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Press release from PR Newswire

Activision Blizzard Announces Record Fourth Quarter and Calendar Year 2011 Earnings

Thursday, February 09, 2012

Activision Blizzard Announces Record Fourth Quarter and Calendar Year 2011 Earnings16:15 EST Thursday, February 09, 2012FINANCIAL HIGHLIGHTS - CY 2011 EPS Grows by More than 17% Establishing New Company Record - Company Achieves Record GAAP and Non-GAAP Operating Margins of 28% and 30% - Company Generates Nearly $1 Billion in Operating Cash Flow - Company Announces new $1 Billion Stock Repurchase Program - Company Announces 9% Increase in Cash Dividend to $0.18 per Common Share - Company Expects 2012 GAAP EPS of $0.63 and Non-GAAP EPS of $0.94 BUSINESS HIGHLIGHTS - #1 Third-Party Interactive Entertainment Digital Publisher in U.S. and Europe in 2011 - Digital Revenues of $1.6 Billion Accounted for More than 34% of Total Revenues in 2011 - Call of Duty®: Modern Warfare® 3 was #1 Best-Selling Game for 2011 - Skylanders Spyro?s Adventure? was #1 Kids Video Game for 2011 with 20+ Million Toys Sold - Call of Duty Elite Has 7+ Million Registered Users Including 1.5+ Million Annual Premium Members as of 1/31/12 - Blizzard Entertainment?s World of Warcraft® Remains #1 Subscription-based MMORPG with Approximately 10.2 Million Subscribers as of 12/31/11SANTA MONICA, Calif., Feb. 9, 2012 /PRNewswire/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the fourth quarter and calendar year 2011. (Logo:  http://photos.prnewswire.com/prnh/20120209/LA49702LOGO)Fourth QuarterCalendar Year(in millions, except EPS)2011PriorOutlook*201020112010GAAP  Net Revenues$1,407$980$1,427 $4,755$4,447  EPS$0.08 $    (0.08)$(0.20)$0.92$0.33Non-GAAP  Net Revenues$2,408$2,170$2,548$4,489$4,803  EPS$0.62$ 0.55 $0.53$0.93$0.79*Prior Outlook was provided by the company on November 8, 2011 in its earnings releaseFor calendar year 2011, Activision Blizzard?s GAAP net revenues were $4.76 billion, as compared with $4.45 billion for 2010.  On a non-GAAP basis, the company?s net revenues were $4.49 billion, as compared with $4.80 billion for 2010.   The company delivered record calendar year GAAP and non-GAAP net revenues from digital channels,(1) accounting for a record of more than 34% of the company?s total net revenues. For calendar year 2011, Activision Blizzard?s GAAP earnings per diluted share increased to $0.92, as compared with $0.33 per diluted share for 2010.  On a non-GAAP basis, the company?s earnings per diluted share grew 18% to a record $0.93, as compared with $0.79 per diluted share for 2010. For the quarter ended December 31, 2011, the company delivered GAAP net revenues of $1.41 billion, as compared with $1.43 billion for the fourth quarter of 2010.   On a non-GAAP basis, the company?s net revenues were $2.41 billion, as compared with $2.55 billion for the fourth quarter of 2010.    For the quarter ended December 31, 2011, Activision Blizzard?s GAAP earnings per diluted share were $0.08, as compared with a loss per share of $0.20 for the fourth quarter of 2010.  On a non-GAAP basis, the company?s earnings per diluted share were $0.62, as compared with $0.53 for the fourth 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. Bobby Kotick, Chief Executive Officer, Activision Blizzard, said, ?As we continue to strengthen our leadership position in interactive entertainment, our proven management team and talented employees delivered another extraordinary year of outperformance.  With better than expected net revenues, record earnings, record operating margins, and having generated nearly $1 billion in operating cash flow, Activision Blizzard continues to set the industry success bar.?Kotick continued, ?Blizzard Entertainment?s World of Warcraft® maintained its leadership position as the #1 subscription-based MMORPG around the world(2) and Activision Publishing?s Call of Duty®: Modern Warfare 3® was the #1-selling game.(3)  Skylanders Spyro?s Adventure? was the biggest new IP launch in Activision?s history and it is on track to become an important and sustainable franchise.   We launched our online service, Call of Duty Elite, which is one of the fastest growing premium online services ever created.?  Kotick added, ?Our extraordinary employees around the world are focused on making 2012 another great year for our audience and stakeholders.  