Activision Blizzard Announces Better-Than-Expected Second Quarter 2012 Financial Results

SANTA MONICA, Calif., Aug. 2, 2012 /PRNewswire/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2012.

	Second Quarter
(in millions, except EPS)	2012		Prior Outlook*		2011
GAAP Net Revenues	$	1,075	$	950	$	1,146
EPS	$	0.16	$	0.13	$	0.29
Non-GAAP Net Revenues	$	1,054	$	805	$	699
EPS	$	0.20	$	0.10	$	0.10

*Prior outlook was provided by the company on May 9, 2012 in its earnings release

For the quarter ended June 30, 2012, Activision Blizzard's GAAP net revenues were $1.08 billion, as compared with $1.15 billion for the second quarter of 2011. On a non-GAAP basis, the company's net revenues were $1.05 billion, as compared with $699 million for the second quarter of 2011. For the second quarter, GAAP net revenues from digital channels were $343 million and represented 32% of the company's total revenues. On a non-GAAP basis, net revenues from digital channels were a record $497 million and represented 47% of the company's total revenues.

For the quarter ended June 30, 2012, Activision Blizzard's GAAP earnings per diluted share were $0.16, as compared with $0.29 for the second quarter of 2011. On a non-GAAP basis, the company's earnings per diluted share were $0.20, as compared with $0.10 for the second quarter of 2011.

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.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, "On a non-GAAP basis, we delivered record Q2 and first half net revenues, operating income and earnings. Our performance was driven by strong audience demand for our great games. We are very excited to have announced our expanded investment in China through Activision Publishing's agreement with Tencent to bring the Call of Duty® franchise to the Chinese market."

Kotick continued, "For the first six months, we had the top three best-selling games in North America and Europe with Activision Publishing's Skylanders Spyro's Adventures® and Call of Duty: Modern Warfare® 3, and Blizzard Entertainment's record setting Diablo® III."

"For the remainder of the year, we are excited about our product slate which includes Activision Publishing's Skylanders Giants™ and Call of Duty: Black Ops II, and Blizzard Entertainment's World of Warcraft®: Mists of Pandaria™. While we are increasing our financial outlook for full year 2012, we remain cautious given economic uncertainty, risks to consumer spending especially during the holiday season and the recognition that the majority of our key franchise launches are still ahead of us," Kotick added.

Selected Business Highlights:

In North America and Europe, including accessory packs and figures, Activision Publishing's Skylanders Spyro's Adventure was the #1 best-selling console and hand-held game overall in dollars for the first six months of 2012.¹ Additionally, Skylanders Spyro's Adventure was the #1 action-figure line in the U.S., outselling all other action-figure lines for the first six months of 2012.²
For the June quarter, Activision Blizzard was the #1 independent game publisher overall in North America and Europe.¹
Blizzard Entertainment's Diablo III, released on May 15, 2012, set a new industry launch record for PC games and was the #1 best-selling PC game for the first six months of 2012. Through July, more than 10 million players have entered the world of Sanctuary.³
As of June 30, 2012, Blizzard Entertainment's World of Warcraft remains the #1 subscription-based MMORPG and had approximately 9.1 million subscribers⁴
Blizzard Entertainment announced that the company expects to release World of Warcraft: Mists of Pandaria on September 25, 2012.
On July 3, 2012, Activision Publishing and Tencent Holdings Limited, a leading Internet services provider in China, announced a strategic relationship to bring the Call of Duty franchise to Chinese game players. Under the multi-year agreement with Activision Publishing, Tencent has the exclusive license to operate Activision's new Call of Duty game in mainland China. The game will be free-to-play and monetized through the sale of in-game items.
During the quarter, Activision Blizzard paid a cash dividend of $0.18 per common share, totaling $204 million, to shareholders of record at the close of business on March 21, 2012. This represented a 9% increase over the dividend that was paid in 2011.
During the quarter, Activision Blizzard purchased an aggregate of 4.4 million shares of its common stock for an aggregate purchase price of approximately $54 million.

Company Outlook

During the third quarter, Activision Publishing expects to release Transformers: Fall of Cybertron™ for the Xbox 360® video game and entertainment system from Microsoft, Sony's PlayStation® 3 computer entertainment system and the PC. Additionally, the company expects to release the Call of Duty: Modern Warfare 3 Content Collection #3, a compilation of content previously released to Call of Duty Elite premium members, on the Xbox 360 video game and entertainment system from Microsoft, for Sony's PlayStation 3 computer entertainment system; and Call of Duty: Modern Warfare 3 Content Collection #4 on the Xbox 360 video game and entertainment system from Microsoft.

