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Press release from PR Newswire

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

Thursday, August 02, 2012

Activision Blizzard Announces Better-Than-Expected Second Quarter 2012 Financial Results16:05 EDT Thursday, August 02, 2012Company Had The Top Three Best-Selling Games in North America and Europe For First Six Months of 20121SANTA MONICA, Calif., Aug. 2, 2012 /PRNewswire/ -- Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2012.Second Quarter(in millions, except EPS)2012PriorOutlook*2011GAAP  Net Revenues$1,075$950$1,146 EPS$0.16$0.13$0.29Non-GAAP  Net Revenues$1,054$805$699 EPS$0.20$0.10$0.10*Prior outlook was provided by the company on May 9, 2012 in its earnings release For the quarter ended June 30, 2012, Activision Blizzard's GAAP net revenues were $1.08 billion, as compared with $1.15 billion for the second quarter of 2011.  On a non-GAAP basis, the company's net revenues were $1.05 billion, as compared with $699 million for the second quarter of 2011.  For the second quarter, GAAP net revenues from digital channels were $343 million and represented 32% of the company's total revenues.  On a non-GAAP basis, net revenues from digital channels were a record $497 million and represented 47% of the company's total revenues.  For the quarter ended June 30, 2012, Activision Blizzard's GAAP earnings per diluted share were $0.16, as compared with $0.29 for the second quarter of 2011.  On a non-GAAP basis, the company's earnings per diluted share were $0.20, as compared with $0.10 for the second quarter of 2011.  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 of Activision Blizzard, said, "On a non-GAAP basis, we delivered record Q2 and first half net revenues, operating income and earnings.  Our performance was driven by strong audience demand for our great games.  We are very excited to have announced our expanded investment in China through Activision Publishing's agreement with Tencent to bring the Call of Duty® franchise to the Chinese market."Kotick continued, "For the first six months, we had the top three best-selling games in North America and Europe with Activision Publishing's Skylanders Spyro's Adventures® and Call of Duty: Modern Warfare® 3, and Blizzard Entertainment's record setting Diablo® III.""For the remainder of the year, we are excited about our product slate which includes Activision Publishing's Skylanders Giants? and Call of Duty: Black Ops II, and Blizzard Entertainment's World of Warcraft®: Mists of Pandaria?.  While we are increasing our financial outlook for full year 2012, we remain cautious given economic uncertainty, risks to consumer spending especially during the holiday season and the recognition that the majority of our key franchise launches are still ahead of us," Kotick added.Selected Business Highlights:In North America and Europe, including accessory packs and figures, Activision Publishing's Skylanders Spyro's Adventure was the #1 best-selling console and hand-held game overall in dollars for the first six 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 six months of 2012.2 For the June quarter, Activision Blizzard was the #1 independent game publisher overall in North America and Europe.1 Blizzard Entertainment's Diablo III, released on May 15, 2012, set a new industry launch record for PC games and was the #1 best-selling PC game for the first six months of 2012. Through July, more than 10 million players have entered the world of Sanctuary.3 As of June 30, 2012, Blizzard Entertainment's World of Warcraft remains the #1 subscription-based MMORPG and had approximately 9.1 million subscribers4 Blizzard Entertainment announced that the company expects to release World of Warcraft: Mists of Pandaria on September 25, 2012. On July 3, 2012, Activision Publishing and Tencent Holdings Limited, a leading Internet services provider in China, announced a strategic relationship to bring the Call of Duty franchise to Chinese game players.  Under the multi-year agreement with Activision Publishing, Tencent has the exclusive license to operate Activision's new Call of Duty game in mainland China.  