Blizzard Entertainment plans to have multiple highly-anticipated titles to release, including Diablo® III, and Activision Publishing expects to release a new Call of Duty game.  In addition, Activision Publishing expects to continue to grow Call of Duty Elite and launch Skylanders Giants?.?Selected Business Highlights:Activision Publishing was the #1 console and handheld publisher in the U.S. and Europe for the fourth quarter of 2011 and the #1 console and handheld publisher in the U.S. for the calendar year.(3)For the calendar year, in aggregate across all platforms in the U.S. and Europe, Activision Publishing?s Call of Duty: Modern Warfare 3 was the #1 best-selling title in dollars, and Call of Duty: Black Ops was the #5 best-selling title in dollars.(3)In November 2011, Call of Duty: Modern Warfare 3 became the first video game ever to surpass $775 million in retail sales in its first five days of release and the only entertainment property to cross the $1 billion mark in 16-days, eclipsing ?Avatar?s? 17-day record.(4)As of January 31, 2012, more than seven million gamers have registered for Call of Duty Elite, including more than 1.5 million premium annual memberships the company has sold for the online service.(2)Call of Duty: Modern Warfare 3 players logged more than 639 million hours of online gameplay through December 31, 2011.(5)Total unique online gamers playing Call of Duty: Modern Warfare 3 were more than 12% greater than the total unique online gamers who played Call of Duty: Black Ops during the first two months after each game?s release.(5)In North America and Europe, including accessory packs and figures, Skylanders Spyro?s Adventure was the #8 best-selling game in dollars for the fourth quarter of 2011 and #1 selling kids? title in dollars in the calendar year.(3)  Additionally, in North America, including accessory packs and figures, Skylanders  Spyro?s Adventure was the #10 best-selling title in dollars.(6)For the calendar year, Blizzard Entertainment had two top-10 PC games in North America and Europe with StarCraft® II: Wings of Liberty® and World of Warcraft: Cataclysm®.(3)Activision Blizzard purchased an aggregate of 61 million shares of its common stock for approximately $692 million in 2011.  Company OutlookIn March 2012, Activision Publishing expects to release the first Call of Duty: Modern Warfare 3 Content Collection, a compilation of content previously released to Call of Duty Elite premium members, on the Xbox 360 video game and entertainment system from Microsoft.  The company?s first quarter 2012 outlook does not incorporate a new release from Blizzard Entertainment, but its calendar year 2012 outlook anticipates two releases from Blizzard Entertainment.   In addition, the company?s full year revenue outlook is expected to be impacted by a reduction of about $130 million in revenues from the company?s lower margin distribution and affiliate title businesses and a negative year-over-year foreign exchange planning assumption of approximately $200 million.   GAAP Non-GAAP(in millions, except EPS)OutlookOutlookCY 2012   Net Revenues $4,150$4,500  EPS$0.63$0.94Q1 2012  Net Revenues $965$525  EPS$0.22$0.03Board Authorizes Stock Repurchase Program and Declares Cash DividendActivision Blizzard today announced that its Board of Directors has authorized a new stock repurchase program effective April 1, 2012 under which the company can repurchase up to $1 billion of the company?s outstanding common stock.  The company?s $1.5 billion stock repurchase plan program authorized in February 2011 is set to expire on March 31, 2012.  The Board of Directors also declared a cash dividend of $0.18 per common share payable on May 16, 2012 to shareholders of record at the close of business on March 21, 2012.  This represents a 9% increase over the dividend that was paid in 2011.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 quarter and year ended December 31, 2011 and management?s outlook for 2012. 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 888-481-2845 in the U.S. with passcode 8472934 .