Activision Blizzard Reports December Quarter and Calendar Year 2010 Financial Results - Company Achieves Record CY 2010 Operating Cash Flow of $1.4 Billion -

- CY 2010 GAAP Net Revenues Increase Year Over Year to $4.45 Billion -

- Company Delivers Record CY 2010 EPS -

- 2010 Revenues From Digital Channels Grow Over 20% to More Than $1.5 Billion -

- Company Announces New $1.5 Billion Stock Repurchase Program -

- Company Announces 10% Increase in Cash Dividend to $0.165 per Common Share -

SANTA MONICA, Calif., Feb. 9, 2011 /PRNewswire/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced financial results for the calendar year and quarter ending December 31, 2010.  Activision Blizzard reports results on both a GAAP and a non-GAAP basis.  A reconciliation of the company’s GAAP and non-GAAP results can be found in the attached tables.

For calendar year 2010, Activision Blizzard’s GAAP net revenues increased to $4.45 billion, as compared with $4.28 billion for 2009.  On a non-GAAP basis, the company’s net revenues were $4.80 billion, as compared with $4.78 billion for 2009.   Revenues from digital channels for the calendar year were more than $1.5 billion, an increase of more than 20% year over year.

For calendar year 2010, Activision Blizzard’s GAAP earnings per diluted share increased to $0.33, as compared with $0.09 per diluted share for 2009.  The 2010 results include a $0.16 per share non-cash reduction in the valuation of intangible assets reflecting weaker retail sales in the casual and music genres, while the 2009 results included a similar non-cash charge of $0.19 per share.  On a non-GAAP basis, the company’s earnings per diluted share grew 14.5% to $0.79, as compared with $0.69 per diluted share for 2009.

For the quarter ended December 31, 2010, Activision Blizzard’s GAAP net revenues were $1.43 billion as compared with fourth-quarter 2009 net revenues of $1.56 billion.  On a non-GAAP basis, the company’s net revenues for the quarter were $2.55 billion, as compared with fourth-quarter 2009 non-GAAP net revenues of $2.50 billion.  Revenues from digital channels for the quarter were more than $470 million, an increase of 40% year over year.

For the quarter ended December 31, 2010, Activision Blizzard had a GAAP loss per share of $0.20, inclusive of the $0.16 per share non-cash charge mentioned above.  On a non-GAAP basis, the company’s earnings per diluted share grew to $0.53. For the comparable quarter in 2009, the company had a GAAP loss per share of $0.23, inclusive of the $0.19 per share non-cash charge mentioned above, and non-GAAP earnings per diluted share of $0.49.

Robert Kotick, CEO of Activision Blizzard, stated, “Because of focus and disciplined execution, 2010 was another extraordinary year for Activision Blizzard.  We made some of the best games we have ever made in over 30 years of being in the interactive entertainment business.  We benefited from new content releases for two of the world’s most successful online entertainment franchises:  Activision Publishing’s Call of Duty®: Black Ops and Blizzard Entertainment’s World of Warcraft®: Cataclysm™, a new installment in the world’s largest subscription-based massively multiplayer online role-playing game.  During the year, we grew our net revenues, delivered record earnings, achieved record GAAP and non-GAAP operating margins of 11% and 29%, respectively, and generated $1.4 billion in operating cash flow.”

Kotick added, “Activision Blizzard’s key franchises have larger audience bases than ever before and we continue to see significantly enhanced user activity and engagement for our expanding online communities.   Our revenues from digital channels, which now account for over 30% of our overall revenues, were driven by increased sales of Activision Publishing’s Call of Duty map packs and value-added services for Blizzard Entertainment’s World of Warcraft.  Blizzard significantly evolved its direct digital distribution capabilities with the launch of its new Battle.net® service and saw players embrace its service offerings in record numbers.  Notably, since Call of Duty: Black Ops was launched in November players have spent an average of 52 minutes per day playing online, roughly equivalent to the 55 minutes that the average user spends each day on Facebook.(1)  As of February 2, 2011, more than 27 million gamers have played Call of Duty games online, logging more than 2 billion hours, or the equivalent of more than 229,000 years of gameplay.(2)”  

Kotick concluded, “Online gaming continues to broaden its appeal.  Our shareholders continue to be well positioned to benefit from these trends and the focus of our incredibly talented employees around the world continues to allow us to lead our industry.  We expect to continue to drive long-term growth, increase our return on invested capital and generate strong cash flow as we have over the last few years.  Our strong balance sheet affords us the financial flexibility to invest in games that few companies have the ability to create and allows us to provide our shareholders with value through dividends and share repurchases.”

