Activision Blizzard Announces Better-Than-Expected Third Quarter 2010 Financial Results

Third Quarter Net Revenues and EPS Exceed Prior Outlook and Prior Year. Company Increases 2010 Net Revenue and EPS Outlook.

SANTA MONICA, Calif. , Nov. 4, 2010 — Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter of 2010.

For the quarter ended September 30, 2010 , Activision Blizzard ‘s GAAP net revenues were $745 million , as compared to its prior third-quarter outlook of $600 million . On a non-GAAP basis, the company’s net revenues were $857 million , as compared to its prior third-quarter outlook of $725 million .

For the quarter ended September 30, 2010 , Activision Blizzard ‘s GAAP earnings per diluted share were $0.04 , as compared to its prior third-quarter outlook of break even GAAP earnings per share. On a non-GAAP basis, the company’s earnings per diluted share were $0.12 , as compared to its prior third-quarter outlook of $0.08 .

The company reports results on both a GAAP and a non-GAAP basis. Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

Robert Kotick , CEO of Activision Blizzard , stated, “For the third quarter, we exceeded our net revenues and earnings per share outlook and delivered strong year-over-year growth. Our better-than-expected results are due to our leadership in online entertainment, including strong performance from Activision Publishing’s Call of Duty® franchise, and Blizzard Entertainment’s World of Warcraft® and StarCraft® II: Wings of Liberty™. For the nine months ending September 30, 2010 , our digital offerings contributed close to half of our total non-GAAP net revenues and our digital revenues have increased more than 15% over the prior year. Most importantly, we continue to deliver some of the world’s best games.”

Kotick continued, ” Activision Publishing is about to introduce what is likely to be the biggest entertainment launch of the year with Call of Duty®: Black Ops, followed by Blizzard Entertainment’s World of Warcraft: Cataclysm™, which we believe will deliver an incredible breadth of new content to the world’s largest massively multiplayer online role playing game (MMORPG) community. As a result of our over-performance, we are raising our calendar year 2010 net revenue and earnings outlook. We expect to deliver the most profitable year in our history with record operating margins.”

Business Highlights

For the first nine months of the calendar year, Activision Publishing’s Call of Duty was the #1 third-party franchise in the U.S. and Europe , and Blizzard Entertainment’s StarCraft II: Wings of Liberty was the #1 PC title overall, according to The NPD Group , Charttrack and Gfk. Additionally, for the third quarter of the calendar year, Activision Blizzard was the #1 PC publisher in the U.S. and Europe , according to The NPD Group , Charttrack and Gfk.

Other highlights are as follows:

During the third quarter of 2010, Call of Duty remained a top-10 franchise overall in the U.S. and Europe , according to The NPD Group , Charttrack and Gfk.

On August 3 , Blizzard Entertainment announced that StarCraft II: Wings of Liberty sold more than one million copies within the first 24 hours of its release, instantly making it the best-selling PC game of 2010, and more than 1.5 million copies within the first 48 hours of its release, making it the fastest-selling strategy game of all time.

On August 31 , Blizzard Entertainment and NetEase.com Inc. launched World of Warcraft: Wrath of
the Lich King™, the second expansion for Blizzard Entertainment’s award-winning subscription-based MMORPG, in mainland China .

On September 1 , Blizzard Entertainment announced that StarCraft II: Wings of Liberty sold more than three million copies worldwide in the first month of its release.

On October 4 , Blizzard Entertainment announced that World of Warcraft: Cataclysm, the highly anticipated third expansion for the world’s most popular subscription-based MMORPG, will be released on December 7 .

On October 5 , Activision
Publishing announced that Treyarch’s Call of Duty: Black Ops will be playable in stereoscopic 3D when the game launches at retail outlets worldwide on November 9 .

On October 7 , Blizzard Entertainment announced that the subscriber base for World of Warcraft has exceeded 12 million players worldwide.

