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Activision Blizzard Announces Second Quarter CY 2010 Financial Results

Aug 05, 2010 (04:08 PM EDT)
URL: http://www.techweb.com/show-press-release/X812019/activision-blizzard-announces-second-quarter-cy-2010-financial-results.html

- Second Quarter EPS Ahead of Prior Outlook -

- Company Reaffirms CY 2010 Net Revenues and EPS Outlook -

- Q2 Sales From Online Channels Exceeded Retail Sales For the First Time -

SANTA MONICA, Calif., Aug. 5 /PRNewswire-FirstCall/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced financial results for the second quarter of 2010.

For the quarter ended June 30, 2010, Activision Blizzard’s GAAP net revenues were $967 million, and its non-GAAP net revenues were $683 million.  For the quarter ended June 30, 2010, Activision Blizzard’s GAAP earnings per diluted share were $0.17, and the company’s non-GAAP earnings per diluted share were $0.06.  The company reports results on both a GAAP and a non-GAAP basis.  Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

Robert Kotick, CEO of Activision Blizzard, stated, “Our quarterly results were fueled by continued strong consumer response to Activision Publishing’s Call of Duty® franchise and Blizzard Entertainment’s World of Warcraft®.  For the first and second quarters, we outperformed our earnings per share outlook, and we grew our operating margin year over year for the six month period, driven by our focused effort to increase digital revenues.  There are clearly more opportunities than ever before to create great games and we are at the forefront of doing so.”

“Looking to the balance of the year, we expect to release the best slate in our company’s history.  Blizzard Entertainment’s StarCraft® II: Wings of Liberty™ is off to a strong start worldwide with midnight openings on July 27, 2010 at 3,100 GameStop stores in the U.S. and 8,000 retailers around the world.   We are, of course, enthusiastic about Blizzard Entertainment’s upcoming release of World of Warcraft: Cataclysm™, which began a closed beta test on June 30,” Kotick added.

Kotick continued, “Call of Duty: Black Ops™ is shaping up to be one of the best games Activision Publishing has ever created, the marketing programs are the biggest in the company's history and to date, pre-orders of the game exceed the pre-orders for Modern Warfare 2 at this time last year.  This fall, our lineup includes Activision Publishing’s Guitar Hero®: Warriors of Rock™, DJ Hero 2™, Tony Hawk®: SHRED™, Spider-Man: Shattered Dimensions, GoldenEye 007™ and Bakugan®, all of which look to be very promising as well.  We have never been better positioned for the holiday season than we are today with such a strong slate of games and the best team in our industry to bring them to market.”

Business Highlights

For the first six months of the calendar year, in the U.S. and Europe, Call of Duty was the #1 third-party franchise and Call of Duty: Modern Warfare 2 was the #1 first-person action game, according to The NPD Group, Charttrack and Gfk.  Additionally, for the six month period, Activision Publishing was the #2 U.S. third-party console and handheld publisher, according to The NPD Group.  

Other highlights are as follows:

  • During the quarter, in the U.S., Call of Duty was the #3 franchise overall and the #1 first-person action franchise, according to The NPD Group.
  • According to The NPD Group, Call of Duty: Modern Warfare 2 was the #1 first-person action title overall in the U.S. for the quarter.
  • Blizzard Entertainment estimates that StarCraft II: Wings of Liberty sold through more than 1 million units in its first 24 hours, making it the best-selling PC game of 2010, and 1.5 million units in its first 48 hours, setting a record for fastest-selling strategy game of all time.
  • During the quarter, according to The NPD Group, Activision Blizzard had four top-10 U.S. PC games – Activision Publishing’s Call of Duty: Modern Warfare 2 and Blizzard Entertainment’s World of Warcraft: Wrath of the Lich King®, World of Warcraft Battle Chest® and Diablo® Battle Chest®.
  • During the quarter, life-to-date sales of map packs for the Call of Duty franchise surpassed 20 million units.
  • During the quarter, sales from digital online channels grew more than 20% year over year.  
  • During the quarter, Activision Publishing released four games -- Shrek Forever After™, Blur™, Singularity™ and Transformers™: War for Cybertron -- as well as two Call of Duty map packs -- Call of Duty: Modern Warfare® 2 Stimulus Package for the PLAYSTATION®3 and PC and Call of Duty: Modern Warfare 2 Resurgence Pack for the Xbox® 360.  
  • On February 10, 2010, Activision Blizzard announced that its Board of Directors had authorized a stock repurchase program under which the company can purchase up to $1 billion of the company’s common stock.  As of June 30, 2010, Activision Blizzard had purchased $334 million of its common stock, or approximately 31 million shares.
  • On April 2, 2010, Activision Blizzard paid a cash dividend of $0.15 per common share to shareholders of record at the close of business on February 22, 2010.