Business Highlights

  • Activision Blizzard was the #1 publisher overall in North America and Europe for the calendar year.(3)
  • Activision Blizzard was the #1 publisher in North America on the Xbox® 360, PlayStation® 3 and PC collectively for the calendar year.(4)
  • Blizzard Entertainment’s World of Warcraft: Cataclysm, which was launched on December 7, 2010, sold through more than 3.3 million copies worldwide during its first 24 hours of release, making it the fastest-selling PC game of all time.  It continued to sell through more than 4.7 million copies in its first month.(5)
  • As of December 31, 2010, more than 12 million gamers worldwide are subscribed to play Blizzard Entertainment’s World of Warcraft.(6)
  • For the December quarter, in North America and Europe, Call of Duty: Black Ops was the #1 best-selling console title in dollars ever during a single quarter and the Call of Duty franchise was the #1 franchise overall.(3)
  • In November 2010, Call of Duty: Black Ops became the first video game ever to surpass $650 million in retail sales in its first five days of release.(2)  To date, the game has achieved more than $1 billion in retail sales worldwide.(3)
  • As of January 31, 2011, total unique gamers playing Activision Publishing’s Call of Duty: Black Ops increased by more than 49% over the number of total unique gamers that played Call of Duty®: Modern Warfare® for the first three months after each game’s release.(7)
  • On February 1, 2011, Activision Publishing released Call of Duty: Black Ops First Strike, the first add-on pack for Call of Duty: Black Ops, on Xbox LIVE®.   The map pack set new Xbox LIVE records with more than 1.4 million downloads in the first 24 hours, an increase of more than 25% over last year’s Call of Duty: Modern Warfare 2 Stimulus Package.(7) The map pack also will be available on the PlayStation® 3 computer entertainment system on March 3, 2011 and on the PC later in the quarter.

Company Outlook

Activision Blizzard will continue to invest its capital and resources in the significant opportunities afforded by online gaming worldwide and will reduce its exposure to low-margin and low-potential businesses.  In 2011, the company will allocate the majority of its resources and focus toward opportunities which we expect will afford us the greatest competitive advantages and the greatest potential for best-in-class quality, high-margin digital growth, and long-term success.  These opportunities include Blizzard Entertainment’s games currently in development, robust investment in forthcoming Call of Duty titles, the development of a best-in-class digital community surrounding the Call of Duty franchise, a new property from Bungie and an innovative new universe with broad appeal that will be revealed at Toy Fair later this week and will bring 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 publisher. 

At the same time, due to continued declines in the music genre, the company will disband Activision Publishing’s Guitar Hero business unit and discontinue development on its Guitar Hero game for 2011.  The company also will stop development on True Crime: Hong Kong™.  These decisions are based on the desire to focus on the greatest opportunities that the company currently has to create the world’s best interactive entertainment experiences.

For calendar year 2011, Activision Blizzard expects GAAP net revenues to be $3.95 billion and GAAP earnings per diluted share to be $0.56.  On a non-GAAP basis, the company expects net revenues of $3.9 billion and non-GAAP earnings per diluted share to be $0.70 for the calendar year.  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 yet include a new game from Blizzard in 2011.

For the first quarter of 2011, Activision Blizzard expects GAAP net revenues of $1.28 billion, and GAAP earnings per diluted share of $0.28. The company’s first quarter GAAP earnings per diluted share outlook includes the impact of between $0.02 - $0.03 of expenses related to the restructuring.  On a non-GAAP basis, the company expects net revenues of $640 million and $0.07 earnings per diluted share for the first quarter.    

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.

Board Authorizes Stock Repurchase Program and Declares Cash Dividend

Activision Blizzard today announced that its Board of Directors has authorized a new stock repurchase program under which the company can repurchase up to $1.5 billion of the company’s outstanding common stock.  This program replaces the company’s $1 billion stock repurchase plan program authorized in February 2010, which expired on December 31, 2010.  As of December 31, 2010, Activision Blizzard had purchased an aggregate of 86 million shares of its common stock for approximately $966 million under the 2010 program.  

The Board of Directors also declared a cash dividend of $0.165 per common share payable on May 11, 2011 to shareholders of record at the close of business on March 16, 2011.  This is the company’s second-ever cash dividend and it represents a 10% increase over its first-ever dividend that was issued in 2010.

