Activision Blizzard Announces Better-Than-Expected Fourth Quarter and Calendar Year 2012 Results

Full Year Non-GAAP EPS Increased 27% to a Record $1.18 Company Generated More Than $1.3 Billion in Operating Cash Flow Company Increases Cash Dividend to $0.19 per Common Share

SANTA MONICA, Calif.--(BUSINESS WIRE)--Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the fourth quarter and calendar year 2012.

	Fourth Quarter							Calendar Year
(in millions, except EPS)	2012		Prior Outlook*		2011			2012		2011
GAAP
Net Revenues	$	1,768	$	1,485	$	1,407	$	4,856	$	4,755
EPS	$	0.31	$	0.19	$	0.08	$	1.01	$	0.92
Non-GAAP
Net Revenues	$	2,595	$	2,412	$	2,408	$	4,987	$	4,489
EPS	$	0.78	$	0.70	$	0.62	$	1.18	$	0.93
*Prior Outlook was provided by the company on November 7, 2012 in its earnings release

For calendar year 2012, Activision Blizzard delivered record GAAP net revenues of $4.86 billion, as compared with $4.76 billion for 2011. On a non-GAAP basis, the company’s net revenues were $4.99 billion, as compared with $4.49 billion for 2011. For the calendar year 2012, GAAP net revenues from digital channels were $1.54 billion and represented 32% of the company’s total revenues. On a non-GAAP-basis, for the calendar year 2012, net revenues from digital channels were a record $1.60 billion and represented 32% of the company’s total net revenues.

For calendar year 2012, Activision Blizzard delivered record GAAP earnings per diluted share of $1.01, as compared with $0.92 per diluted share for 2011. On a non-GAAP basis, the company also delivered record earnings per diluted share of $1.18, as compared with $0.93 per diluted share for 2011.

For the quarter ended December 31, 2012, the company delivered record GAAP net revenues of $1.77 billion, as compared with $1.41 billion for the fourth quarter of 2011. On a non-GAAP basis, the company’s net revenues were a record $2.60 billion, as compared with $2.41 billion for the fourth quarter of 2011.

For the quarter ended December 31, 2012, Activision Blizzard’s GAAP earnings per diluted share set a fourth quarter record of $0.31, as compared with earnings per diluted share of $0.08 for the fourth quarter of 2011. On a non-GAAP basis, the company’s earnings per diluted share were a record $0.78, as compared with $0.62 for the fourth 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, Activision Blizzard, said, “We are very pleased to report that Activision Blizzard delivered the best performance in its history. With better-than-expected net revenues, record operating margins and record earnings, and over $1.3 billion in operating cash flow, we continue to set the industry success bar. I would like to thank our incredibly talented employees around the world for their passion, drive and creativity, which continues to fuel our success.”

Kotick added, “As we look to 2013, we will continue to invest in our established franchises, as well as several new properties. We expect these investments to drive our growth over the long term and to enable us to deliver superior returns to our shareholders in the years to come. In the short-term, we expect to continue delivering strong profitability, but below our record setting 2012 performance, due to a challenged global economy, the ongoing console transition and a difficult year-over-year comparison because of Blizzard’s record-shattering Diablo® III success in 2012.”

Selected Business Highlights:

• In North America and Europe combined Activision Publishing was the #1 console and handheld publisher for the calendar year with the #1 and #3 best-selling franchises—Call of Duty and Skylanders.¹
• Activision Blizzard reported record digital revenues for the calendar year and was the #1 third-party interactive entertainment Western digital publisher.²
• For the calendar year, in aggregate across all platforms in the U.S. and Europe, Activision Publishing’s Black Ops II was the #1 best-selling title in dollars and Modern Warfare 3® was the #9 best-selling title in dollars.¹
• In November 2012, Black Ops II became the first video game ever to cross the $1 billion mark in 15-days, eclipsing “Avatar’s” 17-day movie record.⁴
• In both North America and Europe, Skylanders Giants™ was the #1 best-selling kids’ title in dollars for the fourth quarter.¹ Additionally, for the calendar year, in North America and Europe combined, Skylanders Giants was the #5 best-selling game in dollars, and Skylanders Spyro’s Adventure® was the #4 best-selling game in dollars.¹
• As of December 31, 2012, the Skylanders franchise has generated, life-to-date, more than $1 billion in worldwide sales,¹ and through January 2013, Activision has sold more than 100 million Skylanders toys worldwide.²
• For the calendar year, Blizzard Entertainment had two top-10 PC games in North America and Europe. Diablo III was the #1 best-selling PC game at retail, breaking PC-game sales records with more than 12 million copies sold worldwide through December 31, 2012, and World of Warcraft®: Mists of Pandaria® was the #3 best-selling PC game at retail.⁵
• As of December 31, 2012, Blizzard Entertainment’s World of Warcraft remains the #1 subscription-based MMORPG, with more than 9.6 million subscribers.²

