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Press release from PR Newswire

Activision Blizzard Announces Better-Than-Expected Third Quarter 2011 Net Revenues and Earnings

Tuesday, November 08, 2011

Activision Blizzard Announces Better-Than-Expected Third Quarter 2011 Net Revenues and Earnings16:05 EST Tuesday, November 08, 2011Company Raises 2011 Net Revenues and EPS Outlook - 2011 Nine-Month Net Revenues from Digital Channels Up Over 16% From Prior Year - Company Generated Record 2011 Nine-Month EPS - Company Expects Record 2011 GAAP EPS of $0.76 and Non-GAAP EPS of $0.85 - Online-Enabled Product Slate Expected to Drive Profitable Growth in 2012SANTA MONICA, Calif., Nov. 8, 2011 /PRNewswire/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter of 2011. Third QuarterNine Months(in millions, except EPS)2011PriorOutlook*201020112010GAAP  Net Revenues$754$650$745$3,348$3,019  EPS$0.13$0.05$0.04$0.84$0.52Non-GAAP  Net Revenues$627$530$857$2,080$2,254  EPS$0.07$0.01$0.12$0.31$0.27*Prior Outlook was provided by the company on August 3, 2011 in its earnings releaseFor the quarter ended September 30, 2011, the company delivered GAAP net revenues of $754 million, as compared with $745 million for the third quarter of 2010.  On a non-GAAP basis, the company's net revenues were $627 million, as compared with $857 million for the third quarter of 2010.  The company delivered record third-quarter GAAP net revenues from digital channels, accounting for more than 57% of the company's total net revenues.  On a non-GAAP basis, the company also delivered record third-quarter net revenues from digital channels, accounting for more than 62% of the quarter's total net revenues.  For the quarter ended September 30, 2011, Activision Blizzard's GAAP earnings per diluted share were $0.13, as compared with $0.04 for the third quarter of 2010.  On a non-GAAP basis, the company's earnings per diluted share were $0.07, as compared with $0.12 for the third 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, Chief Executive Officer, Activision Blizzard, said, "Today, we launched Call of Duty®: Modern Warfare 3?, which is perhaps the most anticipated video game in history and Call of Duty Elite, our new online service that makes playing together easier and more fun than ever before. Call of Duty Elite is a truly new form of entertainment combining Facebook-like social networking features and online television shows, offering the most accessible way to play Call of Duty games with other people."Kotick continued, "We continue to strengthen our position as the worldwide leader in interactive entertainment and the broadening of our audiences is confirmation that games are becoming as important as film and television as a mass-market form of entertainment. Our record nine-month results were driven the by the continued strength of our online-enabled franchises. Based on our third-quarter performance, stronger than expected consumer response to our new entertainment property, Skylanders: Spyro's Adventures?, and Call of Duty: Modern Warfare 3, we are raising our full-year financial outlook and expect once again to deliver record operating margins and the highest earnings per share in our company's history."Kotick continued, "One of Activision Blizzard's greatest skills is the creation and introduction of new intellectual properties. On October 16, we released Skylanders: Spyro's Adventures ? a uniquely immersive entertainment experience that integrates the world of toys, video games and online play.  The game has received terrific reviews and sales so far are exceeding our expectations.  Millions of Skylander toys are already in kids' hands, and we expect the game will be a great holiday success."  Kotick added, "As we focus on 2012, we have a strong product pipeline which features a minimum of two highly-anticipated new titles from Blizzard Entertainment, including Diablo® III, and a new Call of Duty game from Activision Publishing.  As a result, we expect to deliver another year of profitable growth. I believe our unyielding commitment to excellence and our creative talent around the globe will continue to position Activision Blizzard as the leader in interactive entertainment."Selected Financial Highlights:Q3 GAAP net revenues from digital channels were a record $427 million, accounting for 57% of total net revenues  Q3 non-GAAP net revenues from digital channels were a record $386 million, accounting for 62% of total net revenues  Year to date, GAAP net revenues from digital channels grew 25% to $1.28 billion, accounting for 38% of total net revenuesYear to date, non-GAAP net revenues from digital channels grew 16% to $1.25 billion, accounting for 60% of total net revenuesYear to date, the