Activision Blizzard Announces Second Quarter 2013 Financial Results

Activision Blizzard, Inc. (Nasdaq: ATVI) today announced financial results for the second quarter of 2013.

Second Quarter (in millions, except EPS) 2013 Prior

Outlook*

2012

GAAP

Net Revenues $ 1,050 $ 980 $ 1,075 EPS $ 0.28 $ 0.21 $ 0.16

Non-GAAP

Net Revenues $ 608 $ 590 $ 1,054

EPS

$ 0.08 $ 0.05 $ 0.20

*Prior outlook was provided by the company on May 8, 2013 in its earnings release

For the quarter ended June 30, 2013, Activision Blizzard’s GAAP net revenues were $1.05 billion, as compared with $1.08 billion for the second quarter of 2012. On a non-GAAP basis, the company’s net revenues were $608 million, as compared with $1.05 billion for the second quarter of 2012. For the second quarter, GAAP net revenues from digital channels were $387 million and represented 37% of the company’s total revenues. On a non-GAAP basis, net revenues from digital channels were $383 million and represented a record 63% of the company’s total revenues.

For the quarter ended June 30, 2013, Activision Blizzard’s GAAP earnings per diluted share were $0.28, as compared with $0.16 for the second quarter of 2012. On a non-GAAP basis, the company’s earnings per diluted share were $0.08, as compared with $0.20 for the second quarter of 2012.

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, “We are pleased with our second-quarter results, which confirm the preliminary results we released last week when we announced our transaction with Vivendi. The agreement we reached with Vivendi will make us an independent company and should deliver meaningful earnings per share accretion to our shareholders. Our solid performance across our franchises and strong digital sales, including continued significant growth this quarter in our Call of Duty® downloadable content business over the previous year, validate our belief that we will enter this new period of independence in a position to leverage the flexibility and focus that it provides.”

Kotick added, ”On a GAAP and non-GAAP basis, we delivered strong quarterly and first half net revenues, operating income, and earnings. Year to date, we generated a record $434 million in operating cash flow. However, despite this strength in the front half of the year, we remain cautious about the back half. The issues we previously identified, including increased competition in the second half of the year and uncertainties surrounding the console transition, remain on the horizon. We are confident that we will continue to successfully navigate industry challenges and find new opportunities to provide superior returns to our shareholders.”

Selected Business Highlights:

For the first six months of 2013, Activision Blizzard was the #1 third-party publisher in North America and Europe combined.¹
For the first six months of 2013, Activision Blizzard had the top-two best-selling games in North America and Europe combined, with Activision Publishing’s Skylanders® Giants™ and Call of Duty: Black Ops II.¹
In both North America and Europe, Activision Publishing’s Skylanders Giants was the #1 best-selling console and hand-held game overall in dollars for the first six months of 2013.¹
As of July 31, 2013, the Skylanders franchise has generated, life-to-date, more than $1.5 billion in worldwide retail sales.¹
As of June 30, 2013, Blizzard Entertainment’s World of Warcraft® remains the #1 subscription-based MMORPG, with approximately 7.7 million subscribers.²
On July 25, 2013, Activision Blizzard announced that it reached an agreement under which the company will acquire approximately 429 million company shares and certain tax attributes from Vivendi, in exchange for approximately $5.83 billion in cash, or $13.60 per share acquired before taking into account any future benefit from these tax attributes. In a related transaction, ASAC II LP, an investment vehicle led by CEO Bobby Kotick and Activision Blizzard Co-Chairman Brian Kelly, will purchase approximately 172 million company shares from Vivendi for approximately $2.34 billion in cash, or $13.60 per share. Following the completion of the transactions, which are expected to close by the end of September 2013, Vivendi will no longer be the majority shareholder, but will retain a stake of approximately 83 million shares, or approximately 12%.
During the quarter, Activision Blizzard paid a cash dividend of $0.19 per common share, totaling $216 million, to shareholders of record at the close of business on March 20, 2013.

Company Outlook:

On July 2, 2013, Activision Publishing released Call of Duty: Black Ops II Vengeance, a downloadable map pack for the Xbox 360® video game system from Microsoft. The company expects to release Call of Duty: Black Ops II Vengeance on other platforms later in the third quarter of 2013.

On September 3, 2013, Blizzard Entertainment expects to release Diablo® III for Sony’s PlayStation® 3 computer entertainment system and the Xbox 360 video game system from Microsoft.

