Activision Blizzard Announces Better-Than-Expected Second Quarter 2011 Financial Results

- Q2 Net Revenues Up Year Over Year; Record EPS Increases Over 66% Year Over Year -

- For Six-Month Period Net Revenues Up; Record EPS Increases Over 50% Year Over Year -

- For Six-Month Period Net Revenues from Digital Channels Grow More Than 20% Year Over Year -

- Company Increases Full Year Outlook for Net Revenues and EPS -

SANTA MONICA, Calif., Aug. 3, 2011 /PRNewswire/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2011.

In the quarter, the company delivered record GAAP net revenues of $1.1 billion, as compared with $967 million for the second quarter of 2010.  On a non-GAAP basis, the company's net revenues were $699 million, as compared with $683 million for the second quarter of 2010.  For the second quarter, the company delivered record GAAP net revenues from digital channels, representing a 27% increase year over year, and accounting for 37% of the company's total net revenues.  On a non-GAAP basis, record net revenues from digital channels increased 13% year over year, accounting for more than 60% of the quarter's total net revenues.  

For the second quarter of 2011, Activision Blizzard's GAAP earnings per diluted share were $0.29, as compared with $0.17 for the second quarter of 2010.  On a non-GAAP basis, the company's earnings per diluted share were $0.10, as compared with $0.06 for the second quarter of 2010.  

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 better-than-expected second-quarter performance was driven by record digital sales of our online-enabled franchises.  For the six month period, net revenues from digital channels grew more than 20%, driving record operating margin and EPS growth of more than 50%."

Kotick continued, "Looking to the balance of the year, while we have numerous releases we believe our audiences will be especially excited by three key properties --  Call of Duty: Modern Warfare 3™,  our new online service  Call of Duty Elite  and  Skylanders Spyro's Adventure™  --   all of which are shaping up to be incredible.  To date, pre-orders for  Modern Warfare 3  have significantly exceeded the pre-orders for  Black Ops  at this time last year.  In addition, we believe that  Call of Duty Elite , which was built for  Modern Warfare 3  and is expected to launch with the game on November 8, should redefine social connectivity for multiplayer gaming.   Additionally, we expect that  Skylanders Spyro's Adventure  will change the way we look at toys and video games by bringing the world of toys, video games and the Internet together in an unprecedented way."

Kotick added, "Today, there are more ways than ever for players to access entertainment online and play games which have truly become one of the most compelling forms of entertainment in the world."

Business Highlights

  • Call of Duty: Black Ops  was the #1 game in the U.S. and Europe for the first half of 2011.(1)
  • For the second quarter, Blizzard Entertainment had two top-10 PC titles with  World of Warcraft®: Cataclysm  and  StarCraft® II: Wings of Liberty .(2)
  • To date,  Call of Duty: Black Ops  players have logged more than 2.2 billion hours of online gameplay.(3)
  • Total unique online gamers playing  Call of Duty: Black Ops  were more than 30% greater than the total unique online gamers who played  Call of Duty: Modern Warfare ®  2 during the first eight months after each game's release.(4)
  • On May 11, 2011, Activision Blizzard paid a cash dividend of $0.165 per common share to shareholders of record as of March 16, 2011.
  • As of June 30, 2011, Activision Blizzard had purchased approximately 43 million shares of its common stock, for an aggregate price of approximately $479 million, under the $1.5 billion stock repurchase program authorized by its Board of Directors in February 2011.

Company Outlook

On July 28, 2011, Activision Publishing released the  Call of Duty: Black Ops Annihilation  content pack for Sony's PlayStation3 computer entertainment system and the PC.  During the quarter, Activision Publishing also expects to release  the Call of Duty: Black Ops   Resurrection™   content pack for the Xbox 360 video game and entertainment system from Microsoft, Sony's PlayStation3 computer entertainment system and the PC, as well as  X-Men™ Destiny,  Cabela's Big Game Hunter 2012 and a Kinect-ready title for the Xbox 360,  Cabela's Hunting Party .  Additionally, Blizzard Entertainment's  World of Warcraft: Cataclysm  was launched in China on July 12, 2011.