Activision Publishing also expects to release Ice Age™ Continental Drift – Arctic Games in North America for the Xbox 360 video game and entertainment system from Microsoft, Sony's PlayStation 3 computer entertainment system, Wii™ system from Nintendo, the Nintendo 3DS™ and Nintendo DS™ hand-held system; Wipeout 3 for the Xbox 360 video game and entertainment system from Microsoft, Wii system from Nintendo and the Nintendo 3DS; and Angry Birds Trilogy for the Xbox 360 video game and entertainment system from Microsoft, Sony's PlayStation 3 computer entertainment system, and the Nintendo 3DS.

Blizzard Entertainment expects to release World of Warcraft: Mists of Pandaria on September 25, 2012.

Based on better-than-expected second quarter results, the company is raising its calendar year net revenue and earnings per share outlook.

(in millions, except EPS)	GAAP Outlook		Prior* GAAP Outlook		Non-GAAP Outlook		Prior* Non-GAAP Outlook
CY 2012 Net Revenues	$	4,330	$	4,200	$	4,630	$	4,530
EPS	$	0.69	$	0.65	$	0.99	$	0.95
Q3 2012 Net Revenues	$	740		n/a	$	690		n/a
EPS	$	0.06		n/a	$	0.07		n/a

* Prior outlook was provided by the company on May 9, 2012 in its earnings release

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 quarter ended June 30, 2012 and management's outlook for the remainder of the calendar 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 888-282-4591 in the U.S. with passcode 4121658.

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.

Non-GAAP Financial Measures: As a supplement to our financial measures presented in accordance with 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. 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 restructuring;
the amortization of intangibles, and impairment of intangible assets and goodwill; 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 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.

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, 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 and other filings with the Securities and Exchange Commission. 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, Chart-Track and GfK

²According to The NPD Group

³ According to Activision Blizzard internal estimates and the NPD Group, Chart-Track and GfK

⁴ According to Activision Blizzard internal estimates

(Tables to Follow)

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,
		2012		2011		2012		2011

Net revenues:
	Product sales	$	798	$	768	$	1,672	$	1,829
	Subscription, licensing and other revenues ¹		277		378		575		766
	Total net revenues		1,075		1,146		2,247		2,595

Costs and expenses:
	Cost of sales - product costs		229		213		486		512
	Cost of sales - online subscriptions		64		59		123		122
	Cost of sales - software royalties and amortization		57		47		88		109
	Cost of sales - intellectual property licenses		20		24		27		53
	Product development		152		116		276		258
	Sales and marketing		136		90		216		150
	General and administrative		190		127		291		228
	Restructuring		-		3		-		22
	Total costs and expenses		848		679		1,507		1,454
Operating income			227		467		740		1,141
Investment and other income (expense), net			2		2		3		5
Income before income tax expense			229		469		743		1,146
Income tax expense			44		134		174		308
Net income		$	185	$	335	$	569	$	838


Basic earnings per common share		$	0.16	$	0.29	$	0.50	$	0.71
Weighted average common shares outstanding			1,109		1,141		1,115		1,157


Diluted earnings per common share ²		$	0.16	$	0.29	$	0.50	$	0.71
Weighted average common shares outstanding assuming dilution			1,115		1,150		1,121		1,166


¹ Subscription, licensing and other revenues represents revenues from World of Warcraft subscriptions, Call of Duty Elite memberships, 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. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $181 million and $558 million for the three and six months ended June 30, 2012, as compared to the total net income of $185 million and $569 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 $330 million and $826 million for the three and six months ended June 30, 2011, as compared to total net income of $335 million and $838 million for the same periods, respectively.



