Activision Blizzard Announces Better-Than-Expected Second Quarter 2011 Financial Results

SANTA MONICA, Calif., Aug. 3, 2011 /PRNewswire/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2011.

In the quarter, the company delivered record GAAP net revenues of $1.1 billion, as compared with $967 million for the second quarter of 2010. On a non-GAAP basis, the company’s net revenues were $699 million, as compared with $683 million for the second quarter of 2010. For the second quarter, the company delivered record GAAP net revenues from digital channels, representing a 27% increase year over year, and accounting for 37% of the company’s total net revenues. On a non-GAAP basis, record net revenues from digital channels increased 13% year over year, accounting for more than 60% of the quarter’s total net revenues.

For the second quarter of 2011, Activision Blizzard’s GAAP earnings per diluted share were $0.29, as compared with $0.17 for the second quarter of 2010. On a non-GAAP basis, the company’s earnings per diluted share were $0.10, as compared with $0.06 for the second quarter of 2010.

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

Robert Kotick, CEO of Activision Blizzard, stated, “Our better-than-expected second-quarter performance was driven by record digital sales of our online-enabled franchises. For the six month period, net revenues from digital channels grew more than 20%, driving record operating margin and EPS growth of more than 50%."

Kotick continued, “Looking to the balance of the year, while we have numerous releases we believe our audiences will be especially excited by three key properties -- Call of Duty: Modern Warfare 3™, our new online service Call of Duty Elite and Skylanders Spyro’s Adventure™ -- all of which are shaping up to be incredible. To date, pre-orders for Modern Warfare 3 have significantly exceeded the pre-orders for Black Ops at this time last year. In addition, we believe that Call of Duty Elite, which was built for Modern Warfare 3 and is expected to launch with the game on November 8, should redefine social connectivity for multiplayer gaming. Additionally, we expect that Skylanders Spyro’s Adventure will change the way we look at toys and video games by bringing the world of toys, video games and the Internet together in an unprecedented way.”

Kotick added, “Today, there are more ways than ever for players to access entertainment online and play games which have truly become one of the most compelling forms of entertainment in the world.”

Business Highlights

Call of Duty: Black Ops was the #1 game in the U.S. and Europe for the first half of 2011.(1)
For the second quarter, Blizzard Entertainment had two top-10 PC titles with World of Warcraft®: Cataclysm™ and StarCraft® II: Wings of Liberty™.(2)
To date, Call of Duty: Black Ops players have logged more than 2.2 billion hours of online gameplay.(3)
Total unique online gamers playing Call of Duty: Black Ops were more than 30% greater than the total unique online gamers who played Call of Duty: Modern Warfare® 2 during the first eight months after each game’s release.(4)
On May 11, 2011, Activision Blizzard paid a cash dividend of $0.165 per common share to shareholders of record as of March 16, 2011.
As of June 30, 2011, Activision Blizzard had purchased approximately 43 million shares of its common stock, for an aggregate price of approximately $479 million, under the $1.5 billion stock repurchase program authorized by its Board of Directors in February 2011.

Company Outlook

On July 28, 2011, Activision Publishing released the Call of Duty: Black Ops Annihilation™ content pack for Sony’s PlayStation3 computer entertainment system and the PC. During the quarter, Activision Publishing also expects to release the Call of Duty: Black Ops Resurrection™ content pack for the Xbox 360 video game and entertainment system from Microsoft, Sony’s PlayStation3 computer entertainment system and the PC, as well as X-Men™ Destiny, Cabela's Big Game Hunter 2012 and a Kinect-ready title for the Xbox 360, Cabela’s Hunting Party. Additionally, Blizzard Entertainment’s World of Warcraft: Cataclysm was launched in China on July 12, 2011.

Activision Blizzard plans to allocate the majority of its resources and focus toward opportunities which it expects will afford it the greatest competitive advantages and the greatest potential for best-in-class quality, high-margin digital growth, and long-term success. These opportunities include new content for Blizzard Entertainment’s World of Warcraft, StarCraft and Diablo franchises, and Blizzard Entertainment’s next-generation MMO; robust investment in Activision Publishing’s forthcoming Call of Duty titles, including a micro-transaction game for China; the development of a best-in-class digital platform, Call of Duty Elite; a new property from Bungie; and Skylander’s Spyro’s Adventure,™ an innovative new universe bringing the world of toys, video games and the Internet together in an unprecedented way. These investments should better position Activision Blizzard for long-term growth and enable it to continue expanding its position as the largest digital video-game publisher.

