The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from PR Newswire

Activision Blizzard Announces Better-Than-Expected Third Quarter 2012 Financial Results

Wednesday, November 07, 2012

Activision Blizzard Announces Better-Than-Expected Third Quarter 2012 Financial Results16:05 EST Wednesday, November 07, 2012Company Had Three of the Top Four Best-Selling Games in North America and Europe for the First Nine Months of 2012¹ Company Raises 2012 Net Revenues and EPS OutlookSANTA MONICA, Calif., Nov. 7, 2012 /PRNewswire/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter of 2012.  Third Quarter  Nine Months(in millions, except EPS)2012 PriorOutlook*201120122011GAAP  Net Revenues$841$740$754 $ 3,088 $ 3,348 EPS$0.20$0.06$0.13$0.70$0.84Non-GAAP  Net Revenues$751$690$627 $ 2,393 $ 2,080 EPS$0.15$0.07$0.07$0.40$0.31*Prior Outlook was provided by the company in its August 2, 2012 earnings releaseFor the quarter ended September 30, 2012, the company delivered record GAAP net revenues of $841 million, as compared with $754 million for the third quarter of 2011.   On a non-GAAP basis, the company's net revenues were $751 million, as compared with $627 million for the third quarter of 2011.  For the third-quarter, GAAP net revenues from digital channels were $430 million and represented 51% of the company's total net revenues.  On a non-GAAP basis, net revenues from digital channels were $427 million and represented 57% of the quarter's total net revenues.  For the quarter ended September 30, 2012, Activision Blizzard delivered record GAAP earnings per diluted share of $0.20, as compared with $0.13 for the third quarter of 2011.  On a non-GAAP basis, the company also delivered record earnings per diluted share of $0.15, as compared with $0.07 for the third quarter of 2011.  Both GAAP and non-GAAP earnings include a one-time tax benefit of $46 million, or $0.04 per diluted share, resulting from the closure of an IRS audit related to pre-merger net operating losses from Vivendi Games.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, "Our unyielding commitment to excellence, the strength of our employees around the globe and our focus on creating great entertainment experiences have enabled us to once again deliver better-than-expected financial results.  We have, for the third straight year, generated over $1 billion of operating cash flow for the trailing twelve month period ending September 30. Our performance was driven by the launch of Blizzard Entertainment's World of Warcraft®: Mists of Pandaria? and continued sales of its top-selling PC game, Diablo® III?, as well as Activision Publishing's new entertainment property, Skylanders Spyro's Adventure®, and sales of titles in the Call of Duty® franchise.  Based on our strong third-quarter performance and increased visibility into the remainder of the year, we are raising our full-year financial outlook and expect to deliver record non-GAAP operating margins and the highest non-GAAP earnings per share in our company's history.  We now expect non-GAAP earnings per share will increase more than 18% year over year."Kotick added, "Skylanders Giants? is off to a great start and next week the company will release Call of Duty®: Black Ops II, which we believe will be one of the most successful launches of any form of entertainment in history." Kotick continued, "As we look to 2013, we are cautious about business prospects given a continuingly challenged global economy, the ongoing console transition and very difficult year-over-year comparables due to Blizzard's record-shattering Diablo III sales in 2012.  We expect that over the long-term, we will maintain our leadership position as the world's leading interactive entertainment company and continue to provide strong returns to our shareholders by delivering great games to audiences around the world."Selected Business HighlightsActivision Publishing's Skylanders Spyro's Adventure has been the #1 best-selling console and handheld game overall in dollars, including accessory packs and figures, in North America and Europe for the first nine months of 2012.¹  Additionally, Skylanders Spyro's Adventure was the #1 action-figure line in the U.S., outselling all other action?figure lines for the first nine months of 2012.² For the first nine months, Activision Blizzard was the #1 PC publisher in the U.S. and Europe.  