Activision Blizzard plans to allocate the majority of its resources and focus toward opportunities which it expects will afford it the greatest competitive advantages and the greatest potential for best-in-class quality, high-margin digital growth, and long-term success.  These opportunities include new content for Blizzard Entertainment's World of Warcraft,   StarCraft  and  Diablo  franchises,   and Blizzard Entertainment's next-generation MMO; robust investment in Activision Publishing's forthcoming  Call of Duty  titles, including a micro-transaction game for China; the development of a best-in-class digital platform,  Call of Duty   Elite ; a new property from Bungie; and Skylander's Spyro's Adventure ,  an innovative new universe bringing 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 video-game publisher. 

For calendar year 2011, Activision Blizzard is raising its outlook from the estimates it provided on May 9, 2011.  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 include a new game from Blizzard in 2011.

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.

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 second quarter and management's outlook for the remainder of the 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              888-500-6973       in the U.S. with passcode  1853254 .

Non-GAAP Financial Measures

In order to supplement our financial measures that are presented in accordance with GAAP, Activision Blizzard presents certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.  In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the company's results of operations as determined in accordance with GAAP.  

Activision Blizzard provides net revenues, net income (loss), earnings (loss) per share and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. The non-GAAP financial measures exclude the following items, as applicable in any given reporting period:

  • the change in deferred net revenue and related cost of sales with respect to certain of the company's online-enabled games;
  • expenses related to stock-based compensation;
  • expenses related to the restructuring of our Activision Publishing operations;
  • the amortization of intangibles and impairment of intangible assets; and
  • the income tax adjustments associated with any of the above items.

In the future, Activision Blizzard may also consider whether other significant non-recurring items should also be excluded in calculating the non-GAAP financial measures used by the company.

Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard's financial and operating performance.  In particular, the measures facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard by excluding certain items that may not be indicative of the company's core business, operating results or future outlook.  Internally, management uses these non-GAAP financial measures in assessing the company's operating results, as well as in planning and forecasting.

Activision Blizzard's non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP earnings per share, and non-GAAP operating margin do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard's performance in relation to other companies.

Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard's GAAP, as well as non-GAAP results and outlook and, 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.

In addition to the reasons stated above, which are generally applicable to each of the items Activision Blizzard excludes from its non-GAAP financial measures, there are additional specific reasons why the company believes it is appropriate to exclude the change in deferred net revenue and related cost of sales with respect to certain of the company's online-enabled games. Since Activision Blizzard has determined that some of our games' online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable, we recognize revenue attributed to these game titles over their estimated service periods, which may range from five months to a maximum of less than a year. The related cost of sales is deferred and recognized as the related revenues are recognized. Internally, management excludes the impact of this change in deferred net revenue and related cost of sales in its non-GAAP financial measures when evaluating the company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.

Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers, which is consistent with the way the company is measured by investment analysts and industry data sources. In addition, excluding the change in deferred net revenue and the related cost of sales provides a much more timely indication of trends in our operating results.

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 delivery of content, competition, including from used games and other forms of entertainment, possible declines in software pricing, product returns and price protection, product delays, adoption rate and availability of new hardware (including peripherals) and related software, rapid changes in technology and industry standards, litigation risks and associated costs, 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 section 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 The NPD Group, Charttrack and Gfk

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

(3) According to Microsoft, Sony and Activision Blizzard internal estimates

(4) According to Microsoft, Sony and Activision Blizzard internal estimates

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,

2011

2010

2011

2010

Net revenues:

Product sales

$

768

$

643

$

1,829

$

1,629

Subscription, licensing and other 

revenues

378

324

766

646

    Total net revenues

1,146

967

2,595

2,275

Costs and expenses:

Cost of sales - product costs

213

235

512

572

Cost of sales - massively multi-player 

online role playing game ("MMORPG")

