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 -

Feb 09, 2011, 16:15 ET from Activision Blizzard, Inc.

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