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:  As a supplement to our financial measures presented in accordance with GAAP, Activision Blizzard presents certain non-GAAP measures of financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than, 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 restructuring; the amortization of intangibles, and impairment of intangible assets and goodwill; 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 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) Net revenues from digital online channel represent revenues from subscriptions and memberships, licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.(2) According to Activision Blizzard?s internal data (3) According to The NPD Group, Charttrack and Gfk(4) According to The NPD Group, Charttrack, retail customer sell-through information, Boxofficemojo.com and PricewaterhouseCoopers? Global Entertainment and Media Outlook(5) According to Microsoft, Sony and Activision Blizzard internal estimates(6) According to The NPD Group(Tables to Follow)ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(Amounts in millions, except per share data)Three Months Ended December 31,Year Ended December 31,2011 2010 2011 2010 Net revenues:Product sales$ 1,060 $ 1,061 $ 3,257 $ 3,087 Subscription, licensing and other revenues* 347  366  1,498  1,360      Total net revenues 1,407  1,427  4,755  4,447 Costs and expenses:Cost of sales - product costs 483  585  1,134  1,350 Cost of sales - online subscriptions 58  73  238  241 Cost of sales - software royalties and amortization 85  128  218  338 Cost of sales - intellectual property licenses 96  92  165  197 Product development 256  273  646  635 Sales and marketing 281  225  545  516 General and administrative 122  122  456  375 Impairment of intangible assets -  326  -  326 Restructuring 1  -  25  -      Total costs and expenses 1,382  1,824  3,427  3,978 Operating income (loss) 25  (397) 1,328  469 Investment and other income (expense), net (5) 8  3  23 Income (loss) before income tax expense 20  (389) 1,331  492 Income tax (benefit) expense (79) (156) 246  74 Net income (loss)$ 99 $ (233)$ 1,085 $ 418 Basic earnings (loss) per common share$ 0.09 $ (0.20)$ 0.93 $ 0.34 Weighted average common shares outstanding 1,139  1,198  1,148  1,222 Diluted earnings (loss) per common share (1)$ 0.08 $ (0.20)$ 0.92 $ 0.33 Weighted average common shares outstanding assuming dilution 1,147  1,198  1,156  1,236 (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 $97 million and $1,069 million for the three months and year ended December 31, 2011 as compared to the total net income of $99 million and $1,085 million for the same periods, respectively. Net income (loss) attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $(233) million and $414 million for the three months and year ended December 31, 2010 as compared to $(233) million and $418 million for the same periods, respectively. * Subscription, licensing and other revenues represents revenues from World of Warcraft subscriptions, Call of Duty Elite memberships, licensing royalties from our products and franchises, value-added services, downloadable content, and other miscellaneous revenues.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(Amounts in millions)December 31,December 31,2011 2010 ASSETSCurrent assets:Cash and cash equivalents$ 3,165 $ 2,812 Short-term investments 360  696 Accounts receivable, net 649  673 Inventories 144  112 Software development 137  147 Intellectual property licenses 22  45 Deferred income taxes, net 507  648 Other current assets 396  299      Total current assets 5,380  5,432 Long-term investments 16  23 Software development 62  55 Intellectual property licenses 12  28 Property and equipment, net 163  169 Other assets 12  15 Intangible assets, net 88  160 Trademark and trade names 433  433 Goodwill 7,111  7,132 Total assets$ 13,277 $ 13,447 LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable$ 390 $ 363 Deferred revenues 1,472  1,726 Accrued expenses and other liabilities 694  871       Total current liabilities 2,556  2,960 Deferred income taxes, net 55  120 Other liabilities 174  164 Total liabilities 2,785  3,244 Shareholders' equity:Common stock--- --- Additional paid-in capital 9,616  12,353 Treasury stock---  (2,194)Retained earnings 948  57 Accumulated other comprehensive loss (72) (13)      Total shareholders' equity 10,492  10,203           Total liabilities and shareholders' equity$ 13,277 $ 13,447 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(Amounts in millions)Three Months Ended December 31,Year Ended December 31,2011 2010 2011 2010 Cash flows from operating