For calendar year 2011, Activision Blizzard is raising its outlook from the estimates it provided on May 9, 2011. Since Blizzard Entertainment has not confirmed a launch date for its next global release, the company’s calendar year outlook at this time does not include a new game from Blizzard in 2011.

	GAAP Outlook		Prior* GAAP Outlook		Non-GAAP Outlook		Prior* Non-GAAP Outlook
CY 2011 Net Revenues (in billions)	$	4.18	$	4.05	$	4.05	$	3.95
EPS	$	0.68	$	0.61	$	0.77	$	0.73
Q3 2011 Net Revenues (in millions)	$	650		n/a	$	530		n/a
EPS	$	0.05		n/a	$	0.01		n/a

*Prior outlook was provided on May 9, 2011

Activision Blizzard’s financial outlook is subject to significant risks and uncertainties, including declines in demand for its products, competition, the effectiveness of the company’s restructuring efforts, fluctuations in foreign exchange and tax rates, and counterparty risks relating to customers, licensees, licensors and manufacturers. The company’s outlook is also based on assumptions about sell-through rates for its products, and the launch timing, success and pricing of its new slate of products. Current macroeconomic conditions increase those risks and uncertainties. As a result of these and other factors, actual results may deviate materially from the outlook presented above.

Conference Call

Today at 4:30 p.m. EDT, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the second quarter and management’s outlook for the remainder of the 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 888-500-6973 in the U.S. with passcode 1853254.

Non-GAAP Financial Measures

In order to supplement our financial measures that are presented in accordance with GAAP, Activision Blizzard presents certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, 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. The non-GAAP financial measures exclude the following items, as applicable in any given reporting period:

the change in deferred net revenue and related cost of sales with respect to certain of the company’s online-enabled games;
expenses related to stock-based compensation;
expenses related to the restructuring of our Activision Publishing operations;
the amortization of intangibles and impairment of intangible assets; 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, 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, and non-GAAP operating margin 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, in this release, 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 net revenue 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 revenue 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 net revenue 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 net revenue and the related cost of sales provides a much more timely indication of trends in our operating results.

About Activision Blizzard

Headquartered in Santa Monica, California, Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile game publisher with leading positions across the major categories of the rapidly growing interactive entertainment software industry.

Activision Blizzard maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea and China. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.

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 that are not facts and involve a number of risks and uncertainties. Activision Blizzard generally uses words such as “outlook,” “will,” “could,” “should,” “would,” “might,” “to be,” “plans,” “believes,” “may,” “expects,” “intends,” "anticipates," "estimate," “future," "plan," "positioned," "potential," "project," "remain," "scheduled," "set to," "subject to," "upcoming" and similar expressions to identify forward-looking statements. Factors that could cause Activision Blizzard’s actual future results to differ materially from those expressed in the forward-looking statements set forth in this release 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 and market conditions within the video game industry, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres such as first-person action and massively multiplayer online games and preferences among competing 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, rapid changes in technology and industry standards, litigation risks and associated costs, the effectiveness of Activision Blizzard’s restructuring efforts, protection of proprietary rights, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality "hit" 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, and the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, and the other factors identified in the risk factors section 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.

(1) According to The NPD Group, Charttrack and Gfk

(2) According to The NPD Group, Charttrack and Gfk

(3) According to Microsoft, Sony and Activision Blizzard internal estimates

(4) According to Microsoft, Sony and Activision Blizzard internal estimates


ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
		Three Months Ended June 30,				Six Months Ended June 30,
		2011		2010		2011		2010
Net revenues:
	Product sales	$	768	$	643	$	1,829	$	1,629
	Subscription, licensing and other revenues		378		324		766		646
	Total net revenues		1,146		967		2,595		2,275

Costs and expenses:
	Cost of sales - product costs		213		235		512		572
	Cost of sales - massively multi-player online role playing game ("MMORPG")		59		53		122		109
	Cost of sales - software royalties and amortization		47		51		109		150
	Cost of sales - intellectual property licenses		24		29		53		72
	Product development		116		100		258		237
	Sales and marketing		90		125		150		181
	General and administrative		127		74		228		143
	Restructuring		3		---		22		-
	Total costs and expenses		679		667		1,454		1,464
Operating income			467		300		1,141		811
Investment and other income, net			2		1		5		1
Income before income tax expense			469		301		1,146		812
Income tax expense			134		82		308		212
Net income		$	335	$	219	$	838	$	600