On July 13, Activision Blizzard announced that marketing and advertising industry veteran Eric Hirshberg has been named Chief Executive Officer of Activision Publishing, effective September 7, 2010.  In this role, Mr. Hirshberg will oversee Activision Publishing's operational management including its studio, product development functions and consumer marketing activities.  He will report to Thomas Tippl, Chief Operating Officer of Activision Blizzard.  

Company Outlook

In the third quarter, Blizzard Entertainment released StarCraft II: Wings of Liberty, and Activision Publishing expects to release Guitar Hero: Warriors of Rock for the Xbox 360 video game and entertainment system from Microsoft, the PLAYSTATION3 computer entertainment system from Sony and the Wii home video game system from Nintendo; and Spider-Man: Shattered Dimensions for the Xbox 360 video game and entertainment system from Microsoft, the PLAYSTATION3 computer entertainment system from Sony, the Wii home video game system from Nintendo, and the Nintendo DS.

Additionally, Activision Publishing has moved the anticipated release date for its upcoming open-world action title, True Crime®: Hong Kong, from 2010 to 2011 in order to give the development team more time to deliver the high-quality entertainment experience they envision for the game.  

Activision Blizzard’s outlook is based on assumptions about sell through rates for its products and the launch timing, success and pricing of its new slate of products which are subject to significant risks and uncertainties, including declines in the overall demand for video games and in the demand for the company’s products, the dependence in the interactive software industry and by the company on an increasingly limited number of popular franchises for a disproportionately high percentage of revenues and profits, the company’s ability to predict shifts in consumer preferences among genres, such as music and casual games, and competition.  Current macroeconomic conditions and market conditions within the video game industry increase those risks and uncertainties.  

The company’s outlook is also subject to other risks and uncertainties including litigation and associated costs, fluctuations in foreign exchange and tax rates, counterparty risks relating to customers, licensees, licensors and manufacturers and risks relating to the ongoing ability of Blizzard Entertainment’s licensee, NetEase.com, Inc., to operate World of Warcraft in China on a paying basis without interruption.  As a result of these and other factors, actual results may deviate materially from the outlook presented below.

Despite Activision Publishing moving the release of True Crime: Hong Kong into 2011, Activision Blizzard is reaffirming its calendar year 2010 outlook due to an increase in its expectations for the Call of Duty brand in the fourth quarter.  For the calendar year, the company still expects GAAP net revenues of $4.2 billion and GAAP earnings per diluted share of $0.49, and on a non-GAAP basis, the company still expects net revenues of $4.4 billion and $0.72 earnings per diluted share as provided on May 6, 2010.

For the third quarter of calendar year 2010, Activision Blizzard expects GAAP net revenues of $600 million, and to break even on GAAP earnings per diluted share. On a non-GAAP basis, the company expects net revenues of $725 million and $0.08 earnings per diluted share for the third quarter.    

Conference Call

Today at 4:30 p.m. EDT, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter ended June 30, 2010 and management’s outlook for the remainder of the calendar year.

The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 888-389-5986 in the U.S. with passcode 1545851.

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 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); 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 every major category 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,” “would,” “might,” “remains,” “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, the seasonal and cyclical nature of the interactive game market, any further difficulties related to World of Warcraft in China, Activision Blizzard’s ability to predict consumer preferences among competing hardware platforms, declines in software pricing, product returns and price protection, product delays, retail acceptance of Activision Blizzard’s products, adoption rate and availability of new hardware (including peripherals) and related software, industry competition including from used games and other forms of entertainment, litigation risks and associated costs, rapid changes in technology, industry standards, business models including online and used games, and consumer preferences including interest in specific genres such as music, first-person action and massively multiplayer online games, 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.  Forward-looking statements believed to be true when made 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.