activities:Net income (loss)$99 $(233)$1,085 $418 Adjustments to reconcile net income (loss) to netcash provided by operating activities:Deferred income taxes(49)(329)75 (278)Impairment of goodwill / intangible assets12 326 12 326 Depreciation and amortization71 101 148 198 Loss on disposal of property and equipment3 1 4 1 Amortization and write-off of capitalizedsoftware development costs and intellectualproperty licenses (1)136 137 287 319 Stock-based compensation expense (2)42 37 103 131 Excess tax benefits from stock options exercises(3)(11)(24)(22)Changes in operating assets and liabilities:Accounts receivable(503)(428)13 43 Inventories62 143 (34)124 Software development and intellectual property(73)(75)(254)(313)Other assets(237)(201)(67)17 Deferred revenues1,020 1,103 (248)293 Accounts payable148 130 31 70 Accrued expenses and other liabilities122 292 (179)49 Net cash provided by operating activities850 993 952 1,376 Cash flows from investing activities:Proceeds from maturities of available-for-sale investments 137 107 740 519 Proceeds from maturities of auction rate securities("ARS") classified as trading securities--- --- --- 61 Proceeds from auction rate securities ("ARS") called at par10 --- 10 --- Payment of contingent consideration --- --- (3)(4)Purchases of available-for-sale investments (92)(119)(417)(800)Capital expenditures (25)(21)(72)(97)Decrease in restricted cash 26 44 8 9 Net cash provided by (used in) investing activities56 11 266 (312)Cash flows from financing activities:Proceeds from issuance of common stock to employees 15 19 54 73Repurchase of common stock (168)(346)(692)(959)Dividends paid --- (2)(194)(189)Excess tax benefits from stock option exercises 3 11 24 22 Net cash used in financing activities (150)(318)(808)(1,053)Effect of foreign exchange rate changes on cashand cash equivalents(60)3 (57)33 Net increase (decrease) in cash and cash equivalents696 689 353 44 Cash and cash equivalents at beginning of period2,469 2,123 2,812 2,768 Cash and cash equivalents at end of period$3,165 $2,812 $3,165 $2,812 (1) Excludes deferral and amortization of stock-based compensation expense.(2) Includes the net effects of capitalization, deferral, and amortization of stock-based compensation expense.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESSUPPLEMENTAL FINANCIAL INFORMATION(Amounts in millions)Three Months EndedDecember 31,March 31,June 30,September 30,December 31,2009 2010 2010 2010 2010 Cash Flow Data Operating Cash Flow                                         $813 $227 $(26)$182 $993 Operating Cash Flow - TTM (1) 1,183 1,083 1,175 1,196 1,376 Capital Expenditures 28 12 27 37 21 Capital Expenditures - TTM (1) 69 71 84 104 97 Non-GAAP Free Cash Flow (2) 785 215 (53)145 972 Non-GAAP Free Cash Flow - TTM (1) $1,114 $1,012 $1,091 $1,092 $1,279 Three Months EndedMarch 31,June 30,September 30,December 31,2011 2011 2011 2011 Cash Flow Data Operating Cash Flow $134 $(78)$46 $850 Operating Cash Flow - TTM (1) 1,283 1,231 1,095 952 Capital Expenditures 4 14 29 25 Capital Expenditures - TTM (1) 89 76 68 72 Non-GAAP Free Cash Flow (2) 130 (92)17 825 Non-GAAP Free Cash Flow - TTM (1) $1,194 $1,155 $1,027 $880 (1) TTM represents trailing twelve months. Operating Cash Flow for the year ended December 31, 2009, three months ended September 30, 2009, three months ended June 30, 2009, and three months ended March 31, 2009 was $1,183 million, $161 million, $(181) million, and $327 million, respectively. Capital expenditures for the year ended December 31, 2009, three months ended September 30, 2009, three months ended June 30, 2009, and three months ended March 31, 2009 was $69 million, $17 million, $14 million, and $10 million, respectively.(2) Non-GAAP free cash flow represents operating cash flow minus capital expenditures.