The game will be  free-to-play and monetized through the sale of in-game items. During the quarter, Activision Blizzard paid a cash dividend of $0.18 per common share, totaling $204 million, to shareholders of record at the close of business on March 21, 2012.  This represented a 9% increase over the dividend that was paid in 2011. During the quarter, Activision Blizzard purchased an aggregate of 4.4 million shares of its common stock for an aggregate purchase price of approximately $54 million. Company OutlookDuring the third quarter, Activision Publishing expects to release Transformers: Fall of Cybertron? for the Xbox 360® video game and entertainment system from Microsoft, Sony's PlayStation® 3 computer entertainment system and the PC.  Additionally, the company expects to release the Call of Duty: Modern Warfare 3 Content Collection #3, a compilation of content previously released to Call of Duty Elite premium members, on the Xbox 360 video game and entertainment system from Microsoft, for Sony's PlayStation 3 computer entertainment system; and Call of Duty: Modern Warfare 3 Content Collection #4 on the Xbox 360 video game and entertainment system from Microsoft.Activision Publishing also expects to release Ice Age? Continental Drift ? Arctic Games in North America for the Xbox 360 video game and entertainment system from Microsoft, Sony's PlayStation 3 computer entertainment system, Wii? system from Nintendo, the Nintendo 3DS? and Nintendo DS? hand-held system;  Wipeout  3 for the Xbox 360 video game and entertainment system from Microsoft, Wii system from Nintendo and the Nintendo 3DS; and Angry Birds Trilogy for the Xbox 360 video game and entertainment system from Microsoft, Sony's PlayStation 3 computer entertainment system, and the Nintendo 3DS.Blizzard Entertainment expects to release World of Warcraft: Mists of Pandaria on September 25, 2012.Based on better-than-expected second quarter results, the company is raising its calendar year net revenue and earnings per share outlook.(in millions, except EPS)GAAP OutlookPrior* GAAP OutlookNon-GAAP OutlookPrior* Non-GAAP OutlookCY 2012   Net Revenues $4,330$4,200$4,630$4,530  EPS$0.69$0.65$0.99$0.95Q3 2012   Net Revenues $740 n/a$690n/a  EPS$0.06 n/a$0.07 n/a* Prior outlook was provided by the company on May 9, 2012 in its earnings releaseConference CallToday at 4:30 p.m. EDT, Activision Blizzard's management will host a conference call and Webcast to discuss the company's results for the quarter ended June 30, 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 888-282-4591 in the U.S. with passcode 4121658.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; 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, 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 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.1 According to The NPD Group, Chart-Track and GfK2 According to The NPD Group3 According to Activision Blizzard internal estimates and the NPD Group, Chart-Track and GfK4 According 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 June 30,Six Months Ended June 30,2012201120122011Net revenues:Product sales$798$768$1,672$1,829Subscription, licensing and other revenues 1 277378575766     Total net revenues1,0751,1462,2472,595Costs and expenses:Cost of sales - product costs229213486512Cost of sales - online subscriptions6459123122Cost of sales - software royalties and amortization574788109Cost of sales - intellectual property licenses20242753Product development152116276258Sales and marketing13690216150General and administrative190127291228Restructuring-3-22     Total costs and expenses8486791,5071,454Operating income2274677401,141Investment and other income (expense), net2235Income before income tax expense2294697431,146Income tax expense44134174308Net income$185$335$569$838Basic earnings per common share$0.16$0.29$0.50$0.71Weighted average common shares outstanding1,1091,1411,1151,157Diluted earnings per common share 2$0.16$0.29$0.50$0.71Weighted average common shares outstanding assuming dilution1,1151,1501,1211,1661 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. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $181 million and $558 million for the three and six months ended June 30, 2012, as compared to the total net income of $185 million and $569 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 $330 million and $826 million for the three and six months ended June 30, 2011, as compared to total net income of $335 million and $838 million for the same periods, respectively. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(Amounts in millions)June 30,December 31,20122011ASSETSCurrent assets:Cash and cash equivalents$2,786$3,165Short-term investments406360Accounts receivable, net 227649Inventories, net128144Software development141137Intellectual property licenses822Deferred income taxes, net484507Other current assets152396     Total current assets4,3325,380Long-term investments1716Software development12362Intellectual property licenses1212Property and equipment, net149163Other assets1212Intangible assets, net8388Trademark and trade names433433Goodwill7,1087,111Total assets$12,269$13,277LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable$163$390Deferred revenues9051,472Accrued expenses and other liabilities416694      Total current liabilities1,4842,556Deferred income taxes, net6155Other liabilities160174Total liabilities1,7052,785Shareholders' equity:Common stock------Additional paid-in capital9,3759,616Retained earnings1,313948Accumulated other comprehensive income (loss)(124)(72)      Total shareholders' equity10,56410,492          Total liabilities and shareholders' equity$12,269$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 June 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$1,075$229$64$57$20$152$136$190$848Less:  Net effect from deferral in net revenues and related cost of sales (a)(21)(61)------(61)Less:  Stock-based compensation(b)---(3)-(5)(1)(22)(31)Less:  Amortization of intangible assets(c)----(2)---(2)Non-GAAP Measurement$1,054$168$64$54$18$147$135$168$754Three months ended June 30, 2012Operating IncomeNet IncomeBasic Earnings per ShareDiluted Earnings per ShareGAAP Measurement$227$185$0.16$0.16Less:  Net effect from deferral in net revenues and related cost of sales (a)40170.020.02Less:  Stock-based compensation(b)31210.020.02Less:  Amortization of intangible assets(c)21--Non-GAAP Measurement$300$224$0.20$0.20Six months ended June 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$2,247$486$123$88$27$276$216$291$1,507Less:  Net effect from deferral in net revenues and related cost of sales (a)(606)(181)-(17)(1)---(199)Less:  Stock-based compensation(b)---(6)-(9)(4)(33)(52)Less:  Amortization of intangible assets(c)----(5)---(5)Non-GAAP Measurement$1,641$305$123$65$21$267$212$258$1,251Six months ended June 30, 2012Operating IncomeNet IncomeBasic Earnings per ShareDiluted Earnings per ShareGAAP Measurement$740$569$0.50$0.50Less:  Net effect from deferral in net revenues and related cost of sales (a)(407)(317)(0.28)(0.28)Less:  Stock-based compensation(b)52360.030.03Less:  Amortization of intangible assets(c)53--Non-GAAP Measurement$390$291$0.26$0.25(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 $219 million and $285 million for the three and six months ended June 30, 2012 as compared to the total non-GAAP net income of $224 million and $291 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 June 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$1,146$213$59$47$24$116$90$127$3$679Less:  Net effect from deferral in net revenues and related cost of sales (a)(447)(78)-(32)(5)----(115)Less:  Stock-based compensation(b)---(3)-(5)(1)(11)-(20)Less:  Restructuring(c)--------(3)(3)Less:  Amortization of intangible assets(d)----(7)----(7)Non-GAAP Measurement$699$135$59$12$12$111$89$116$-$534Three months ended June 30, 2011Operating IncomeNet IncomeBasic Earnings per ShareDiluted Earnings per ShareGAAP Measurement$467$335$0.29$0.29Less:  Net effect from deferral in net revenues and related cost of sales (a)(332)(238)(0.21)(0.20)Less:  Stock-based compensation(b)20150.010.01Less:  Restructuring(c)32-- Less:  Amortization