This excerpt taken from the ATVI 8-K filed Apr 17, 2009.
On April 16, 2009, Activision Blizzard, Inc. (the Company) issued a press release containing information about its net revenue and earnings per diluted share for the fiscal first quarter ended March 31, 2009. A copy of the press release is attached here to as Exhibit 99.1.
Non-GAAP Financial Measures
The Company provides net revenues and earnings (loss) per share both including (in accordance with GAAP) and excluding (non-GAAP) the impact of the change in deferred net revenues and related costs of sales; expenses related to equity-based compensation costs; the Companys non-core exit operations (which is the operating results of products and operations from the historical Vivendi Games, Inc. businesses that the Company has exited or is winding down); one-time costs related to the business combination between Activision, Inc. and Vivendi Games, Inc. (including transaction costs, integration costs, and restructuring activities); the amortization of intangibles and the associated changes in cost of sales resulting from purchase price accounting adjustments from the business combination; and the associated tax benefits. Please refer to the table at the back of the press release for a reconciliation to GAAP of the Company's non-GAAP financial measures.
As online functionality becomes a more important component of gameplay, certain of the Companys online-enabled games for certain platforms contain a more-than-inconsequential separate service deliverable in addition to the product, and the Companys performance obligations for these games extends beyond the sale of the games. Vendor-specific objective evidence of fair value does not exist for the online services, as the Company does not plan to separately charge for this component of online-enabled games. As a result, the Company recognizes all of the revenues from the sale of these games ratably over the estimated service period. In addition, the Company defers the costs of sales of those titles to match revenues.
Revenues related to the sale of World of Warcraft boxed software, including the sale of expansion packs and other ancillary revenues, is deferred and recognized ratably over the estimated customer life beginning upon activation of the software and delivery of the services.
As a consequence, the Companys non-GAAP results exclude the impact of the change in deferred revenues and related costs of sales related to certain of the Companys online-enabled games for certain of the Microsoft, Sony, Nintendo and PC platforms and for World of Warcraft boxed software, including the sale of expansion packs and other ancillary revenues, in order to provide comparable year-over-year performance.
The Company recognizes that there are limitations associated with the use of these non-GAAP financial measures as they do not reflect net revenues and earnings (loss) per share as determined in accordance with GAAP, and may reduce comparability with other companies that calculate similar non-GAAP measures differently.
Management compensates for the limitations resulting from the exclusion of these items by considering the impact of these items separately and by considering the Companys GAAP as well as non-GAAP results and outlook and, in the press release, by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation which indicates and describes the adjustments made.
Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure the Companys financial and operating performance because they facilitate comparison of operating performance between periods.
Management further believes that reflecting the use of non-GAAP measures that eliminate the impact of the change in deferred revenues and related costs of sales in its operating
results is important when evaluating the Companys operating performance, and when planning, forecasting and analyzing future periods.
Management also believes that non-GAAP measures that exclude the Companys non-core exit operations, one-time costs related to the business combination between Activision, Inc. and Vivendi Games, Inc. (including transaction costs, integration costs, and the costs associated with restructuring activities), the amortization of intangibles and the associated changes in cost of sales resulting from purchase price accounting adjustments from the business combination, provides a better comparison to prior periods in which Activision, Inc. and Vivendi Games, Inc. were operating as stand-alone companies, and the resulting effects arising from the business combination does not affect the on-going economics of the combined entity. Management believes the use of these non-GAAP financial measures helps investors to better understand the results of the Company. Internally, management uses these non-GAAP financial measures in assessing the Companys operating results, as well as in planning and forecasting.
These non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.
These non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues and non-GAAP earnings per share 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 the Companys performance in relation to other companies.
Certain Information Not Filed.
The information in this Item 2.02 and Exhibit 99.1 attached to this Form 8-K shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall this Item 2.02 or such Exhibit 99.1 or any of the information contained therein be deemed incorporated by reference in any filing under the Securities Exchange Act of 1934 or the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.