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES(Amounts in millions, except earnings per share data)Three Months Ended December 31, 2011Net RevenuesCost of Sales -Product CostsCost of Sales -Online SubscriptionsCost of Sales - Software Royaltiesand AmortizationCost of Sales -IntellectualProperty LicensesProductDevelopmentSales andMarketingGeneral andAdministrativeRestructuringTotal Costs andExpensesGAAP Measurement$ 1,407 $ 483 $ 58 $ 85 $ 96 $ 256 $ 281 $ 122 $ 1 $ 1,382 Less:  Net effect from deferral in net revenues and related cost of sales (a) 1,001  209  -  37  (3) -  -  -  -  243 Less:  Stock-based compensation(b) -  -  -  (3) -  (25) (2) (13) -  (43)Less:  Restructuring(c) -  -  -  -  -  -  -  (1) (1) (2)Less:  Amortization of intangible assets (d) -  (2) -  -  (48) -  -  -  -  (50)Less:  Impairment of goodwill(e) -  -  -  -  -  -  -  (12) -  (12)Non-GAAP Measurement$ 2,408 $ 690 $ 58 $ 119 $ 45 $ 231 $ 279 $ 96 $ - $ 1,518 Three Months Ended December 31, 2011OperatingIncome Net IncomeBasic Earningsper ShareDiluted Earningsper ShareGAAP Measurement$ 25 $ 99 $ 0.09 $ 0.08 Less:  Net effect from deferral in net revenues and related cost of sales (a) 758  549  0.47  0.47 Less:  Stock-based compensation(b) 43  33  0.03  0.03 Less:  Restructuring(c) 2  1  -  - Less:  Amortization of intangible assets (d) 50  31  0.03  0.03 Less:  Impairment of goodwill(e) 12  12  0.01  0.01 Non-GAAP Measurement$ 890 $ 725 $ 0.63 $ 0.62 Year Ended December 31, 2011Net RevenuesCost of Sales -Product CostsCost of Sales -Online SubscriptionsCost of Sales -Software Royaltiesand AmortizationCost of Sales -IntellectualProperty LicensesProductDevelopmentSales andMarketingGeneral andAdministrativeRestructuringTotal Costs andExpensesGAAP Measurement$ 4,755 $ 1,134  $  238 $ 218 $ 165 $ 646 $ 545 $ 456 $ 25 $ 3,427 Less:  Net effect from deferral in net revenues and related cost of sales (a) (266) (11) -  (48) (24) -  -  -  -  (83)Less:  Stock-based compensation(b) -  -  -  (10) -  (40) (6) (47) -  (103)Less:  Restructuring(c) -  -  -  -  -  -  -  (1) (25) (26)Less:  Amortization of intangible assets(d) -  (2) -  (1) (69) -  -  -  -  (72)Less:  Impairment of goodwill(e) -  -  -  -  -  -  -  (12) -  (12)Non-GAAP Measurement$ 4,489 $ 1,121 $ 238 $ 159 $ 72 $ 606 $ 539 $ 396 $ - $ 3,131 Year Ended December 31, 2011OperatingIncomeNet IncomeBasic Earnings(Loss) per ShareDiluted Earnings (Loss) perShareGAAP Measurement$ 1,328 $ 1,085 $ 0.93 $ 0.92 Less:  Net effect from deferral in net revenues and related cost of sales (a) (183) (151) (0.13) (0.13)Less:  Stock-based compensation(b) 103  76  0.07  0.06 Less:  Restructuring(c) 26  19  0.02  0.02 Less:  Amortization of intangible assets(d) 72  46  0.04  0.04 Less:  Impairment of goodwill(e) 12  12  0.01  0.01 Non-GAAP Measurement$ 1,358 $ 1,087 $ 0.93 $ 0.93 (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.(e) Reflects impairment of goodwill.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 non-GAAP earnings per common share assuming dilution was $715 million and $1,071 million for the three months and year ended December 31, 2011 as compared to the total non-GAAP net income of $725 million and $1,087 million for the same periods, respectively.The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES(Amounts in millions, except earnings per share data)Three Months Ended December 31, 2010Net RevenuesCost of Sales -Product CostsCost of Sales -Online SubscriptionsCost of Sales -Software Royaltiesand AmortizationCost of Sales -IntellectualProperty LicensesProductDevelopmentSales andMarketingGeneral andAdministrativeImpairment ofIntangible AssetsTotal Costsand ExpensesGAAP Measurement$ 1,427 $ 585 $ 73 $ 128 $ 92 $273$ 225 $ 122 $ 326 $ 1,824 Less:  Net effect from deferral in net revenues and related cost of sales (a) 1,121  200  -  45  17 - -  -  -  262 Less:  Stock-based compensation(b) -  -  -  (14) - (8) (2) (13) -  (37)Less:  Restructuring (included in general and administrative)(c) -  -  -  -  - - -  1  -  1 Less:  Amortization of intangible assets (d) -  (2) -  (6) (69)- -  -  -  (77)Less:  Impairment of intangible assets(e) -  -  -  -  - - -  -  (326) (326)Non-GAAP Measurement$ 2,548 $ 783 $ 73 $ 153 $ 40 $265$ 223 $ 110 $ - $ 1,647 Three Months Ended December 31, 2010OperatingIncome (Loss)Net Income(Loss)Basic Earnings(Loss) per ShareDiluted Earnings(Loss) per ShareGAAP Measurement$ (397)$ (233)$ (0.20)$ (0.20)Less:  Net effect from deferral in net revenues and related cost of sales (a) 859  628  0.52  0.51 Less:  Stock-based compensation(b) 37  24  0.02  0.02 Less:  Restructuring (included in general and administrative)(c) (1) -  -  - Less:  Amortization of intangible assets (d) 77  38  0.03  0.03 Less:  Impairment of intangible assets(e) 326  198  0.16  0.16 Non-GAAP Measurement$ 901 $ 655 $ 0.54 $ 0.53 Year Ended December 31, 2010Net RevenuesCost of Sales -Product CostsCost of Sales -Online SubscriptionsCost of Sales -Software