Based on its second quarter results, Activision Blizzard is raising its full year GAAP outlook. The company’s third quarter and full year net revenue and earnings per share outlook are as follows and do not include any potential impact from the transaction with Vivendi announced on July 25, 2013 and described above:

(in millions, except EPS)

GAAP Outlook Prior*

GAAP Outlook

Non-GAAP Outlook Prior*

Non-GAAP Outlook

CY 2013

Net Revenues $ 4,310 $ 4,220 $ 4,250 $ 4,250 EPS $ 0.77 $ 0.73 $ 0.82 $ 0.82

Q3 2013

Net Revenues $ 635 n/a $ 585 n/a EPS $ 0.03 n/a $ 0.03 n/a

* Prior outlook was provided by the company on May 8, 2013 in its earnings release

The company estimates that, if and when completed, the recently announced transaction with Vivendi will be accretive to full year pro-forma earnings per share. For additional information and pro-forma results, please refer to the table at the back of this press release.

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 June 30, 2013 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 888-339-3466 in the U.S. with passcode 3585535.

About Activision Blizzard

Activision Blizzard, Inc. is the world’s largest and most profitable independent interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, Skylanders,World of Warcraft, StarCraft® and Diablo. Headquartered in Santa Monica California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world. More information about Activision Blizzard and its products can be found on the company's website, www.activisionblizzard.com.