of intangible assets(d)74--Non-GAAP Measurement$165$118$0.10$0.10 Six months ended June 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$2,595$512$122$109$53$258$150$228$22$1,454Less:  Net effect from deferral in net revenues and related cost of sales (a)(1,141)(209)-(75)(19)----(303)Less:  Stock-based compensation(b)---(6)-(11)(3)(23)-(43)Less:  Restructuring(c)--------(22)(22) Less:  Amortization of intangible assets(d)---(1)(15)----(16)Non-GAAP Measurement$1,454$303$122$27$19$247$147$205$-$1,070Six months ended June 30, 2011Operating IncomeNet IncomeBasic Earnings per ShareDiluted Earnings per ShareGAAP Measurement$1,141$838$0.71$0.71Less:  Net effect from deferral in net revenues and related cost of sales (a)(838)(619)(0.53)(0.52)Less:  Stock-based compensation(b)43300.030.03Less:  Restructuring(c)22160.010.01 Less:  Amortization of intangible assets(d)16100.010.01Non-GAAP Measurement$384$275$0.23$0.23(a) Reflects the net change in deferred net revenues and related cost of sales.(b) Includes expense related to stock-based compensation.(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 $117 million and $270 million for the three and six months ended June 30, 2011 as compared to total non-GAAP net income of $118 million and $275 million for the same periods, respectively.The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated.  The sum of these measures, as presented, may differ due to the impact of rounding.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three And Six Months Ended June 30, 2012 and 2011(Amounts in millions)Three Months EndedJune 30, 2012June 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Distribution ChannelRetail channel$68564%$66058%$254%Digital online channels1 343 3242337(80)(19)Total Activision and Blizzard1,028 961,08395(55)(5)Distribution47 4635(16)(25)Total consolidated GAAP net revenues 1,075 1001,146100(71)(6)Change in Deferred Net Revenues2 Retail channel(175)(448)Digital online channels1 154 1Total changes in deferred net revenues(21)(447)Non-GAAP Net Revenues by Distribution ChannelRetail channel5104821230298141Digital online channels1 497 47424617317Total Activision and Blizzard1,007 956369137158Distribution47 5639(16)(25)Total non-GAAP net revenues 3 $1,054100%$699100%$35551%Six Months EndedJune 30, 2012June 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Distribution ChannelRetail channel$1,47966%$1,60762%$(128)(8)%Digital online channels1 6562985133(195)(23)Total Activision and Blizzard2,135 952,45895(323)(13)Distribution112 51375(25)(18)Total consolidated GAAP net revenues 2,247 1002,595100(348)(13)Change in Deferred Net Revenues2 Retail channel(746)(1,154)Digital online channels1 140 13Total changes in deferred net revenues(606)(1,141)Non-GAAP Net Revenues by Distribution ChannelRetail channel733 454533128062Digital online channels1 796 4886460(68)(8)Total Activision and Blizzard1,529 931,3179121216Distribution112 71379(25)(18)Total non-GAAP net revenues 3 $1,641100%$1,454100%$18713%1 Net revenues from digital online channel represent revenues from subscriptions and memberships, licensing royalties, value-added services, downloadable content, digitally distributed products, and wireless devices.2 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.3 Total non-GAAP net revenues presented also represents our total operating segment net revenues.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three Months Ended June 30, 2012 and 2011(Amounts in millions)Three Months EndedJune 30, 2012June 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Segment/Platform MixActivision and Blizzard:Online subscriptions1 $22020%$35931%$(139)(39)%PC and Other5 276 26807196245Sony PlayStation  3234 2223921(5)(2)Sony PlayStation  2------2---(2)(100)Microsoft Xbox 360248 2330026(52)(17)Nintendo Wii32 3706(38)(54)Total console2 514 4861153(97)(16)Sony PlayStation Portable1 ---4---(3)(75)Nintendo 3DS6 151120Nintendo DS11 1242(13)(54)Total handheld18 2333(15)(45)Total Activision and Blizzard1,028 961,08394(55)(5)Distribution:Total Distribution47 4636(16)(25)Total consolidated GAAP net revenues1,075 