Royaltiesand AmortizationCost of Sales -IntellectualProperty LicensesProductDevelopmentSales andMarketingGeneral andAdministrativeImpairment ofIntangible AssetsTotal Costsand ExpensesGAAP Measurement$ 4,447 $ 1,350 $ 241 $ 338 $ 197 $ 635 $ 516 $ 375 $ 326 $ 3,978 Less:  Net effect from deferral in net revenues and related cost of sales (a) 356  3  -  29  5  -  -  -  -  37 Less:  Stock-based compensation(b) -  -  -  (65) -  (12) (8) (46) -  (131)Less:  Restructuring (included in general and administrative)(c) -  -  -  -  -  -  -  (3) -  (3)Less:  Amortization of intangible assets (d) -  (5) -  (15) (102) -  -  (1) -  (123)Less:  Impairment of intangible assets(e) -  -  -  -  -  -  -  -  (326) (326)Non-GAAP Measurement$ 4,803 $ 1,348 $ 241 $ 287 $ 100 $ 623 $ 508 $ 325 $ - $ 3,432 Year Ended December 31, 2010OperatingIncome Net IncomeBasic Earningsper ShareDiluted Earningsper ShareGAAP Measurement$ 469 $ 418 $ 0.34 $ 0.33 Less:  Net effect from deferral in net revenues and related cost of sales (a) 319  232  0.19  0.19 Less:  Stock-based compensation(b) 131  88  0.07  0.07 Less:  Restructuring (included in general and administrative)(c) 3  2  -  - Less:  Amortization of intangible assets (d) 123  53  0.04  0.04 Less:  Impairment of intangible assets(e) 326  198  0.16  0.16 Non-GAAP Measurement$ 1,371 $ 991 $ 0.81 $ 0.79 (a) Reflects the net change in deferred net revenues and related cost of sales.(b) Includes expense related to stock-based compensation.(c) Reflects restructuring related to the Business Combination with Vivendi Games.  Restructuring activities includes severance costs, facility exit costs and balance sheet write down and exit costs from the cancellation of projects.(d) Reflects amortization of intangible assets.(e) Reflects impairment of intangible assets acquired as a result of purchase 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 Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $646 million and $982 million for the three months and year ended December 31, 2010 as compared to the total non-GAAP net income of $655 million and $991 million for the same periods, respectively.The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three Months and Year Ended December 31, 2011 and 2010(Amounts in millions)Three Months EndedDecember 31, 2011December 31, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Distribution Channel               Retail channel $841 60 %$820 57 %$21  3 %Digital online channels* 363 26 414 29 (51) (12)Total Activision and Blizzard 1,204 86 1,234 86 (30) (2)Distribution 203 14 193 14 10  5 Total consolidated GAAP net revenues  1,407 100 1,427 100 (20) (1)Change in Deferred Net Revenues (1) Retail channel 1,055 1,065 Digital online channels* (54)56 Total changes in deferred net revenues 1,001 1,121 Non-GAAP Net Revenues by Distribution Channel Retail channel 1,896 79 1,885 74 11  1 Digital online channels* 309 13 470 18 (161) (34)Total Activision and Blizzard 2,205 92 2,355 92 (150) (6)Distribution 203 8 193 8 10  5 Total non-GAAP net revenues (2) $2,408 100 %$2,548 100 %$(140) (5)%Year EndedDecember 31, 2011December 31, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Distribution Channel Retail channel $2,697 57 %$2,629 59 %$68  3 %Digital online channels* 1,640 34 1,440 32 200  14 Total Activision and Blizzard 4,337 91 4,069 91 268  7 Distribution 418 9 378 9 40  11 Total consolidated GAAP net revenues  4,755 100 4,447 100 308  7 Change in Deferred Net Revenues (1) Retail channel (185)251 Digital online channels* (81)105 Total changes in deferred net revenues (266)356 Non-GAAP Net Revenues by Distribution Channel Retail channel 2,512 56 2,880 60 (368) (13)Digital online channels* 1,559 35 1,545 32 14  1 Total Activision and Blizzard 4,071 91 4,425 92 (354) (8)Distribution 418 9 378 8 40  11 Total non-GAAP net revenues (2) $4,489 100 %$4,803 100 %$(314) (7)%(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.