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

² According to 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;
the amortization of intangibles from purchase price accounting;
one-time fees and expenses related to repurchase of the Company's shares from Vivendi and related debt financing transactions; 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 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, particularly during the upcoming console transition, 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, the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, capital market risks, the possibility that expected benefits related to the pending transactions with Vivendi and ASAC II LP may not materialize as expected, the pending transactions not being timely completed, if completed at all, and the other factors identified in the risk factors section of Activision Blizzard’s most recent annual report on Form 10-K, as amended and our quarterly report on Form 10-Q for the quarter ended June 30, 2013,. 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 June 30, Six Months Ended June 30, 2013 2012 2013 2012 Net revenues: Product sales $ 727 $ 798 $ 1,717 $ 1,672 Subscription, licensing and other revenues 1 323 277 658 575 Total net revenues 1,050 1,075 2,375 2,247 Costs and expenses: Cost of sales - product costs 179 229 440 486 Cost of sales - online subscriptions 54 71 111 140 Cost of sales - software royalties and amortization 38 57 99 88 Cost of sales - intellectual property licenses 14 20 52 27 Product development 123 145 247 259 Sales and marketing 116 136 223 216 General and administrative 96 190 186 291 Total costs and expenses 620 848 1,358 1,507 Operating income 430 227 1,017 740 Investment and other income (expense), net - 2 3 3 Income before income tax expense 430 229 1,020 743 Income tax expense 106 44 240 174 Net income $ 324 $ 185 $ 780 $ 569 Basic earnings per common share $ 0.28 $ 0.16 $ 0.68 $ 0.50 Weighted average common shares outstanding 1,118 1,109 1,116 1,115 Diluted earnings per common share 2 $ 0.28 $ 0.16 $ 0.68 $ 0.50 Weighted average common shares outstanding assuming dilution 1,127 1,115 1,124 1,121 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 24 million and 25 million for the three and six months ended June 30, 2013, respectively. We had, on a weighted-average basis, participating securities of approximately 24 million and 22 million for the three and six months ended June 30, 2012, respectively. Net income attributable to Activision Blizzard Inc. common shareholders used to calculate earnings per common share assuming dilution was $318 million and $764 million for the three and six months ended June 30, 2013 as compared to the total net income of $324 million and $780 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 $181 million and $558 million for the three and six months ended June 30, 2012 as compared to total net income of $185 million and $569 million for the same periods, respectively. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in millions) June 30, December 31, 2013 2012 ASSETS Current assets: Cash and cash equivalents $ 4,341 $ 3,959 Short-term investments 205 416 Accounts receivable, net 117 707 Inventories, net 131 209 Software development 304 164 Intellectual property licenses 11 11 Deferred income taxes, net 335 487 Other current assets 185 321 Total current assets 5,629 6,274 Long-term investments 9 8 Software development 35 129 Intellectual property licenses --- 30 Property and equipment, net 132 141 Other assets 10 11 Intangible assets, net 61 68 Trademark and trade names 433 433 Goodwill 7,102 7,106 Total assets $ 13,411 $ 14,200 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 139 $ 343 Deferred revenues 665 1,657 Accrued expenses and other liabilities 389 652 Total current liabilities 1,193 2,652 Deferred income taxes, net 77 25 Other liabilities 206 206 Total liabilities 1,476 2,883 Shareholders’ equity: Common stock --- --- Additional paid-in capital 9,541 9,450 Retained earnings 2,456 1,893 Accumulated other comprehensive income (loss) (62 ) (26 ) Total shareholders’ equity 11,935 11,317 Total liabilities and shareholders’ equity $ 13,411 $ 14,200 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 June 30, 2013 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 $ 1,050 $ 179 $ 54 $ 38 $ 14 $ 123 $ 116 $ 96 $ 620 Less: Net effect from deferral in net revenues and related cost of sales (a) (442 ) (77 ) - (26 ) (1 ) - - - (104 ) Less: Stock-based compensation (b) - - - (3 ) - (7 ) (2 ) (12 ) (24 ) Less: Amortization of intangible assets (c) - - - - (3 ) - - - (3 ) Non-GAAP Measurement $ 608 $ 102 $ 54 $ 9 $ 10 $ 116 $ 114 $ 84 $ 489 Three months ended June 30, 2013 Operating Income Net Income Basic Earnings per Share Diluted Earnings per Share GAAP Measurement $ 430 $ 324 $ 0.28 $ 0.28 Less: Net effect from deferral in net revenues and related cost of sales (a) (338 ) (251 ) (0.22 ) (0.22 ) Less: Stock-based compensation (b) 24 15 0.01 0.01 Less: Amortization of intangible assets (c) 3 2 - - Non-GAAP Measurement $ 119 $ 90 $ 0.08 $ 0.08 Six months ended June 30, 2013 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 $ 2,375 $ 440 $ 111 $ 99 $ 52 $ 247 $ 223 $ 186 $ 1,358 Less: Net effect from deferral in net revenues and related cost of sales (a) (962 ) (192 ) - (60 ) (3 ) - - - (255 ) Less: Stock-based compensation (b) - - - (8 ) - (13 ) (4 ) (25 ) (50 ) Less: Amortization of intangible assets (c) - - - - (6 ) - - - (6 ) Non-GAAP Measurement $ 1,413 $ 248 $ 111 $ 31 $ 43 $ 234 $ 219 $ 161 $ 1,047 Six months ended June 30, 2013 Operating Income Net Income Basic Earnings per Share Diluted Earnings per Share GAAP Measurement $ 1,017 $ 780 $ 0.68 $ 0.68 Less: Net effect from deferral in net revenues and related cost of sales (a) (707 ) (528 ) (0.46 ) (0.46 ) Less: Stock-based compensation (b) 50 32 0.03 0.03 Less: Amortization of intangible assets (c) 6 4 - - Non-GAAP Measurement $ 366 $ 288 $ 0.25 $ 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 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 common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $88 million and $282 million for the three and six months ended June 30, 2013 as compared to the total non-GAAP net income of $90 million and $288 million for the same periods, respectively.