Basic earnings per common share		$	0.29	$	0.18	$	0.71	$	0.48
Weighted average common shares outstanding			1,141		1,232		1,157		1,239


Diluted earnings per common share (1)		$	0.29	$	0.17	$	0.71	$	0.47
Weighted average common shares outstanding assuming dilution			1,150		1,248		1,166		1,254

(1) 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 earnings per common share assuming dilution was $330 million and $826 million for the three and six months ended June 30, 2011 as compared to the total net income of $335 million and $838 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 $217 million and $595 million for the three and six months ended June 30, 2010 as compared to total net income of $219 million and $600 million for the same periods, respectively.


ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
				June 30,		December 31,
				2011		2010
ASSETS
	Current assets:
		Cash and cash equivalents	$	2,334	$	2,812
		Short-term investments		610		696
		Accounts receivable, net		140		640
		Inventories		93		112
		Software development		126		147
		Intellectual property licenses		43		45
		Deferred income taxes, net		511		648
		Other current assets		97		299
		Total current assets		3,954		5,399
	Long-term investments			25		23
	Software development			90		55
	Intellectual property licenses			16		28
	Property and equipment, net			163		169
	Other assets			17		15
	Intangible assets, net			144		160
	Trademark and trade names			433		433
	Goodwill			7,130		7,132
		Total assets	$	11,972	$	13,414

LIABILITIES AND SHAREHOLDERS' EQUITY
	Current liabilities:
		Accounts payable	$	156	$	363
		Deferred revenues		601		1,726
		Accrued expenses and other liabilities		489		838
		Total current liabilities		1,246		2,927
		Deferred income taxes, net		97		120
		Other liabilities		164		164
		Total liabilities		1,507		3,211

	Shareholders' equity:
		Common stock		---		---
		Additional paid-in capital		9,735		12,353
		Treasury stock		---		(2,194)
		Retained earnings		701		57
		Accumulated other comprehensive income (loss)		29		(13)
		Total shareholders' equity		10,465		10,203
		Total liabilities and shareholders' equity	$	11,972	$	13,414


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 June 30, 2011			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - MMORPG		Cost of Sales - Software Royalties and Amortization		Cost of Sales - Intellectual Property Licenses		Product Development		Sales and Marketing		General and Administrative		Restructuring		Total Costs and Expenses
GAAP Measurement			$	1,146	$	213	$	59	$	47	$	24	$	116	$	90	$	127	$	3	$	679
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(447)		(78)		-		(32)		(5)		-		-		-		-		(115)
	Less: Stock-based compensation	(b)		-		-		-		(3)		-		(5)		(1)		(11)		-		(20)
	Less: Restructuring	(c)		-		-		-		-		-		-		-		-		(3)		(3)
	Less: Amortization of intangible assets	(d)		-		-		-		-		(7)		-		-		-		-		(7)
Non-GAAP Measurement			$	699	$	135	$	59	$	12	$	12	$	111	$	89	$	116	$	-	$	534

Three months ended June 30, 2011			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	467	$	335	$	0.29	$	0.29
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(332)		(238)		(0.21)		(0.20)
	Less: Stock-based compensation	(b)		20		15		0.01		0.01
	Less: Restructuring	(c)		3		2		-		-
	Less: Amortization of intangible assets	(d)		7		4		-		-
Non-GAAP Measurement			$	165	$	118	$	0.10	$	0.10

Six months ended June 30, 2011			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - MMORPG		Cost of Sales - Software Royalties and Amortization		Cost of Sales - Intellectual Property Licenses		Product Development		Sales and Marketing		General and Administrative		Restructuring		Total Costs and Expenses
GAAP Measurement			$	2,595	$	512	$	122	$	109	$	53	$	258	$	150	$	228	$	22	$	1,454
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(1,141)		(209)		-		(75)		(19)		-		-		-		-		(303)
	Less: Stock-based compensation	(b)		-		-		-		(6)		-		(11)		(3)		(23)		-		(43)
	Less: Restructuring	(c)		-		-		-		-		-		-		-		-		(22)		(22)
	Less: Amortization of intangible assets	(d)		-		-		-		(1)		(15)		-		-		-		-		(16)
Non-GAAP Measurement			$	1,454	$	303	$	122	$	27	$	19	$	247	$	147	$	205	$	-	$	1,070