59

53

122

109

Cost of sales - software royalties and 

amortization

47

51

109

150

Cost of sales - intellectual property 

licenses

24

29

53

72

Product development

116

100

258

237

Sales and marketing

90

125

150

181

General and administrative

127

74

228

143

Restructuring

3

---

22

-

    Total costs and expenses

679

667

1,454

1,464

Operating income

467

300

1,141

811

Investment and other income, net

2

1

5

1

Income before income tax expense

469

301

1,146

812

Income tax expense

134

82

308

212

Net income

$

335

$

219

$

838

$

600

Basic earnings per common share

$

0.29

$

0.18

$

0.71

$

0.48

Weighted average common shares 

outstanding

1,141

1,232

1,157

1,239

Diluted earnings per common share (1)

$

0.29

$

0.17

$

0.71

$

0.47

Weighted average common shares 

outstanding assuming dilution

1,150

1,248

1,166

1,254

    (1) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $330 million and $826 million for the three and six months ended June 30, 2011 as compared to the total net income of $335 million and $838 million for the same periods, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $217 million and $595 million for the three and six months ended June 30, 2010 as compared to total net income of $219 million and $600 million for the same periods, respectively.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

June 30,

December 31,

2011

2010

ASSETS

Current assets:

Cash and cash equivalents

$

2,334

$

2,812

Short-term investments

610

696

Accounts receivable, net

140

640

Inventories

93

112

Software development

126

147

Intellectual property licenses

43

45

Deferred income taxes, net

511

648

Other current assets

97

299

    Total current assets

3,954

5,399

Long-term investments

25

23

Software development

90

55

Intellectual property licenses

16

28

Property and equipment, net

163

169

Other assets

17

15

Intangible assets, net

144

160

Trademark and trade names

433

433

Goodwill

7,130

7,132

Total assets

$

11,972

$

13,414

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

156

$

363

Deferred revenues

601

1,726

Accrued expenses and other liabilities

489

838

     Total current liabilities

1,246

2,927

Deferred income taxes, net

97

120

Other liabilities

164

164

Total liabilities

1,507

3,211

Shareholders' equity:

Common stock

---

---

Additional paid-in capital

9,735

12,353

Treasury stock

---

(2,194)

Retained earnings

701

57

Accumulated other comprehensive income (loss)

29

(13)

     Total shareholders' equity

10,465

10,203

         Total liabilities and shareholders' equity

$

11,972

$

13,414

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)

Three months ended June 30, 2011

Net Revenues

Cost of Sales - Product Costs

Cost of Sales -

 MMORPG

Cost of Sales - 

Software Royalties

 and Amortization

Cost of Sales - 

Intellectual 

Property Licenses

Product 

Development

Sales and 

Marketing

General and 

Administrative

Restructuring

Total Costs and 

Expenses

GAAP Measurement

$

1,146

$

213

$

59

$

47

$

24

$

116

$

90

$

127

$

3

$

679

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

(a)

(447)

(78)

-

(32)

(5)

-

-

-

-

(115)

Less:  Stock-based compensation

(b)

-

-

-

(3)

-

(5)

(1)

(11)

-

(20)

Less:  Restructuring

©

-

-

-

-

-

-

-

-

(3)

(3)

Less:  Amortization of intangible assets

(d)

-

-

-

-

(7)

-

-

-

-

(7)

Non-GAAP Measurement

$

699

$

135

$

59

$

12

$

12

$

111

$

89

$

116

$

-

$

534

Three months ended June 30, 2011

Operating 

Income

Net Income

Basic Earnings 

per Share

Diluted Earnings

 per Share

GAAP Measurement

$

467

$

335

$

0.29

$

0.29

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

(a)

(332)

(238)

(0.21)

(0.20)

Less:  Stock-based compensation

(b)

20

15

0.01

0.01

Less:  Restructuring

©

3

2

-

-

Less:  Amortization of intangible assets

(d)

7

4

-

-

Non-GAAP Measurement

$

165

$

118

$

0.10

$

0.10

Six months ended June 30, 2011

Net Revenues

Cost of Sales - Product Costs

Cost of Sales - MMORPG

Cost of Sales - 

Software Royalties 

and Amortization

Cost of Sales - 

Intellectual 

Property Licenses

Product 

Development

Sales and 

Marketing

General and 

Administrative

Restructuring

Total Costs and 

Expenses

GAAP Measurement

$

2,595

$

512

$

122

$

109

$

53

$

258

$

150

$

228

$

22

$

1,454

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

(a)

