intellectual property licenses (349 ) (268 )
Other assets 18 (67 )
Deferred revenues 475 (275 )
Accounts payable (12 ) 7
    Accrued expenses and other liabilities   90     64  
  Net cash provided by operating activities   1,292     1,264  
 
Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments 21 304
Proceeds from sales of available-for-sale investments --- 98
Purchases of available-for-sale investments --- (26 )
Capital expenditures (107 ) (74 )
  Decrease (increase) in restricted cash   2     6  
  Net cash provided by (used in) investing activities   (84 )   308  
 
Cash flows from financing activities:
Proceeds from issuance of common stock to employees 175 158
Tax payment related to net share settlements on restricted stock rights (66 ) (49 )
Repurchase of common stock --- (5,830 )
Dividends paid (147 ) (216 )
Proceeds from issuance of long-term debt --- 4,750
Repayment of long-term debt (375 ) (6 )
Payment of debt discount and financing costs --- (59 )
  Excess tax benefits from stock awards   39     29  
  Net cash used in financing activities   (374 )   (1,223 )
 
Effect of foreign exchange rate changes on cash and cash equivalents   (396 )   102  
Net increase in cash and cash equivalents 438 451
 
Cash and cash equivalents at beginning of period   4,410     3,959  
 
Cash and cash equivalents at end of period $ 4,848   $ 4,410  
               
 
(1) Excludes deferral and amortization of stock-based compensation expense.
(2) Includes the net effects of capitalization, deferral, and amortization of stock-based compensation expense.
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(Amounts in millions)
                     
Three Months Ended Year over 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
2012 2013 2013 2013   2013 (Decrease) 2014 2014 2014   2014 (Decrease)
Cash Flow Data
Operating Cash Flow $ 976 $ 325 $ 109 $ (50 ) $ 880 (10 )% $ 136 $ 106 $ (145 ) $ 1,195 36 %
Capital Expenditures 27 17 19 22 16 (41 ) 37 25 28 17 6
Non-GAAP Free Cash Flow2 949 308 90 (72 ) 864 (9 ) 99 81 (173 ) 1,178 36
 
Operating Cash Flow - TTM1 1,345 1,516 1,532 1,360 1,264 (6 ) 1,075 1,072 977 1,292 2
Capital Expenditures - TTM1 73 82 84 85 74 1 94 100 106 107 45
Non-GAAP Free Cash Flow - TTM1 $ 1,272 $ 1,434 $ 1,448 $ 1,275 $ 1,190 (6 )% $ 981 $ 972 $ 871 $ 1,185 (0 )%
 

1

TTM represents trailing twelve months. Operating Cash Flow for the three months ended December 31, 2012, three months ended September 30, 2012, three months ended June 30, 2012, and three months ended March 31, 2012 was $976 million, $122 million, $93 million, and $154 million, respectively. Capital expenditures for the three months ended December 31, 2012, three months ended September 30, 2012, three months ended June 30, 2012, and three months ended March 31, 2012 was $27 million, $21 million, $17 million, and $8 million, respectively.

2

Non-GAAP free cash flow represents operating cash flow minus capital expenditures (which includes payment for acquisition of intangible assets).
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)
                                         
Three Months Ended December 31, 2014   Net Revenues Cost of Sales - Product Costs Cost of Sales - Online Cost of Sales - Software Royalties and Amortization Cost of Sales - Intellectual Property Licenses Product Development Sales and Marketing General and Administrative Total Costs and Expenses
GAAP Measurement $ 1,575 $ 432 $ 61 $ 124 $ 14 $ 184 $ 247 $ 75 $ 1,137
  Less: Net effect from deferral of net revenues and related cost of sales (a) 638 112 - 52 (1 ) - - - 163
Less: Stock-based compensation (b) - - - (5 ) - (5 ) (2 ) (17 ) (29 )
Less: Amortization of intangible assets (c) - - - - (8 ) - - - (8 )
Less: Fees and other expenses related to the Purchase Transaction and related debt financings (d)   -     -     -     -     -     -     -     36     36  
Non-GAAP Measurement   $ 2,213   $ 544   $ 61   $ 171   $ 5   $ 179   $ 245   $ 94   $ 1,299  
                                         