Six months ended June 30, 2011			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	1,141	$	838	$	0.71	$	0.71
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(838)		(619)		(0.53)		(0.52)
	Less: Stock-based compensation	(b)		43		30		0.03		0.03
	Less: Restructuring	(c)		22		16		0.01		0.01
	Less: Amortization of intangible assets	(d)		16		10		0.01		0.01
Non-GAAP Measurement			$	384	$	275	$	0.23	$	0.23

	(a) Reflects the net change in deferred net revenues and related cost of sales.
	(b) Includes expense related to stock-based compensation.
	(c) Reflects restructuring related to our Activision Publishing operations.
	(d) Reflects amortization of intangible assets from purchase price accounting.

	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 $117 million and $270 million for the three and six months ended June 30, 2011 as compared to the total non-GAAP net income of $118 million and $275 million for the same periods, respectively.

	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 June 30, 2010			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - MMORPG		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			$	967	$	235	$	53	$	51	$	29	$	100	$	125	$	74	$	667
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(284)		(68)		-		13		(2)		-		-		-		(57)
	Less: Stock-based compensation	(b)		-		-		-		(12)		-		6		(2)		(9)		(17)
	Less: Restructuring (included in general and administrative)	(c)		-		-		-		-		-		-		-		(1)		(1)
	Less: Amortization of intangible assets	(d)		-		(1)		-		-		(9)		-		-		-		(10)
Non-GAAP Measurement			$	683	$	166	$	53	$	52	$	18	$	106	$	123	$	64	$	582

Three months ended June 30, 2010			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	300	$	219	$	0.18	$	0.17
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(227)		(165)		(0.13)		(0.13)
	Less: Stock-based compensation	(b)		17		12		0.01		0.01
	Less: Restructuring (included in general and administrative)	(c)		1		-		-		-
	Less: Amortization of intangible assets	(d)		10		6		-		-
Non-GAAP Measurement			$	101	$	72	$	0.06	$	0.06

Six months ended June 30, 2010			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - MMORPG		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			$	2,275	$	572	$	109	$	150	$	72	$	237	$	181	$	143	$	1,464
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(878)		(201)		-		(24)		(16)		-		-		-		(241)
	Less: Stock-based compensation	(b)		-		-		-		(41)		-		2		(3)		(18)		(60)
	Less: Restructuring (included in general and administrative)	(c)		-		-		-		-		-		-		-		(4)		(4)
	Less: Amortization of intangible assets	(d)		-		(2)		-		(4)		(21)		-		-		(1)		(28)
Non-GAAP Measurement			$	1,397	$	369	$	109	$	81	$	35	$	239	$	178	$	120	$	1,131

Six months ended June 30, 2010			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	811	$	600	$	0.48	$	0.47
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(637)		(473)		(0.38)		(0.37)
	Less: Stock-based compensation	(b)		60		42		0.03		0.03
	Less: Restructuring (included in general and administrative)	(c)		4		2		-		-
	Less: Amortization of intangible assets	(d)		28		17		0.01		0.01
Non-GAAP Measurement			$	266	$	188	$	0.15	$	0.15

	(a) Reflects the net change in deferred net revenues and related cost of sales.
	(b) Includes expense related to stock-based compensation.
	(c) Reflects restructuring related to the Business Combination with Vivendi Games. Restructuring activities includes severance costs, facility exit costs and balance sheet write down and exit costs from the cancellation of projects.
	(d) Reflects amortization of intangible assets from purchase price accounting.

	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 $72 million and $187 million for the three and six months ended June 30, 2010 as compared to total non-GAAP net income of $72 million and $188 million for the same periods, respectively.

