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Analysis of Income Taxes

Advanced level

Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Adjustments to Financial Statements: Removal of Deferred Taxes
Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Income Tax Expense (Benefit)

Activision Blizzard Inc., income tax expense (benefit), continuing operations

US$ in millions

	12 months ended:	Dec 31, 2019		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015
	Federal
	State
	Foreign
	Current
	Federal
	State
	Foreign
	Deferred
	Income tax expense

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

Item	Description	The company
Current	Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations.	Activision Blizzard Inc.’s current decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.
Deferred	Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.	Activision Blizzard Inc.’s deferred increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.
Income tax expense	Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Activision Blizzard Inc.’s income tax expense decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Effective Income Tax Rate (EITR)

Activision Blizzard Inc., effective income tax rate (EITR) reconciliation

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	U.S. federal statutory income tax rate
	State taxes, net of federal benefit
	Research and development credits
	Foreign rate differential
	Change in tax reserves
	Acquired net operating loss utilization
	Audit settlements
	Excess tax benefits related to share-based payments
	Change in valuation allowance
	Intra-entity IP Transfer
	Other
	Effective tax rate, before U.S. Tax Reform Act
	U.S. Tax Reform Act
	Effective tax rate

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

Item	Description	The company
Effective tax rate, before U.S. Tax Reform Act	Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Activision Blizzard Inc.’s effective tax rate, before U.S. Tax Reform Act decreased from 2017 to 2018 and from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

Activision Blizzard Inc., components of deferred tax assets and liabilities

US$ in millions

		Dec 31, 2019		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015
	Allowance for sales returns and price protection
	Accrued expenses
	Deferred revenue
	Tax attributes carryforwards
	Share-based compensation
	Intangibles
	U.S. deferred taxes on foreign earnings
	Capitalized software development expenses
	Other
	Deferred tax assets
	Valuation allowance
	Deferred tax assets, net of valuation allowance
	Intangibles
	Capitalized software development expenses
	U.S. deferred taxes on foreign earnings
	Other
	Deferred tax liabilities
	Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

Item	Description	The company
Deferred tax assets	Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Activision Blizzard Inc.’s deferred tax assets increased from 2017 to 2018 and from 2018 to 2019.
Deferred tax assets, net of valuation allowance	Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Activision Blizzard Inc.’s deferred tax assets, net of valuation allowance decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.
Net deferred tax assets (liabilities)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting.	Activision Blizzard Inc.’s net deferred tax assets (liabilities) decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Deferred Tax Assets and Liabilities, Classification

Activision Blizzard Inc., deferred tax assets and liabilities, classification

US$ in millions

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	Deferred tax assets, net
	Deferred tax liabilities, net

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

Item	Description	The company
Deferred tax assets, net	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent.	Activision Blizzard Inc.’s deferred tax assets, net decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.
Deferred tax liabilities, net	Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent.	Activision Blizzard Inc.’s deferred tax liabilities, net decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Adjustments to Financial Statements: Removal of Deferred Taxes

Activision Blizzard Inc., adjustments to financial statements

US$ in millions

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Noncurrent deferred tax assets, net
	Total assets (adjusted)
	Adjustment to Total Liabilities
	Total liabilities (as reported)
	Less: Noncurrent deferred tax liabilities, net
	Total liabilities (adjusted)
	Adjustment to Shareholders’ Equity
	Shareholders’ equity (as reported)
	Less: Net deferred tax assets (liabilities)
	Shareholders’ equity (adjusted)
	Adjustment to Net Income
	Net income (as reported)
	Add: Deferred income tax expense (benefit)
	Net income (adjusted)

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

Activision Blizzard Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Activision Blizzard Inc., adjusted financial ratios

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

Financial ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Activision Blizzard Inc.’s adjusted net profit margin ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Activision Blizzard Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Activision Blizzard Inc.’s adjusted financial leverage ratio decreased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Activision Blizzard Inc.’s adjusted ROE improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Activision Blizzard Inc.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Activision Blizzard Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	As Reported
	Selected Financial Data (US$ in millions)
	Net income
	Net revenues
	Profitability Ratio
	Net profit margin¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income
	Net revenues
	Profitability Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

2019 Calculations

¹ Net profit margin = 100 × Net income ÷ Net revenues
= 100 × ÷ =

² Adjusted net profit margin = 100 × Adjusted net income ÷ Net revenues
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Activision Blizzard Inc.’s adjusted net profit margin ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Adjusted Total Asset Turnover

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	As Reported
	Selected Financial Data (US$ in millions)
	Net revenues
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Net revenues
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

2019 Calculations

¹ Total asset turnover = Net revenues ÷ Total assets
= ÷ =

² Adjusted total asset turnover = Net revenues ÷ Adjusted total assets
= ÷ =

Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Activision Blizzard Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Financial Leverage

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Shareholders’ equity
	Solvency Ratio
	Financial leverage¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted shareholders’ equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

2019 Calculations

¹ Financial leverage = Total assets ÷ Shareholders’ equity
= ÷ =

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= ÷ =

Solvency ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Activision Blizzard Inc.’s adjusted financial leverage ratio decreased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	As Reported
	Selected Financial Data (US$ in millions)
	Net income
	Shareholders’ equity
	Profitability Ratio
	ROE¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income
	Adjusted shareholders’ equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

2019 Calculations

¹ ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × ÷ =

² Adjusted ROE = 100 × Adjusted net income ÷ Adjusted shareholders’ equity
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Activision Blizzard Inc.’s adjusted ROE improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Adjusted Return on Assets (ROA)

		Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015
	As Reported
	Selected Financial Data (US$ in millions)
	Net income
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2020-02-27), 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-29).

2019 Calculations

¹ ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =

² Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Activision Blizzard Inc.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

	Activision Blizzard Inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

	All companies
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Activision Blizzard Inc. (NASDAQ:ATVI)

Analysis of Income Taxes

Income Tax Expense (Benefit)

Effective Income Tax Rate (EITR)

Components of Deferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities, Classification

Adjustments to Financial Statements: Removal of Deferred Taxes

Activision Blizzard Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Activision Blizzard Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)