company has generated record operating margin and EPSTrailing twelve-month operating cash flow exceeded $1 billionSelected Business Highlights:Activision Publishing's Call of Duty®: Black Ops has been the #1 best-selling title in dollars in aggregate across all platforms in the U.S. and Europe for each of the first three quarters of 2011. (1)To date, Call of Duty: Black Ops players have logged more than 2.8 billion hours of online gameplay. (2)Total unique online gamers playing Call of Duty: Black Ops were more than 29% greater than the total unique online gamers who played Call of Duty: Modern Warfare® 2 during the first eleven months after each game's release. (2)For the third quarter, Blizzard Entertainment had two top-10 PC games in the U.S. and Europe with World of Warcraft®: Cataclysm? and StarCraft® II: Wings of Liberty?.(1)For the first nine months of the calendar year, StarCraft® II: Wings of Liberty? was the #1 best-selling game sku in dollars on the PC in the U.S. and Europe. (1)As of September 30, 2011, Activision Blizzard had purchased approximately 45 million shares of its common stock, for an aggregate price of approximately $502 million, under the $1.5 billion stock repurchase program authorized by its Board of Directors in February 2011.On October 21, 2011, Blizzard Entertainment announced plans for the fourth World of Warcraft expansion, World of Warcraft: Mists of Pandaria?.Company OutlookOn October 4, 2011, Activision Publishing released Spider-Man?: Edge of Time and on October 16, 2011, Activision Publishing launched its innovative new entertainment property, Skylanders: Spyro's Adventure.  Additionally, on November 1, 2011, Activision Publishing shipped GoldenEye 007?: Reloaded Double 'O' Edition and two new console titles from its popular Cabela's franchise?Cabela's Survival: Shadows of Katmai and Cabela's Adventure Camp.  Today, Activision Publishing released its highly anticipated Call of Duty: Modern Warfare 3 and its innovative new digital platform, Call of Duty Elite, both of which we expect to set new standards for multiplayer gaming. Based on third-quarter performance, stronger than expected consumer response to the new entertainment property, Skylanders: Spyro's Adventures, and an unprecedented level of pre-orders for Call of Duty: Modern Warfare 3, Activision Blizzard is raising its outlook for calendar year 2011 from the estimates it provided on August 3, 2011. GAAP OutlookPrior*GAAP OutlookNon-GAAP OutlookPrior*Non-GAAP OutlookCY 2011  Net Revenues   (in billions)$4.33$4.18$4.25$4.05  EPS$0.76$0.68$0.85$0.77Q4 2011  Net Revenues   (in millions)$980$ n/a $2,170$ n/a  EPS$(0.08)$ n/a $0.55$ n/a *Prior outlook was provided by the company on August 3, 2011 in its earnings release.Activision Blizzard's financial outlook is subject to significant risks and uncertainties, including declines in demand for its products, competition, 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 slate of new 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 CallToday 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 third 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 888-339-3504 in the U.S. with passcode 1472789.About Activision BlizzardHeadquartered in Santa Monica, California, Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile game publisher with leading positions across the major categories of the rapidly growing interactive entertainment software industry. Activision Blizzard maintains operations in the U.S., Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea and China.  More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.Non-GAAP Financial Measures:  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; andthe 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.Cautionary Note Regarding Forward-looking Statements:  Information in this press release that involves Activision Blizzard's expectations, plans, intentions or strategies regarding the future, including statements under the heading "Company Outlook," are forward-looking statements that are not facts and involve a number of risks and uncertainties.    Activision Blizzard generally uses words such as "outlook," "will,"  "could," "should," "would," "might," "to be," "plans," "believes," "may," "expects," "intends," "anticipates," "estimate," "future," "plan," "positioned," "potential," "project," "remain," "scheduled," "set to," "subject to," "upcoming" and similar expressions to identify forward-looking statements.  