                   
Three Months Ended December 31, 2014   Operating Income Net Income Basic Earnings per Share

Diluted Earnings
per Share

GAAP Measurement $ 438 $ 361 $ 0.49 $ 0.49
Less: Net effect from deferral of net revenues and related cost of sales (a) 475 349 0.48 0.47
Less: Stock-based compensation (b) 29 19 0.03 0.03
Less: Amortization of intangible assets (c) 8 5 0.01 0.01
Less: Fees and other expenses related to the Purchase Transaction and related debt financings (d)   (36 )   (36 )   (0.05 )   (0.05 )
Non-GAAP Measurement   $ 914   $ 698   $ 0.95   $ 0.94  
Year Ended December 31, 2014   Net Revenues Cost of Sales - Product Costs Cost of Sales - Online Cost of Sales - Software Royalties and Amortization Cost of Sales - Intellectual Property Licenses Product Development Sales and Marketing General and Administrative Total Costs and Expenses
GAAP Measurement $ 4,408 $ 999 $ 232 $ 260 $ 34 $ 571 $ 712 $ 417 $ 3,225
  Less: Net effect from deferral of net revenues and related cost of sales (a) 405 29 - 161 - - - - 190
Less: Stock-based compensation (b) - - (1 ) (17 ) - (22 ) (8 ) (56 ) (104 )
Less: Amortization of intangible assets (c) - - - - (12 ) - - - (12 )
Less: Fees and other expenses related to the Purchase Transaction and related debt financings (d)   -   -   -     -     -     -     -     (13 )   (13 )
Non-GAAP Measurement   $ 4,813 $ 1,028 $ 231   $ 404   $ 22   $ 549   $ 704   $ 348   $ 3,286  
                                         
                   
Year Ended December 31, 2014   Operating Income Net Income Basic Earnings per Share

Diluted Earnings
per Share

GAAP Measurement $ 1,183 $ 835 $ 1.14 $ 1.13
Less: Net effect from deferral of net revenues and related cost of sales (a) 215 136 0.19 0.18
Less: Stock-based compensation (b) 104 65 0.09 0.09
Less: Amortization of intangible assets (c) 12 8 0.01 0.01
Less: Fees and other expenses related to the Purchase Transaction and related debt financings (d)   13   13   0.02     0.02  
Non-GAAP Measurement   $ 1,527 $ 1,057 $ 1.44   $ 1.42  
                     
(a) Reflects the net change in deferred revenues and related cost of sales.
(b) Includes expense related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price accounting.
(d) Reflects fees and other expenses (including legal fees, costs, expenses and accruals) related to the repurchase of 429 million shares of our common stock from Vivendi (the "Purchase Transaction") completed on October 11, 2013 and related debt financings.
                 
The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $686 million and $1,034 million for the three months and year ended December 31, 2014 as compared to total non-GAAP net income of $698 million and $1,057 million for the same periods, respectively.
 
For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 720 million, participating securities of approximately 12 million, and dilutive shares of 9 million during the three months ended December 31, 2014.
For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 716 million, participating securities of approximately 15 million, and dilutive shares of 10 million during the year ended December 31, 2014.
 