	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 and Six Months Ended June 30, 2011 and 2010
(Amounts in millions)

		Three Months Ended
		June 30, 2011				June 30, 2010				$ Increase		% Increase
		Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
GAAP Net Revenues by Distribution Channel
	Retail channels	$	660	58	%	$	584	61	%	$	76	13	%
	Digital online channels*		423	37			332	34			91	27
	Total Activision and Blizzard		1,083	95			916	95			167	18

	Distribution		63	5			51	5			12	24
	Total consolidated GAAP net revenues		1,146	100			967	100			179	19

Change in Deferred Net Revenues (1)
	Retail channels		(448)				(326)
	Digital online channels*		1				42
	Total changes in deferred net revenues		(447)				(284)

Non-GAAP Net Revenues by Distribution Channel
	Retail channels		212	30			258	38			(46)	(18)
	Digital online channels*		424	61			374	55			50	13
	Total Activision and Blizzard		636	91			632	93			4	1

	Distribution		63	9			51	7			12	24
	Total non-GAAP net revenues (2)	$	699	100	%	$	683	100	%	$	16	2	%


		Six Months Ended
		June 30, 2011				June 30, 2010				$ Increase		% Increase
		Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
GAAP Net Revenues by Distribution Channel
	Retail channels	$	1,607	62	%	$	1,490	66	%	$	117	8	%
	Digital online channels*		851	33			663	29			188	28
	Total Activision and Blizzard		2,458	95			2,153	95			305	14

	Distribution		137	5			122	5			15	12
	Total consolidated GAAP net revenues		2,595	100			2,275	100			320	14

Change in Deferred Net Revenues (1)
	Retail channels		(1,154)				(928)
	Digital online channels*		13				50
	Total changes in deferred net revenues		(1,141)				(878)

Non-GAAP Net Revenues by Distribution Channel
	Retail channels		453	31			562	40			(109)	(19)
	Digital online channels*		864	59			713	51			151	21
	Total Activision and Blizzard		1,317	90			1,275	91			42	3

	Distribution		137	10			122	9			15	12
	Total non-GAAP net revenues (2)	$	1,454	100	%	$	1,397	100	%	$	57	4	%

	(1) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
	(2) Total non-GAAP net revenues presented also represents our total operating segment net revenues.
	* Represents revenues from subscriptions and licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended June 30, 2011 and 2010
(Amounts in millions)

			Three Months Ended
			June 30, 2011				June 30, 2010				$ Increase		% Increase
			Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions*		$	359	31	%	$	291	30	%	$	68	23	%
	PC and Other			80	7			79	8			1	1
		Sony PlayStation 3		239	21			182	19			57	31
		Sony PlayStation 2		2	---			9	1			(7)	(78)
		Microsoft Xbox 360		300	26			240	24			60	25
		Nintendo Wii		70	6			76	8			(6)	(8)
	Total console^			611	53			507	52			104	21
		Sony PlayStation Portable		4	---			3	---			1	33
		Nintendo Dual Screen		29	3			36	5			(7)	(19)
	Total handheld			33	3			39	5			(6)	(15)
	Total Activision and Blizzard			1,083	94			916	95			167	18

Distribution:
	Total Distribution			63	6			51	5			12	24
	Total consolidated GAAP net revenues			1,146	100			967	100			179	19

Change in Deferred Net Revenues (1)
Activision and Blizzard:
	Online subscriptions*			(67)				2
	PC and Other			(35)				(37)
		Sony PlayStation 3		(156)				(90)
		Microsoft Xbox 360		(146)				(119)
		Nintendo Wii		(39)				(40)
	Total console^			(341)				(249)
		Nintendo Dual Screen		(4)				---
	Total changes in deferred net revenues			(447)				(284)

Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions*			292	42			293	43			(1)	-
	PC and Other			45	6			42	6			3	7
		Sony PlayStation 3		83	12			92	14			(9)	(10)
		Sony PlayStation 2		2	---			9	1			(7)	(78)
		Microsoft Xbox 360		154	22			121	18			33	27
		Nintendo Wii		31	4			36	5			(5)	(14)
	Total console^			270	38			258	38			12	5
		Sony PlayStation Portable		4	1			3	1			1	33
		Nintendo Dual Screen		25	4			36	5			(11)	(31)
	Total handheld			29	5			39	6			(10)	(26)
	Total Activision and Blizzard			636	91			632	93			4	1

Distribution:
	Total Distribution			63	9			51	7			12	24
	Total non-GAAP net revenues (2)		$	699	100	%	$	683	100	%	$	16	2	%

	(1) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
	(2) Total non-GAAP net revenues presented also represents our total operating segment net revenues.
	* Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.
	^ Downloadable content and its related revenues are included in each respective console platforms, hence, total console.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Six Months Ended June 30, 2011 and 2010
(Amounts in millions)