* Net revenues from digital online channel represent revenues from subscriptions and memberships, licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three Months Ended December 31, 2011 and 2010(Amounts in millions)Three Months EndedDecember 31, 2011December 31, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Segment/Platform Mix              Activision and Blizzard: Online subscriptions* $268 19 %$340 24 %$(72)(21)%PC and Other 123 9 124 9 (1)(1)Sony PlayStation  3 259 19 259 18 --- --- Sony PlayStation  2 3 --- 6 --- (3)(50)Microsoft Xbox 360 300 21 281 20 19 7 Nintendo Wii 166 12 141 10 25 18 Total console^ 728 52 687 48 41 6 Sony PlayStation Portable 3 --- 6 --- (3)(50)Nintendo 3DS 26 2 --- --- 26 NMNintendo Dual Screen 56 4 77 5 (21)(27)Total handheld 85 6 83 5 2 2 Total Activision and Blizzard 1,204 86 1,234 86 (30)(2)Total Distribution 203 14 193 14 10 5 Total consolidated GAAP net revenues 1,407 100 1,427 100 (20)(1)Change in Deferred Net Revenues (1) Activision and Blizzard: Online subscriptions* (18)204 PC and Other 54 --- Sony PlayStation  3 453 393 Microsoft Xbox 360 483 441 Nintendo Wii 24 75 Total console^ 960 909 Nintendo Dual Screen 5 8 Total changes in deferred net revenues 1,001 1,121 Non-GAAP Net Revenues by Segment/Platform Mix Activision and Blizzard: Online subscriptions* 250 10 544 21 (294)(54)PC and Other 177 7 124 5 53 43 Sony PlayStation  3 712 30 652 26 60 9 Sony PlayStation  2 3 --- 6 --- (3)(50)Microsoft Xbox 360 783 32 722 28 61 8 Nintendo Wii 190 8 216 8 (26)(12)Total console^ 1,688 70 1,596 62 92 6 Sony PlayStation Portable 3 --- 6 --- (3)(50)Nintendo 3DS 26 1 --- --- 26 NMNintendo Dual Screen 61 3 85 4 (24)(28)Total handheld 90 4 91 4 (1)(1)Total Activision and Blizzard  2,205 91 2,355 92 (150)(6)Total Distribution 203 9 193 8 10 5 Total non-GAAP net revenues (2) $2,408 100 %$2,548 100 %$(140)(5)%(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. It also includes revenues from Call of Duty Elite memberships.^ Downloadable content and their related revenues are included in each respective console platforms and total console.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Year Ended December 31, 2011 and 2010(Amounts in millions)Year EndedDecember 31, 2011December 31, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Segment/Platform Mix                Activision and Blizzard: Online subscriptions* $1,357 29 %$1,230 28 %$127 10 %PC and Other 374 8 325 7 49 15 Sony PlayStation  3 935 20 854 19 81 9 Sony PlayStation  2 13 --- 35 1 (22)(63)Microsoft Xbox 360 1,140 24 1,033 23 107 10 Nintendo Wii 351 7 408 9 (57)(14)Total console^ 2,439 51 2,330 52 109 5 Sony PlayStation Portable 15 --- 16 --- (1)(6)Nintendo 3DS 35 1 --- --- 35 NMNintendo Dual Screen 117 2 168 4 (51)(30)Total handheld 167 3 184 4 (17)(9)Total Activision and Blizzard 4,337 91 4,069 91 268 7 Total Distribution 418 9 378 9 40 11 Total Activision and Blizzard 4,755 100 4,447 100 308 7 Change in Deferred Net Revenues (1) Activision and Blizzard: Online subscriptions* (202)191 PC and Other (75)81 Sony PlayStation  3 36 77 Microsoft Xbox 360 43 15 Nintendo Wii (66)(16)Total console^ 13 76 Nintendo Dual Screen (2)8 Total changes in deferred net revenues (266)356 Non-GAAP Net Revenues by Segment/Platform Mix Activision and Blizzard: Online subscriptions* 1,155 26 1,421 30 (266)(19)PC and Other 299 7 406 8 (107)(26)Sony PlayStation  3 971 22 931 19 40 4 Sony PlayStation  2 13 --- 35 1 (22)(63)Microsoft Xbox 360 1,183 26 1,048 22 135 13 Nintendo Wii 285 6 392 8 (107)(27)Total console^ 2,452 54 2,406 50 46 2 Sony PlayStation Portable 15 --- 16 --- (1)(6)Nintendo 3DS 35 1 --- --- 35 NMNintendo Dual Screen 115 3 176 4 (61)(35)Total handheld 165 4 192 4 (27)(14)Total Activision and Blizzard  4,071 91 4,425 92 (354)(8)Total Distribution 418 9 378 8 40 11 Total non-GAAP net revenues (2) $4,489 100 %$4,803 100 %$(314)(7)%(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. It also includes revenues from Call of Duty Elite memberships.^ Downloadable content and their related revenues are included in each respective console platforms and total console.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three Months And Year Ended December 31, 2011 and 2010(Amounts in millions)Three Months EndedDecember 31, 2011December 31, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Geographic Region                  North America $718 51 %$734 51 %$(16)(2)%Europe 605 43 600 42 5 1 Asia Pacific 84 6 93 7 (9)(10)Total consolidated GAAP net revenues  1,407 100 1,427 100 (20)(1)Change in Deferred Net Revenues (1) North America 548 627 Europe 395 440 Asia Pacific 58 54 Total changes in net revenues 1,001 1,121 Non-GAAP Net Revenues by Geographic Region North America 1,266 53 1,361 53 (95)(7)Europe 1,000 41 1,040 41 (40)(4)Asia Pacific 142 6 147 6 (5)(3)Total non-GAAP net