Company Outlook

On January 29, 2013, Activision Publishing released Revolution, the first downloadable map pack for Black Ops II, on the Xbox 360 video game and entertainment system from Microsoft. The company expects to release Revolution on other platforms during the first quarter.

Additionally, on March 12, 2013, Blizzard Entertainment expects to release StarCraft^® II: Heart of the Swarm™, the first expansion to Blizzard’s award-winning real-time strategy game StarCraft II: Wings of Liberty^®.

The company is considering or may consider during 2013, substantial stock repurchases, dividends, acquisitions, licensing or other non-ordinary course transactions, and significant debt financings relating thereto. The company’s first quarter and full year 2013 outlooks do not take into account any such transactions or financings that may or may not occur during the year, with the exception of the $0.19 cent per share cash dividend announced below.

(in millions, except EPS)	GAAP Outlook		Non-GAAP Outlook
CY 2013
Net Revenues	$	4,085		$	4,175
EPS	$	0.68		$	0.80
Q1 2013
Net Revenues	$	1,160		$	690
EPS	$	0.29		$	0.10

Board Declares Cash Dividend

The Board of Directors declared a cash dividend of $0.19 per common share payable on May 15, 2013 to shareholders of record at the close of business on March 20, 2013.

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 and year ended December 31, 2012 and management’s outlook for 2013. 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 888-427-9414 in the U.S. with passcode 3168482.

About Activision Blizzard

Headquartered 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.

¹According to The NPD Group, GfK Chart-Track and Activision Blizzard internal estimates, including toys and accessories

²According to Activision Blizzard internal estimates

³According to The NPD Group and Gfk Chart-Track

⁴According to Chart-Track retail customer sell-through information, internal company estimates and screenrant.com

⁵According to The NPD Group, GfK Chart-Track and Activision Blizzard internal estimates

Subscriber Definition: 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, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment, 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, the console transition, adoption rate and availability of new hardware (including peripherals) and related software, rapid changes in technology and industry standards, the current regulatory environment, litigation risks and associated costs, protection of proprietary rights, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality "hit" titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, and the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, and the other factors identified in the risk factors section of Activision Blizzard’s most recent annual report on Form 10-K. The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Activision Blizzard and are subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share data)
		Three Months Ended December 31,					Year Ended December 31,
		2012		2011			2012		2011
Net revenues:
	Product sales	$	1,413	$	1,060		$	3,620	$	3,257
	Subscription, licensing and other revenues^1		355		347			1,236		1,498
	Total net revenues		1,768		1,407			4,856		4,755
Costs and expenses:
	Cost of sales - product costs		483		483			1,116		1,134
	Cost of sales - online subscriptions		60		65			263		255
	Cost of sales - software royalties and amortization		87		85			194		218
	Cost of sales - intellectual property licenses		52		96			89		165
	Product development		222		249			604		629
	Sales and marketing		232		281			578		545
	General and administrative		148		122			561		456
	Restructuring		-		1			-		25
	Total costs and expenses		1,284		1,382			3,405		3,427
Operating income			484		25			1,451		1,328
Investment and other income (expense), net			3		(5	)		7		3
Income before income tax expense			487		20			1,458		1,331
Income tax expense			133		(79	)		309		246
Net income		$	354	$	99		$	1,149	$	1,085
Basic earnings per common share		$	0.31	$	0.09		$	1.01	$	0.93
Weighted average common shares outstanding			1,111		1,139			1,112		1,148
Diluted earnings per common share^2		$	0.31	$	0.08		$	1.01	$	0.92
Weighted average common shares outstanding assuming dilution			1,115		1,147			1,118		1,156