1001,146100(71)(6)Change in Deferred Net Revenues3 Activision and Blizzard:Online subscriptions1 (21)(67)PC and Other5 314 (35)Sony PlayStation  3(137)(156)Microsoft Xbox 360(162)(146)Nintendo Wii(12)(39)Total console2 (311)(341)Nintendo DS(3)(4)Total changes in deferred net revenues(21)(447)Non-GAAP Net Revenues by Segment/Platform MixActivision and Blizzard:Online subscriptions1 199 1929242(93)(32)PC and Other5 590 56456545NMSony PlayStation  397 983121417Sony PlayStation  2------2---(2)(100)Microsoft Xbox 36086 815422(68)(44)Nintendo Wii20 2314(11)(35)Total console2 203 1927038(67)(25)Sony PlayStation Portable1 ---41(3)(75)Nintendo 3DS6 151120Nintendo DS8 1203(12)(60)Total handheld15 2295(14)(48)Total Activision and Blizzard 1,007 966369137158Distribution:Total Distribution47 4639(16)(25)Total non-GAAP net revenues4 $1,054100%$699100%$35551%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.  We have recorded a reduction of revenues of $11 million during the three months ended June 30, 2012 as a result of a correction of an accounting error.  Please refer to footnote 1 on our Form 10-Q for the quarter ended June 30, 2012 for further details on this correction.2 Downloadable content and their related revenues are included in each respective console platforms and total console.3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.5 Other includes standalone sales of toys and accessories products from Skylanders franchise, mobile sales and other physical merchandise and accessories.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Six Months Ended June 30, 2012 and 2011(Amounts in millions)Six Months EndedJune 30, 2012June 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Segment/Platform MixActivision and Blizzard:Online subscriptions1 $47521%$75429%$(279)(37)%PC and Other5 413 182058208101Sony PlayStation  3534 2458122(47)(8)Sony PlayStation  22 ---6---(4)(67)Microsoft Xbox 360584 2669727(113)(16)Nintendo Wii83 41526(69)(45)Total console2 1,203 541,43655(233)(16)Sony PlayStation Portable4 ---8---(4)(50)Nintendo 3DS15 191667Nintendo DS25 1462(21)(46)Total handheld44 2633(19)(30)Total Activision and Blizzard2,135 952,45895(323)(13)Distribution:Total Distribution112 51375(25)(18)Total consolidated GAAP net revenues2,247 1002,595100(348)(13)Change in Deferred Net Revenues3 Activision and Blizzard:Online subscriptions1 (27)(123)PC and Other5 291 (123)Sony PlayStation  3(400)(400)Microsoft Xbox 360(439)(405)Nintendo Wii(26)(84)Total console2 (865)(889)Nintendo DS(5)(6)Total changes in deferred net revenues(606)(1,141)Non-GAAP Net Revenues by Segment/Platform MixActivision and Blizzard:Online subscriptions1 448 2763143(183)(29)PC and Other5 704 43826622NMSony PlayStation  3134 818112(47)(26)Sony PlayStation  22 ---6---(4)(67)Microsoft Xbox 360145 929220(147)(50)Nintendo Wii57 4685(11)(16)Total console2 338 2154737(209)(38)Sony PlayStation Portable4 ---81(4)(50)Nintendo 3DS15 191667Nintendo DS20 1403(20)(50)Total handheld39 2575(18)(32)Total Activision and Blizzard 1,529 931,3179121216Distribution:Total Distribution112 71379(25)(18)Total non-GAAP net revenues4 $1,641100%$1,454100%$18713%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.  We have recorded a reduction of revenues of $11 million during the three months ended June 30, 2012 as a result of a correction of an accounting error.  Please refer to footnote 1 on our Form 10-Q for the quarter ended June 30, 2012 for further details on this correction.2 Downloadable content and their related revenues are included in each respective console platforms and total console.3 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.4 Total non-GAAP net revenues presented also represents our total operating segment net revenues.5 Other includes standalone sales of toys and accessories products from Skylanders franchise, mobile sales and other physical merchandise and accessories.