Conference Call

Today at 4:30 p.m. EST, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter and year ended December 31, 2010 and management’s outlook for 2011. 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 and view a brief supporting slide presentation via live Webcast or to listen to the call live by dialing into 877-397-0292 in the U.S. with passcode 8890647.

Non-GAAP Financial Measures

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) the following items: the impact of the change in deferred net revenues and related cost of sales with respect to certain of the company’s online-enabled games; expenses related to share-based payments; Activision Blizzard’s non-core exit operations (which are the operating results of products and operations of the historical Vivendi Games, Inc. businesses that the company has exited or substantially wound down); costs related to the business combination between Activision, Inc. and Vivendi Games, Inc. (including transaction costs, integration costs, and restructuring activities); expenses related to the restructuring of our Activision Publishing operations; the amortization of intangibles and impairment of intangible assets; and the associated tax benefits.

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 because they facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard.

Internally, management uses these non-GAAP financial measures in assessing the company's operating results, as well as in planning and forecasting.

Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP.  Activision Blizzard recognizes that there are limitations associated with the use of these non-GAAP financial measures.

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.

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 and used games, 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 sections 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 Microsoft, Sony, Activision Blizzard internal estimates and digitalbuzzblog.com.

(2) According to Activision Blizzard internal estimates

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

(4) According to The NPD Group

(5) According to internal company records from Blizzard Entertainment and reports from key distribution partners

(6) According to Blizzard Entertainment internal data

(7) According to Microsoft, Sony and 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 December 31,

Year Ended December 31,



2010 

2009 

2010 

2009 











Net revenues:










Product sales

$

1,061

$

1,232

$

3,087

$

3,080


Subscription, licensing and other revenues


366


325


1,360


1,199


    Total net revenues


1,427


1,557


4,447


4,279











Costs and expenses:










Cost of sales - product costs


585


670


1,350


1,432


Cost of sales - massively multi-player online role playing game ("MMORPG")


73


54


241


212


Cost of sales - software royalties and amortization


128


136


338


348


Cost of sales - intellectual property licenses


92


152


197


315


Product development


275


265


642


627


Sales and marketing


226


215


520


544


General and administrative


119


94


364


395


Impairment of intangible assets


326


409


326


409


Restructuring


---


(6)


---


23


    Total costs and expenses


1,824


1,989


3,978


4,305

Operating income (loss)


(397)


(432)


469


(26)

Investment and other income, net


8


(3)


23


18

Income (loss) before income tax expense


(389)


(435)


492


(8)

Income tax (benefit) expense


(156)


(149)


74


(121)

Net income (loss)

$

(233)

$

(286)

$

418

$

113





















Basic earnings (loss) per common share

$

(0.20)

$

(0.23)

$

0.34

$

0.09

Weighted average common shares outstanding


1,198


1,265


1,222


1,283





















Diluted earnings (loss) per common share

$

(0.20)

$

(0.23)

$

0.33

$

0.09

Weighted average common shares outstanding assuming dilution


1,198


1,265


1,236


1,311















ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)





December 31,


December 31,





2010 


2009 

ASSETS






Current assets:







Cash and cash equivalents

$

2,812

$

2,768



Short-term investments


696


477



Accounts receivable, net


640


739



Inventories


112


241



Software development


147


224



Intellectual property licenses


45


55



Deferred income taxes, net


640


498



Other current assets


293


327



    Total current assets


5,385


5,329


Long-term investments


23


23


Software development


55


10


Intellectual property licenses


28


28


Property and equipment, net


169


138


Other assets


21


9


Intangible assets, net


160


618


Trademark and trade names


433


433


Goodwill


7,132


7,154



Total assets

$

13,406

$

13,742








LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities:







Accounts payable

$

363

$

302



Deferred revenues


1,726


1,426



Accrued expenses and other liabilities


818


779



     Total current liabilities


2,907


2,507



Deferred income taxes, net


112


270



Other liabilities


184


209



Total liabilities


3,203


2,986









Shareholders' equity:







Common stock


---


---



Additional paid-in capital


12,353


12,376



Treasury stock


(2,194)


(1,235)



Retained earnings (accumulated deficit)


57


(361)



Accumulated other comprehensive loss


(13)


(24)