As of September 30 , Activision Blizzard had purchased approximately 55 million shares of its common stock, for approximately $600 million , under the $1 billion stock repurchase program authorized by its Board of Directors on February 10 .

Additionally, on September 7 , advertising industry veteran Eric Hirshberg joined Activision Publishing as Chief Executive Officer, to oversee operational management of the publishing division’s studio, product development and consumer marketing functions.

Company Outlook

In the fourth quarter of 2010, Activision Publishing expects to release six new titles including Bakugan™: Defenders of the Core, a highly anticipated kids title based on the award-winning toy line and television show; DJ Hero 2®, which delivers an exciting social multiplayer music experience where two virtual DJs can mix together while a vocalist sings along to lyrics from today’s biggest hits; Goldeneye 007™, which was designed to make full use of the Nintendo Wii’s™ unique interactive capabilities and allows players to channel Daniel Craig ‘s lethal and gritty James Bond in a new take on the legendary Bond adventure; James
Bond 007™: Bloodstone, a cinematic action game that allows players to experience the brutal and dangerous style of Daniel Craig ‘s Bond as they engage in hand-to-hand fighting, cover-based shooting, and aggressive driving through dynamic environments; and Tony Hawk®: SHRED, which lets kids “ GO BIG ” and feel the exhilaration of skate and snowboarding like the pros using the game’s motion-sensing board controller.

Activision Publishing also plans to release Treyarch’s highly anticipated first-person action game Call of Duty: Black Ops globally on November 9 . The company expects the title will be one of the top entertainment properties of the holiday season and we expect that pre-orders for the game will set an industry record.

Additionally, on December 7 , Blizzard Entertainment expects to release World of Warcraft: Cataclysm, the highly anticipated third expansion for the world’s most popular subscription-based MMORPG, World of Warcraft.

Activision Blizzard ‘s outlook is based on assumptions about sell through rates for its products and the launch timing, success and pricing of its new slate of products which are subject to significant risks and uncertainties, including possible declines in the overall demand for video games and in the demand for the company’s products, the dependence in the interactive software industry and by the company on an increasingly limited number of popular franchises for a disproportionately high percentage of revenues and profits, the company’s ability to predict shifts in consumer preferences among genres, such as music and casual games, and competition. Current macroeconomic conditions and market conditions within the video game industry increase those risks and uncertainties.

The company’s outlook is also subject to other risks and uncertainties, including litigation and associated costs, fluctuations in foreign exchange and tax rates, counterparty risks relating to customers, licensees, licensors and manufacturers. As a result of these and other factors, actual results may deviate materially from the outlook presented below.

For the full year 2010, Activision Blizzard is raising its outlook for GAAP net revenues to $4.28 billion and GAAP earnings per diluted share to $0.51 , as compared to its prior GAAP outlook of $4.18 billion in net revenues and $0.49 in earnings per diluted share. On a non-GAAP basis, the company now expects net revenues of $4.45 billion and $0.74 earnings per diluted share, as compared to its prior non-GAAP net revenue outlook of $4.4 billion and $0.72 in earnings per diluted
share.

For the fourth quarter of 2010, Activision Blizzard expects GAAP net revenues of $1.26 billion , and a GAAP loss per share of $0.01 . On a non-GAAP basis, the company expects net revenues of $2.2 billion and $0.47 earnings per diluted share for the fourth quarter.

Conference Call

Today at 4:30 p.m. EDT , Activision Blizzard ‘s management will host a conference call and Webcast to discuss the company’s results for the quarter ended September 30, 2010 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 877-397-0297 in the U.S. with the passcode 5382478.

Non-GAAP Financial Measures

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) the following items: the impact of the change in deferred net revenues and related cost of sales with respect to certain of the company’s online-enabled games; expenses related to share-based payments; Activision Blizzard ‘s non-core exit operations (which are the operating results of products and operations of the historical Vivendi Games, Inc. businesses that the company has exited or substantially wound down); costs related to the business combination between Activision, Inc. and Vivendi Games, Inc. (including transaction costs, integration costs, and
restructuring activities); the amortization of intangibles and impairment of intangible assets; and the associated tax benefits.