The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)
                                         
Three Months Ended December 31, 2013 Net Revenues Cost of Sales - Product Costs Cost of Sales - Online Cost of Sales - Software Royalties and Amortization Cost of Sales - Intellectual Property Licenses Product Development Sales and Marketing General and Administrative Total Costs and Expenses
GAAP Measurement $ 1,518 $ 502 $ 50 $ 72 $ 31 $ 197 $ 239 $ 143 $ 1,234
  Less: Net effect from deferral of net revenues and related cost of sales (a) 754 181 - 64 - - - - 245
Less: Stock-based compensation (b) - - - (7 ) - (10 ) (2 ) (15 ) (34 )
Less: Amortization of intangible assets (c) - - - - (15 ) - - - (15 )
Less: Fees and other expenses related to the Purchase Transaction and related debt financings (d)   -   -   -   -     -     -     -     (18 )   (18 )
Non-GAAP Measurement $ 2,272 $ 683 $ 50 $ 129   $ 16   $ 187   $ 237   $ 110   $ 1,412  
                                         
 
                     
Three Months Ended December 31, 2013 Operating Income Net Income Basic Earnings per Share

Diluted Earnings
per Share

GAAP Measurement $ 284 $ 174 $ 0.23 $ 0.22
Less: Net effect from deferral of net revenues and related cost of sales (a) 509 401 0.52 0.51
Less: Stock-based compensation (b) 34 23 0.03 0.03
Less: Amortization of intangible assets (c) 15 9 0.01 0.01
Less: Fees and other expenses related to the Purchase Transaction and related debt financings (d)   18   14   0.02   0.02  
Non-GAAP Measurement $ 860 $ 621 $ 0.81 $ 0.79  
Year Ended December 31, 2013 Net Revenues Cost of Sales - Product Costs Cost of Sales - Online Cost of Sales - Software Royalties and Amortization Cost of Sales - Intellectual Property Licenses Product Development Sales and Marketing General and Administrative Total Costs and Expenses
GAAP Measurement $ 4,583 $ 1,053 $ 204 $ 187 $ 87 $ 584 $ 606 $ 490 $ 3,211
  Less: Net effect from deferral of net revenues and related cost of sales (a) (241 ) (10 ) - 2 (4 ) - - - (12 )
Less: Stock-based compensation (b) - - - (17 ) - (33 ) (7 ) (53 ) (110 )
Less: Amortization of intangible assets (c) - - - - (23 ) - - - (23 )
Less: Fees and other expenses related to the Purchase Transaction and related debt financings (d)   -     -     -     -     -     -     -     (79 )   (79 )
Non-GAAP Measurement $ 4,342   $ 1,043   $ 204   $ 172   $ 60   $ 551   $ 599   $ 358   $ 2,987  
                                         
 
                     
Year Ended December 31, 2013 Operating Income Net Income Basic Earnings per Share

Diluted Earnings
per Share

GAAP Measurement $ 1,372 $ 1,010 $ 0.96 $ 0.95
Less: Net effect from deferral of net revenues and related cost of sales (a) (229 ) (150 ) (0.14 ) (0.14 )
Less: Stock-based compensation (b) 110 71 0.07 0.07
Less: Amortization of intangible assets (c) 23 14 0.01 0.01
Less: Fees and other expenses related to the Purchase Transaction and related debt financings (d)   79     54     0.05     0.05  
Non-GAAP Measurement $ 1,355   $ 999   $ 0.95   $ 0.94  
  (a) Reflects the net change in deferred revenues and related cost of sales.
(b) Includes expense related to stock-based compensation.
(c) Reflects amortization of intangible assets from purchase price accounting.
(d) Reflects fees and other expenses (including legal fees, costs, expenses and accruals) related to the repurchase of 429 million shares of our common stock from Vivendi (the "Purchase Transaction") completed on October 11, 2013 and related debt financings.
 
The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $602 million and $976 million for the three months and year ended December 31, 2013 as compared to total non-GAAP net income of $621 million and $999 million for the same periods, respectively.
 
For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 745 million, participating securities of approximately 23 million, and dilutive shares of 12 million during the three months ended December 31, 2013.
For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 1,024 million, participating securities of approximately 24 million, and dilutive shares of 11 million during the year ended December 31, 2013.
 