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
			June 30,		December 31,
			2012		2011
ASSETS
	Current assets:
		Cash and cash equivalents	$	2,786	$	3,165
		Short-term investments	406			360
		Accounts receivable, net	227			649
		Inventories, net	128			144
		Software development	141			137
		Intellectual property licenses	8			22
		Deferred income taxes, net	484			507
		Other current assets	152			396
		Total current assets		4,332		5,380
	Long-term investments			17		16
	Software development		123			62
	Intellectual property licenses		12			12
	Property and equipment, net		149			163
	Other assets		12			12
	Intangible assets, net		83			88
	Trademark and trade names			433		433
	Goodwill			7,108		7,111
		Total assets	$	12,269	$	13,277

LIABILITIES AND SHAREHOLDERS' EQUITY
	Current liabilities:
		Accounts payable	$	163	$	390
		Deferred revenues		905		1,472
		Accrued expenses and other liabilities		416		694
		Total current liabilities		1,484		2,556
		Deferred income taxes, net		61		55
		Other liabilities		160		174
		Total liabilities		1,705		2,785

	Shareholders' equity:
		Common stock		---		---
		Additional paid-in capital		9,375		9,616
		Retained earnings		1,313		948
		Accumulated other comprehensive income (loss)		(124)		(72)
		Total shareholders' equity		10,564		10,492
		Total liabilities and shareholders' equity	$	12,269	$	13,277



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, 2012			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - Online Subscriptions		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			$	1,075	$	229	$	64	$	57	$	20	$	152	$	136	$	190	$	848
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(21)		(61)		-		-		-		-		-		-		(61)
	Less: Stock-based compensation	(b)		-		-		-		(3)		-		(5)		(1)		(22)		(31)
	Less: Amortization of intangible assets	(c)		-		-		-		-		(2)		-		-		-		(2)
Non-GAAP Measurement			$	1,054	$	168	$	64	$	54	$	18	$	147	$	135	$	168	$	754



Three months ended June 30, 2012			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	227	$	185	$	0.16	$	0.16
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		40		17		0.02		0.02
	Less: Stock-based compensation	(b)		31		21		0.02		0.02
	Less: Amortization of intangible assets	(c)		2		1		-		-
Non-GAAP Measurement			$	300	$	224	$	0.20	$	0.20

Six months ended June 30, 2012			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - Online Subscriptions		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			$	2,247	$	486	$	123	$	88	$	27	$	276	$	216	$	291	$	1,507
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(606)		(181)		-		(17)		(1)		-		-		-		(199)
	Less: Stock-based compensation	(b)		-		-		-		(6)		-		(9)		(4)		(33)		(52)
	Less: Amortization of intangible assets	(c)		-		-		-		-		(5)		-		-		-		(5)
Non-GAAP Measurement			$	1,641	$	305	$	123	$	65	$	21	$	267	$	212	$	258	$	1,251



Six months ended June 30, 2012			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	740	$	569	$	0.50	$	0.50
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(407)		(317)		(0.28)		(0.28)
	Less: Stock-based compensation	(b)		52		36		0.03		0.03
	Less: Amortization of intangible assets	(c)		5		3		-		-
Non-GAAP Measurement			$	390	$	291	$	0.26	$	0.25

(a) Reflects the net change in deferred net revenues and related cost of sales.

(b) Includes expense related to stock-based compensation.

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 $219 million and $285 million for the three and six months ended June 30, 2012 as compared to the total non-GAAP net income of $224 million and $291 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, 2011			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - Online Subscriptions		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 - Online Subscriptions		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.

(d) Reflects amortization of intangible assets.

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



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three And Six Months Ended June 30, 2012 and 2011
(Amounts in millions)

		Three Months Ended
		June 30, 2012			June 30, 2011			$ Increase		% Increase
		Amount		% of Total	Amount		% of Total	(Decrease)		(Decrease)
GAAP Net Revenues by Distribution Channel
	Retail channel	$	685	64%	$	660	58%	$	25	4%
	Digital online channels¹		343	32		423	37		(80)	(19)
	Total Activision and Blizzard		1,028	96		1,083	95		(55)	(5)

	Distribution		47	4		63	5		(16)	(25)
	Total consolidated GAAP net revenues		1,075	100		1,146	100		(71)	(6)

Change in Deferred Net Revenues²
	Retail channel		(175)			(448)
	Digital online channels¹		154			1
	Total changes in deferred net revenues		(21)			(447)

Non-GAAP Net Revenues by Distribution Channel
	Retail channel		510	48		212	30		298	141
	Digital online channels¹		497	47		424	61		73	17
	Total Activision and Blizzard		1,007	95		636	91		371	58

	Distribution		47	5		63	9		(16)	(25)
	Total non-GAAP net revenues ³	$	1,054	100%	$	699	100%	$	355	51%