(Tables to Follow)

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS





(Unaudited)





(Amounts in millions, except per share data)















Three months ended June 30,

Six months ended June 30,




2010

2009

2010

2009








Net revenues:






Product sales

$  643

$  747

$ 1,629

$ 1,437


Subscription, licensing and other revenues

324

291

646

582


    Total net revenues

967

1,038

2,275

2,019








Costs and expenses:






Cost of sales - product costs

235

281

572

577


Cost of sales - software royalties and amortization

51

86

150

158


Cost of sales - intellectual property licenses

29

54

72

118


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

52

51

106

103


Product development

104

123

247

240


Sales and marketing

126

118

182

201


General and administrative

70

92

135

195


Restructuring

-

15

-

30


    Total costs and expenses

667

820

1,464

1,622

Operating income

300

218

811

397

Investment and other income, net

1

-

1

10

Income before income tax expense

301

218

812

407

Income tax expense

82

23

212

23

Net income

$  219

$  195

$    600

$    384















Basic earnings per common share

$ 0.18

$ 0.15

$   0.48

$   0.29

Weighted average common shares outstanding

1,232

1,289

1,239

1,299















Diluted earnings per common share

$ 0.17

$ 0.15

$   0.47

$   0.28

Weighted average common shares outstanding assuming dilution

1,248

1,332

1,254

1,345



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS



(Unaudited)



(Amounts in millions)






June 30,

December 31,




2010

2009

ASSETS 




Current assets:





Cash and cash equivalents

$                      2,214

$                      2,768



Short-term investments

632

477



Accounts receivable, net

190

739



Inventories

157

241



Software development

219

224



Intellectual property licenses

27

55



Deferred income taxes, net

401

498



Other current assets

128

327



    Total current assets

3,968

5,329


Long-term investments

23

23


Software development

30

10


Intellectual property licenses

32

28


Property and equipment, net

160

138


Other assets

13

9


Intangible assets, net

587

618


Trademark and trade names

433

433


Goodwill

7,147

7,154


                Total assets

$                    12,393

$                    13,742






LIABILITIES AND SHAREHOLDERS’ EQUITY




Current liabilities:





Accounts payable

$                         149

$                         302



Deferred revenues

482

1,426



Accrued expenses and other liabilities

459

779



     Total current liabilities

1,090

2,507



Deferred income taxes, net

249

270



Other liabilities

196

209


              Total liabilities

1,535

2,986







Shareholders’ equity:





Common stock

-

-



Additional paid-in capital

12,260

12,376



Treasury stock

(1,584)

(1,235)



Retained earnings (accumulated deficit)

239

(361)



Accumulated other comprehensive loss

(57)

(24)



     Total shareholders’ equity

10,858

10,756



         Total liabilities and shareholders’ equity

$                    12,393

$                    13,742



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)













Three months ended June 30, 2010 

Net Revenues

Cost of Sales - Product Costs

Cost of Sales - Software Royalties and Amortization

Cost of Sales - Intellectual Property Licenses

Cost of Sales - MMORPG

Product Development

Sales and Marketing

General and Administrative

Total Costs and Expenses

GAAP Measurement


$                967

$                 235

$                    51

$                   29

$                   52

$               104

$         126

$                   70

$                   667


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

(a)

(284)

(68)

13

(2)

-

-

-

-

(57)


Less:  Stock-based compensation (including purchase price accounting related adjustments)

(b)

-

-

(12)

-

-

6

(2)

(9)

(17)


Less:  Restructuring (included in general and administrative)

(c)

-

-

-

-

-

-

-

(1)

(1)


Less:  Amortization of intangible assets

(d)

-

(1)

-

(9)

-

-

-

-

(10)

Non-GAAP Measurement


$                683

$                 166

$                    52

$                   18

$                   52

$               110

$         124

$                   60

$                   582


































Three months ended June 30, 2010 

Operating Income

Net Income

Basic Earnings per Share

Diluted Earnings per Share

GAAP Measurement


$                300

$                 219

$                 0.18

$                0.17


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

(a)

(227)

(165)

(0.13)

(0.13)


Less:  Stock-based compensation (including purchase price accounting related adjustments)

(b)

17

12

0.01

0.01


Less:  Restructuring (included in general and administrative)

(c)

1

-

0.00

0.00


Less:  Amortization of intangible assets

(d)