^1

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 24 million for the three months and year ended December 31, 2012, respectively, and we had, on a weighted-average basis, participating securities of approximately 17 million for the three months and year ended December 31, 2011. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $345 million and $1,125 million for the three months and year ended December 31, 2012, as compared to the total net income of $354 million and $1,149 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 $97 million and $1,069 million for the three months and year ended December 31, 2011, as compared to total net income of $99 million and $1,085 million for the same periods, respectively.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
			December 31,			December 31,
			2012			2011
ASSETS
	Current assets:
		Cash and cash equivalents	$	3,959		$	3,165
		Short-term investments		416			360
		Accounts receivable, net		707			649
		Inventories, net		209			144
		Software development		164			137
		Intellectual property licenses		11			22
		Deferred income taxes, net		487			507
		Other current assets		321			396
		Total current assets		6,274			5,380
		Long-term investments		8			16
		Software development		129			62
		Intellectual property licenses		30			12
		Property and equipment, net		141			163
		Other assets		11			12
		Intangible assets, net		68			88
		Trademark and trade names		433			433
		Goodwill		7,106			7,111
		Total assets	$	14,200		$	13,277
LIABILITIES AND SHAREHOLDERS’ EQUITY
	Current liabilities:
		Accounts payable	$	343		$	390
		Deferred revenues		1,657			1,472
		Accrued expenses and other liabilities		652			694
		Total current liabilities		2,652			2,556
		Deferred income taxes, net		25			55
		Other liabilities		206			174
		Total liabilities		2,883			2,785
	Shareholders’ equity:
		Common stock		---			---
		Additional paid-in capital		9,450			9,616
		Retained earnings		1,893			948
		Accumulated other comprehensive income (loss)		(26	)		(72	)
		Total shareholders’ equity		11,317			10,492
		Total liabilities and shareholders’ equity	$	14,200		$	13,277

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
	Three Months Ended December 31,						Year Ended December 31,
	2012			2011			2012			2011
Cash flows from operating activities:
Net income	$	354		$	99		$	1,149		$	1,085
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		(30	)		(49	)		(10	)		75
Impairment of goodwill / intangible assets		---			12			---			12
Depreciation and amortization		51			71			120			148
Loss on disposal of property and equipment		1			3			1			4
Amortization and write-off of capitalized software development costs and intellectual property licenses (1)		85			136			208			287
Stock-based compensation expense (2)		43			42			126			103
Excess tax benefits from stock options exercises		(1	)		(3	)		(5	)		(24	)
Changes in operating assets and liabilities:
Accounts receivable, net		(496	)		(503	)		(46	)		13
Inventories, net		83			62			(62	)		(34	)
Software development and intellectual property licenses		(83	)		(73	)		(301	)		(254	)
Other assets		(140	)		(237	)		88			(67	)
Deferred revenues		792			1,020			153			(248	)
Accounts payable		87			148			(54	)		31
Accrued expenses and other liabilities		230			122			(22	)		(179	)
Net cash provided by operating activities		976			850			1,345			952
Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments		139			137			444			740
Proceeds from auction rate securities ("ARS") called at par		10			10			10			10
Payment of contingent consideration		---			---			---			(3	)
Purchases of available-for-sale investments		(121	)		(92	)		(503	)		(417	)
Capital expenditures		(27	)		(25	)		(73	)		(72	)
Decrease in restricted cash		20			26			(2	)		8
Net cash provided by (used in) investing activities		21			56			(124	)		266
Cash flows from financing activities:
Proceeds from issuance of common stock to employees		3			27			33			69
Tax payment related to net share settlements of restricted stock awards		(11	)		(12	)		(16	)		(15	)
Repurchase of common stock		---			(168	)		(315	)		(692	)
Dividends paid		---			---			(204	)		(194	)
Excess tax benefits from stock option exercises		1			3			5			24
Net cash used in financing activities		(7	)		(150	)		(497	)		(808	)
Effect of foreign exchange rate changes on cash and cash equivalents		60			(60	)		70			(57	)
Net increase in cash and cash equivalents		1,050			696			794			353
Cash and cash equivalents at beginning of period		2,909			2,469			3,165			2,812
Cash and cash equivalents at end of period	$	3,959		$	3,165		$	3,959		$	3,165