		Six Months Ended
		June 30, 2012			June 30, 2011			$ Increase		% Increase
		Amount		% of Total	Amount		% of Total	(Decrease)		(Decrease)
GAAP Net Revenues by Distribution Channel
	Retail channel	$	1,479	66%	$	1,607	62%	$	(128)	(8)%
	Digital online channels¹		656	29		851	33		(195)	(23)
	Total Activision and Blizzard		2,135	95		2,458	95		(323)	(13)

	Distribution		112	5		137	5		(25)	(18)
	Total consolidated GAAP net revenues		2,247	100		2,595	100		(348)	(13)

Change in Deferred Net Revenues²
	Retail channel		(746)			(1,154)
	Digital online channels¹		140			13
	Total changes in deferred net revenues		(606)			(1,141)

Non-GAAP Net Revenues by Distribution Channel
	Retail channel		733	45		453	31		280	62
	Digital online channels¹		796	48		864	60		(68)	(8)
	Total Activision and Blizzard		1,529	93		1,317	91		212	16

	Distribution		112	7		137	9		(25)	(18)
	Total non-GAAP net revenues ³	$	1,641	100%	$	1,454	100%	$	187	13%

	¹ Net revenues from digital online channel represent revenues from subscriptions and memberships, 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 net revenues.
	³ Total non-GAAP net revenues presented also represents our total operating segment net revenues.



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended June 30, 2012 and 2011
(Amounts in millions)

			Three Months Ended
			June 30, 2012			June 30, 2011			$ Increase		% Increase
			Amount		% of Total	Amount		% of Total	(Decrease)		(Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions¹		$	220	20%	$	359	31%	$	(139)	(39)%
	PC and Other⁵			276	26		80	7		196	245
		Sony PlayStation 3		234	22		239	21		(5)	(2)
		Sony PlayStation 2		---	---		2	---		(2)	(100)
		Microsoft Xbox 360		248	23		300	26		(52)	(17)
		Nintendo Wii		32	3		70	6		(38)	(54)
	Total console²			514	48		611	53		(97)	(16)
		Sony PlayStation Portable		1	---		4	---		(3)	(75)
		Nintendo 3DS		6	1		5	1		1	20
		Nintendo DS		11	1		24	2		(13)	(54)
	Total handheld			18	2		33	3		(15)	(45)
	Total Activision and Blizzard			1,028	96		1,083	94		(55)	(5)

Distribution:
	Total Distribution			47	4		63	6		(16)	(25)
	Total consolidated GAAP net revenues			1,075	100		1,146	100		(71)	(6)

Change in Deferred Net Revenues³
Activision and Blizzard:
	Online subscriptions¹			(21)			(67)
	PC and Other⁵			314			(35)
		Sony PlayStation 3		(137)			(156)
		Microsoft Xbox 360		(162)			(146)
		Nintendo Wii		(12)			(39)
	Total console²			(311)			(341)
		Nintendo DS		(3)			(4)
	Total changes in deferred net revenues			(21)			(447)

Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions¹			199	19		292	42		(93)	(32)
	PC and Other⁵			590	56		45	6		545	NM
		Sony PlayStation 3		97	9		83	12		14	17
		Sony PlayStation 2		---	---		2	---		(2)	(100)
		Microsoft Xbox 360		86	8		154	22		(68)	(44)
		Nintendo Wii		20	2		31	4		(11)	(35)
	Total console²			203	19		270	38		(67)	(25)
		Sony PlayStation Portable		1	---		4	1		(3)	(75)
		Nintendo 3DS		6	1		5	1		1	20
		Nintendo DS		8	1		20	3		(12)	(60)
	Total handheld			15	2		29	5		(14)	(48)
	Total Activision and Blizzard			1,007	96		636	91		371	58

Distribution:
	Total Distribution			47	4		63	9		(16)	(25)
	Total non-GAAP net revenues⁴		$	1,054	100%	$	699	100%	$	355	51%

	¹ 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. It also includes revenues from Call of Duty Elite memberships. We have recorded a reduction of revenues of $11 million during the three months ended June 30, 2012 as a result of a correction of an accounting error. Please refer to footnote 1 on our Form 10-Q for the quarter ended June 30, 2012 for further details on this correction.

	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 Other includes standalone sales of toys and accessories products from Skylanders franchise, mobile sales and other physical merchandise and accessories.