(1,141)

(209)

-

(75)

(19)

-

-

-

-

(303)

Less:  Stock-based compensation

(b)

-

-

-

(6)

-

(11)

(3)

(23)

-

(43)

Less:  Restructuring

©

-

-

-

-

-

-

-

-

(22)

(22)

Less:  Amortization of intangible assets

(d)

-

-

-

(1)

(15)

-

-

-

-

(16)

Non-GAAP Measurement

$

1,454

$

303

$

122

$

27

$

19

$

247

$

147

$

205

$

-

$

1,070

Six months ended June 30, 2011

Operating 

Income

Net Income

Basic Earnings 

per Share

Diluted Earnings 

per Share

GAAP Measurement

$

1,141

$

838

$

0.71

$

0.71

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

(a)

(838)

(619)

(0.53)

(0.52)

Less:  Stock-based compensation

(b)

43

30

0.03

0.03

Less:  Restructuring

©

22

16

0.01

0.01

Less:  Amortization of intangible assets

(d)

16

10

0.01

0.01

Non-GAAP Measurement

$

384

$

275

$

0.23

$

0.23

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

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

© Reflects restructuring related to our Activision Publishing operations.

(d) Reflects amortization of intangible assets from purchase price accounting.

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $117 million and $270 million for the three and six months ended June 30, 2011 as compared to the total non-GAAP net income of $118 million and $275 million for the same periods, respectively.

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

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 - MMORPG

Cost of Sales -

 Software Royalties 

and Amortization

Cost of Sales -

 Intellectual

 Property Licenses

Product

 Development

Sales and

 Marketing

General and

 Administrative

Total Costs and

 Expenses

GAAP Measurement

$

967

$

235

$

53

$

51

$

29

$

100

$

125

$

74

$

667

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

(a)

(284)

(68)

-

13

(2)

-

-

-

(57)

Less:  Stock-based compensation

(b)

-

-

-

(12)

-

6

(2)

(9)

(17)

Less:  Restructuring (included in general and administrative)

©

-

-

-

-

-

-

-

(1)

(1)

Less:  Amortization of intangible assets

(d)

-

(1)

-

-

(9)

-

-

-

(10)

Non-GAAP Measurement

$

683

$

166

$

53

$

52

$

18

$

106

$

123

$

64

$

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

(b)

17

12

0.01

0.01

Less:  Restructuring (included in general and administrative)

©

1

-

-

-

Less:  Amortization of intangible assets

(d)

10

6

-

-

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 - MMORPG

Cost of Sales -

 Software Royalties 

and Amortization

Cost of Sales -

 Intellectual

Property Licenses

Product

 Development

Sales and

 Marketing

General and

 Administrative

Total Costs and

 Expenses

GAAP Measurement

$

2,275

$

572

$

109

$

150

$

72

$

237

$

181

$

143

$

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

(b)

-

-

-

(41)

-

2

(3)

(18)

(60)

Less:  Restructuring (included in general and administrative)

©

-

-

-

-

-

-

-

(4)

(4)

Less:  Amortization of intangible assets

(d)

-

(2)

-

(4)

(21)

-

-

(1)

(28)

Non-GAAP Measurement

$

1,397

$

369

$

109

$

81

$

35

$

239

$

178

$

120

$

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

(b)

60

42

0.03

0.03

Less:  Restructuring (included in general and administrative)

©

4

2

-

-

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.

© 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 from purchase price accounting.

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $72 million and $187 million for the three and six months ended June 30, 2010 as compared to total non-GAAP net income of $72 million and $188 million for the same periods, respectively.