(1)	Excludes deferral and amortization of stock-based compensation expense.
(2)	Includes the net effects of capitalization, deferral, and amortization of stock-based compensation expense.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(Amounts in millions)
		Three Months Ended											Year over Year		Three Months Ended								Year over Year
		December 31,		March 31,		June 30,			September 30,		December 31,		% Increase		March 31,		June 30,		September 30,		December 31,		% Increase
		2010		2011		2011			2011		2011		(Decrease)		2012		2012		2012		2012		(Decrease)
Cash Flow Data
	Operating Cash Flow	$	993	$	134	$	(78	)	$	46	$	850	(14	)%	$	154	$	93	$	122	$	976	15	%
	Capital Expenditures		21		4		14			29		25	19			8		17		21		27	8
	Non-GAAP Free Cash Flow^2		972		130		(92	)		17		825	(15	)		146		76		101		949	15
	Operating Cash Flow - TTM^1		1,376		1,283		1,231			1,095		952	(31	)		972		1,143		1,219		1,345	41
	Capital Expenditures - TTM^1		97		89		76			68		72	(26	)		76		79		71		73	1
	Non-GAAP Free Cash Flow - TTM^1	$	1,279	$	1,194	$	1,155		$	1,027	$	880	(31	)%	$	896	$	1,064	$	1,148	$	1,272	45	%

^1

TTM represents trailing twelve months. Operating Cash Flow for the year ended December 31, 2010, three months ended September 30, 2010, three months ended June 30, 2010, and three months ended March 31, 2010 was $1,376 million, $182 million, $(26) million, and $227 million, respectively. Capital expenditures for the year ended December 31, 2010, three months ended September 30, 2010, three months ended June 30, 2010, and three months ended March 31, 2010 was $97 million, $37 million, $27 million, and $12 million, respectively.

^2

Non-GAAP free cash flow represents operating cash flow minus capital expenditures (which includes payment for acquisition of intangible assets).

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 December 31, 2012			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - Online Subscriptions		Cost of Sales - Software Royalties and Amortization			Cost of Sales - Intellectual Property Licenses			Product Development			Sales and Marketing			General and Administrative			Total Costs and Expenses
GAAP Measurement			$	1,768	$	483	$	60	$	87		$	52		$	222		$	232		$	148		$	1,284
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		827		186		-		31			3			-			-			-			220
	Less: Stock-based compensation	(b)		-		-		-		(3	)		-			(6	)		(2	)		(29	)		(40	)
	Less: Amortization of intangible assets	(c)		-		-		-		-			(23	)		-			-			-			(23	)
Non-GAAP Measurement			$	2,595	$	669	$	60	$	115		$	32		$	216		$	230		$	119		$	1,441
Three Months Ended December 31, 2012			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	484	$	354	$	0.31	$	0.31
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		607		485		0.43		0.42
	Less: Stock-based compensation	(b)		40		38		0.03		0.03
	Less: Amortization of intangible assets	(c)		23		14		0.01		0.01
Non-GAAP Measurement			$	1,154	$	891	$	0.78	$	0.78
Year Ended December 31, 2012			Net Revenues		Cost of Sales - Product Costs		Cost of Sales - Online Subscriptions		Cost of Sales - Software Royalties and Amortization			Cost of Sales - Intellectual Property Licenses			Product Development			Sales and Marketing			General and Administrative			Total Costs and Expenses
GAAP Measurement			$	4,856	$	1,116	$	263	$	194		$	89		$	604		$	578		$	561		$	3,405
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		131		-		1		36			3			-			-			-			40
	Less: Stock-based compensation	(b)		-		-		-		(9	)		-			(20	)		(8	)		(89	)		(126	)
	Less: Amortization of intangible assets	(c)		-		-		-		-			(30	)		-			-			-			(30	)
Non-GAAP Measurement			$	4,987	$	1,116	$	264	$	221		$	62		$	584		$	570		$	472		$	3,289
Year Ended December 31, 2012			Operating Income		Net Income		Basic Earnings per Share		Diluted Earnings per Share
GAAP Measurement			$	1,451	$	1,149	$	1.01	$	1.01
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		91		84		0.07		0.07
	Less: Stock-based compensation	(b)		126		98		0.09		0.09
	Less: Amortization of intangible assets	(c)		30		19		0.02		0.02
Non-GAAP Measurement			$	1,698	$	1,350	$	1.19	$	1.18

(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 from purchase price accounting.