Factors that could cause Activision Blizzard's actual future results to differ materially from those expressed in the forward-looking statements set forth in this release include, but are not limited to, sales levels of Activision Blizzard's titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment and market conditions within the video game industry, Activision Blizzard's ability to predict consumer preferences, including interest in specific genres such as first-person action and massively multiplayer online games and preferences among competing hardware platforms, the seasonal and cyclical nature of the interactive game market, changing business models including digital delivery of content, competition, including from used games and other forms of entertainment, possible declines in software pricing, product returns and price protection, product delays, adoption rate and availability of new hardware (including peripherals) and related software, rapid changes in technology and industry standards, litigation risks and associated costs, protection of proprietary rights, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality "hit" titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, and the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, and the other  factors  identified in the risk factors section of Activision Blizzard's most recent annual report on Form 10-K.   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 Microsoft, Sony and Activision Blizzard internal estimates(Tables to Follow)ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(Amounts in millions, except per share data)Three Months Ended September 30,Nine Months Ended September 30,2011 2010 2011 2010 Net revenues:Product sales$369$397$2,197$2,025Subscription, licensing and other revenues3853481,151994     Total net revenues7547453,3483,019Costs and expenses:Cost of sales - product costs138194650765Cost of sales - massively multi-player online role playing game ("MMORPG")5961181168Cost of sales - software royalties andamortization2461133211Cost of sales - intellectual propertylicenses163369105Product development133118390361Sales and marketing115110264291General and administrative104113333253Restructuring3---24---     Total costs and expenses5926902,0442,154Operating income162551,304865Investment and other income, net314715Income before income tax expense165691,311880Income tax expense1718325229Net income$148$51$986$651Basic earnings per common share$0.13$0.04$0.84$0.53Weighted average common shares outstanding1,1401,2121,1511,230Diluted earnings per common share(1)$0.13$0.04$0.84$0.52Weighted average common shares outstanding assuming dilution1,1481,2271,1601,245(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 $146 million and $972 million for the three and nine months ended September 30, 2011 as compared to the total net income of $148 million and $986 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 $51 million and $645 million for the three and nine months ended September 30, 2010 as compared to total net income of $51 million and $651 million for the same periods, respectively. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(Amounts in millions)September 30,December 31,2011 2010 ASSETSCurrent assets:Cash and cash equivalents$2,469$2,812Short-term investments432696Accounts receivable, net 139640Inventories207112Software development150147Intellectual property licenses4245Deferred income taxes, net507648Other current assets136299     Total current assets4,0825,399Long-term investments2523Software development11455Intellectual property licenses1328Property and equipment, net167169Other assets1515Intangible assets, net138160Trademark and trade names433433Goodwill7,1267,132Total assets$12,113$13,414LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable$250$363Deferred revenues4871,726Accrued expenses and other liabilities542838      Total current liabilities1,2792,927Deferred income taxes, net95120Other liabilities168164Total liabilities1,5423,211Shareholders' equity:Common stock------Additional paid-in capital9,75112,353Treasury stock---(2,194)Retained earnings84957Accumulated other comprehensive income (loss)(29)(13)      Total shareholders' equity10,57110,203          Total liabilities and shareholders' equity$12,113$13,414ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES(Amounts in millions, except earnings per share data)Three months ended September 30, 2011Net RevenuesCost of Sales -Product CostsCost of Sales MMORPGCost of Sales -Software Royaltiesand AmortizationCost of Sales -IntellectualProperty LicensesProductDevelopmentSales andMarketingGeneral andAdministrativeRestructuringTotal Costs andExpensesGAAP Measurement$754$138$59$24$16$133$115$104$3$592Less:  Net effect from deferral in net revenues and related cost of sales (a)(127)(10)-(10)(2)----(22)Less:  Stock-based compensation(b)-----(5)(2)(11)-(18)Less:  Restructuring(c)--------(3)(3)Less:  Amortization of intangible assets(d)----(7)----(7)Non-GAAP