Additionally, for the third quarter, Blizzard Entertainment had two of the top five PC games with Diablo III? and World of Warcraft: Mists of Pandaria?.¹ Since its release in May 2012, Blizzard Entertainment's Diablo III? was the #1 best-selling game in dollars and units on the PC in the U.S. and Europe.¹  On September 25, 2012, Blizzard Entertainment released World of Warcraft: Mists of Pandaria?, and sold through approximately 2.7 million copies of the game as of its first week of release.³ Additionally, on October, 2, 2012, World of Warcraft: Mists of Pandaria was released in China, marking what the company believes to be the first time any game has officially released in China as part of a global launch. As of September 30, 2012, Blizzard Entertainment's World of Warcraft remains the #1 subscription-based MMORPG, with more than 10 million subscribers.³Company OutlookDuring October, Activision Publishing released several new titles including:  007? Legends on October 16, 2012; Skylanders Giants? on October 22, 2012; Cabela's Dangerous Hunts 2013 and Cabela's Hunting Expeditions on October 23, 2012; and Transformers Prime? on October 30, 2012.  On November 13, 2012, Activision Publishing expects to release its highly anticipated game, Call of Duty: Black Ops II, the most ambitious Call of Duty game ever.  Additionally, Activision Publishing expects to release Wipeout 3 on November 18, 2012 and Family Guy: Back to the Multiverse on November 20, 2012. Based on better-than-expected third-quarter results, Activision Blizzard is raising its outlook for calendar year 2012 from the estimates it provided on August 2, 2012, as follows:GAAPOutlookPrior* GAAPOutlookNon-GAAPOutlookPrior* Non-GAAPOutlookCY 2012   Net Revenues    (in millions)$4,574$4,330$4,805$4,630  EPS$0.88$0.69$1.10$0.99Q4 2012   Net Revenues    (in millions)$1,485$ n/a $2,412$ n/a   EPS$0.19$ n/a $0.70$ n/a *Prior outlook was provided by the company in its August 2, 2012 earnings release.Conference Call       Today at 4:30 p.m. EST, Activision Blizzard's management will host a conference call and webcast to discuss the company's results for the quarter ended September 30, 2012 and management's outlook for the remainder of the calendar year. The company welcomes all members of the financial and media communities and other interested parties to visit the "Investor Relations" area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 888-455-2265 in the U.S. with passcode 7041557.About Activision BlizzardHeadquartered in Santa Monica, California, Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile device game publisher with leading positions across the major categories of the 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.Subscriber Definition:  Consistent with past practice, World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to play World of Warcraft, as well as those who have purchased the game and are within their free month of access. Internet Game Room players who have accessed the game over the last thirty days are also counted as subscribers. The above definition excludes all players under free promotional subscriptions, expired or cancelled subscriptions, and expired prepaid cards. Subscribers in licensees' territories are defined along the same rules.Non-GAAP Financial Measures:  As a supplement to our financial measures presented in accordance with Generally Accepted Accounting Principles ("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; 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 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, the impact of the current macroeconomic environment and market conditions within the video game industry, increasing concentration of titles, shifts in consumer spending trends, 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, 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, the seasonal and cyclical nature of the interactive entertainment 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, 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, 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 and other filings with the Securities and Exchange Commission.  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.