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $870 million and $1,322 million for the three months and year ended December 31, 2012 as compared to the total non-GAAP net income of $891 million and $1,350 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 SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES
(Amounts in millions, except earnings per share data)
Three Months Ended December 31, 2011			Net Revenues			Cost of Sales - Product Costs			Cost of Sales - Online Subscriptions			Cost of Sales - Software Royalties and Amortization			Cost of Sales - Intellectual Property Licenses			Product Development			Sales and Marketing			General and Administrative			Restructuring			Total Costs and Expenses
GAAP Measurement			$	1,407		$	483		$	65		$	85		$	96		$	249		$	281		$	122		$	1		$	1,382
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		1,001			209			-			37			(3	)		-			-			-			-			243
	Less: Stock-based compensation	(b)		-			-			-			(3	)		-			(25	)		(2	)		(13	)		-			(43	)
	Less: Restructuring	(c)		-			-			-			-			-			-			-			(1	)		(1	)		(2	)
	Less: Amortization of intangible assets	(d)		-			(2	)		-			-			(48	)		-			-			-			-			(50	)
	Less: Impairment of goodwill	(e)		-			-			-			-			-			-			-			(12	)		-			(12	)
Non-GAAP Measurement			$	2,408		$	690		$	65		$	119		$	45		$	224		$	279		$	96		$	-		$	1,518
Three Months Ended December 31, 2011			Operating Income			Net Income			Basic Earnings per Share			Diluted Earnings per Share
GAAP Measurement			$	25		$	99		$	0.09		$	0.08
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		758			549			0.47			0.47
	Less: Stock-based compensation	(b)		43			33			0.03			0.03
	Less: Restructuring	(c)		2			1			-			-
	Less: Amortization of intangible assets	(d)		50			31			0.03			0.03
	Less: Impairment of goodwill	(e)		12			12			0.01			0.01
Non-GAAP Measurement			$	890		$	725		$	0.63		$	0.62
Year Ended December 31, 2011			Net Revenues			Cost of Sales - Product Costs			Cost of Sales - Online Subscriptions			Cost of Sales - Software Royalties and Amortization			Cost of Sales - Intellectual Property Licenses			Product Development			Sales and Marketing			General and Administrative			Restructuring			Total Costs and Expenses
GAAP Measurement			$	4,755		$	1,134		$	255		$	218		$	165		$	629		$	545		$	456		$	25		$	3,427
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(266	)		(11	)		-			(48	)		(24	)		-			-			-			-			(83	)
	Less: Stock-based compensation	(b)		-			-			-			(10	)		-			(40	)		(6	)		(47	)		-			(103	)
	Less: Restructuring	(c)		-			-			-			-			-			-			-			(1	)		(25	)		(26	)
	Less: Amortization of intangible assets	(d)		-			(2	)		-			(1	)		(69	)		-			-			-			-			(72	)
	Less: Impairment of goodwill	(e)		-			-			-			-			-			-			-			(12	)		-			(12	)
Non-GAAP Measurement			$	4,489		$	1,121		$	255		$	159		$	72		$	589		$	539		$	396		$	-		$	3,131
Year Ended December 31, 2011			Operating Income			Net Income			Basic Earnings per Share			Diluted Earnings per Share
GAAP Measurement			$	1,328		$	1,085		$	0.93		$	0.92
	Less: Net effect from deferral in net revenues and related cost of sales	(a)		(183	)		(151	)		(0.13	)		(0.13	)
	Less: Stock-based compensation	(b)		103			76			0.07			0.06
	Less: Restructuring	(c)		26			19			0.02			0.02
	Less: Amortization of intangible assets	(d)		72			46			0.04			0.04
	Less: Impairment of goodwill	(e)		12			12			0.01			0.01
Non-GAAP Measurement			$	1,358		$	1,087		$	0.93		$	0.93

(a)	Reflects the net change in deferred net revenues and related cost of sales.
(b)	Includes expense related to stock-based compensation.
(c)	Reflects restructuring related to our Activision Publishing operations.
(d)	Reflects amortization of intangible assets from purchase price accounting.
(e)	Reflects impairment of goodwill.

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $715 million and $1,071 million for the three months and year ended December 31, 2011 as compared to the total non-GAAP net income of $725 million and $1,087 million for the same periods, respectively.