Measurement$627$128$59$14$7$128$113$93$-$542Three months ended September 30, 2011OperatingIncomeNet IncomeBasic Earningsper ShareDiluted Earnings per ShareGAAP Measurement$162$148$0.13$0.13Less:  Net effect from deferral in net revenues and related cost of sales (a)(105)(81)(0.07)(0.07)Less:  Stock-based compensation(b)18130.010.01Less:  Restructuring(c)32--Less:  Amortization of intangible assets(d)75--Non-GAAP Measurement$85$87$0.07$0.07Nine months ended September 30, 2011Net RevenuesCost of Sales -Product CostsCost of Sales -MMORPGCost of Sales -Software Royaltiesand AmortizationCost of Sales -IntellectualProperty LicensesProductDevelopmentSales andMarketingGeneral andAdministrativeRestructuringTotal Costs and ExpensesGAAP Measurement$3,348$650$181$133$69$390$264$333$24$2,044Less:  Net effect from deferral in net revenues and related cost of sales(a)(1,268)(220)-(84)(21)----(325)Less:  Stock-based compensation(b)---(8)-(15)(4)(34)-(61)Less:  Restructuring(c)--------(24)(24)Less:  Amortization of intangible assets(d)---(1)(21)----(22)Non-GAAP Measurement$2,080$430$181$40$27$375$260$299$-$1,612Nine months ended September 30, 2011OperatingIncomeNet IncomeBasic Earningsper ShareDiluted Earningsper ShareGAAP Measurement$1,304$986$0.84$0.84Less:  Net effect from deferral in net revenues and related cost of sales (a)(943)(699)(0.60)(0.59)Less:  Stock-based compensation(b)61430.040.04Less:  Restructuring(c)24180.020.02Less:  Amortization of intangible assets(d)22140.010.01Non-GAAP Measurement$468$362$0.31$0.31(a) Reflects the net change in deferred net revenues and related cost of sales.(b) Includes expense related to stock-based compensation.(c) Reflects restructuring related to our Activision Publishing operations.(d) Reflects amortization of intangible assets 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 $85 million and $357 million for the three and nine months ended September 30, 2011 as compared to the total non-GAAP net income of $87 million and $362 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 SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES(Amounts in millions, except earnings per share data)Three months ended September 30, 2010Net RevenuesCost of Sales -Product CostsCost of Sales -MMORPGCost of Sales -Software Royaltiesand AmortizationCost of Sales - IntellectualProperty LicensesProductDevelopmentSales andMarketingGeneral andAdministrativeTotal Costs andExpensesGAAP Measurement$745$194$61$61$33$118$110$113$690Less:  Net effect from deferral in net revenues and related cost of sales (a)1123-84---15Less:  Stock-based compensation(b)---(11)-(6)(2)(15)(34)Less:  Amortization of intangible assets(d)-(1)-(5)(12)---(18)Non-GAAP Measurement$857$196$61$53$25$112$108$98$653Three months ended September 30, 2010OperatingIncomeNet IncomeBasic Earnings per ShareDiluted Earnings per ShareGAAP Measurement$55$51$0.04$0.04Less:  Net effect from deferral in net revenues and related cost of sales (a)97810.070.07Less:  Stock-based compensation(b)34210.020.02 Less:  Amortization of intangible assets(d)18(5)--Non-GAAP Measurement$204$148$0.12$0.12Nine months ended September 30, 2010Net RevenuesCost of Sales -Product CostsCost of Sales -MMORPGCost of Sales -Software Royaltiesand AmortizationCost of Sales -IntellectualProperty LicensesProductDevelopmentSales andMarketingGeneral andAdministrativeTotal Costs andExpensesGAAP Measurement$3,019$765$168$211$105$361$291$253$2,154Less:  Net effect from deferral in net revenues and related cost of sales (a)(765)(198)-(16)(12)---(226)Less:  Stock-based compensation(b)---(51)-(4)(6)(33)(94)Less:  Restructuring (included in general and administrative)(c)-------(3)(3) Less:  Amortization of intangible assets(d)-(3)-(10)(33)--(1)(47)Non-GAAP Measurement$2,254$564$168$134$60$357$285$216$1,784Nine months ended September 30, 2010OperatingIncomeNet IncomeBasic Earnings per ShareDiluted Earnings per ShareGAAP Measurement$865$651$0.53$0.52Less:  Net effect from deferral in net revenues and related cost of sales (a)(539)(392)(0.32)(0.31)Less:  Stock-based compensation(b)94640.050.05Less:  Restructuring (included in general and administrative)(c)32-- Less:  Amortization of intangible assets(d)47120.010.01Non-GAAP Measurement$470$337$0.27$0.27(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 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 $147 million and $334 million for the three and nine months ended September 30, 2010 as compared to total non-GAAP net income of $148 million and $337 million for the same periods, respectively.The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three and Nine Months Ended September 30, 2011 and 2010(Amounts in millions)Three Months EndedSeptember 30, 2011September 30, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Distribution