     Total shareholders' equity


10,203


10,756



         Total liabilities and shareholders' equity

$

13,406

$

13,742












ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

















Three Months Ended December 31,

Year Ended December 31,





2010 

2009 

2010 

2009 













Cash flows from operating activities:










Net income (loss)

$

(233)

$

(286)

$

418

$

113


Adjustments to reconcile net income (loss) to net











cash provided by operating activities:











Deferred income taxes


(329)


(185)


(278)


(256)



Impairment of intangible assets


326


409


326


409



Depreciation and amortization


101


160


198


347



Loss on disposal of property and equipment


1


2


1


2



Amortization and write-off of capitalized












software development costs and intellectual












property licenses (1)


137


89


319


281



Stock-based compensation expense (2)


37


47


131


156



Excess tax benefits from stock options exercises


(11)


(11)


(22)


(79)


Changes in operating assets and liabilities:











Accounts receivable


(395)


(513)


76


235



Inventories


143


110


124


21



Software development and intellectual property


(75)


(79)


(313)


(308)



Other assets


(201)


(163)


17


(110)



Deferred revenues


1,103


955


293


503



Accounts payable


130


21


70


(18)



Accrued expenses and other liabilities


259


257


16


(113)


Net cash provided by operating activities


993


813


1,376


1,183













Cash flows from investing activities:










Proceeds from maturities of investments


107


35


580


44


Proceeds from sale of available-for-sale investments


---


---


---


2


Payment of contingent consideration


---


---


(4)


---


Purchases of available-for-sale investments


(119)


(197)


(800)


(425)


Capital expenditures


(21)


(28)


(97)


(69)


Decrease in restricted cash


44


45


9


5


Net cash provided by (used in) investing activities


11


(145)


(312)


(443)













Cash flows from financing activities:










Proceeds from issuance of common stock to











employees


19


18


73


81


Repurchase of common stock


(346)


(275)


(959)


(1,109)


Dividends paid


(2)


---


(189)


---


Excess tax benefits from stock option exercises


11


11


22


79


Net cash used in financing activities


(318)


(246)


(1,053)


(949)













Effect of foreign exchange rate changes on cash










and cash equivalents


3


(14)


33


19

Net increase (decrease) in cash and cash equivalents


689


408


44


(190)













Cash and cash equivalents at beginning of period


2,123


2,360


2,768


2,958













Cash and cash equivalents at end of period

$

2,812

$

2,768

$

2,812

$

2,768


























(1) Excludes deferral and amortization of stock-based compensation expense.


(2) Includes the net effects of capitalization, deferral, and amortization of stock-based compensation expense.





ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION

(Amounts in millions)

























Three Months Ended







December 31,


March 31,


June 30,


September 30,


December 31,


Year over Year

% Increase





2009 


2010 


2010 


2010 


2010 


(Decrease)


Cash Flow Data





















Operating Cash Flow


$

813


$

227


$

(26)


$

182


$

993



22

%


Operating Cash Flow - TTM



1,183



1,083



1,175



1,196



1,376



16



Capital Expenditures



28



12



27



37



21



(25)



Capital Expenditures - TTM



69



71



84



104



97



41



Non-GAAP Free Cash Flow



785



215



(53)



145



972



24



Non-GAAP Free Cash Flow-TTM


$

1,114


$

1,012


$

1,091


$

1,092


$

1,279



15

%






















TTM represents trailing twelve months.

Non-GAAP free cash flow represents operating cash flow minus capital expenditures.





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 December 31, 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

Impairment of Intangible Assets

Total Costs and Expenses

GAAP Measurement


$

1,427

$

585

$

73

$

128

$

92

$

275

$

226

$

119

$

326

$

1,824


Less:  Net effect from deferral in net revenues and related cost of sales

(a)


1,121


200


-


45


17


-


-


-


-


262


Less:  Stock-based compensation

(b)


-


-


-


(14)


-


(8)


(2)


(13)


-


(37)


Less:  Restructuring (included in general and administrative)

(c)


-


-


-


-


-


-


-


1


-


1


Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)


-


(2)


-


(6)


(69)


-


-


-


-


(77)


Less:  Impairment of intangible assets

(e)


-


-


-


-


-


-


-


-


(326)


(326)

Non-GAAP Measurement


$

2,548

$

783

$

73

$

153

$

40

$

267

$

224

$

107

$

-

$

1,647















































Three Months Ended December 31, 2010


Operating Income (Loss)

Net Income (Loss)

Basic Earnings (Loss) per Share

Diluted Earnings (Loss) per Share













GAAP Measurement


$

(397)