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months and Year Ended December 31, 2012 and 2011
(Amounts in millions)
		Three Months Ended
		December 31, 2012					December 31, 2011					$ Increase			% Increase
		Amount			% of Total		Amount			% of Total		(Decrease)			(Decrease)
GAAP Net Revenues by Distribution Channel
	Retail channel	$	1,177		67	%	$	841		60	%	$	336		40	%
	Digital online channels^1		451		25			363		26			88		24
	Total Activision and Blizzard		1,628		92			1,204		86			424		35
	Distribution		140		8			203		14			(63	)	(31	)
	Total consolidated GAAP net revenues		1,768		100			1,407		100			361		26
Change in Deferred Net Revenues^2
	Retail channel		900					1,055
	Digital online channels^1		(73	)				(54	)
	Total changes in deferred net revenues		827					1,001
Non-GAAP Net Revenues by Distribution Channel
	Retail channel		2,077		80			1,896		79			181		10
	Digital online channels^1		378		15			309		13			69		22
	Total Activision and Blizzard		2,455		95			2,205		92			250		11
	Distribution		140		5			203		8			(63	)	(31	)
	Total non-GAAP net revenues^3	$	2,595		100	%	$	2,408		100	%	$	187		8	%
		Year Ended
		December 31, 2012					December 31, 2011					$ Increase			% Increase
		Amount			% of Total		Amount			% of Total		(Decrease)			(Decrease)
GAAP Net Revenues by Distribution Channel
	Retail channel	$	3,013		62	%	$	2,697		57	%	$	316		12	%
	Digital online channels^1		1,537		32			1,640		34			(103	)	(6	)
	Total Activision and Blizzard		4,550		94			4,337		91			213		5
	Distribution		306		6			418		9			(112	)	(27	)
	Total consolidated GAAP net revenues		4,856		100			4,755		100			101		2
Change in Deferred Net Revenues^2
	Retail channel		69					(185	)
	Digital online channels^1		62					(81	)
	Total changes in deferred net revenues		131					(266	)
Non-GAAP Net Revenues by Distribution Channel
	Retail channel		3,082		62			2,512		56			570		23
	Digital online channels^1		1,599		32			1,559		35			40		3
	Total Activision and Blizzard		4,681		94			4,071		91			610		15
	Distribution		306		6			418		9			(112	)	(27	)
	Total non-GAAP net revenues^3	$	4,987		100	%	$	4,489		100	%	$	498		11	%

^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 SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months Ended December 31, 2012 and 2011
(Amounts in millions)
			Three Months Ended
			December 31, 2012					December 31, 2011					$ Increase			% Increase
			Amount			% of Total		Amount			% of Total		(Decrease)			(Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions^1		$	285		16	%	$	268		19	%	$	17		6	%
	PC and Other^5			487		27			123		9			364		296
		Sony PlayStation 3		259		15			262		19			(3	)	(1	)
		Microsoft Xbox 360		314		18			300		21			14		5
		Nintendo Wii and Wii U		183		10			166		12			17		10
	Total console^2			756		43			728		52			28		4
		Sony PS Vita		18		1			3		---			15		500
		Nintendo 3DS and DS		82		5			82		6			-		-
	Total handheld			100		6			85		6			15		18
	Total Activision and Blizzard			1,628		92			1,204		86			424		35
Distribution:
	Total Distribution			140		8			203		14			(63	)	(31	)
	Total consolidated GAAP net revenues			1,768		100			1,407		100			361		26
Change in Deferred Net Revenues^3
Activision and Blizzard:
	Online subscriptions^1			(8	)				(18	)
	PC and Other^5			(89	)				54
		Sony PlayStation 3		441					453
		Microsoft Xbox 360		467					483
		Nintendo Wii and Wii U		16					24
	Total console^2			924					960
		Nintendo 3DS and DS		---					5
	Total changes in deferred net revenues			827					1,001
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions^1			277		11			250		10			27		11
	PC and Other^5			398		15			177		7			221		125
		Sony PlayStation 3		700		27			715		30			(15	)	(2	)
		Microsoft Xbox 360		781		30			783		32			(2	)	-
		Nintendo Wii and Wii U		199		8			190		8			9		5
	Total console^2			1,680		65			1,688		70			(8	)	-
		Sony PS Vita		18		1			3		---			15		500
		Nintendo 3DS and DS		82		3			87		4			(5	)	(6	)
	Total handheld			100		4			90		4			10		11
	Total Activision and Blizzard			2,455		95			2,205		91			250		11
	Total Distribution			140		5			203		9			(63	)	(31	)
	Total non-GAAP net revenues^4		$	2,595		100	%	$	2,408		100	%	$	187		8	%