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 because they facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard . Internally, management uses these non-GAAP financial measures in assessing the company’s operating results, as well as in planning and forecasting.

Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Activision Blizzard recognizes that there are limitations associated with the use of these non-GAAP financial measures.

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

Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard ‘s GAAP as well as non-GAAP results and outlook and, in this release, by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.

About Activision Blizzard

Headquartered in Santa Monica, California , Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile game publisher with leading positions across every major category of the rapidly growing interactive entertainment software industry.

Activision Blizzard maintains operations in the U.S., Canada , the United Kingdom , France , Germany , Ireland , Italy , Sweden , Spain , the Netherlands , Australia , South Korea and China . More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.

Cautionary Note Regarding Forward-looking Statements: Information in this press release that involves Activision Blizzard ‘s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements that are not facts and involve a number of risks and uncertainties. Activision Blizzard generally uses words such as “outlook,” “will,” “could,” “would,” “might,” “remains,” “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, the seasonal and cyclical nature of the interactive game market, Activision Blizzard ‘s ability to predict consumer preferences among competing hardware platforms, possible declines in software pricing, product returns and price protection, product delays, retail acceptance of Activision Blizzard ‘s products, adoption rate and availability of new hardware (including
peripherals) and related software, industry competition including from used games and other forms of entertainment, litigation risks and associated costs, rapid changes in technology, industry standards, business models including online and used games, and consumer preferences including interest in specific genres such as music, first-person action and massively multiplayer online games, 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 sections 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.

(Tables to Follow)

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)

		Three Months Ended September 30,				Nine Months Ended September 30,
		2010			2009	2010			2009

Net revenues:
	Product sales	$	397	$	411	$	2,025	$	1,848
	Subscription, licensing and other revenues		348		292		994		874
	Total net revenues		745		703		3,019		2,722

Costs and expenses:
	Cost of sales – product costs		194		185		765		762
	Cost of sales – software royalties and amortization		61		54		211		212
	Cost of sales – intellectual property licenses		33		45		105		163
	Cost of sales – massively multi-player online role playing game (“MMORPG”)		61		55		168		158
	Product development		119		122		366		362
	Sales and marketing		111		128		294		329
	General and administrative		111		106		245		301
	Restructuring		—		(1)		—		29
	Total costs and expenses		690		694		2,154		2,316
Operating income			55		9		865		406
Investment and other income, net			14		11		15		21
Income before income tax expense			69		20		880		427
Income tax expense			18		5		229		28
Net income		$	51	$	15	$	651	$	399


Basic earnings per common share		$	0.04	$	0.01	$	0.53	$	0.31
Weighted average common shares outstanding			1,212		1,271		1,230		1,289


Diluted earnings per common share		$	0.04	$	0.01	$	0.52	$	0.30
Weighted average common shares outstanding assuming dilution			1,227		1,297		1,245		1,320

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
			September 30,		December 31,
			2010		2009
ASSETS
	Current assets:
		Cash and cash equivalents	$	2,123	$	2,768
		Short-term investments		726		477
		Accounts receivable, net		246		739
		Inventories		258		241
		Software development		248		224
		Intellectual property licenses		26		55
		Deferred income taxes, net		419		498
		Other current assets		102		327
		Total current assets		4,148		5,329
	Long-term investments			23		23
	Software development			37		10
	Intellectual property licenses			36		28
	Property and equipment, net			169		138
	Other assets			14		9
	Intangible assets, net			566		618
	Trademark and trade names			433		433
	Goodwill			7,144		7,154
		Total assets	$	12,570	$	13,742

LIABILITIES AND SHAREHOLDERS’ EQUITY
	Current liabilities:
		Accounts payable	$	238	$	302
		Deferred revenues		622		1,426
		Accrued expenses and other liabilities		533		779
		Total current liabilities		1,393		2,507
		Deferred income taxes, net		231		270
		Other liabilities		200		209
		Total liabilities		1,824		2,986