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Six Months Ended June 30, 2012 and 2011
(Amounts in millions)

			Six Months Ended
			June 30, 2012			June 30, 2011			$ Increase		% Increase
			Amount		% of Total	Amount		% of Total	(Decrease)		(Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions¹		$	475	21%	$	754	29%	$	(279)	(37)%
	PC and Other⁵			413	18		205	8		208	101
		Sony PlayStation 3		534	24		581	22		(47)	(8)
		Sony PlayStation 2		2	---		6	---		(4)	(67)
		Microsoft Xbox 360		584	26		697	27		(113)	(16)
		Nintendo Wii		83	4		152	6		(69)	(45)
	Total console²			1,203	54		1,436	55		(233)	(16)
		Sony PlayStation Portable		4	---		8	---		(4)	(50)
		Nintendo 3DS		15	1		9	1		6	67
		Nintendo DS		25	1		46	2		(21)	(46)
	Total handheld			44	2		63	3		(19)	(30)
	Total Activision and Blizzard			2,135	95		2,458	95		(323)	(13)

Distribution:
	Total Distribution			112	5		137	5		(25)	(18)
	Total consolidated GAAP net revenues			2,247	100		2,595	100		(348)	(13)

Change in Deferred Net Revenues³
Activision and Blizzard:
	Online subscriptions¹			(27)			(123)
	PC and Other⁵			291			(123)
		Sony PlayStation 3		(400)			(400)
		Microsoft Xbox 360		(439)			(405)
		Nintendo Wii		(26)			(84)
	Total console²			(865)			(889)
		Nintendo DS		(5)			(6)
	Total changes in deferred net revenues			(606)			(1,141)

Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions¹			448	27		631	43		(183)	(29)
	PC and Other⁵			704	43		82	6		622	NM
		Sony PlayStation 3		134	8		181	12		(47)	(26)
		Sony PlayStation 2		2	---		6	---		(4)	(67)
		Microsoft Xbox 360		145	9		292	20		(147)	(50)
		Nintendo Wii		57	4		68	5		(11)	(16)
	Total console²			338	21		547	37		(209)	(38)
		Sony PlayStation Portable		4	---		8	1		(4)	(50)
		Nintendo 3DS		15	1		9	1		6	67
		Nintendo DS		20	1		40	3		(20)	(50)
	Total handheld			39	2		57	5		(18)	(32)
	Total Activision and Blizzard			1,529	93		1,317	91		212	16

Distribution:
	Total Distribution			112	7		137	9		(25)	(18)
	Total non-GAAP net revenues⁴		$	1,641	100%	$	1,454	100%	$	187	13%

	¹ 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. It also includes revenues from Call of Duty Elite memberships. We have recorded a reduction of revenues of $11 million during the three months ended June 30, 2012 as a result of a correction of an accounting error. Please refer to footnote 1 on our Form 10-Q for the quarter ended June 30, 2012 for further details on this correction.

	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 Other includes standalone sales of toys and accessories products from Skylanders franchise, mobile sales and other physical merchandise and accessories.



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three and Six Months Ended June 30, 2012 and 2011
(Amounts in millions)

		Three Months Ended
		June 30, 2012			June 30, 2011			$ Increase		% Increase
		Amount		% of Total	Amount		% of Total	(Decrease)		(Decrease)
GAAP Net Revenues by Geographic Region
	North America	$	562	52%	$	580	50%	$	(18)	(3)%
	Europe		403	38		467	41		(64)	(14)
	Asia Pacific		110	10		99	9		11	11
	Total consolidated GAAP net revenues		1,075	100		1,146	100		(71)	(6)

Change in Deferred Net Revenues¹
	North America		(79)			(249)
	Europe		(9)			(181)
	Asia Pacific		67			(17)
	Total changes in net revenues		(21)			(447)

Non-GAAP Net Revenues by Geographic Region
	North America		483	46		331	47		152	46
	Europe		394	37		286	41		108	38
	Asia Pacific		177	17		82	12		95	116
	Total non-GAAP net revenues²	$	1,054	100%	$	699	100%	$	355	51%