10

6

0.00

0.00

Non-GAAP Measurement


$                101

$                   72

$                 0.06

$                0.06




































Six months ended June 30, 2010 

Net Revenues

Cost of Sales - Product Costs

Cost of Sales - Software Royalties and Amortization

Cost of Sales - Intellectual Property Licenses

Cost of Sales - MMORPG

Product Development

Sales and Marketing

General and Administrative

Total Costs and Expenses

GAAP Measurement


$             2,275

$                 572

$                  150

$                   72

$                 106

$               247

$         182

$                 135

$                1,464


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

(a)

(878)

(201)

(24)

(16)

-

-

-

-

(241)


Less:  Stock-based compensation (including purchase price accounting related adjustments)

(b)

-

-

(41)

-

-

2

(3)

(18)

(60)


Less:  Restructuring (included in general and administrative)

(c)

-

-

-

-

-

-

-

(4)

(4)


Less:  Amortization of intangible assets

(d)

-

(2)

(4)

(21)

-

-

-

(1)

(28)

Non-GAAP Measurement


$             1,397

$                 369

$                    81

$                   35

$                 106

$               249

$         179

$                 112

$                1,131







































Six months ended June 30, 2010 

Operating Income

Net Income

Basic Earnings per Share

Diluted Earnings per Share






GAAP Measurement


$                811

$                 600

$                 0.48

$                0.47







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

(a)

(637)

(473)

(0.38)

(0.37)







Less:  Stock-based compensation (including purchase price accounting related adjustments)

(b)

60

42

0.03

0.03







Less:  Restructuring (included in general and administrative)

(c)

4

2

0.00

0.00







Less:  Amortization of intangible assets

(d)

28

17

0.01

0.01






Non-GAAP Measurement


$                266

$                 188

$                 0.15

$                0.15











































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


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


(c) Reflects restructuring related to the Business Combination with Vivendi Games. Restructuring activities includes severance costs, facility exit costs and balance sheet write down and exit costs from the cancellation of projects.


(d) Reflects amortization of intangible assets.














The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.






ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)














Three months ended June 30, 2009 

Net Revenues

Cost of Sales -
Product Costs

Cost of Sales -
Software
Royalties and
Amortization

Cost of Sales -
Intellectual
Property
Licenses

Cost of Sales -
MMORPG

Product
Development

Sales and
Marketing

General and
Administrative

Restructuring

Total Costs
and Expenses

GAAP Measurement


$                    1,038

$                    281

$                  86

$              54

$                      51

$                123

$            118

$                    92

$                     15

$            820


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

(a)

(237)

(43)

(28)

(2)

-

-

-

-

-

(73)


Less:  Stock-based compensation (including purchase price accounting related adjustments)

(b)

-

-

(10)

-

-

(8)

(4)

(21)

-

(43)


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

(c)  

-

-

-

-

-

1

-

(4)

-

(3)


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

(d)

-

-

-

-

-

-

-

(3)

(15)

(18)


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

(e)

-

(1)

(12)

(24)

-

-

-

(1)

-

(38)

Non-GAAP Measurement


$                       801

$                    237

$                  36

$              28

$                     51

$                116

$            114

$                    63

$                      -

$            645




































Three months ended June 30, 2009 

Operating Income

Net Income

Basic Earnings per Share

Diluted Earnings per Share

GAAP Measurement


$                               218

$                            195

$                       0.15

$                   0.15


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

(a)

(164)

(145)

(0.11)

(0.11)


Less:  Stock-based compensation (including purchase price accounting related adjustments)

(b)

43

27

0.02

0.02


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

(c)  

3

2

0.00

0.00


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

(d)

18

11

0.01

0.01


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

(e)

38

22

0.02

0.02

Non-GAAP Measurement


$                               156

$                            112

$                       0.09

$                   0.08






























Six months ended June 30, 2009 

Net Revenues

Cost of Sales -
Product Costs

Cost of Sales -
Software
Royalties and
Amortization

Cost of Sales -
Intellectual
Property
Licenses

Cost of Sales -
MMORPG

Product
Development

Sales and
Marketing

General and
Administrative

Restructuring

Total Costs and Expenses

GAAP Measurement


$                    2,019

$                    577

$                158

$            118

$                    103

$                240

$            201

$                  195

$                     30

$         1,622


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

(a)

(493)

(100)

(51)

(11)

-

-

-

-

-

(162)


Less:  Stock-based compensation (including purchase price accounting related adjustments)

(b)

-

-

(14)

-

-

(17)

(7)

(33)

-

(71)


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

(c)  

(1)

-

-

-

-

4

(2)

(10)

-

(8)