	Shareholders’ equity:
		Common stock		—		—
		Additional paid-in capital		12,313		12,376
		Treasury stock		(1,848)		(1,235)
		Retained earnings (accumulated deficit)		290		(361)
		Accumulated other comprehensive loss		(9)		(24)
		Total shareholders’ equity		10,746		10,756
		Total liabilities and shareholders’ equity	$	12,570	$	13,742

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)

Three Months Ended September 30, 2010			Net Revenues		Cost of Sales – Product Costs		Cost of Sales – Software Royalties and Amortization		Cost of Sales – Intellectual Property Licenses		Cost of Sales – MMORPG		Product Development		Sales and Marketing		General and Administrative		Total Costs and Expenses
GAAP Measurement			$	745	$	194	$	61	$	33	$	61	$	119	$	111	$	111	$	690
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		112		3		8		4		–		–		–		–		15
	Less: Stock-based compensation	(b)		–		–		(11)		–		–		(6)		(2)		(15)		(34)
	Less: Amortization of intangible assets and purchase price accounting related adjustments	(d)		–		(1)		(5)		(12)		–		–		–		–		(18)
Non-GAAP Measurement			$	857	$	196	$	53	$	25	$	61	$	113	$	109	$	96	$	653



Three Months Ended September 30, 2010			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	55	$	51	$	0.04	$	0.04
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		97		81		0.07		0.07
	Less: Stock-based compensation	(b)		34		21		0.02		0.02
	Less: Amortization of intangible assets and purchase price accounting related adjustments	(d)		18		(5)		–		–
Non-GAAP Measurement			$	204	$	148	$	0.12	$	0.12



Nine Months Ended September 30, 2010			Net Revenues		Cost of Sales – Product Costs		Cost of Sales – Software Royalties and Amortization		Cost of Sales – Intellectual Property Licenses		Cost of Sales – MMORPG		Product Development		Sales and Marketing		General and Administrative		Total Costs and Expenses
GAAP Measurement			$	3,019	$	765	$	211	$	105	$	168	$	366	$	294	$	245	$	2,154
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(765)		(198)		(16)		(12)		–		–		–		–		(226)
	Less: Stock-based compensation	(b)		–		–		(51)		–		–		(4)		(6)		(33)		(94)
	Less: Restructuring (included in general and administrative)	(c)		–		–		–		–		–		–		–		(3)		(3)
	Less: Amortization of intangible assets and purchase price accounting related adjustments	(d)		–		(3)		(10)		(33)		–		–		–		(1)		(47)
Non-GAAP Measurement			$	2,254	$	564	$	134	$	60	$	168	$	362	$	288	$	208	$	1,784



Nine Months Ended September 30, 2010			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	865	$	651	$	0.53	$	0.52
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(539)		(392)		(0.32)		(0.31)
	Less: Stock-based compensation	(b)		94		64		0.05		0.05
	Less: Restructuring (included in general and administrative)	(c)		3		2		0.00		0.00
	Less: Amortization of intangible assets and purchase price accounting related adjustments	(d)		47		12		0.01		0.01
Non-GAAP Measurement			$	470	$	337	$	0.27	$	0.27


	(a) Reflects the net change in deferred net revenues and related cost of sales.
	(b) Includes expense related to stock-based compensation.
	(c) Reflects restructuring related to the Business Combination with Vivendi Games. Restructuring activities includes severance costs, facility exit costs and balance sheet write down and exit costs from the cancellation of projects.
	(d) Reflects amortization of intangible assets, and the change in the fair value of assets and liabilities from purchase price accounting related adjustments.