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor the Three and Six Months Ended June 30, 2012 and 2011(Amounts in millions)Three Months EndedJune 30, 2012June 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Geographic RegionNorth America$56252%$58050%$(18)(3)%Europe403 3846741(64)(14)Asia Pacific110 109991111Total consolidated GAAP net revenues 1,075 1001,146100(71)(6)Change in Deferred Net Revenues1 North America(79)(249)Europe(9)(181)Asia Pacific67 (17)Total changes in net revenues(21)(447)Non-GAAP Net Revenues by Geographic RegionNorth America483 463314715246Europe394 372864110838Asia Pacific177 17821295116Total non-GAAP net revenues2 $1,054100%$699100%$35551% Six Months Ended June 30, 2012 June 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)GAAP Net Revenues by Geographic RegionNorth America$1,16352%$1,32851%$(165)(12)%Europe888 391,06141(173)(16)Asia Pacific196 92068(10)(5)Total consolidated GAAP net revenues2,247 1002,595100(348)(13)Change in Deferred Net Revenues1 North America(409)(632)Europe(235)(452)Asia Pacific38 (57)Total changes in net revenues(606)(1,141)Non-GAAP Net Revenues by Geographic RegionNorth America754 4669648588Europe653 4060942447Asia Pacific234 14149108557Total non-GAAP net revenues2 $1,641100%$1,454100%$18713%1 We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.2 Total non-GAAP net revenues presented also represents our total operating segment net revenues.ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESSEGMENT INFORMATIONFor the Three and Six Months Ended June 30, 2012 and 2011(Amounts in millions)Three Months EndedJune 30, 2012June 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)Segment net revenues:Activision1 $37335%$32328%$5015%Blizzard2 634 5931327321103Distribution3 47 4636(16)(25)Operating segment total1,054 986996135551Reconciliation to consolidated net revenues:Net effect from deferral of net revenues21 244739Consolidated net revenues$1,075100%$1,146100%$(71)(6)%Segment income from operations:Activision1 $(71)$31$(102)NMBlizzard2 371 135236175Distribution3 ---(1)1NMOperating segment total300 16513582Reconciliation to consolidated operating income and consolidated income before income tax expense:Net effect from deferral of net revenues and related cost of sales(40)332Stock-based compensation expense(31)(20)Restructuring ---(3)Amortization of intangible assets(2)(7)Consolidated operating income227 467(240)(51)Investment and other income (expense), net2 2Consolidated income before income tax expense$229$469$(240)(51)%Operating margin from total operating segments28%24%Six Months EndedJune 30, 2012June 30, 2011$ Increase% IncreaseAmount% of TotalAmount% of Total(Decrease)(Decrease)Segment net revenues:Activision1 $64529%$64625%$(1)-%Blizzard2 884 396712621332Distribution3 112 51375(25)(18)Operating segment total1,641 731,4545618713Reconciliation to consolidated net revenues:Net effect from deferral of net revenues606 271,14144Consolidated net revenues$2,247100%$2,595100%$(348)(13)%Segment income (loss) from operations:Activision1 $(70)$78$(148)(190)%Blizzard2 460 30615450Distribution3 -------NMOperating segment total390 38462Reconciliation to consolidated operating income and consolidated income before income tax expense:Net effect from deferral of net revenues and related cost of sales407 838Stock-based compensation expense(52)(43)Restructuring ---(22)Amortization of intangible assets(5)(16)Consolidated operating income740 1,141(401)(35)Investment and other income (expense), net3 5Consolidated income before income tax expense$743$1,146$(403)(35)%Operating margin from total operating segments24%26%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 September 30, 2012 and Year Ending December 31, 2012GAAP to Non-GAAP Reconciliation(Amounts in millions, except per share data)Outlook forOutlook forThree Months EndingYear EndingSeptember 30, 2012December 31, 2012Net Revenues (GAAP)$740$4,330Excluding the impact of:Change in deferred net revenues (a)(50)300Non-GAAP Net Revenues $690$4,630Earnings Per Diluted Share (GAAP)$0.06$0.69Excluding the impact of:Net effect from deferral in net revenues and related cost of sales (b)(0.02)0.19Stock-based compensation(c)0.030.09Amortization of intangible assets(d)-0.02Non-GAAP Earnings Per Diluted Share $0.07$0.99(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