revenues (2) $2,408 100 %$2,548 100 %$(140)(5)%Year EndedDecember 31, 2011December 31, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Geographic Region North America $2,405 50 %$2,409 54 %$(4)- %Europe 1,990 42 1,743 39 247 14 Asia Pacific 360 8 295 7 65 22 Total consolidated GAAP net revenues  4,755 100 4,447 100 308 7 Change in Deferred Net Revenues (1) North America (154)166 Europe (104)159 Asia Pacific (8)31 Total changes in net revenues (266)356 Non-GAAP Net Revenues by Geographic Region North America 2,251 50 2,575 54 (324)(13)Europe 1,886 42 1,902 39 (16)(1)Asia Pacific 352 8 326 7 26 8 Total non-GAAP net revenues (2) $4,489 100 %$4,803 100 %$(314)(7)%(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 Months And Year Ended December 31, 2011 and 2010(Amounts in millions)Three Months EndedDecember 31, 2011December 31, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)Segment net revenues: Activision(i)$1,929 137 %$1,785 125 %$144 8 %Blizzard(ii)276 20 570 40 (294)(52)Distribution(iii)203 14 193 14 10 5 Operating segment total 2,408 171 2,548 179 (140)(5)Reconciliation to consolidated net revenues: Net effect from deferral of net revenues (1,001)(71)(1,121)(79)Consolidated net revenues $1,407 100 %$1,427 100 %$(20)(1)%Segment income from operations: Activision(i)$809 $599 $210 35 %Blizzard(ii)71 291 (220)(76)Distribution(iii)10 11 (1)(9)Operating segment total 890 901 (11)(1)Reconciliation to consolidated operating income (loss)                             and consolidated income (loss) before income tax expense:Net effect from deferral of net revenues and related cost of sales (758)(859)Stock-based compensation expense (43)(37)Restructuring  (2)1 Amortization of intangible assets (50) (77)Impairment of goodwill/intangible assets (12)(326)Consolidated operating income (loss) $25 $(397)422 NMInvestment and other income (expense), net (5)8 Consolidated income (loss) before income tax expense $20 $(389)$409 NM%Operating margin from total operating segments 37.0%35.4%Year EndedDecember 31, 2011December 31, 2010$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)Segment net revenues: Activision(i)$2,828 59 %$2,769 62 %$59 2 %Blizzard(ii)1,243 26 1,656 37 (413)(25)Distribution(iii)418 9 378 9 40 11 Operating segment total 4,489 94 4,803 108 (314)(7)Reconciliation to consolidated net revenues: Net effect from deferral of net revenues 266 6 (356)(8)Consolidated net revenues $4,755 100 %$4,447 100 %$308 7 % Segment income from operations: Activision(i)$851 $511 $ 340 67 % Blizzard(ii)496 850 (354)(42)Distribution(iii)11 10 1 10 Operating segment total 1,358 1,371 (13)(1)Reconciliation to consolidated operating income and consolidated income before income tax expense:Net effect from deferral of net revenues and related cost of sales 183 (319)Stock-based compensation expense (103)(131)Restructuring  (26)(3)Amortization of intangible assets (72) (123)Impairment of goodwill/intangible assets (12)(326)Consolidated operating income $1,328 $469 859 183 Investment and other income (expense), net 3 23 Consolidated income before income tax expense $1,331 $492 $839 171 %Operating margin from total operating segments 30.3%28.5%(i) Activision Publishing ("Activision") ?  publishes interactive entertainment products and contents.(ii) Blizzard ?  Blizzard Entertainment, Inc. and its subsidiaries ("Blizzard") publishes PC games and online subscription-based games in the MMORPG category.(iii) Activision Blizzard Distribution ("Distribution") ? distributes interactive entertainment software and hardware products.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOKFor the Quarter Ending March 31, 2012 and Year Ending December 31, 2012GAAP to Non-GAAP Reconciliation(Amounts in millions, except per share data)Outlook forOutlook forThree Months EndingYear EndingMarch 31, 2012December 31, 2012Net Revenues (GAAP)$ 965 $ 4,150 Excluding the impact of:Change in deferred net revenues (a) (440) 350 Non-GAAP Net Revenues $ 525 $ 4,500 Earnings Per Diluted Share (GAAP)$ 0.22 $ 0.63 Excluding the impact of:Net effect from deferral in net revenues and related cost of sales (b) (0.21) 0.20 Stock-based compensation(c) 0.02  0.08 Amortization of intangible assets(d) -  0.03 Non-GAAP Earnings Per Diluted Share $ 0.03 $ 0.94 (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 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.