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

Company Had The Top Three Best-Selling Games in North America and Europe For First Six Months of 20121

Aug 02, 2012, 16:05 ET from Activision Blizzard, Inc.

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 playersUnder 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

According 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.

(c) 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 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.

(c) Reflects restructuring related to our Activision Publishing operations.

(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.

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, 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 channels

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 Revenues

Retail channel

(175)

(448)

Digital online channels

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 channels

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

$

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 channels

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 Revenues

Retail channel

(746)

(1,154)

Digital online channels

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 channels

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

$

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 subscriptions

$

220

20%

$

359

31%

$

(139)

(39)%

PC and Other

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