The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months and Year Ended December 31, 2014 and 2013
(Amounts in millions)
             
Three Months Ended
December 31, 2014 December 31, 2013 $ Increase % Increase
Amount % of Total4 Amount % of Total4 (Decrease) (Decrease)
GAAP Net Revenues by Distribution Channel
Retail channels $ 846 54 % $ 953 63 % $ (107 ) (11 )%
Digital online channels1   539 34   385   25   154   40
Total Activision and Blizzard 1,385 88 1,338 88 47 4
 
Distribution   190 12   180   12   10   6
Total consolidated GAAP net revenues   1,575 100   1,518   100   57   4
 
Change in Deferred Revenues2
Retail channels 492 786
Digital online channels1   146   (32 )
Total changes in deferred revenues   638   754  
 
Non-GAAP Net Revenues by Distribution Channel
Retail channels 1,338 60 1,739 77 (401 ) (23 )
Digital online channels1   685 31   353   16   332   94
Total Activision and Blizzard 2,023 91 2,092 92 (69 ) (3 )
 
Distribution   190 9   180   8   10   6
Total non-GAAP net revenues3 $ 2,213 100 % $ 2,272   100 % $ (59 ) (3 )%
 
 
Year Ended
December 31, 2014 December 31, 2013 $ Increase % Increase
Amount % of Total4 Amount % of Total4 (Decrease) (Decrease)
GAAP Net Revenues by Distribution Channel
Retail channels $ 2,104 48 % $ 2,701 59 % $ (597 ) (22 )%
Digital online channels1   1,897 43   1,559   34   338   22
Total Activision and Blizzard 4,001 91 4,260 93 (259 ) (6 )
 
Distribution   407 9   323   7   84   26
Total consolidated GAAP net revenues   4,408 100   4,583   100   (175 ) (4 )
 
Change in Deferred Revenues2
Retail channels 104 (247 )
Digital online channels1   301   6  
Total changes in deferred revenues   405   (241 )
 
Non-GAAP Net Revenues by Distribution Channel
Retail channels 2,208 46 2,454 57 (246 ) (10 )
Digital online channels1   2,198 46   1,565   36   633   40
Total Activision and Blizzard 4,406 92 4,019 93 387 10
 
Distribution   407 8   323   7   84   26
Total non-GAAP net revenues3 $ 4,813 100 % $ 4,342   100 % $ 471   11 %
 
1 Net revenues from digital online channels represent revenues from subscriptions, licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.
2 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred revenues.
3 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
4 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION
For the Three Months Ended December 31, 2014 and 2013
(Amounts in millions)
   
Three Months Ended
December 31, 2014   December 31, 2013   $ Increase   % Increase
Amount   % of Total6 Amount   % of Total6 (Decrease) (Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1 $ 266 17 % $ 198 13 % $ 68 34 %
PC 104 7 66 4 38 58
 
Next-generation (PS4, Xbox One, Wii U) 367 23 79 5 288 NM
Prior-generation (PS3, Xbox 360, Wii)   380 24   666 44   (286) (43)
Total console2   747 47   745 49   2 ---
 
Mobile and other5 268 17 329 22 (61) (19)
               
Total Activision and Blizzard   1,385 88   1,338 88   47 4
 
Distribution:
Total Distribution   190 12   180 12   10 6
Total consolidated GAAP net revenues   1,575 100   1,518 100   57 4
 
Change in Deferred Revenues3
Activision and Blizzard:
Online1 132 3
PC 23 45
 
Next-generation (PS4, Xbox One, Wii U) 263 222
Prior-generation (PS3, Xbox 360, Wii)   219   484
Total console2   482   706
 
Mobile and other5   1   ---
Total changes in deferred revenues   638   754
 
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1 398 18 201 9 197 98
PC 127 6 111 5 16 14
 
Next-generation (PS4, Xbox One, Wii U) 630 28 301 13 329

NM

Prior-generation (PS3, Xbox 360, Wii)   599 27   1,150 51   (551) (48)
Total console2   1,229 56   1,451 64   (222) (15)
 
Mobile and other5 269 12 329 14 (60) (18)
               