$

(233)

$

(0.20)

$

(0.20)














Less:  Net effect from deferral in net revenues and related cost of sales

(a)


859


628


0.52


0.51














Less:  Stock-based compensation

(b)


37


24


0.02


0.02














Less:  Restructuring (included in general and administrative)

(c)


(1)


-


-


-














Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)


77


38


0.03


0.03














Less:  Impairment of intangible assets

(e)


326


198


0.16


0.16













Non-GAAP Measurement


$

901

$

655

$

0.54

$

0.53








































Year Ended December 31, 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

Impairment of Intangible Assets

Total Costs and Expenses

GAAP Measurement


$

4,447

$

1,350

$

241

$

338

$

197

$

642

$

520

$

364


326

$

3,978


Less:  Net effect from deferral in net revenues and related cost of sales

(a)


356


3


-


29


5


-


-


-


-


37


Less:  Stock-based compensation

(b)


-


-


-


(65)


-


(12)


(8)


(46)


-


(131)


Less:  Restructuring (included in general and administrative)

(c)


-


-


-


-


-


-


-


(3)


-


(3)


Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)


-


(5)


-


(15)


(102)


-


-


(1)


-


(123)


Less:  Impairment of intangible assets

(e)


-


-


-


-


-


-


-


-


(326)


(326)

Non-GAAP Measurement


$

4,803

$

1,348

$

241

$

287

$

100

$

630

$

512

$

314

$

-

$

3,432















































Year Ended December 31, 2010


Operating Income

Net Income

Basic Earnings per Share

Diluted Earnings per Share













GAAP Measurement


$

469

$

418

$

0.34

$

0.33














Less:  Net effect from deferral in net revenues and related cost of sales

(a)


319


232


0.19


0.19














Less:  Stock-based compensation

(b)


131


88


0.07


0.07














Less:  Restructuring (included in general and administrative)

(c)


3


2


-


-














Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)


123


53


0.04


0.04














Less:  Impairment of intangible assets

(e)


326


198


0.16


0.16













Non-GAAP Measurement


$

1,371

$

991

$

0.81

$

0.79




























































(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, and the change in the fair value of assets and liabilities from purchase price accounting related adjustments.


(e) Reflects impairment of intangible assets acquired as a result of purchase price accounting.

























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 December 31, 2009

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

Impairment of Intangible Assets

Restructuring

Total Costs and Expenses

GAAP Measurement


$

1,557 

$

670 

$

54 

$

136 

$

152 

$

265 

$

215 

$

94 

$

409 

$

(6)

$

1,989 


Less:  Net effect from deferral in net revenues and related cost of sales

(a)


938 


194 



16 








214 


Less:  Stock-based compensation

(b)





(16)



(12)



(20)




(47)


Less:  Costs related to the Business Combination, integration and restructuring

(c)













Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)



(1)



(29)


(112)







(142)


Less:  Impairment of intangible assets

(e)










(409)



(409)

Non-GAAP Measurement


$

2,495 

$

863 

$

54 

$

107 

$

44 

$

253 

$

216 

$

74 

$

$

$

1,611 



















































Three Months Ended December 31, 2009

Operating Income (Loss)

Net Income (Loss)

Basic Earnings (Loss) per Share

Diluted Earnings (Loss) per Share















GAAP Measurement


$

(432)

$

(286)

$

(0.23)

$

(0.23)
















Less:  Net effect from deferral in net revenues and related cost of sales

(a)


724 


552 


0.43 


0.43 
















Less:  Stock-based compensation

(b)


47 


29 


0.02 


0.02 
















Less:  Costs related to the Business Combination, integration and restructuring

(c)


(6)


(4)


















Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)


142 


92 


0.07 


0.07 
















Less:  Impairment of intangible assets

(e)


409 


249 


0.19 


0.19 















Non-GAAP Measurement


$

884 

$

632 

$

0.50 

$

0.49 












































Year Ended December 31, 2009

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

Impairment of Intangible Assets

Restructuring

Total Costs and Expenses

GAAP Measurement


$

4,279 

$

1,432 

$

212 

$

348 

$

315 

$

627 

$

544 

$

395 

$

409 

$

23 

$

4,305 


Less:  Net effect from deferral in net revenues and related cost of sales

(a)


497 


115 



(4)


(2)







114 


Less:  Stock-based compensation

(b)





(34)



(40)


(9)


(71)




(154)