Channel           Retail channels $25033%$32043%$(70)(22)%Digital online channels* 42757363496418Total Activision and Blizzard 6779068392(6)(1)Distribution 77106281524Total consolidated GAAP net revenues  75410074510091Change in Deferred Net Revenues(1) Retail channels (86)112Digital online channels* (41)---Total changes in deferred net revenues (127)112Non-GAAP Net Revenues by Distribution Channel Retail channels 1642643251(268)(62)Digital online channels* 3866236342236Total Activision and Blizzard 5508879593(245)(31)Distribution 77126271524Total non-GAAP net revenues(2) $627100%$857100%$(230)(27)%Nine Months EndedSeptember 30, 2011September 30, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Distribution Channel Retail channels $1,85656%$1,80860%$483%Digital online channels* 1,278381,0263425225Total Activision and Blizzard 3,134942,8349430011Distribution 214618562916Total consolidated GAAP net revenues  3,3481003,01910032911Change in Deferred Net Revenues(1) Retail channels (1,240)(816)Digital online channels* (28)51Total changes in deferred net revenues (1,268)(765)Non-GAAP Net Revenues by Distribution ChannelRetail channels 6163099244(376)(38)Digital online channels* 1,250601,0774817316Total Activision and Blizzard 1,866902,06992(203)(10)Distribution 2141018582916Total non-GAAP net revenues(2) $2,080100%$2,254100%$(174)(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.* Represents revenues from subscriptions and licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three Months Ended September 30, 2011 and 2010(Amounts in millions)Three Months EndedSeptember 30, 2011September 30, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Segment/Platform Mix           Activision and Blizzard: Online subscriptions* $33644%$28939%$4716%PC and Other 4567310(28)(38)Sony PlayStation  3 961310915(13)(12)Sony PlayStation  2 4161(2)(33)Microsoft Xbox 360 14419127161713Nintendo Wii 334568(23)(41)Total console^ 2773729840(21)(7)Sony PlayStation Portable 413---133Nintendo Dual Screen 152203(5)(25)Total handheld 193233(4)(17)Total Activision and Blizzard 6779068392(6)(1)Distribution: Total Distribution 77106281524Total consolidated GAAP net revenues 75410074510091Change in Deferred Net Revenues(1) Activision and Blizzard: Online subscriptions* (62)(7)PC and Other (5)141Sony PlayStation  3 (18)(5)Microsoft Xbox 360 (36)(26)Nintendo Wii (5)9Total console^ (59)(22)Nintendo Dual Screen (1)---Total changes in deferred net revenues (127)112Non-GAAP Net Revenues by Segment/Platform Mix Activision and Blizzard: Online subscriptions* 2744428233(8)(3)PC and Other 40621425(174)(81)Sony PlayStation  3 781210412(26)(25)Sony PlayStation  2 4161(2)(33)Microsoft Xbox 360 108171011277Nintendo Wii 285658(37)(57)Total console^ 2183527633(58)(21)Sony PlayStation Portable 413---133Nintendo Dual Screen 142202(6)(30)Total handheld 183232(5)(22)Total Activision and Blizzard  5508879593(245)(31)Distribution: Total Distribution 77126271524Total non-GAAP net revenues(2) $627100%$857100%$(230)(27)%(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 SUBSIDIARIESFINANCIAL INFORMATIONFor the Nine Months Ended September 30, 2011 and 2010(Amounts in millions)Nine Months EndedSeptember 30, 2011September 30, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Segment/Platform Mix           Activision and Blizzard: Online subscriptions* $1,09033%$89029%$20022%PC and Other 251820175025Sony PlayStation  3 67620595208114Sony PlayStation  2 10---291(19)(66)Microsoft Xbox 360 84025751258912Nintendo Wii 18562679(82)(31)Total console^ 1,711511,64255694Sony PlayStation Portable 12---11---19Nintendo Dual Screen 702903(20)(22)Total handheld 8221013(19)(19)Total Activision and Blizzard 3,134942,8349430011Distribution: Total Distribution 214618562916Total consolidated GAAP net revenues 3,3481003,01910032911Change in Deferred Net Revenues(1) Activision and Blizzard: Online subscriptions* (185)(13)PC and Other (129)81Sony PlayStation  3 (417)(317)Microsoft Xbox 360 (440)(425)Nintendo Wii (90)(91)Total console^ (947)(833)Nintendo Dual Screen (7)---Total changes in deferred net revenues (1,268)(765)Non-GAAP Net Revenues by Segment Platform Mix Activision and Blizzard: Online subscriptions* 9054487739283PC and Other 122628213(160)(57)Sony PlayStation  3 2591227812(19)(7)Sony PlayStation  2 10---291(19)(66)Microsoft Xbox 360 40019326147423Nintendo Wii 9551768(81)(46)Total console^ 7643680935(45)(6)Sony PlayStation Portable 12111119Nintendo Dual Screen 633904(27)(30)Total handheld 7541015(26)(26)Total Activision and Blizzard  1,866902,06992(203)(10)Distribution: Total Distribution 2141018582916Total non-GAAP net revenues(2) $2,080100%$2,254100%$(174)(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.