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

(d)

-

-

-

-

-

-

-

(17)

(30)

(47)


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

(e)

-

(2)

(29)

(51)

-

-

-

(2)

-

(84)

Non-GAAP Measurement


$                    1,525

$                    475

$                  64

$              56

$                    103

$                227

$            192

$                  133

$                      -

$         1,250










































Six months ended June 30, 2009 

Operating Income

Net Income

Basic Earnings per Share

Diluted Earnings per Share







GAAP Measurement


$                               397

$                            384

$                       0.29

$                   0.28








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

(a)

(331)

(279)

(0.21)

(0.21)








Less:  Stock-based compensation (including purchase price accounting related adjustments)

(b)

71

44

0.03

0.03








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

(c)  

7

5

0.00

0.00








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

(d)

47

28

0.02

0.02








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

(e)

84

41

0.03

0.03







Non-GAAP Measurement


$                               275

$                            223

$                       0.17

$                   0.16


































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


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


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


(d) 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.


(e) Reflects amortization of intangible assets, and the change in the fair value of assets and liabilities from purchase price accounting related adjustments.




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 Ended June 30, 2010 and 2009

(Amounts in millions)




















Three Months Ended






June 30, 2010


June 30, 2009


$ Increase

% Increase






Amount

% of Total



Amount

% of Total



(Decrease)

(Decrease)


GAAP Net Revenues by Segment/Platform Mix













Activision and Blizzard:














MMORPG


$     289

30

%


$     324

31

%


$         (35)

(11)

%


PC and other


81

8



41

4



40

98




Sony PlayStation  3


182

19



152

15



30

20




Sony PlayStation  2


9

1



44

4



(35)

(80)




Microsoft Xbox 360


240

24



231

22



9

4




Nintendo Wii


76

8



118

11



(42)

(36)



Total console


507

52



545

52



(38)

(7)




Sony PlayStation Portable


3

-



17

2



(14)

(82)




Nintendo Dual Screen


36

5



48

5



(12)

(25)



Total handheld


39

5



65

7



(26)

(40)



Total Activision and Blizzard


916

95



975

94



(59)

(6)

















Distribution:














Total Distribution


51

5



63

6



(12)

(19)



Total consolidated GAAP net revenues


967

100



1,038

100



(71)

(7)

















Change in Deferred Net Revenues (1)













Activision and Blizzard:














MMORPG


-




(42)








PC and other


(35)




(13)









Sony PlayStation  3


(90)




(47)









Microsoft Xbox 360


(119)




(91)









Nintendo Wii


(40)




(44)








Total console


(249)




(182)








Total changes in deferred net revenues


(284)




(237)






















Non-GAAP Net Revenues by Segment/Platform Mix












Activision and Blizzard:













MMORPG


289

42



282

35



7

2



PC and other


46

7



28

4



18

64




Sony PlayStation  3


92

14



105

13



(13)

(12)




Sony PlayStation  2


9

1



44

5



(35)

(80)




Microsoft Xbox 360


121

18



140

18



(19)

(14)




Nintendo Wii


36

5



74

9



(38)

(51)



Total console


258

38



363

45



(105)

(29)




Sony PlayStation Portable


3

1



17

2



(14)

(82)




Nintendo Dual Screen


36

5



48

6



(12)

(25)



Total handheld


39

6



65

8



(26)

(40)



Total Activision and Blizzard


632

93



738

92



(106)

(14)


















Total Distribution


51

7



63

8



(12)

(19)



Total non-GAAP net revenues (2)


$     683

100

%


$     801

100

%


$       (118)

(15)

%
































(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 Six Months Ended June 30, 2010 and 2009

(Amounts in millions)


















Six Months Ended





June 30, 2010


June 30, 2009


$ Increase

% Increase





Amount

% of Total



Amount

% of Total



(Decrease)

(Decrease)


GAAP Net Revenues by Segment/Platform Mix












Activision and Blizzard:













MMORPG

$     594

26

%


$     638

32

%


$         (44)

(7)

%


PC and other

135

7



87

4



48

55




Sony PlayStation  3

486

22



283

14



203

72




Sony PlayStation  2

24

1



84

4



(60)

(71)




Microsoft Xbox 360

624

27



429

21



195

45




Nintendo Wii

212

9



252

13



(40)

(16)



Total console

1,346

59



1,048

52



298

28




Sony PlayStation Portable

8

-



23

1



(15)