^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 SUBSIDIARIES
FINANCIAL INFORMATION
For the Year Ended December 31, 2012 and 2011
(Amounts in millions)
			Year Ended
			December 31, 2012					December 31, 2011					$ Increase			% Increase
			Amount			% of Total		Amount			% of Total		(Decrease)			(Decrease)
GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions^1		$	986		20	%	$	1,357		29	%	$	(371	)	(27	)%
	PC and Other^5			1,214		25			374		8			840		225
		Sony PlayStation 3		876		18			948		20			(72	)	(8	)
		Microsoft Xbox 360		1,019		21			1,140		24			(121	)	(11	)
		Nintendo Wii and Wii U		291		6			351		7			(60	)	(17	)
	Total console^2			2,186		45			2,439		51			(253	)	(10	)
		Sony PS Vita		23		1			15		---			8		53
		Nintendo 3DS and DS		141		3			152		3			(11	)	(7	)
	Total handheld			164		4			167		3			(3	)	(2	)
	Total Activision and Blizzard			4,550		94			4,337		91			213		5
Distribution:
	Total Distribution			306		6			418		9			(112	)	(27	)
	Total Activision and Blizzard			4,856		100			4,755		100			101		2
Change in Deferred Net Revenues^3
Activision and Blizzard:
	Online subscriptions^1			85					(202	)
	PC and Other^5			36					(75	)
		Sony PlayStation 3		30					36
		Microsoft Xbox 360		(3	)				43
		Nintendo Wii and Wii U		(12	)				(66	)
	Total console^2			15					13
		Nintendo 3DS and DS		(5	)				(2	)
	Total changes in deferred net revenues			131					(266	)
Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
	Online subscriptions^1			1,071		22			1,155		26			(84	)	(7	)
	PC and Other^5			1,250		25			299		7			951		318
		Sony PlayStation 3		906		18			984		22			(78	)	(8	)
		Microsoft Xbox 360		1,016		20			1,183		26			(167	)	(14	)
		Nintendo Wii and Wii U		279		6			285		6			(6	)	(2	)
	Total console^2			2,201		44			2,452		54			(251	)	(10	)
		Sony PS Vita		23		---			15		---			8		53
		Nintendo 3DS and DS		136		3			150		4			(14	)	(9	)
	Total handheld			159		3			165		4			(6	)	(4	)
	Total Activision and Blizzard			4,681		94			4,071		91			610		15
Distribution:
	Total Distribution			306		6			418		9			(112	)	(27	)
	Total non-GAAP net revenues^4		$	4,987		100	%	$	4,489		100	%	$	498		11	%

^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 SUBSIDIARIES
FINANCIAL INFORMATION
For the Three Months And Year Ended December 31, 2012 and 2011
(Amounts in millions)
		Three Months Ended
		December 31, 2012				December 31, 2011					$ Increase			% Increase
		Amount		% of Total		Amount			% of Total		(Decrease)			(Decrease)
GAAP Net Revenues by Geographic Region
	North America	$	869	49	%	$	718		51	%	$	151		21	%
	Europe		748	42			605		43			143		24
	Asia Pacific		151	9			84		6			67		80
	Total consolidated GAAP net revenues		1,768	100			1,407		100			361		26
Change in Deferred Net Revenues^1
	North America		538				548
	Europe		271				395
	Asia Pacific		18				58
	Total changes in net revenues		827				1,001
Non-GAAP Net Revenues by Geographic Region
	North America		1,407	54			1,266		53			141		11
	Europe		1,019	39			1,000		41			19		2
	Asia Pacific		169	7			142		6			27		19
	Total non-GAAP net revenues^2	$	2,595	100	%	$	2,408		100	%	$	187		8	%
		Year Ended
		December 31, 2012				December 31, 2011					$ Increase			% Increase
		Amount		% of Total		Amount			% of Total			(Decrease)		(Decrease)
GAAP Net Revenues by Geographic Region
	North America	$	2,436	50	%	$	2,405		50	%	$	31		1	%
	Europe		1,968	41			1,990		42			(22	)	(1	)
	Asia Pacific		452	9			360		8			92		26
	Total consolidated GAAP net revenues		4,856	100			4,755		100			101		2
Change in Deferred Net Revenues^1
	North America		78				(154	)
	Europe		28				(104	)
	Asia Pacific		25				(8	)
	Total changes in net revenues		131				(266	)
Non-GAAP Net Revenues by Geographic Region
	North America		2,514	50			2,251		50			263		12
	Europe		1,996	40			1,886		42			110		6
	Asia Pacific		477	10			352		8			125		36
	Total non-GAAP net revenues^2	$	4,987	100	%	$	4,489		100	%	$	498		11	%