¹According to The NPD Group, Chart-Track and GfK²According to The NPD Group³According to 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 30,2012201120122011Net revenues:Product sales$   536$   369$   2,208$   2,197Subscription, licensing and other revenues 1 3053858801,151     Total net revenues8417543,0883,348Costs and expenses:Cost of sales - product costs146138633650Cost of sales - online subscriptions5659178181Cost of sales - software royalties and amortization1924107133Cost of sales - intellectual property licenses10163769Product development131133407390Sales and marketing131115346264General and administrative121104413333Restructuring-3-24     Total costs and expenses6145922,1212,044Operating income2271629671,304Investment and other income (expense), net1347Income before income tax expense2281659711,311Income tax expense217176325Net income$   226$   148$   795$   986Basic earnings per common share$   0.20$   0.13$   0.70$   0.84Weighted average common shares outstanding1,1091,1401,1131,151Diluted earnings per common share 2$   0.20$   0.13$   0.70$   0.84Weighted average common shares outstanding assuming dilution1,1141,1481,1181,1601 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.2 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. We had, on a weighted-average basis, participating securities of approximately 27 million and 23 million for the three and nine months ended September 30, 2012, respectively, and we had, on a weighted-average basis, participating securities of approximately 17 million for the three and nine months ended September 30, 2011. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $221 million and $779 million for the three and nine months ended September 30, 2012, as compared to the total net income of $226 million and $795 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 $146 million and $972 million for the three and nine months ended September 30, 2011, as compared to total net income of $148 million and $986 million for the same periods, respectively.  ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(Amounts in millions)September 30,December 31,20122011ASSETSCurrent assets:Cash and cash equivalents$    2,909$    3,165Short-term investments455360Accounts receivable, net200649Inventories, net291144Software development164137Intellectual property licenses1322Deferred income taxes, net497507Other current assets173396     Total current assets4,7025,380Long-term investments1916Software development15662Intellectual property licenses412Property and equipment, net148163Other assets1212Intangible assets, net8088Trademark and trade names433433Goodwill7,1077,111Total assets$   12,661$   13,277LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable$      253$      390Deferred revenues8471,472Accrued expenses and other liabilities455694      Total current liabilities1,5552,556Deferred income taxes, net6055Other liabilities163174Total liabilities1,7782,785Shareholders' equity:Common stock------Additional paid-in capital9,4189,616Retained earnings1,539948Accumulated other comprehensive income (loss)(74)(72)      Total shareholders' equity10,88310,492          Total liabilities and shareholders' equity$   12,661$   13,277ACTIVISION 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, 2012Net RevenuesCost of Sales - Product CostsCost of Sales - Online SubscriptionsCost of Sales - Software Royalties and AmortizationCost of Sales - Intellectual Property LicensesProduct DevelopmentSales and MarketingGeneral and AdministrativeTotal Costs and ExpensesGAAP Measurement$   841$   146$    56$    19$    10$   131$   131$   121$   614Less:  Net effect from deferral in net revenues and related cost of sales (a)(90)(5)-232---20Less:  Stock-based compensation(b)---(1)-(5)(2)(26)(34)Less:  Amortization of intangible assets(c)----(3)---(3)Non-GAAP Measurement$   751$   141$    56$    41$     9$   126$   129$    95$   597Three months ended September 30, 2012Operating IncomeNet IncomeBasic Earnings per ShareDiluted Earnings per ShareGAAP Measurement$   227$   226$  0.20$  0.20Less:  Net effect from deferral in net revenues and related cost of sales (a)(110)(83)(0.07)(0.07)Less:  Stock-based compensation(b)34230.020.02Less:  Amortization of intangible assets(c)32--Non-GAAP Measurement$   154$   168$  0.15$  0.15 Nine months ended September 30, 2012Net RevenuesCost of Sales - Product CostsCost of Sales - Online SubscriptionsCost of Sales - Software Royalties and AmortizationCost of Sales - Intellectual Property LicensesProduct DevelopmentSales and MarketingGeneral and AdministrativeTotal Costs and ExpensesGAAP