Less:  Results of Activision Blizzard's non-core exit operations

(f)


(1)







(3)


(10)




(9)


Less:  Costs related to the Business Combination, integration and restructuring

(c)









(24)



(23)


(47)


Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)



(5)



(66)


(186)




(2)




(259)


Less:  Impairment of intangible assets

(e)










(409)



(409)

Non-GAAP Measurement

$

4,775 

$

1,542 

$

212 

$

244 

$

127 

$

591 

$

537 

$

288 

$

$

$

3,541 



















































Year Ended December 31, 2009

Operating Income (Loss)

Net Income

Basic Earnings per Share

Diluted Earnings per Share















GAAP Measurement


$

(26)

$

113 

$

0.09 

$

0.09 
















Less:  Net effect from deferral in net revenues and related cost of sales

(a)


383 


279 


0.22 


0.21 
















Less:  Stock-based compensation

(b)


154 


96 


0.07 


0.07 
















Less:  Results of Activision Blizzard's non-core exit operations

(f)




















Less:  Costs related to the Business Combination, integration and restructuring

(c)


47 


28 


0.02 


0.02 
















Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)


259 


141 


0.11 


0.11 
















Less:  Impairment of intangible assets

(e)


409 


249 


0.19 


0.19 















Non-GAAP Measurement


$

1,234 

$

910 

$

0.70 

$

0.69 


































































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




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




(c) Reflects costs related to the Business Combination with Vivendi Games (including transaction costs, integration costs and restructuring activities). 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, and the change in the fair value of assets and liabilities from purchase price accounting related adjustments.




(e) Reflects impairment of intangible assets acquired as a result of purchase accounting.




(f) Reflects the results of products and operations from the historical Vivendi Games businesses that the company has exited, divested or wound down.





























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 Months and Year Ended December 31, 2010 and 2009

(Amounts in millions)
























Three Months Ended





December 31, 2010



December 31, 2009



$ Increase


% Increase





Amount


% of Total



Amount


% of Total



(Decrease)


(Decrease)


GAAP Net Revenues by Distribution Channel



















Retail channel

$

820


57

%


$

1,000


64

%


$

(180)


(18)

%


Digital online channel*


414


29




336


22




78


23



Total Activision and Blizzard


1,234


86




1,336


86




(102)


(8)























Distribution


193


14




221


14




(28)


(13)



Total consolidated GAAP net revenues  


1,427


100




1,557


100




(130)


(8)






















Change in Deferred Net Revenues(1)



















Retail channel


1,059






933











Digital online channel*


62






5











Total changes in deferred net revenues


1,121






938






























Non-GAAP Net Revenues by Distribution Channel



















Retail channel


1,879


73




1,933


77




(54)


(3)



Digital online channel*


476


19




341


14




135


40



Total Activision and Blizzard


2,355


92




2,274


91




81


4























Distribution


193


8




221


9




(28)


(13)



Total non-GAAP net revenues (2) 

$

2,548


100

%


$

2,495


100

%


$

53


2

%














































Year Ended





December 31, 2010



December 31, 2009



$ Increase


% Increase





Amount


% of Total



Amount


% of Total



(Decrease)


(Decrease)


GAAP Net Revenues by Distribution Channel



















Retail channel

$

2,629


59

%


$

2,622


61

%


$

7


-

%


Digital online channel*


1,440


32




1,234


29




206


17



Total Activision and Blizzard


4,069


91




3,856


90




213


6























Distribution


378


9




423


10




(45)


(11)



Total consolidated GAAP net revenues  


4,447


100




4,279


100




168


4






















Change in Deferred Net Revenues(1)



















Retail channel


243






457











Digital online channel*


113






39











Total changes in deferred net revenues


356






496






























Non-GAAP Net Revenues by Distribution Channel



















Retail channel


2,872


60




3,079


64




(207)


(7)



Digital online channel*


1,553


32




1,273


27




280


22



Total Activision and Blizzard


4,425


92




4,352


91




73


2























Distribution


378


8




423


9




(45)


(11)



Total non-GAAP net revenues (2)

$

4,803


100

%


$

4,775


100

%


$

28


1

%






















(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 contents, digitally distributed products, and wireless devices.





ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three Months Ended December 31, 2010 and 2009

(Amounts in millions)









Three Months Ended





December 31, 2010



December 31, 2009



$ Increase


% Increase





Amount


% of Total



Amount


% of Total



(Decrease)


(Decrease)


GAAP Net Revenues by Segment/Platform Mix


















Activision and Blizzard:



















MMORPG

$

340


24

%


$

309


20

%


$

31


10

%


PC and other


124


9




45


3




79


176




Sony PlayStation  3


259


18




228


15




31


14




Sony PlayStation  2


6


---




53


3




(47)


(89)




Microsoft Xbox 360


281


20




324


21




(43)


(13)




Nintendo Wii


141


10




260


17




(119)


(46)



Total console


687


48




865


56




(178)


(21)




Sony PlayStation Portable


6


---




16


1




(10)


(63)




Nintendo Dual Screen


77


5




101


6




(24)


(24)



Total handheld


83


5




117


7




(34)


(29)



Total Activision and Blizzard


1,234


86




1,336


86




(102)


(8)






















Distribution:



















Total Distribution


193


14




221


14




(28)


(13)



Total consolidated GAAP net revenues


1,427


100




1,557


100




(130)


(8)






















Change in Deferred Net Revenues(1)


















Activision and Blizzard:



















MMORPG


204






12











PC and other


---






76












Sony PlayStation  3


393






343












Microsoft Xbox 360


441






429












Nintendo Wii


75






78











Total console


909






850












Nintendo Dual Screen


8






---











Total changes in deferred net revenues


1,121






938






























Non-GAAP Net Revenues by Segment/Platform Mix


















Activision and Blizzard:



















MMORPG


544


21




321


12




223


69



PC and other


124


5




121


5




3


2




Sony PlayStation  3


652


26




571


23




81


14




Sony PlayStation  2


6


---




53


2




(47)


(89)




Microsoft Xbox 360


722


28




753


30




(31)


(4)




Nintendo Wii


216


8




338


14




(122)


(36)



Total console


1,596


62




1,715


69




(119)


(7)




Sony PlayStation Portable


6


---




16


1




(10)


(63)




Nintendo Dual Screen


85


4




101


4




(16)


(16)



Total handheld


91


4




117


5




(26)


(22)



Total Activision and Blizzard  


2,355


92




2,274


91




81


4























Total Distribution


193


8




221


9




(28)


(13)



Total non-GAAP net revenues(2) 

$

2,548


100

%


$

2,495


100

%


$

53


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.





ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Year Ended December 31, 2010 and 2009

(Amounts in millions)
























Year Ended






December 31, 2010




December 31, 2009



$ Increase


% Increase





Amount


% of Total



Amount


% of Total



(Decrease)


(Decrease)


GAAP Net Revenues by Segment/Platform Mix


















Activision and Blizzard:



















MMORPG

$

1,230


28

%


$

1,248


29

%


$

(18)


(1)

%


PC and other


325


7




164


4




161


98




Sony PlayStation  3


854


19




584


14




270


46




Sony PlayStation  2


35


1




174


4




(139)


(80)




Microsoft Xbox 360


1,033


23




857


19




176


21




Nintendo Wii


408


9




584


14




(176)


(30)



Total console


2,330


52




2,199


51




131


6




Sony PlayStation Portable


16


---




48


1




(32)


(67)




Nintendo Dual Screen


168


4




196


5




(28)


(14)



Total handheld


184


4




244


6




(60)


(25)



Total Activision and Blizzard


4,069


91




3,855


90




214


6






















Distribution:



















Total Distribution


378


9




423


10




(45)


(11)



Total platform mix net revenues  


4,447


100




4,278


100




169


4























Other(1) 


---


---




1


---




(1)


NM



Total consolidated GAAP net revenues


4,447


100




4,279


100




168


4






















Change in Deferred Net Revenues (1)


















Activision and Blizzard:



















MMORPG


191






(93)











PC and other


81






49












Sony PlayStation  3


77






259












Microsoft Xbox 360


15






284












Nintendo Wii


(16)






(2)











Total console


76






541












Nintendo Dual Screen


8






---











Total changes in deferred net revenues


356






497






























Other(1) 


---






(1)






























Non-GAAP Net Revenues by Segment/Platform Mix


















Activision and Blizzard:



















MMORPG


1,421


30




1,155


24




266


23



PC and other


406


8




213


4




193


91




Sony PlayStation  3


931


19




843


18




88


10




Sony PlayStation  2


35


1




174


4




(139)


(80)




Microsoft Xbox 360


1,048


22




1,141


24




(93)


(8)




Nintendo Wii


392


8




582


12




(190)


(33)



Total console


2,406


50




2,740


58




(334)


(12)




Sony PlayStation Portable


16


---




48


1




(32)


(67)




Nintendo Dual Screen


176


4




196


4




(20)


(10)



Total handheld


192


4




244


5




(52)


(21)



Total Activision and Blizzard  


4,425


92




4,352


91




73


2























Total Distribution


378


8




423


9




(45)


(11)



Total non-GAAP net revenues(2)

$

4,803


100

%


$

4,775


100

%


$

28


1

%






















(1) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues and other.