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three and Six Months Ended June 30, 2011 and 2010

(Amounts in millions)

Three Months Ended

June 30, 2011

June 30, 2010

$ Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Distribution Channel                     

Retail channels

$

660 

58 

%

$

584 

61 

%

$

76 

13 

%

Digital online channels*

423 

37 

332 

34 

91 

27 

Total Activision and Blizzard

1,083 

95 

916 

95 

167 

18 

Distribution

63 

51 

12 

24 

Total consolidated GAAP net revenues  

1,146 

100 

967 

100 

179 

19 

Change in Deferred Net Revenues ( 1)

Retail channels

(448)

(326)

Digital online channels*

42 

Total changes in deferred net revenues

(447)

(284)

Non-GAAP Net Revenues by Distribution Channel

Retail channels

212 

30 

258 

38 

(46)

(18)

Digital online channels*

424 

61 

374 

55 

50 

13 

Total Activision and Blizzard

636 

91 

632 

93 

Distribution

63 

51 

12 

24 

Total non-GAAP net revenues (2) 

$

699 

100 

%

$

683 

100 

%

$

16 

%

Six Months Ended

June 30, 2011

June 30, 2010

$ Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Distribution Channel

Retail channels

$

1,607 

62 

%

$

1,490 

66 

%

$

117 

%

Digital online channels*

851 

33 

663 

29 

188 

28 

Total Activision and Blizzard

2,458 

95 

2,153 

95 

305 

14 

Distribution

137 

122 

15 

12 

Total consolidated GAAP net revenues  

2,595 

100 

2,275 

100 

320 

14 

Change in Deferred Net Revenues ( 1)

Retail channels

(1,154)

(928)

Digital online channels*

13 

50 

Total changes in deferred net revenues

(1,141)

(878)

Non-GAAP Net Revenues by Distribution Channel

Retail channels

453 

31 

562 

40 

(109)

(19)

Digital online channels*

864 

59 

713 

51 

151 

21 

Total Activision and Blizzard

1,317 

90 

1,275 

91 

42 

Distribution

137 

10 

122 

15 

12 

Total non-GAAP net revenues (2) 

$

1,454 

100 

%

$

1,397 

100 

%

$

57 

%

(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 content, digitally distributed products, and wireless devices.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three Months Ended June 30, 2011 and 2010

(Amounts in millions)

Three Months Ended

June 30, 2011

June 30, 2010

$ Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Segment/Platform Mix              

Activision and Blizzard:

Online subscriptions*

$

359 

31 

%

$

291 

30 

%

$

68 

23 

%

PC and Other

80 

79 

Sony PlayStation  3

239 

21 

182 

19 

57 

31 

Sony PlayStation  2

--- 

(7)

(78)

Microsoft Xbox 360

300 

26 

240 

24 

60 

25 

Nintendo Wii

70 

76 

(6)

(8)

Total console^

611 

53 

507 

52 

104 

21 

Sony PlayStation Portable

--- 

--- 

33 

Nintendo Dual Screen

29 

36 

(7)

(19)

Total handheld

33 

39 

(6)

(15)

Total Activision and Blizzard

1,083 

94 

916 

95 

167 

18 

Distribution:

Total Distribution

63 

51 

12 

24 

Total consolidated GAAP net revenues

1,146 

100 

967 

100 

179 

19 

Change in Deferred Net Revenues ( 1)

Activision and Blizzard:

Online subscriptions*

(67)

PC and Other

(35)

(37)

Sony PlayStation  3

(156)

(90)

Microsoft Xbox 360

(146)

(119)

Nintendo Wii

(39)

(40)

Total console^

(341)

(249)

Nintendo Dual Screen

(4)

--- 

Total changes in deferred net revenues

(447)

(284)

Non-GAAP Net Revenues by Segment/Platform Mix

Activision and Blizzard:

Online subscriptions*

292 

42 

293 

43 

(1)

PC and Other

45 

42 

Sony PlayStation  3

83 

12 

92 

14 

(9)

(10)

Sony PlayStation  2

--- 

(7)

(78)

Microsoft Xbox 360

154 

22 

121 

18 

33 

27 

Nintendo Wii

31 

36 

(5)

(14)

Total console^

270 

38 

258 

38 

12 

Sony PlayStation Portable

33 

Nintendo Dual Screen

25 

36 

(11)

(31)

Total handheld

29 

39 

(10)

(26)

Total Activision and Blizzard  

636 

91 

632 

93 

Distribution:

Total Distribution

63 

51 

12 

24 

Total non-GAAP net revenues (2) 

$

699 

100 

%

$

683 

100 

%

$

16 

%

(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.

  • Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.