(65)




Nintendo Dual Screen

70

3



74

4



(4)

(5)



Total handheld

78

3



97

5



(19)

(20)



Total Activision and Blizzard

2,153

95



1,870

93



283

15
















Distribution:













Total Distribution

122

5



148

7



(26)

(18)



Total platform mix net revenues

2,275

100



2,018

100



257

13

















Other 1

-

-



1

-



(1)

NM



Total consolidated GAAP net revenues

2,275

100



2,019

100



256

13
















Change in Deferred Net Revenues (1)












Activision and Blizzard:













MMORPG

(7)




(75)








PC and other

(60)




(30)









Sony PlayStation  3

(312)




(118)









Microsoft Xbox 360

(399)




(183)









Nintendo Wii

(100)




(87)








Total console

(811)




(388)








Total changes in deferred net revenues

(878)




(493)





















Other (1)

-




(1)





















Non-GAAP Net Revenues by Segment/Platform Mix











Activision and Blizzard:













MMORPG

587

42



563

37



24

4



PC and other

75

5



57

4



18

32




Sony PlayStation  3

174

12



165

11



9

5




Sony PlayStation  2

24

2



84

5



(60)

(71)




Microsoft Xbox 360

225

16



246

16



(21)

(9)




Nintendo Wii

112

8



165

11



(53)

(32)



Total console

535

38



660

43



(125)

(19)




Sony PlayStation Portable

8

1



23

1



(15)

(65)




Nintendo Dual Screen

70

5



74

5



(4)

(5)



Total handheld

78

6



97

6



(19)

(20)



Total Activision and Blizzard

1,275

91



1,377

90



(102)

(7)

















Total Distribution

122

9



148

10



(26)

(18)



Total non-GAAP net revenues (2)

$  1,397

100

%


$  1,525

100

%


$       (128)

(8)

%






























(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 and Six Months Ended June 30, 2010 and 2009

(Amounts in millions)




















Three Months Ended






June 30, 2010


June 30, 2009


$ Increase

% Increase






Amount

% of Total



Amount

% of Total



(Decrease)

(Decrease)


GAAP Net Revenues by Geographic Region














North America


$     567

59

%


$     557

54

%


$             10

2

%


Europe


337

35



408

39



(71)

(17)



Asia Pacific


63

6



73

7



(10)

(14)



Total consolidated GAAP net revenues


967

100



1,038

100



(71)

(7)

















Change in Deferred Net Revenues (1)














North America


(192)




(165)








Europe


(79)




(69)








Asia Pacific


(13)




(3)








Total changes in net revenues


(284)




(237)






















Non-GAAP Net Revenues by Geographic Region














North America


375

55



392

49



(17)

(4)



Europe


258

38



339

42



(81)

(24)



Asia Pacific


50

7



70

9



(20)

(29)



Total non-GAAP net revenues (2)


$     683

100

%


$     801

100

%


$          (118)

(15)

%





































Six Months Ended






June 30, 2010



June 30, 2009


$ Increase

% Increase






Amount

% of Total



Amount

% of Total



(Decrease)

(Decrease)


GAAP Net Revenues by Geographic Region














North America


$  1,270

56

%


$  1,081

53

%


$           189

17

%


Europe


861

38



800

40



61

8



Asia Pacific


144

6



137

7



7

5



Total geographic region net revenues


2,275

100



2,018

100



257

13


















Other (1)


-

-



1

-



(1)

NM



Total consolidated GAAP net revenues


2,275

100



2,019

100



256

13

















Change in Deferred Net Revenues (1)














North America


(504)




(315)








Europe


(333)




(168)








Asia Pacific


(41)




(10)








Total changes in net revenues


(878)




(493)






















Other (1)


-




(1)






















Non-GAAP Net Revenues by Geographic Region














North America


766

55



766

51



-

-



Europe


528

38



632

41



(104)

(16)



Asia Pacific


103

7



127

8



(24)

(19)



Total non-GAAP net revenues (2)


$  1,397

100

%


$  1,525

100

%


$          (128)

(8)

%
































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


(2) Total non-GAAP net revenues presented also represents our total operating segment net revenues.