Total Activision and Blizzard   2,023 91   2,092 92   (69) (3)
 
Distribution:
Total Distribution   190 9   180 8   10 6
Total consolidated non-GAAP net revenues4 $ 2,213 100 % $ 2,272 100 % $ (59) (3) %
 
1 Revenues from online consists of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.
2 Downloadable content and their related revenues are included in each respective console platforms and total console.
3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
5 Revenues from mobile and other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.
6 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION
For the Year Ended December 31, 2014 and 2013
(Amounts in millions)
   
Year Ended
December 31, 2014   December 31, 2013   $ Increase   % Increase
Amount   % of Total6 Amount   % of Total6 (Decrease) (Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1 $ 867 20 % $ 912 20 % $ (45 ) (5 ) %
PC 551 13 340 7 211 62
 
Next-generation (PS4, Xbox One, Wii U) 720 16 92 2 628 NM
Prior-generation (PS3, Xbox 360, Wii)   1,430   32   2,287   50   (857 ) (37 )
Total console2   2,150   49   2,379   52   (229 ) (10 )
 
Mobile and other5 433 10 629 14 (196 ) (31 )
               
Total Activision and Blizzard   4,001   91   4,260   93   (259 ) (6 )
 
Distribution:
Total Distribution   407   9   323   7   84   26
Total consolidated GAAP net revenues   4,408   100   4,583   100   (175 ) (4 )
 
Change in Deferred Revenues3
Activision and Blizzard:
Online1 168 (107 )
PC 41 (22 )
 
Next-generation (PS4, Xbox One, Wii U) 477 213
Prior-generation (PS3, Xbox 360, Wii)   (295 )   (324 )
Total console2   182     (111 )
 
Mobile and other5   14     (1 )
Total changes in deferred revenues   405     (241 )
 
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online1 1,035 22 805 19 230 29
PC 592 12 318 7 274 86
 
Next-generation (PS4, Xbox One, Wii U) 1,197 25 305 7 892 NM
Prior-generation (PS3, Xbox 360, Wii)   1,135   24   1,963   45   (828 ) (42 )
Total console2   2,332   48   2,268   52   64   3
 
Mobile and other5 447 9 628 14 (181 ) (29 )
               
Total Activision and Blizzard   4,406   92   4,019   93   387   10
 
Distribution:
Total Distribution   407   8   323   7   84   26
Total consolidated non-GAAP net revenues4 $ 4,813   100 % $ 4,342   100 % $ 471   11 %
 
1 Revenues from online consists of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.
2 Downloadable content and their related revenues are included in each respective console platforms and total console.
3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
5 Revenues from mobile and other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories.
6 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months and Year Ended December 31, 2014 and 2013
(Amounts in millions)
             
Three Months Ended
  December 31, 2014   December 31, 2013 $ Increase % Increase
Amount % of Total3 Amount % of Total3 (Decrease) (Decrease)
GAAP Net Revenues by Geographic Region
North America $ 806 51 % $ 770 51 % $ 36 5 %
Europe 653 41 647 43 6 1
Asia Pacific   116 7   101 7   15 15
Total consolidated GAAP net revenues   1,575 100   1,518 100   57 4
 
Change in Deferred Revenues1
North America 342 457
Europe 254 247
Asia Pacific   42   50
Total changes in net revenues   638   754
 
Non-GAAP Net Revenues by Geographic Region
North America 1,148 52 1,227 54 (79) (6)
Europe 907 41 894 39 13 1
Asia Pacific   158 7   151 7   7 5
Total non-GAAP net revenues2 $ 2,213 100 % $ 2,272 100 % $ (59) (3) %
 
 
  Year Ended
  December 31, 2014   December 31, 2013 $ Increase % Increase
  Amount % of Total3   Amount % of Total3   (Decrease) (Decrease)
GAAP Net Revenues by Geographic Region
North America $ 2,190 50 % $ 2,414 53 % $ (224) (9) %
Europe 1,824 41 1,826 40 (2) ---
Asia Pacific   394 9   343 7   51 15
Total consolidated GAAP net revenues   4,408 100   4,583 100   (175) (4)
 