^ Downloadable content and its related revenues are included in each respective console platforms, hence, total console.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Six Months Ended June 30, 2011 and 2010

(Amounts in millions)

Six Months Ended

June 30, 2011

June 30, 2010

$ Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Segment/Platform Mix           

Activision and Blizzard:

Online subscriptions*

$

754 

29 

%

$

602 

26 

%

$

152 

25 

%

PC and Other

205 

127 

78 

61 

Sony PlayStation  3

581 

22 

486 

22 

95 

20 

Sony PlayStation  2

--- 

24 

(18)

(75)

Microsoft Xbox 360

697 

27 

624 

27 

73 

12 

Nintendo Wii

152 

212 

(60)

(28)

Total console^

1,436 

55 

1,346 

59 

90 

Sony PlayStation Portable

--- 

--- 

--- 

--- 

Nintendo Dual Screen

55 

70 

(15)

(21)

Total handheld

63 

78 

(15)

(19)

Total Activision and Blizzard

2,458 

95 

2,153 

95 

305 

14 

Distribution:

Total Distribution

137 

122 

15 

12 

Total consolidated GAAP net revenues

2,595 

100 

2,275 

100 

320 

14 

Change in Deferred Net Revenues( 1)

Activision and Blizzard:

Online subscriptions*

(123)

(7)

PC and Other

(123)

(60)

Sony PlayStation  3

(400)

(312)

Microsoft Xbox 360

(405)

(399)

Nintendo Wii

(84)

(100)

Total console^

(889)

(811)

Nintendo Dual Screen

(6)

--- 

Total changes in deferred net revenues

(1,141)

(878)

Non-GAAP Net Revenues by Segment/Platform Mix

Activision and Blizzard:

Online subscriptions*

631 

43 

595 

42 

36 

PC and Other

82 

67 

15 

22 

Sony PlayStation  3

181 

12 

174 

12 

Sony PlayStation  2

--- 

24 

(18)

(75)

Microsoft Xbox 360

292 

20 

225 

16 

67 

30 

Nintendo Wii

68 

112 

(44)

(39)

Total console^

547 

37 

535 

38 

12 

Sony PlayStation Portable

--- 

--- 

Nintendo Dual Screen

49 

70 

(21)

(30)

Total handheld

57 

78 

(21)

(27)

Total Activision and Blizzard  

1,317 

91 

1,275 

91 

42 

Distribution:

Total Distribution

137 

122 

15 

12 

Total non-GAAP net revenues(2) 

$

1,454 

100 

%

$

1,397 

100 

%

$

57 

%

(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.

  • Revenue from online subscriptions consists of revenue from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services.

^ Downloadable content and its related revenues are included in each respective console platforms, hence, total console.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three and Six Months Ended June 30, 2011 and 2010

(Amounts in millions)

Three Months Ended

June 30, 2011

June 30, 2010

$ Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Geographic Region           

North America

$

580

50

%

$

567

59

%

$

13

2

%

Europe

467

41

337

35

130

39

Asia Pacific

99

9

63

6

36

57

Total consolidated GAAP net revenues  

1,146

100

967

100

179

19

Change in Deferred Net Revenues ( 1)

North America

(249)

(192)

Europe

(181)

(79)

Asia Pacific

(17)

(13)

Total changes in net revenues

(447)

(284)

Non-GAAP Net Revenues by Geographic Region

North America

331

47

375

55

(44)

(12)

Europe

286

41

258

38

28

11

Asia Pacific

82

12

50

7

32

64

Total non-GAAP net revenues (2)

$

699

100

%

$

683

100

%

$

16

2

%

Six Months Ended

June 30, 2011

June 30, 2010

$ Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Geographic Region

North America

$

1,328

51

%

$

1,270

56

%

$

58

5

%

Europe

1,061

41

861

38

200

23

Asia Pacific

206

8

144

6

62

43

Total consolidated GAAP net revenues

2,595

100

2,275

100

320

14

Change in Deferred Net Revenues ( 1)

North America

(632)

(504)

Europe

(452)

(333)

Asia Pacific

(57)

(41)

Total changes in net revenues

(1,141)

(878)

Non-GAAP Net Revenues by Geographic Region

North America

696

48

766

55

(70)