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

For the Three and Six Months Ended June 30, 2010 and 2009

(Amounts in millions)





















Three Months Ended






June 30, 2010


June 30, 2009


$ Increase


% Increase






Amount

% of Total



Amount

% of Total



(Decrease)


(Decrease)


Segment net revenues:















Activision (i)


$     333

34

%


$     448

43

%


$          (115)


(26)

%


Blizzard (ii)


299

31



290

28



9


3



Distribution (iii)


51

6



63

6



(12)


(19)



Operating segment total


683

71



801

77



(118)


(15)


















Reconciliation to consolidated net revenues:















Net effect from deferral of net revenues


284

29



237

23








Consolidated net revenues


$     967

100

%


$  1,038

100

%


(71)


(7)


















Segment income (loss) from operations:















Activision (i)


$     (53)




$       21




(74)


NM



Blizzard (ii)


155




134




21


16



Distribution (iii)


(1)




1




(2)


NM



Operating segment total


101




156




(55)


(35)


















Reconciliation to consolidated operating income:















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


227




164









Stock-based compensation expense


(17)




(43)









Restructuring


(1)




(15)









Amortization of intangible assets and purchase price accounting related adjustments


(10)




(38)









Integration and transactions costs


-




(3)









Other (iv)


-




(3)









Consolidated operating income


$     300




$     218




$             82


38

%



















Operating margin from total operating segments


15%




19%














































Six Months Ended








June 30, 2010



June 30, 2009


$ Increase


% Increase






Amount

% of Total



Amount

% of Total



(Decrease)


(Decrease)


Segment net revenues:















Activision (i)


$     670

29

%


$     796

39

%


$          (126)


(16)

%


Blizzard (ii)


605

27



581

30



24


4



Distribution (iii)


122

5



148

7



(26)


(18)



Operating segment total


1,397

61



1,525

76



(128)


(8)


















Reconciliation to consolidated net revenues:















Net effect from deferral of net revenues


878

39



493

24








Other (iv)


-

-



1

-








Consolidated net revenues


$   2,275

100

%


$   2,019

100

%


256


13


















Segment income (loss) from operations:















Activision (i)


$      (46)




$        (6)




(40)


NM



Blizzard (ii)


313




277




36


13



Distribution (iii)


(1)




4




(5)


NM



Operating segment total


266




275




(9)


(3)


















Reconciliation to consolidated operating income:















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


637




331









Stock-based compensation expense


(60)




(71)









Restructuring


(4)




(30)









Amortization of intangible assets and purchase price accounting related adjustments


(28)




(83)









Integration and transactions costs


-




(17)









Other (iv)


-




(8)









Consolidated operating income


$     811




$     397




$           414


104

%



















Operating margin from total operating segments


19%




18%


























(i) Activision Publishing (“Activision”) —  publishes interactive entertainment software and peripherals.



(ii) Blizzard —  Blizzard Entertainment, Inc. and its subsidiaries (“Blizzard”) publishes games and online subscription-based games in the MMORPG category.



(iii) Activision Blizzard Distribution (“Distribution”) — distributes interactive entertainment software and hardware products.



(iv) Other represents Non-Core activities, which are legacy Vivendi Games’ divisions or business units that we have exited, divested or wound down as part of our restructuring and integration efforts as a result of the Business Combination. Prior to July 1, 2009, Non-Core activities were managed as a stand alone operating segment; however, in light of the minimal activities and insignificance of Non-Core activities, as of that date we ceased their management as a separate operating segment and consequently, we are no longer providing separate operating segment disclosure.



ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOK

For the Quarter Ending September 30, 2010 and

Year Ending December 31, 2010

GAAP to Non-GAAP Reconciliation

(Amounts in millions, except per share data)


Outlook for


Outlook for



Three Months Ending


Year Ending



September 30, 2010


December 31, 2010






Net Revenues (GAAP)


$                             600


$                      4,180






Excluding the impact of:





Change in deferred net revenues

(a)

125


220






Non-GAAP Net Revenues


$                            725


$                     4,400











Earnings Per Diluted Share (GAAP)


$                                 -


$                      0.49






Excluding the impact of:





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

(b)

0.06


0.10

Stock-based compensation

(c)

0.02


0.07

Amortization of intangible assets

(d)

0.01


0.06






Non-GAAP Earnings Per Diluted Share


$                           0.08


$                      0.72











(a) Reflects the net change in deferred net revenues.

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

(c) Reflects expense related to stock-based compensation.

(d) Reflects amortization of intangible assets.


The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings (loss) per share information is
also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.



SOURCE Activision Publishing, Inc.