Change in Deferred Revenues1
North America 206 (108)
Europe 153 (107)
Asia Pacific   46   (26)
Total changes in net revenues   405   (241)
 
Non-GAAP Net Revenues by Geographic Region
North America 2,396 50 2,306 53 90 4
Europe 1,977 41 1,719 40 258 15
Asia Pacific   440 9   317 7   123 39
Total non-GAAP net revenues2 $ 4,813 100 % $ 4,342 100 % $ 471 11 %
 
1 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred revenues.
2 Total non-GAAP net revenues presented also represents our total operating segment net revenues.
3 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
For the Three Months and Year Ended December 31, 2014 and 2013
(Amounts in millions)
               
Three Months Ended
December 31, 2014 December 31, 2013 $ Increase % Increase
Amount % of Total5 Amount % of Total5 (Decrease) (Decrease)
Segment net revenues:
Activision1 $ 1,492 67 % $ 1,805 79 % $ (313 ) (17 ) %
Blizzard2 531 24 287 13 244 85
Distribution3   190   9   180   8   10   6
Operating segment total 2,213 100 % 2,272 100 % (59 ) (3 )
 
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues   (638 )   (754 )
Consolidated net revenues $ 1,575   $ 1,518   $ 57 4 %
 
Segment income from operations:
Activision1 $ 696 $ 758 $ (62 ) (8 ) %
Blizzard2 208 93 115 124
Distribution3   10     9     1   11
Operating segment total 914 860 54 6
 
Reconciliation to consolidated operating income and
consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales (475 ) (509 )
Stock-based compensation expense (29 ) (34 )
Amortization of intangible assets (8 ) (15 )
Fees and other expenses related to the Purchase Transaction and related debt financings4   36     (18 )
Consolidated operating income 438 284 154 54
Interest and other investment income (expense), net   (50 )   (51 )
Consolidated income before income tax expense $ 388   $ 233   $ 155 67 %
 
Operating margin from total operating segments 41.3 % 37.9 %
 
 
Year Ended
December 31, 2014 December 31, 2013 $ Increase % Increase
Amount % of Total5 Amount % of Total5 (Decrease) (Decrease)
Segment net revenues:
Activision1 $ 2,686 56 % $ 2,895 67 % $ (209 ) (7 ) %
Blizzard2 1,720 36 1,124 26 596 53
Distribution3   407   8   323   7   84   26
Operating segment total 4,813 100 % 4,342 100 % 471 11
 
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues   (405 )   241  
Consolidated net revenues $ 4,408   $ 4,583   $ (175 ) (4 ) %
 
Segment income from operations:
Activision1 $ 762 $ 971 $ (209 ) (22 ) %
Blizzard2 756 376 380 101
Distribution3   9     8     1   13
Operating segment total 1,527 1,355 172 13
 
Reconciliation to consolidated operating income and
consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales (215 ) 229
Stock-based compensation expense (104 ) (110 )
Amortization of intangible assets (12 ) (23 )
Fees and other expenses related to the Purchase Transaction and related debt financings4   (13 )   (79 )
Consolidated operating income 1,183 1,372 (189 ) (14 )
Interest and other investment income (expense), net   (202 )   (53 )
Consolidated income before income tax expense $ 981   $ 1,319   $ (338 ) (26 ) %
 
Operating margin from total operating segments 31.7 % 31.2 %
 
1 Activision Publishing (“Activision”) — publishes interactive entertainment products and contents.
2 Blizzard — Blizzard Entertainment, Inc. and its subsidiaries (“Blizzard”) publishes PC games and online subscription-based games in the MMORPG category.
3 Activision Blizzard Distribution (“Distribution”) — distributes interactive entertainment software and hardware products.
4 Reflects fees and other expenses (including legal fees, costs, expenses and accruals) related to the repurchase of 429 million shares of our common stock from Vivendi (the "Purchase Transaction") completed on October 11, 2013 and related debt financings.
5 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
 
ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
For the Trailing Twelve Months Ending December 31, 2014
EBITDA and Adjusted EBITDA
(Amounts in millions)
         
 
Trailing Twelve
Months Ending
March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 December 31, 2014
 
GAAP Net Income (Loss) $ 293 $ 204 $ (23 ) $ 361 $ 835
Interest (Income) / Expense, net 51 50 51 51 203
Provision (Benefit) for income taxes 83 56 (20 ) 27 146
Depreciation and amortization   19     19     22     29     90
EBITDA 446 329 30 468 1,274
 
Deferral of net revenues and related cost of sales (a) (219 ) (220 ) 180 475 215
Stock-based compensation expense (b) 30 22 22 29 104
Fees and other expenses related to the Purchase
Transaction and related debt financings (c)   ---     ---     48     (36 )   13
Adjusted EBITDA $ 257   $ 131   $ 280   $ 936   $ 1,606
 
(a) Reflects the net change in deferred net revenues and related cost of sales.
(b) Includes expense related to stock-based compensation.

(c)

Reflects fees and other expenses (including legal fees, costs, expenses and accruals) related to the repurchase of 429 million shares of our common stock from Vivendi (the "Purchase Transaction") completed on October 11, 2013 and related debt financings.

 
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 Quarter Ending March 31, 2015 and
Year Ending December 31, 2015
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)
Outlook for   Outlook for
Three Months Ending Year Ending
March 31, 2015 December 31, 2015
 
Net Revenues (GAAP) $

1,140

$ 4,140
 

Excluding the impact of:

Change in deferred net revenues (a)   (500 )   260
 
Net Revenues (Non-GAAP) $

640

$ 4,400
 
 
Earnings Per Diluted Share (GAAP) $

0.37

$ 0.89
 

Excluding the impact of:

Net effect from deferral in net revenues and related cost of sales (b) (0.35 ) 0.15
Stock-based compensation (c) 0.03 0.10
Amortization of intangible assets (d) - 0.01
       
Earnings Per Diluted Share (Non-GAAP) $

0.05

$ 1.15
 
 
 
(a) Reflects the net change in deferred net revenues.
(b) Reflects the net change in deferred net revenues and related cost of sales.
(c) Reflects expense related to stock-based compensation.
(d) Reflects amortization of intangible assets from purchase price accounting.
 
 
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
Reconciliation of 2014 Actual Earnings Per Share to 2015 Outlook Earnings Per Share
     
 
  GAAP Non-GAAP
 
CY14 Actuals $ 1.13 $ 1.42

Slate / Operations (a)

0.01 (0.05 )

Foreign Currency (b)

(0.17 ) (0.14 )

Tax Rate and share count (c)

 

(0.08

)  

(0.08

)
CY15 Outlook $ 0.89 $ 1.15
(a) Reflects changes in operations and, for GAAP purpose, includes the net change in deferred net revenues and related cost of sales.

(b) Reflects changes in foreign currency on operating results.

● Currency assumptions for 2015 outlook:

- $1.13 USD / Euro (vs. a $1.33 average for 2014)

- $1.51 USD / British Pound Sterling (vs. a $1.65 average for 2014)

- Revenue and EPS increase if the Euro or British Pound Sterling strengthens vs. USD

(c) Reflects changes in tax rate and share count.

Contacts

Activision Blizzard, Inc.
Kristin Southey
SVP, Investor Relations
(310) 255-2635
ksouthey@activision.com
or
Mary Osako
SVP, Global Communications
(424) 322-5166
mary.osako@activision.com

Contacts

Activision Blizzard, Inc.
Kristin Southey
SVP, Investor Relations
(310) 255-2635
ksouthey@activision.com
or
Mary Osako
SVP, Global Communications
(424) 322-5166
mary.osako@activision.com