			Six Months Ended
				June 30, 2011					June 30, 2010			$ Increase			% Increase
			Amount			% of Total		Amount		% of Total		(Decrease)			(Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions*		$		754	29	%	$	602	26	%	$	152		25	%
	PC and Other				205	8			127	7			78		61
		Sony PlayStation 3			581	22			486	22			95		20
		Sony PlayStation 2			6	---			24	1			(18)		(75)
		Microsoft Xbox 360			697	27			624	27			73		12
		Nintendo Wii			152	6			212	9			(60)		(28)
	Total console^				1,436	55			1,346	59			90		7
		Sony PlayStation Portable			8	---			8	---			---		---
		Nintendo Dual Screen			55	3			70	3			(15)		(21)
	Total handheld				63	3			78	3			(15)		(19)
	Total Activision and Blizzard				2,458	95			2,153	95			305		14

Distribution:
	Total Distribution				137	5			122	5			15		12
	Total consolidated GAAP net revenues				2,595	100			2,275	100			320		14

Change in Deferred Net Revenues(1)
Activision and Blizzard:
	Online subscriptions*				(123)				(7)
	PC and Other				(123)				(60)
		Sony PlayStation 3			(400)				(312)
		Microsoft Xbox 360			(405)				(399)
		Nintendo Wii			(84)				(100)
	Total console^				(889)				(811)
		Nintendo Dual Screen			(6)				---
	Total changes in deferred net revenues				(1,141)				(878)

Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions*				631	43			595	42			36		6
	PC and Other				82	6			67	5			15		22
		Sony PlayStation 3			181	12			174	12			7		4
		Sony PlayStation 2			6	---			24	2			(18)		(75)
		Microsoft Xbox 360			292	20			225	16			67		30
		Nintendo Wii			68	5			112	8			(44)		(39)
	Total console^				547	37			535	38			12	2
		Sony PlayStation Portable			8	1			8	1			---		---
		Nintendo Dual Screen			49	4			70	5			(21)		(30)
	Total handheld				57	5			78	6			(21)		(27)
	Total Activision and Blizzard				1,317	91			1,275	91			42		3

Distribution:
	Total Distribution				137	9			122	9			15		12
	Total non-GAAP net revenues(2)		$		1,454	100	%	$	1,397	100	%	$	57		4	%

	(1) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
	(2) Total non-GAAP net revenues presented also represents our total operating segment net revenues.
	* Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.
	^ Downloadable content and its related revenues are included in each respective console platforms, hence, total console.


ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three and Six Months Ended June 30, 2011 and 2010
(Amounts in millions)

		Three Months Ended
			June 30, 2011				June 30, 2010			$ Increase		% Increase
		Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
GAAP Net Revenues by Geographic Region
	North America	$	580	50	%	$	567	59	%	$	13	2	%
	Europe		467	41			337	35			130	39
	Asia Pacific		99	9			63	6			36	57
	Total consolidated GAAP net revenues		1,146	100			967	100			179	19

Change in Deferred Net Revenues (1)
	North America		(249)				(192)
	Europe		(181)				(79)
	Asia Pacific		(17)				(13)
	Total changes in net revenues		(447)				(284)

Non-GAAP Net Revenues by Geographic Region
	North America		331	47			375	55			(44)	(12)
	Europe		286	41			258	38			28	11
	Asia Pacific		82	12			50	7			32	64
	Total non-GAAP net revenues (2)	$	699	100	%	$	683	100	%	$	16	2	%


			Six Months Ended
			June 30, 2011				June 30, 2010				$ Increase	% Increase
			Amount	% of Total			Amount	% of Total			(Decrease)	(Decrease)
GAAP Net Revenues by Geographic Region
	North America	$	1,328	51	%	$	1,270	56	%	$	58	5	%
	Europe		1,061	41			861	38			200	23
	Asia Pacific		206	8			144	6			62	43
	Total consolidated GAAP net revenues		2,595	100			2,275	100			320	14

Change in Deferred Net Revenues (1)
	North America		(632)				(504)
	Europe		(452)				(333)
	Asia Pacific		(57)				(41)
	Total changes in net revenues		(1,141)				(878)

Non-GAAP Net Revenues by Geographic Region
	North America		696	48			766	55			(70)	(9)
	Europe		609	42			528	38			81	15
	Asia Pacific		149	10			103	7			46	45
	Total non-GAAP net revenues (2)	$	1,454	100	%	$	1,397	100	%	$	57	4	%