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)

Three Months Ended September 30, 2009			Net Revenues		Cost of Sales – Product Costs		Cost of Sales – Software Royalties and Amortization		Cost of Sales – Intellectual Property Licenses		Cost of Sales – MMORPG		Product Development		Sales and Marketing		General and Administrative		Restructuring		Total Costs and Expenses
GAAP Measurement			$	703	$	185	$	54	$	45	$	55	$	122	$	128	$	106	$	(1)	$	694
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		52		20		31		5		–		–		5		–		–		61
	Less: Stock-based compensation	(b)		–		–		(3)		–		–		(11)		(2)		(20)		–		(36)
	Less: Costs related to the Business Combination, integration and restructuring	(d)		–		–		–		–		–		–		–		(7)		1		(6)
	Less: Amortization of intangible assets and purchase price accounting related adjustments	(e)		–		(1)		(8)		(24)		–		–		–		–		–		(33)
Non-GAAP Measurement			$	755	$	204	$	74	$	26	$	55	$	111	$	131	$	79	$	–	$	680



Three Months Ended September 30, 2009			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	9	$	15	$	0.01	$	0.01
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(9)		5		0.00		0.00
	Less: Stock-based compensation	(b)		36		23		0.02		0.02
	Less: Costs related to the Business Combination, integration and restructuring	(d)		6		3		0.00		0.00
	Less: Amortization of intangible assets and purchase price accounting related adjustments	(e)		33		9		0.01		0.01
Non-GAAP Measurement			$	75	$	55	$	0.04	$	0.04



Nine Months Ended September 30, 2009			Net Revenues		Cost of Sales – Product Costs		Cost of Sales – Software Royalties and Amortization		Cost of Sales – Intellectual Property Licenses		Cost of Sales – MMORPG		Product Development		Sales and Marketing		General and Administrative		Restructuring		Total Costs and Expenses
GAAP Measurement			$	2,722	$	762	$	212	$	163	$	158	$	362	$	329	$	301	$	29	$	2,316
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(441)		(79)		(20)		(6)		–		–		5		–		–		(100)
	Less: Stock-based compensation	(b)		–		–		(19)		–		–		(28)		(9)		(51)		–		(107)
	Less: Results of Activision Blizzard’s non-core exit operations	(c)		(1)		–		–		–		–		4		(3)		(10)		–		(9)
	Less: Costs related to the Business Combination, integration and restructuring	(d)		–		–		–		–		–		–		–		(24)		(29)		(53)
	Less: Amortization of intangible assets and purchase price accounting related adjustments	(e)		–		(4)		(36)		(75)		–		–		–		(2)		–		(117)
Non-GAAP Measurement			$	2,280	$	679	$	137	$	82	$	158	$	338	$	322	$	214	$	–	$	1,930



Nine Months Ended September 30, 2009			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	406	$	399	$	0.31	$	0.30
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(341)		(274)		(0.21)		(0.21)
	Less: Stock-based compensation	(b)		107		67		0.05		0.05
	Less: Results of Activision Blizzard’s non-core exit operations	(c)		8		5		0.00		0.00
	Less: Costs related to the Business Combination, integration and restructuring	(d)		53		32		0.02		0.02
	Less: Amortization of intangible assets and purchase price accounting related adjustments	(e)		117		49		0.05		0.05
Non-GAAP Measurement			$	350	$	278	$	0.21	$	0.21


	(a) Reflects the net change in deferred net revenues and related cost of sales.
	(b) Includes expense related to stock-based compensation.
	(c) Reflects the results of products and operations from the historical Vivendi Games businesses that the company has exited, divested or wound down.
	(d) Reflects costs related to the Business Combination with Vivendi Games (including transaction costs, integration costs and restructuring activities). Restructuring activities includes severance costs, facility exit costs and balance sheet write down and exit costs from the cancellation of projects.
	(e) Reflects amortization of intangible assets, and the change in the fair value of assets and liabilities from purchase price accounting related adjustments.