^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 Months And Year Ended December 31, 2012 and 2011
(Amounts in millions)
		Three Months Ended
		December 31, 2012					December 31, 2011					$ Increase			% Increase
		Amount			% of Total		Amount			% of Total		(Decrease)			(Decrease)
Segment net revenues:
	Activision^1	$	2,145		121	%	$	1,929		137	%	$	216		11	%
	Blizzard^2		310		18			276		20			34		12
	Distribution^3		140		8			203		14			(63	)	(31	)
	Operating segment total		2,595		147			2,408		171			187		8
Reconciliation to consolidated net revenues:
	Net effect from deferral of net revenues		(827	)	(47	)		(1,001	)	(71	)
	Consolidated net revenues	$	1,768		100	%	$	1,407		100	%	$	361		26	%
Segment income from operations:
	Activision^1	$	1,055				$	809				$	246		30	%
	Blizzard^2		88					71					17		24
	Distribution^3		11					10					1		10
	Operating segment total		1,154					890					264		30
Reconciliation to consolidated operating income (loss) and consolidated income (loss) before income tax expense:
	Net effect from deferral of net revenues and related cost of sales		(607	)				(758	)
	Stock-based compensation expense		(40	)				(43	)
	Restructuring		---					(2	)
	Amortization of intangible assets		(23	)				(50	)
	Impairment of goodwill/intangible assets		---					(12	)
	Consolidated operating income (loss)		484					25					459		-
	Investment and other income (expense), net		3					(5	)
	Consolidated income (loss) before income tax expense	$	487				$	20				$	467		-
	Operating margin from total operating segments		44.5	%				37.0	%
		Year Ended
		December 31, 2012					December 31, 2011					$ Increase			% Increase
		Amount			% of Total		Amount			% of Total		(Decrease)			(Decrease)
Segment net revenues:
	Activision^1	$	3,072		64	%	$	2,828		59	%	$	244		9	%
	Blizzard^2		1,609		33			1,243		26			366		29
	Distribution^3		306		6			418		9			(112	)	(27	)
	Operating segment total		4,987		103			4,489		94			498		11
Reconciliation to consolidated net revenues:
	Net effect from deferral of net revenues		(131	)	(3	)		266		6
	Consolidated net revenues	$	4,856		100	%	$	4,755		100	%	$	101		2	%
Segment income from operations:
	Activision^1	$	970				$	851				$	119		14	%
	Blizzard^2		717					496					221		45
	Distribution^3		11					11					-		-
	Operating segment total		1,698					1,358					340		25
Reconciliation to consolidated operating income (loss) and consolidated income (loss) before income tax expense:
	Net effect from deferral of net revenues and related cost of sales		(91	)				183
	Stock-based compensation expense		(126	)				(103	)
	Restructuring		---					(26	)
	Amortization of intangible assets		(30	)				(72	)
	Impairment of goodwill/intangible assets		---					(12	)
	Consolidated operating income		1,451					1,328					123		9
	Investment and other income (expense), net		7					3
	Consolidated income before income tax expense	$	1,458				$	1,331				$	127		10	%
	Operating margin from total operating segments		34.0	%				30.3	%

^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 OUTLOOK
For the Quarter Ending March 31, 2013 and
Year Ending December 31, 2013
GAAP to Non-GAAP Reconciliation
(Amounts in millions, except per share data)
		Outlook for			Outlook for
		Three Months Ending			Year Ending
		March 31, 2013			December 31, 2013
Net Revenues (GAAP)		$	1,160		$	4,085
Excluding the impact of:
Change in deferred net revenues	(a)		(470	)		90
Non-GAAP Net Revenues		$	690		$	4,175
Earnings Per Diluted Share (GAAP)		$	0.29		$	0.68
Excluding the impact of:
Net effect from deferral in net revenues and related cost of sales	(b)		(0.21	)		0.02
Stock-based compensation	(c)		0.02			0.09
Amortization of intangible assets	(d)		-			0.02
Non-GAAP Earnings Per Diluted Share		$	0.10		$	0.80

(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 from purchase price accounting.

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.