	(1) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
	(2) Total non-GAAP net revenues presented also represents our total operating segment net revenues.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
For the Three and Six Months Ended 2011 and 2010
(Amounts in millions)

			Three Months Ended
			June 30, 2011				June 30, 2010				$ Increase		% Increase
			Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
Segment net revenues:
	Activision(i)		$	323	28	%	$	333	34	%	$	(10)	(3)	%
	Blizzard(ii)			313	27			299	31			14	5
	Distribution(iii)			63	6			51	6			12	24
	Operating segment total			699	61			683	71			16	2

Reconciliation to consolidated net revenues:
	Net effect from deferral of net revenues			447	39			284	29
	Consolidated net revenues		$	1,146	100	%	$	967	100	%	$	179	19	%

Segment income from operations:
	Activision(i)		$	31			$	(53)			$	84	NM	%
	Blizzard(ii)			135				155				(20)	(13)
	Distribution(iii)			(1)				(1)				---	NM
	Operating segment total			165				101				64	63

Reconciliation to consolidated operating income and
	consolidated income before income tax expense:
	Net effect from deferral of net revenues and related cost of sales			332				227
	Stock-based compensation expense			(20)				(17)
	Restructuring			(3)				(1)
	Amortization of intangible assets			(7)				(10)
	Consolidated operating income			467				300				167	56
	Investment and other income, net			2				1				1	NM
	Consolidated income before income tax expense		$	469			$	301			$	168	56	%

		Operating margin from total operating segments		24%				15%


			Six Months Ended
			June 30, 2011				June 30, 2010				$ Increase		% Increase
			Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
Segment net revenues:
	Activision(i)		$	646	25	%	$	670	29	%	$	(24)	(4)	%
	Blizzard(ii)			671	26			605	27			66	11
	Distribution(iii)			137	5			122	5			15	12
	Operating segment total			1,454	56			1,397	61			57	4

Reconciliation to consolidated net revenues:
	Net effect from deferral of net revenues			1,141	44			878	39
	Consolidated net revenues		$	2,595	100	%	$	2,275	100	%	$	320	14	%

Segment income (loss) from operations:
	Activision(i)		$	78			$	(46)			$	124	NM	%
	Blizzard(ii)			306				313				(7)	(2)
	Distribution(iii)			---				(1)				1	NM
	Operating segment total			384				266				118	44

Reconciliation to consolidated operating income and
	consolidated income before income tax expense:
	Net effect from deferral of net revenues and related cost of sales			838				637
	Stock-based compensation expense			(43)				(60)
	Restructuring			(22)				(4)
	Amortization of intangible assets			(16)				(28)
	Consolidated operating income			1,141				811				330	41
	Investment and other income, net			5				1				4	NM
	Consolidated income before income tax expense		$	1,146			$	812			$	334	41	%

		Operating margin from total operating segments		26%				19%

		(i) Activision Publishing (“Activision”) — publishes interactive software products and content.
		(ii) Blizzard — Blizzard Entertainment, Inc. and its subsidiaries (“Blizzard”) publishes games and online subscription-based games in the MMORPG category.
		(iii) Activision Blizzard Distribution (“Distribution”) — distributes interactive entertainment software and hardware products.


ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOK
For the Quarter Ending September 30, 2011 and
Year Ending December 31, 2011
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)

		Outlook for		Outlook for
		Three Months Ending		Year Ending
		September 30, 2011		December 31, 2011

Net Revenues (GAAP)		$	650	$	4,180

Excluding the impact of:
Change in deferred net revenues	(a)		(120)		(130)

Non-GAAP Net Revenues		$	530	$	4,050

Earnings Per Diluted Share (GAAP)		$	0.05	$	0.68

Excluding the impact of:
Net effect from deferral in net revenues and related cost of sales	(b)		(0.06)		(0.02)
Stock-based compensation	(c)		0.02		0.06
Amortization of intangible assets	(d)		-		0.04
Restructuring expenses	(e)		-		0.02

Non-GAAP Earnings Per Diluted Share		$	0.01	$	0.77


(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.
(e) Reflects expenses relating to the restructuring of our Activision Publishing operations.

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.

SOURCE Activision Blizzard, Inc.

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