(2) 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 And Year Ended December 31, 2010 and 2009

(Amounts in millions)
























Three Months Ended






December 31, 2010




December 31, 2009



$ Increase


% Increase





Amount


% of Total



Amount


% of Total



(Decrease)


(Decrease)


GAAP Net Revenues by Geographic Region




















North America


$

734


51

%


$

759


49

%


$

(25)


(3)

%


Europe



600


42




710


46




(110)


(15)



Asia Pacific



93


7




88


5




5


6



Total consolidated GAAP net revenues  



1,427


100




1,557


100




(130)


(8)






















Change in Deferred Net Revenues(1)




















North America



627






528











Europe



440






371











Asia Pacific



54






39











Total changes in net revenues



1,121






938






























Non-GAAP Net Revenues by Geographic Region




















North America



1,361


53




1,287


52




74


6



Europe



1,040


41




1,081


43




(41)


(4)



Asia Pacific



147


6




127


5




20


16



Total non-GAAP net revenues(2)


$

2,548


100

%


$

2,495


100

%


$

53


2

%















































Year Ended






December 31, 2010




December 31, 2009




$ Increase


% Increase






Amount


% of Total




Amount


% of Total




(Decrease)


(Decrease)


GAAP Net Revenues by Geographic Region




















North America


$

2,409


54

%


$

2,217


52

%


$

192


9

%


Europe



1,743


39




1,798


42




(55)


(3)



Asia Pacific



295


7




263


6




32


12



Total geographic region net revenues  



4,447


100




4,278


100




169


4























Other(1) 



---


---




1


---




(1)


NM



Total consolidated GAAP net revenues



4,447


100




4,279


100




168


4






















Change in Deferred Net Revenues (1) 




















North America



166






241











Europe



159






224











Asia Pacific



31






32











Total changes in net revenues



356






497






























Other(1) 



---






(1)






























Non-GAAP Net Revenues by Geographic Region




















North America



2,575


54




2,458


52




117


5



Europe



1,902


39




2,022


42




(120)


(6)



Asia Pacific



326


7




295


6




31


11



Total non-GAAP net revenues(2)


$

4,803


100

%


$

4,775


100

%


$

28


1

%






















(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 Months And Year Ended December 31, 2010 and 2009

(Amounts in millions)



Three Months Ended



December 31, 2010



December 31, 2009



$ Increase


% Increase



Amount


% of Total



Amount


% of Total



(Decrease)


(Decrease)


Segment net revenues:



















Activision(i)

$

1,785


125

%


$

1,945


125

%


$

(160)


(8)

%


Blizzard(ii)


570


40




329


21




241


73



Distribution(iii)


193


14




221


14




(28)


(13)



Operating segment total


2,548


179




2,495


160




53


2




















Reconciliation to consolidated net revenues:



















Net effect from deferral of net revenues


(1,121)


(79)




(938)


(60)









Consolidated net revenues

$

1,427


100

%


$

1,557


100

%



(130)


(8)




















Segment income from operations:



















Activision(i)

$

599





$

712






(113)


(16)



Blizzard(ii)


291






162






129


80



Distribution(iii)


11






10






1


10



Operating segment total


901






884






17


2




















Reconciliation to consolidated operating income (loss):



















Net effect from deferral of net revenues and related cost of sales


(859)






(724)











Stock-based compensation expense


(37)






(47)











Restructuring  


1






6











Amortization of intangible assets and purchase price accounting



















    related adjustments


(77)






(142)











Impairment of intangible assets


(326)






(409)











Consolidated operating  (loss)

$

(397)





$

(432)





$

35


(8)

%




















    Operating margin from total operating segments


35

%





35

%



















































Year Ended



December 31, 2010



December 31, 2009



$ Increase


% Increase



Amount


% of Total



Amount


% of Total



(Decrease)


(Decrease)


Segment net revenues:



















Activision(i)

$

2,769