Measurement$   3,088$     633$     178$     107$      37$     407$     346$     413$   2,121Less:  Net effect from deferral in net revenues and related cost of sales (a)(695)(186)-5----(181)Less:  Stock-based compensation(b)---(6)-(14)(5)(60)(85)Less:  Amortization of intangible assets(c)----(7)---(7)Non-GAAP Measurement$   2,393$     447$     178$     106$      30$     393$     341$     353$   1,848Nine months ended September 30, 2012Operating IncomeNet IncomeBasic Earnings per ShareDiluted Earnings per ShareGAAP Measurement$     967$     795$    0.70$    0.70Less:  Net effect from deferral in net revenues and related cost of sales (a)(514)(401)(0.35)(0.35)Less:  Stock-based compensation(b)85600.050.05Less:  Amortization of intangible assets(c)75--Non-GAAP Measurement$     545$     459$    0.40$    0.40(a) Reflects the net change in deferred net revenues and related cost of sales.(b) Includes expense related to stock-based compensation.(c) Reflects amortization of intangible assets.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 $164 million and $449 million for the three and nine months ended September 30, 2012 as compared to the total non-GAAP net income of $168 million and $459 million for the same periods, respectively.The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES(Amounts in millions, except earnings per share data)Three months ended September 30, 2011Net RevenuesCost of Sales - Product CostsCost of Sales - Online SubscriptionsCost of Sales - Software Royalties and AmortizationCost of Sales - Intellectual Property LicensesProduct DevelopmentSales and MarketingGeneral and AdministrativeRestructuringTotal Costs and ExpensesGAAP Measurement$   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, 2011Operating IncomeNet IncomeBasic Earnings per 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 - Online SubscriptionsCost of Sales - Software Royalties and AmortizationCost of Sales - Intellectual Property LicensesProduct DevelopmentSales and MarketingGeneral and AdministrativeRestructuringTotal 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, 2011Operating IncomeNet IncomeBasic Earnings per ShareDiluted Earnings per 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)24180.020.02 Less:  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.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 $85 million and $357 million for the three and nine months ended September 30, 2011 as compared to total non-GAAP net income of $87 million and $362 million for the same periods, respectively.The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three And Nine Months Ended September 30, 2012 and 2011(Amounts in millions)Three Months EndedSeptember 30, 2012September 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Distribution ChannelRetail channel$   35743 %$   25033 %$   10743 %Digital online channels1 430514275731Total Activision and Blizzard787946779011016Distribution5467710(23)(30)Total consolidated GAAP net revenues 8411007541008712Change in Deferred Net Revenues2 Retail channel(87)(86)Digital online channels1 (3)(41)Total changes in deferred net revenues(90)(127)Non-GAAP Net Revenues by Distribution ChannelRetail channel270361642610665Digital online channels1 42757386624111Total Activision and Blizzard697935508814727Distribution5477712(23)(30)Total non-GAAP net revenues 3 $   751100 %$   627100 %$   12420 %Nine Months EndedSeptember 30, 2012September 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Distribution ChannelRetail channel$  1,83760 %$  1,85656 %$   (19)(1) %Digital online channels1 1,085351,27838(193)(15)Total Activision and Blizzard2,922953,13494(212)(7)Distribution16652146(48)(22)Total consolidated GAAP net revenues 3,0881003,348100(260)(8)Change in Deferred Net Revenues2 Retail channel(832)(1,240)Digital online channels1 137(28)Total changes in deferred net revenues (695)(1,268)Non-GAAP Net Revenues by Distribution ChannelRetail channel1,005426163038963Digital online channels1 1,222511,25060(28)(2)Total Activision and Blizzard2,227931,8669036119Distribution166721410(48)(22)Total non-GAAP net revenues 3 $  2,393100 %$  2,080100 %$   31315 %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 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.3 Total non-GAAP net revenues presented also represents our total operating segment net revenues. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three Months Ended September 30, 2012 and 2011(Amounts in millions)Three Months EndedSeptember 30, 2012September 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Segment/Platform MixActivision and Blizzard:Online subscriptions1 $   22627 %$   33644 %$  (110)(33) %PC and Other5 31437456269598Sony PlayStation  3811010014(19)(19)Microsoft Xbox 3601211414419(23)(16)Nintendo Wii253334(8)(24)Total console2 2272727737(50)(18)Sony PlayStation Portable2---41(2)(50)Nintendo 3DS and DS182152320Total handheld20219315Total Activision and Blizzard787936779011016Distribution:Total Distribution5477710(23)(30)Total consolidated GAAP net revenues8411007541008712Change in Deferred Net Revenues3 Activision and Blizzard:Online subscriptions1 119(62)PC and Other5 (165)(5)Sony PlayStation  3(12)(18)Microsoft Xbox 360(30)(36)Nintendo Wii(2)(5)Total console2 (44)(59)Nintendo 3DS and DS---(1)Total changes in deferred net revenues(90)(127)Non-GAAP Net Revenues by Segment/Platform MixActivision and Blizzard:Online subscriptions1 34546274447126PC and Other5 14920406109273Sony PlayStation  36998213(13)(16)Microsoft Xbox 360911210817(17)(16)Nintendo Wii233285(5)(18)Total console2 1832421835(35)(16)Sony PlayStation Portable2---41(2)(50)Nintendo 3DS and DS183142429Total handheld203183211Total Activision and Blizzard 697935508814727Distribution:Total Distribution5477712(23)(30)Total non-GAAP net revenues4 $   751100 %$   627100 %$   12420 %1 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.2 Downloadable content and their related revenues are included in each respective console platforms and total console.3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.5 Other includes standalone sales of toys and accessories products from Skylanders franchise, mobile sales and other physical merchandise and accessories. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Nine Months Ended September 30, 2012 and 2011(Amounts in millions)Nine Months EndedSeptember 30, 2012September 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Segment/Platform MixActivision and Blizzard:Online subscriptions1 $   70123 %$  1,09033 %$  (389)(36) %PC and Other5 727242518476190Sony PlayStation  36172068620(69)(10)Microsoft Xbox 3607052384025(135)(16)Nintendo Wii10831856(77)(42)Total console2 1,430461,71151(281)(16)Sony PlayStation Portable5---12---(7)(58)Nintendo 3DS and DS592702(11)(16)Total handheld642822(18)(22)Total Activision and Blizzard2,922953,13494(212)(7)Distribution:Total Distribution16652146(48)(22)Total consolidated GAAP net revenues3,0881003,348100(260)(8)Change in Deferred Net Revenues3 Activision and Blizzard:Online subscriptions1 92(185)PC and Other5 126(129)Sony PlayStation  3(412)(417)Microsoft Xbox 360(469)(440)Nintendo Wii(27)(90)Total console2 (908)(947)Nintendo 3DS and DS(5)(7)Total changes in deferred net revenues(695)(1,268)Non-GAAP Net Revenues by Segment/Platform MixActivision and Blizzard:Online subscriptions1 7933390544(112)(12)PC and Other5 853361226731599Sony PlayStation  3205926912(64)(24)Microsoft Xbox 3602361040019(164)(41)Nintendo Wii813955(14)(15)Total console2 5222276436(242)(32)Sony PlayStation Portable5---121(7)(58)Nintendo 3DS and DS542633(9)(14)Total handheld592754(16)(21)Total Activision and Blizzard 2,227931,8669036119Distribution:Total Distribution166721410(48)(22)Total non-GAAP net revenues4 $  2,393100 %$  2,080100 %$   31315 %1 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.2 Downloadable content and their related revenues are included in each respective console platforms and total console.3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.5 Other includes standalone sales of toys and accessories products from Skylanders franchise, mobile sales and other physical merchandise and accessories. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three and Nine Months Ended September 30, 2012 and 2011(Amounts in millions)Three Months EndedSeptember 30, 2012September 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Geographic RegionNorth America$   40348 %$   36048 %$    4312 %Europe3334032343103Asia Pacific105127193448Total consolidated GAAP net revenues 8411007541008712Change in Deferred Net Revenues1 North America(49)(72)Europe(9)(45)Asia Pacific(32)(10)Total changes in net revenues(90)(127)Non-GAAP Net Revenues by Geographic RegionNorth America35447 288466623Europe32443278444617Asia Pacific731061101220Total non-GAAP net revenues2 $   751100 %$   627100 %$   12420 %Nine Months EndedSeptember 30, 2012September 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Geographic RegionNorth America$  1,56751 %$  1,68751 %$  (120)(7) %Europe1,220391,38541(165)(12)Asia Pacific301102768259Total consolidated GAAP net revenues3,0881003,348100(260)(8)Change in Deferred Net Revenues1 North America(459)(703)Europe(243)(499)Asia Pacific7(66)Total changes in net revenues(695)(1,268)Non-GAAP Net Revenues by Geographic RegionNorth America1,108469844712413Europe97741886439110Asia Pacific30813210109847Total non-GAAP net revenues2 $  2,393100 %$  2,080100 %$   31315 %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, 2012 and 2011(Amounts in millions)Three Months EndedSeptember 30, 2012September 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)Segment net revenues:Activision1 $   28334 %$   25334 %$    3012 %Blizzard2 414492973911739Distribution3 5467710(23)(30)Operating segment total751896278312420Reconciliation to consolidated net revenues:Net effect from deferral of net revenues901112717Consolidated net revenues$   841100 %$   754100 %$    8712 %Segment income (loss) from operations:Activision1 $   (14)$   (36)$    22(61)%Blizzard2 1681204840Distribution3 ---1(1)(100)Operating segment total154856981Reconciliation to consolidated operating income and consolidated income before income tax expense:Net effect from deferral of net revenues and related cost of sales110105Stock-based compensation expense(34)(18)Restructuring ---(3)Amortization of intangible assets(3)(7)Consolidated operating income2271626540Investment and other income (expense), net13Consolidated income before income tax expense$   228$   165$    6338 %Operating margin from total operating segments21% 14%Nine Months EndedSeptember 30, 2012September 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)Segment net revenues:Activision1 $   92830 %$   89827 %$    303 %Blizzard2 1,299429682933134Distribution3 16652146(48)(22)Operating segment total2,393772,0806231315Reconciliation to consolidated net revenues:Net effect from deferral of net revenues695231,26838Consolidated net revenues$  3,088100 %$  3,348100 %$  (260)(8) %Segment income (loss) from operations:Activision1 $   (84)$    42$  (126)(300) %Blizzard2 62942520448Distribution3 ---1(1)(100)Operating segment total5454687716Reconciliation to consolidated operating income and consolidated income before income tax expense:Net effect from deferral of net revenues and related cost of sales514943Stock-based compensation expense(85)(61)Restructuring ---(24)Amortization of intangible assets(7)(22)Consolidated operating income9671,304(337)(26)Investment and other income (expense), net47Consolidated income before income tax expense$   971$  1,311$  (340)(26) %Operating margin from total operating segments23%23%1 Activision Publishing ("Activision") ? publishes interactive entertainment products and contents.2 Blizzard ? Blizzard Entertainment, Inc. and its subsidiaries ("Blizzard") publishes PC games and online subscription-based games in the MMORPG category.3 Activision Blizzard Distribution ("Distribution") ? distributes interactive entertainment software and hardware products. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOKFor the Quarter Ending December 31, 2012 and Year Ending December 31, 2012GAAP to Non-GAAP Reconciliation(Amounts in millions, except per share data)Outlook forOutlook forThree Months EndingYear EndingDecember 31, 2012December 31, 2012Net Revenues (GAAP)$       1,485$       4,574Excluding the impact of:Change in deferred net revenues (a)927231Non-GAAP Net Revenues $        2,412$       4,805Earnings Per Diluted Share (GAAP)$        0.19$        0.88Excluding the impact of:Net effect from deferral in net revenues and related cost of sales (b)0.460.11Stock-based compensation(c)0.040.09Amortization of intangible assets(d)0.010.02Non-GAAP Earnings Per Diluted Share $        0.70$       1.10(a) Reflects the net change in deferred net revenues.(b) Reflects the net change in deferred net revenues and related cost of sales.(c) Reflects expense related to stock-based compensation.(d) Reflects amortization of intangible assets.The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings (loss) per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.  SOURCE Activision 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