(9)

Europe

609

42

528

38

81

15

Asia Pacific

149

10

103

7

46

45

Total non-GAAP net revenues (2)

$

1,454

100

%

$

1,397

100

%

$

57

4

%

(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 2011 and 2010

(Amounts in millions)

Three Months Ended

June 30, 2011

June 30, 2010

$ Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

Segment net revenues:

Activision(i)

$

323 

28 

%

$

333 

34 

%

$

(10)

(3)

%

Blizzard(ii)

313 

27 

299 

31 

14 

Distribution(iii)

63 

51 

12 

24 

Operating segment total

699 

61 

683 

71 

16 

Reconciliation to consolidated net revenues:

Net effect from deferral of net revenues

447 

39 

284 

29 

Consolidated net revenues

$

1,146 

100 

%

$

967 

100 

%

$

179 

19 

%

Segment income from operations:

Activision(i)

$

31 

$

(53)

$

84 

NM

%

Blizzard(ii)

135 

155 

(20)

(13)

Distribution(iii)

(1)

(1)

--- 

NM

Operating segment total

165 

101 

64 

63 

Reconciliation to consolidated operating income and

consolidated income before income tax expense:

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

332 

227 

Stock-based compensation expense

(20)

(17)

Restructuring  

(3)

(1)

Amortization of intangible assets

(7)

(10)

Consolidated operating income

467 

300 

167 

56 

Investment and other income, net

NM

Consolidated income before income tax expense

$

469 

$

301 

$

168 

56 

%

Operating margin from total operating segments

24%

15%

Six Months Ended

June 30, 2011

June 30, 2010

$ Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

Segment net revenues:

Activision(i)

$

646 

25 

%

$

670 

29 

%

$

(24)

(4)

%

Blizzard(ii)

671 

26 

605 

27 

66 

11 

Distribution(iii)

137 

122 

15 

12 

Operating segment total

1,454 

56 

1,397 

61 

57 

Reconciliation to consolidated net revenues:

Net effect from deferral of net revenues

1,141 

44 

878 

39 

Consolidated net revenues

$

2,595 

100 

%

$

2,275 

100 

%

$

320 

14 

%

Segment income (loss) from operations:

Activision(i)

$

78 

$

(46)

$

124 

NM

%

Blizzard(ii)

306 

313 

(7)

(2)

Distribution(iii)

--- 

(1)

NM

Operating segment total

384 

266 

118 

44 

Reconciliation to consolidated operating income and

consolidated income before income tax expense:

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

838 

637 

Stock-based compensation expense

(43)

(60)

Restructuring  

(22)

(4)

Amortization of intangible assets

(16)

(28)

Consolidated operating income

1,141 

811 

330 

41 

Investment and other income, net

NM

Consolidated income before income tax expense

$

1,146 

$

812 

$

334 

41 

%

Operating margin from total operating segments 

26%

19%

(i) Activision Publishing ("Activision") — publishes interactive software products and content.

(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.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOK

For the Quarter Ending September 30, 2011 and

Year Ending December 31, 2011

GAAP to Non-GAAP Reconciliation

(Amounts in millions, except per share data)

Outlook for

Outlook for

Three Months Ending

Year Ending

September 30, 2011

December 31, 2011

Net Revenues (GAAP)

$

650

$

4,180

Excluding the impact of:

Change in deferred net revenues

(a)

(120)

(130)

Non-GAAP Net Revenues

$

530

$

4,050

Earnings Per Diluted Share (GAAP)

$

0.05

$

0.68

Excluding the impact of:

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

(b)

(0.06)

(0.02)

Stock-based compensation

©

0.02

0.06

Amortization of intangible assets

(d)

-

0.04

Restructuring expenses

(e)

-

0.02

Non-GAAP Earnings Per Diluted Share

$

0.01

$

0.77

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

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

© Reflects expense related to stock-based compensation.

(d) Reflects amortization of intangible assets.

(e) Reflects expenses relating to the restructuring of our Activision Publishing operations.

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings (loss) per share information

is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

 

SOURCE Activision Blizzard, Inc.

News Provided by Acquire Media

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