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended September 30, 2010 and 2009
(Amounts in millions)

			Three Months Ended
			September 30, 2010				September 30, 2009				$Increase		% Increase
			Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	MMORPG		$	289	39	%	$	306	44	%	$	(17)	(6)	%
	PC and other			73	10			27	4			46	170
		Sony PlayStation 3		109	15			73	10			36	49
		Sony PlayStation 2		6	1			37	5			(31)	(84)
		Microsoft Xbox 360		127	16			104	15			23	22
		Nintendo Wii		56	8			72	10			(16)	(22)
	Total console			298	40			286	40			12	4
		Sony PlayStation Portable		3	–			9	1			(6)	(67)
		Nintendo Dual Screen		20	3			21	3			(1)	(5)
	Total handheld			23	3			30	4			(7)	(23)
	Total Activision and Blizzard			683	92			649	92			34	5

Distribution:
	Total Distribution			62	8			54	8			8	15
	Total consolidated GAAP net revenues			745	100			703	100			42	6

Change in Deferred Net Revenues(1)
Activision and Blizzard:
	MMORPG			(7)				(31)
	PC and other			141				3
		Sony PlayStation 3		(5)				34
		Microsoft Xbox 360		(26)				38
		Nintendo Wii		9				8
	Total console			(22)				80
	Total changes in deferred net revenues			112				52

Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	MMORPG			282	33			275	36			7	3
	PC and other			214	25			30	4			184	NM
		Sony PlayStation 3		104	12			107	14			(3)	(3)
		Sony PlayStation 2		6	1			37	5			(31)	(84)
		Microsoft Xbox 360		101	12			142	19			(41)	(29)
		Nintendo Wii		65	8			80	11			(15)	(19)
	Total console			276	33			366	49			(90)	(25)
		Sony PlayStation Portable		3	–			9	1			(6)	(67)
		Nintendo Dual Screen		20	2			21	3			(1)	(5)
	Total handheld			23	2			30	4			(7)	(23)
	Total Activision and Blizzard			795	93			701	93			94	13

	Total Distribution			62	7			54	7			8	15
	Total non-GAAP net revenues(2)		$	857	100	%	$	755	100	%	$	102	14	%

	(1) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
	(2) Total non-GAAP net revenues presented also represents our total operating segment net revenues.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Nine Months Ended September 30, 2010 and 2009
(Amounts in millions)

			Nine Months Ended
			September 30, 2010				September 30, 2009				$Increase		% Increase
			Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	MMORPG		$	890	29	%	$	952	35	%	$	(62)		(7)	%
	PC and other			201	7			106	4			95		90
		Sony PlayStation 3		595	20			356	13			239		67
		Sony PlayStation 2		29	1			121	4			(92)		(76)
		Microsoft Xbox 360		751	25			533	20			218		41
		Nintendo Wii		267	9			324	12			(57)		(18)
	Total console			1,642	55			1,334	49			308		23
		Sony PlayStation Portable		11	–			32	1			(21)		(66)
		Nintendo Dual Screen		90	3			95	4			(5)		(5)
	Total handheld			101	3			127	5			(26)		(20)
	Total Activision and Blizzard			2,834	94			2,519	93			315		13

Distribution:
	Total Distribution			185	6			202	7			(17)		(8)
	Total platform mix net revenues			3,019	100			2,721	100			298		11

	Other(1)			–	–			1	–			(1)		NM
	Total consolidated GAAP net revenues			3,019	100			2,722	100			297		11

Change in Deferred Net Revenues(1)
Activision and Blizzard:
	MMORPG			(13)				(106)
	PC and other			81				(26)
		Sony PlayStation 3		(317)				(84)
		Microsoft Xbox 360		(425)				(145)
		Nintendo Wii		(91)				(80)
	Total console			(833)				(309)
	Total changes in deferred net revenues			(765)				(441)

Other(1)				–				(1)

Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	MMORPG			877	39			846	37			31		4
	PC and other			282	13			80	4			202		NM
		Sony PlayStation 3		278	12			272	12			6		2
		Sony PlayStation 2		29	1			121	5			(92)		(76)
		Microsoft Xbox 360		326	14			388	17			(62)		(16)
		Nintendo Wii		176	8			244	11			(68)		(28)
	Total console			809	35			1,025	45			(216)		(21)
		Sony PlayStation Portable		11	1			32	1			(21)		(66)
		Nintendo Dual Screen		90	4			95	4			(5)		(5)
	Total handheld			101	5			127	5			(26)		(20)
	Total Activision and Blizzard			2,069	92			2,078	91			(9)		–

	Total Distribution			185	8			202	9			(17)		(8)
	Total non-GAAP net revenues(2)		$	2,254	100	%	$	2,280	100	%	$	(26)		(1)	%

	(1) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues and other.
	(2) Total non-GAAP net revenues presented also represents our total operating segment net revenues.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three And Nine Months Ended September 30, 2010 and 2009
(Amounts in millions)

		Three Months Ended
		September 30, 2010				September 30, 2009				$Increase		% Increase
		Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
GAAP Net Revenues by Geographic Region
	North America	$	406	54	%	$	378	54	%	$	28	7	%
	Europe		281	38			287	41			(6)	(2)
	Asia Pacific		58	8			38	5			20	53
	Total consolidated GAAP net revenues		745	100			703	100			42	6

Change in Deferred Net Revenues(1)
	North America		41				26
	Europe		53				22
	Asia Pacific		18				4
	Total changes in net revenues		112				52

Non-GAAP Net Revenues by Geographic Region
	North America		447	52			404	54			43	11
	Europe		334	39			309	41			25	8
	Asia Pacific		76	9			42	5			34	81
	Total non-GAAP net revenues(2)	$	857	100	%	$	755	100	%	$	102	14	%


		Nine Months Ended
		September 30, 2010				September 30, 2009				$Increase		% Increase
		Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
GAAP Net Revenues by Geographic Region
	North America	$	1,675	55	%	$	1,458	54	%	$	217	15	%
	Europe		1,142	38			1,088	40			54	5
	Asia Pacific		202	7			175	6			27	15
	Total geographic region net revenues		3,019	100			2,721	100			298	11

	Other(1)		–	–			1	–			(1)	NM
	Total consolidated GAAP net revenues		3,019	100			2,722	100			297	11

Change in Deferred Net Revenues(1)
	North America		(462)				(287)
	Europe		(280)				(147)
	Asia Pacific		(23)				(7)
	Total changes in net revenues		(765)				(441)

Other(1)			–				(1)

Non-GAAP Net Revenues by Geographic Region
	North America		1,213	54			1,171	52			42	4
	Europe		862	38			941	41			(79)	(8)
	Asia Pacific		179	8			168	7			11	7
	Total non-GAAP net revenues(2)	$	2,254	100	%	$	2,280	100	%	$	(26)	(1)	%

	(1) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
	(2) Total non-GAAP net revenues presented also represents our total operating segment net revenues.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
For the Three And Nine Months Ended September 30, 2010 and 2009
(Amounts in millions)

			Three Months Ended
			September 30, 2010				September 30, 2009				$Increase		% Increase
			Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
Segment net revenues:
	Activision(i)		$	314	42	%	$	415	59	%	$	(101)	(24)	%
	Blizzard(ii)			481	65			286	40			195	68
	Distribution(iii)			62	8			54	8			8	15
	Operating segment total			857	115			755	107			102	14

Reconciliation to consolidated net revenues:
	Net effect from deferral of net revenues			(112)	(15)			(52)	(7)
	Consolidated net revenues		$	745	100	%	$	703	100	%		42	6

Segment income (loss) from operations:
	Activision(i)		$	(43)			$	(43)				–	NM
	Blizzard(ii)			246				116				130	112
	Distribution(iii)			1				2				(1)	NM
	Operating segment total			204				75				129	172