		Six Months Ended
		June 30, 2012			June 30, 2011				$ Increase	% Increase
			Amount	% of Total		Amount	% of Total		(Decrease)	(Decrease)
GAAP Net Revenues by Geographic Region
	North America	$	1,163	52%	$	1,328	51%	$	(165)	(12)%
	Europe		888	39		1,061	41		(173)	(16)
	Asia Pacific		196	9		206	8		(10)	(5)
	Total consolidated GAAP net revenues		2,247	100		2,595	100		(348)	(13)

Change in Deferred Net Revenues¹
	North America		(409)			(632)
	Europe		(235)			(452)
	Asia Pacific		38			(57)
	Total changes in net revenues		(606)			(1,141)

Non-GAAP Net Revenues by Geographic Region
	North America		754	46		696	48		58	8
	Europe		653	40		609	42		44	7
	Asia Pacific		234	14		149	10		85	57
	Total non-GAAP net revenues²	$	1,641	100%	$	1,454	100%	$	187	13%

	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 June 30, 2012 and 2011
(Amounts in millions)

			Three Months Ended
			June 30, 2012			June 30, 2011			$ Increase		% Increase
			Amount		% of Total	Amount		% of Total	(Decrease)		(Decrease)
Segment net revenues:
	Activision¹		$	373	35%	$	323	28%	$	50	15%
	Blizzard²			634	59		313	27		321	103
	Distribution³			47	4		63	6		(16)	(25)
	Operating segment total			1,054	98		699	61		355	51

Reconciliation to consolidated net revenues:
	Net effect from deferral of net revenues			21	2		447	39
	Consolidated net revenues		$	1,075	100%	$	1,146	100%	$	(71)	(6)%

Segment income from operations:
	Activision¹		$	(71)		$	31		$	(102)	NM
	Blizzard²			371			135			236	175
	Distribution³			---			(1)			1	NM
	Operating segment total			300			165			135	82

Reconciliation to consolidated operating income and consolidated income before income tax expense:
	Net effect from deferral of net revenues and related cost of sales			(40)			332
	Stock-based compensation expense			(31)			(20)
	Restructuring			---			(3)
	Amortization of intangible assets			(2)			(7)
	Consolidated operating income			227			467			(240)	(51)
	Investment and other income (expense), net			2			2
	Consolidated income before income tax expense		$	229		$	469		$	(240)	(51)%

		Operating margin from total operating segments		28%			24%


			Six Months Ended
			June 30, 2012			June 30, 2011			$ Increase		% Increase
			Amount		% of Total	Amount		% of Total	(Decrease)		(Decrease)
Segment net revenues:
	Activision¹		$	645	29%	$	646	25%	$	(1)	-%
	Blizzard²			884	39		671	26		213	32
	Distribution³			112	5		137	5		(25)	(18)
	Operating segment total			1,641	73		1,454	56		187	13

Reconciliation to consolidated net revenues:
	Net effect from deferral of net revenues			606	27		1,141	44
	Consolidated net revenues		$	2,247	100%	$	2,595	100%	$	(348)	(13)%

Segment income (loss) from operations:
	Activision¹		$	(70)		$	78		$	(148)	(190)%
	Blizzard²			460			306			154	50
	Distribution³			---			---			-	NM
	Operating segment total			390			384			6	2

Reconciliation to consolidated operating income and consolidated income before income tax expense:
	Net effect from deferral of net revenues and related cost of sales			407			838
	Stock-based compensation expense			(52)			(43)
	Restructuring			---			(22)
	Amortization of intangible assets			(5)			(16)
	Consolidated operating income			740			1,141			(401)	(35)
	Investment and other income (expense), net			3			5
	Consolidated income before income tax expense		$	743		$	1,146		$	(403)	(35)%

		Operating margin from total operating segments		24%			26%

		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.



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOK
For the Quarter Ending September 30, 2012 and
Year Ending December 31, 2012
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)

		Outlook for		Outlook for
		Three Months Ending		Year Ending
		September 30, 2012		December 31, 2012

Net Revenues (GAAP)		$	740	$	4,330

Excluding the impact of:
Change in deferred net revenues	(a)		(50)		300

Non-GAAP Net Revenues		$	690	$	4,630

Earnings Per Diluted Share (GAAP)		$	0.06	$	0.69

Excluding the impact of:
Net effect from deferral in net revenues and related cost of sales	(b)		(0.02)		0.19
Stock-based compensation	(c)		0.03		0.09
Amortization of intangible assets	(d)		-		0.02

Non-GAAP Earnings Per Diluted Share		$	0.07	$	0.99


(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.

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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