* 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 SUBSIDIARIESFINANCIAL INFORMATIONFor the Three and Nine Months Ended September 30, 2011 and 2010(Amounts in millions)Three Months EndedSeptember 30, 2011September 30, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Geographic Region            North America $36048%$40654%$(46)(11)%Europe 32343281384215Asia Pacific 7195881322Total consolidated GAAP net revenues75410074510091Change in Deferred Net Revenues(1) North America (72)41Europe (45)53Asia Pacific (10)18Total changes in net revenues (127)112Non-GAAP Net Revenues by Geographic RegionNorth America 2884644752(159)(36)Europe 2784433439(56)(17)Asia Pacific 6110769(15)(20)Total non-GAAP net revenues(2) $627100%$857100%$(230)(27)%Nine Months EndedSeptember 30, 2011September 30, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Geographic Region North America $1,68751%$1,67555%$121%Europe 1,385411,1423824321Asia Pacific 276820277437Total consolidated GAAP net revenues 3,3481003,01910032911Change in Deferred Net Revenues(1) North America (703)(462)Europe (499)(280)Asia Pacific (66)(23)Total changes in net revenues (1,268)(765)Non-GAAP Net Revenues by Geographic Region North America 984471,21354(229)(19)Europe 8864386238243Asia Pacific 2101017983117Total non-GAAP net revenues(2) $2,080100%$2,254100%$(174)(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 SUBSIDIARIESSEGMENT INFORMATIONFor the Three and Nine Months Ended September 30, 2011 and 2010(Amounts in millions)Three Months EndedSeptember 30, 2011September 30, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)Segment net revenues: Activision(i)$25334%$31442%$(61)(19)%Blizzard(ii)2973948165(184)(38)Distribution(iii)77106281524Operating segment total 62783857115(230)(27)Reconciliation to consolidated net revenues: Net effect from deferral of net revenues 12717(112)(15)Consolidated net revenues $754100%$745100%$91%Segment income (loss) from operations: Activision(i)$(36)$(43)$7NM%Blizzard(ii)120246(126)(51)Distribution(iii)11---NMOperating segment total 85204(119)(58)Reconciliation to consolidated operating income and consolidated income before income tax expense:Net effect from deferral of net revenues and related cost of sales105(97)Stock-based compensation expense (18)(34)Restructuring  (3)---Amortization of intangible assets (7)(18)Consolidated operating income 16255107195Investment and other income, net 314Consolidated income before income tax expense $165$69$96139%Operating margin from total operating segments 14%24%Nine Months EndedSeptember 30, 2011September 30, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)Segment net revenues: Activision(i)$89827%$98333%$(85)(9)%Blizzard(ii)968291,08636(118)(11)Distribution(iii)214618562916Operating segment total 2,080622,25475(174)(8)Reconciliation to consolidated net revenues: Net effect from deferral of net revenues 1,2683876525Consolidated net revenues $3,348100%$3,019100%$32911%Segment income (loss) from operations: Activision(i)$42$(88)$130NM%Blizzard(ii)425559(134)(24)Distribution(iii)1(1)2NMOperating segment total 468470(2)-Reconciliation to consolidated operating income and consolidated income before income tax expense:Net effect from deferral of net revenues and related cost of sales 943539Stock-based compensation expense (61)(94)Restructuring  (24)(3)Amortization of intangible assets (22)(47)Consolidated operating income 1,30486543951Investment and other income, net 715Consolidated income before income tax expense $1,311$880$43149%Operating margin from total operating segments 23%21%(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 OUTLOOKFor the Quarter Ending December 31, 2011 and Year Ending December 31, 2011GAAP to Non-GAAP Reconciliation(Amounts in millions, except per share data)Outlook forOutlook forThree Months EndingYear EndingDecember 31, 2011December 31, 2011Net Revenues (GAAP)$980$4,330Excluding the impact of:Change in deferred net revenues (a)1,190(80)Non-GAAP Net Revenues $2,170$4,250Earnings (Loss) Per Diluted Share (GAAP)$(0.08)$0.76Excluding the impact of:Net effect from deferral in net revenues and related cost of sales (b)0.57(0.03)Stock-based compensation(c)0.030.07Amortization of intangible assets(d)0.030.04Restructuring expenses(e)-0.01Non-GAAP Earnings Per Diluted Share $0.55$0.85(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.(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 informationis also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.SOURCE Activision Blizzard, Inc.For further information: Kristin Southey, SVP, Investor Relations, +1-310-255-2635, ksouthey@activision.com; or Maryanne Lataif, SVP, Corporate Communications, +1-310-255-2704, mlataif@activision.com, both of Activision Blizzard, Inc.