Reconciliation to consolidated operating income:
	Net effect from deferral of net revenues and related cost of sales			(97)				9
	Stock-based compensation expense			(34)				(36)
	Restructuring			–				1
	Amortization of intangible assets and purchase price accounting related adjustments			(18)				(33)
	Integration and transactions costs			–				(7)
	Consolidated operating income		$	55			$	9			$	46	NM

		Operating margin from total operating segments		24%				10%


			Nine Months Ended
			September 30, 2010				September 30, 2009				$Increase		% Increase
			Amount		% of Total		Amount		% of Total		(Decrease)		(Decrease)
Segment net revenues:
	Activision(i)		$	983	33	%	$	1,211	44	%	$	(228)	(19)	%
	Blizzard(ii)			1,086	36			867	33			219	25
	Distribution(iii)			185	6			202	7			(17)	(8)
	Operating segment total			2,254	75			2,280	84			(26)	(1)

Reconciliation to consolidated net revenues:
	Net effect from deferral of net revenues			765	25			441	16
	Other(iv)			–	–			1	–
	Consolidated net revenues		$	3,019	100	%	$	2,722	100	%		297	11

Segment income (loss) from operations:
	Activision(i)		$	(88)			$	(49)				(39)	NM
	Blizzard(ii)			559				393				166	42
	Distribution(iii)			(1)				6				(7)	NM
	Operating segment total			470				350				120	34

Reconciliation to consolidated operating income:
	Net effect from deferral of net revenues and related cost of sales			539				341
	Stock-based compensation expense			(94)				(107)
	Restructuring			(3)				(29)
	Amortization of intangible assets and purchase price accounting
		related adjustments		(47)				(117)
	Integration and transactions costs			–				(24)
	Other(iv)			–				(8)
	Consolidated operating income		$	865			$	406			$	459	113	%

		Operating margin from total operating segments		21%				15%

		(i) Activision Publishing (“Activision”) – publishes interactive entertainment software and peripherals.
		(ii) Blizzard – Blizzard Entertainment, Inc. and its subsidiaries (“Blizzard”) publishes games and online subscription-based games in the MMORPG category.
		(iii) Activision Blizzard Distribution (“Distribution”) – distributes interactive entertainment software and hardware products.
		(iv) Other represents Non-Core activities, which are legacy Vivendi Games’ divisions or business units that we have exited, divested or wound down as part of our restructuring and integration efforts as a result of the Business Combination. Prior to July 1, 2009, Non-Core activities were managed as a stand alone operating segment; however, in light of the minimal activities and insignificance of Non-Core activities, as of that date we ceased their management as a separate operating segment and consequently, we are no longer providing separate operating segment disclosure.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
OUTLOOK

For the Quarter Ending December 31, 2010 and

Year Ending December 31, 2010

GAAP to Non-GAAP Reconciliation

(Amounts in millions, except per share data)

Outlook for

Three Months Ending

Year Ending

December 31, 2010

Net Revenues (GAAP)

1,260

4,280

Excluding the impact of:

Change in deferred net revenues

(a)

940

170

Non-GAAP Net Revenues

2,200

4,450

(Loss)/Earnings Per Diluted Share (GAAP)

(0.01)

0.51

Excluding the impact of:

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

(b)

0.44

0.12

Stock-based compensation

(c)

0.01

0.06

Amortization of intangible assets

(d)

0.03

0.05

Non-GAAP Earnings Per Diluted Share

0.47

0.74

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

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

(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.

About The Author

Medievaldragon

Tomas Hernandez is owner of Blizzplanet.com since 2003 posting news about World of Warcraft, StarCraft II, Diablo III, Hearthstone, Next-Gen MMO, Blizzard Careers, and the Warcraft film. Blizzplanet is a leading fansite covering news about upcoming Blizzard Entertainment licensed products. I also post previews and reviews. I have interviewed book writers and Blizzard game developers. I was previously an employee of the OGaming Network (2003), and IncGamers (2008-2010). I was a guest newsposter for GosuGamers (World of Warcraft) a few years ago and for Diablofans.com (formerly Diablo3.com)