Activision 2011 Annual Report Download - page 14

Dear Shareholders
In 2011, we achieved record financial results and released some of
the very best games in our long history as game makers.
Creating great games that are commercially successful has allowed
us to create incremental book value resulting in long-term capital
appreciation for our investors. Over the past 20 years, we have
doubled our revenues every four to five years and we have steadily
increased our operating margins.
Based on the metric of growth in per-share book value, our 20-year
results reflect an outperformance of the S&P 500 Index by an
average of over 200 basis points per year, despite the fact that we
now have a high payout ratio with regard to share repurchases and
dividends. In that same period, our shareholders have been
rewarded for our performance. The company’s shares have
appreciated at a double-digit compound average annual growth
rate and have significantly outperformed the S&P 500.
As our company continues to grow, it will be hard to continue at these
rates, but we intend to try as hard as we have for the last 20 years.
In 2011, we once again set operating margin and earnings per share
records, as we have each year since our merger with Vivendi Games
in 2008, and most years since 1991 when we acquired control of
the company. On a GAAP basis, our net revenues were a record
$4.8 billion and earnings per diluted share were $0.92. On a non
GAAP basis, our net revenues were $4.5 billion and our earnings
per diluted share were a record $0.93, which grew more than 17%
year over year.
As measured by one of the most reliable benchmarks—operating
margin—2011 was the best year in Activision Blizzard’s history.
As the #1 Western third-party interactive entertainment digital
publisher, we delivered industry record GAAP and non-GAAP
operating margins of 28% and 30%, respectively.
With better than expected net revenues, record earnings, record
operating margins, and the generation of nearly $1 billion in
operating cash flow, Activision Blizzard continues to raise the bar
for industry success. Our record earnings per share performance
in 2011 can be partially attributed to a lower tax rate and the
impact of ongoing share repurchases. We would rather derive our
overperformance from improvement in operating profit, as we
have for most years, but the results were, nevertheless, very good
and thoughtful non-operating activities and capital management
can also create great value for our shareholders.
Our balance sheet has never been stronger and it allows us the
ability to make investments in our future growth which we will
continue to do with rigor and discipline. Our investment track
record, both internally and as reflected by our merger and
acquisition successes, is unmatched in our industry.
We will always prefer to invest our capital in ideas that help expand
and grow our business. But, when we can’t, we have other ways to
return capital to our shareholders. We are the only Western
independent interactive entertainment publisher to offer a cash
dividend, which, as we announced in February 2012, was increased
by 9% to $0.18 per share. We also continued to invest in ourselves
and spent approximately $692 million to repurchase shares of our
stock in 2011. From 2008 to 2011, we have returned $3.1 billion to
shareholders in the form of dividends and share repurchases.
In 2011, we continued to invest in building our world-class
entertainment brands by delivering great gaming experiences to
our audiences. A few notable accomplishments this year:
•Activision® Publishing’s Call of Duty®: Modern Warfare® 3 was
the biggest entertainment launch of all time, the third consecutive
year a Call of Duty title has set the record. The game generated $1
billion in sales in just 16 days, to become the best-selling video
game in a single year, surpassing prior records set by Call of Duty:
Black Ops in 2010 and Call of Duty: Modern Warfare 2 in 2009.
•Activision Publishing’s innovative new online service, Call of Duty
Elite, which launched with Call of Duty: Modern Warfare 3 is one
of the fastest growing premium online services ever created. As of
PAG E T W ELV E
2011 A NNUA L R EPORT