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 $219 million and $285 million for the three and six months ended June 30, 2012 as compared to 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 SUBSIDIARIES FINANCIAL INFORMATION For the Three And Six Months Ended June 30, 2013 and 2012 (Amounts in millions) Three Months Ended June 30, 2013 June 30, 2012 $ Increase % Increase Amount % of Total4 Amount % of Total4 (Decrease) (Decrease) GAAP Net Revenues by Distribution Channel Retail channels $ 626 60 % $ 685 64 % $ (59 ) (9 )% Digital online channels1 387 37 343 32 44 13 Total Activision and Blizzard 1,013 96 1,028 96 (15 ) (1 ) Distribution 37 4 47 4 (10 ) (21 ) Total consolidated GAAP net revenues 1,050 100 1,075 100 (25 ) (2 ) Change in Deferred Net Revenues2 Retail channels (438 ) (175 ) Digital online channels1 (4 ) 154 Total changes in deferred net revenues (442 ) (21 ) Non-GAAP Net Revenues by Distribution Channel Retail channels 188 31 510 48 (322 ) (63 ) Digital online channels1 383 63 497 47 (114 ) (23 ) Total Activision and Blizzard 571 94 1,007 96 (436 ) (43 ) Distribution 37 6 47 4 (10 ) (21 ) Total non-GAAP net revenues3 $ 608 100 % $ 1,054 100 % $ (446 ) (42 )% Six Months Ended June 30, 2013 June 30, 2012 $ Increase % Increase Amount % of Total4 Amount % of Total4 (Decrease) (Decrease) GAAP Net Revenues by Distribution Channel Retail channels $ 1,522 64 % $ 1,479 66 % $ 43 3 % Digital online channels1 765 32 656 29 109 17 Total Activision and Blizzard 2,287 96 2,135 95 152 7 Distribution 88 4 112 5 (24 ) (21 ) Total consolidated GAAP net revenues 2,375 100 2,247 100 128 6 Change in Deferred Net Revenues2 Retail channels (1,009 ) (746 ) Digital online channels1 47 140 Total changes in deferred net revenues (962 ) (606 ) Non-GAAP Net Revenues by Distribution Channel Retail channels 513 36 733 45 (220 ) (30 ) Digital online channels1 812 57 796 49 16 2 Total Activision and Blizzard 1,325 94 1,529 93 (204 ) (13 ) Distribution 88 6 112 7 (24 ) (21 ) Total non-GAAP net revenues3 $ 1,413 100 % $ 1,641 100 % $ (228 ) (14 )% 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. 4 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the Three Months Ended June 30, 2013 and 2012 (Amounts in millions) Three Months Ended June 30, 2013 June 30, 2012 $ Increase % Increase Amount % of Total6 Amount % of Total6 (Decrease) (Decrease) GAAP Net Revenues by Segment/Platform Mix Activision and Blizzard: Online subscriptions1 $ 233 22 % $ 220 20 % $ 13 6 % PC 100 10 151 14 (51 ) (34 ) Sony PlayStation 3 265 25 234 22 31 13 Microsoft Xbox 360 307 29 248 23 59 24 Nintendo Wii and Wii U 18 2 32 3 (14 ) (44 ) Total console2 590 56 514 48 76 15 Other5 90 9 143 13 (53 ) (37 ) Total Activision and Blizzard 1,013 96 1,028 96 (15 ) (1 ) Distribution: Total Distribution 37 4 47 4 (10 ) (21 ) Total consolidated GAAP net revenues 1,050 100 1,075 100 (25 ) (2 ) Change in Deferred Net Revenues3 Activision and Blizzard: Online subscriptions1 (39 ) (21 ) PC (57 ) 314 Sony PlayStation 3 (166 ) (137 ) Microsoft Xbox 360 (175 ) (162 ) Nintendo Wii and Wii U (5 ) (12 ) Total console2 (346 ) (311 ) Other5 --- (3 ) Total changes in deferred net revenues (442 ) (21 ) Non-GAAP Net Revenues by Segment/Platform Mix Activision and Blizzard: Online subscriptions1 194 32 199 19 (5 ) (3 ) PC 43 7 465 44 (422 ) (91 ) Sony PlayStation 3 99 16 97 9 2 2 Microsoft Xbox 360 132 22 86 8 46 53 Nintendo Wii and Wii U 13 2 20 2 (7 ) (35 ) Total console2 244 40 203 19 41 20 Other5 90 15 140 13 (50 ) (36 ) Total Activision and Blizzard 571 94 1,007 96 (436 ) (43 ) Distribution: Total Distribution 37 6 47 4 (10 ) (21 ) Total non-GAAP net revenues4 $ 608 100 % $ 1,054 100 % $ (446 ) (42 )% 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 Revenue from other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories. 6 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the Six Months Ended June 30, 2013 and 2012 (Amounts in millions) Six Months Ended June 30, 2013 June 30, 2012 $ Increase % Increase Amount % of Total6 Amount % of Total6 (Decrease) (Decrease) GAAP Net Revenues by Segment/Platform Mix Activision and Blizzard: Online subscriptions1 $ 508 21 % $ 475 21 % $ 33 7 % PC 195 8 198 9 (3 ) (2 ) Sony PlayStation 3 609 26 536 24 73 14 Microsoft Xbox 360 689 29 584 26 105 18 Nintendo Wii and Wii U 41 2 83 4 (42 ) (51 ) Total console2 1,339 56 1,203 54 136 11 Other5 245 10 259 12 (14 ) (5 ) Total Activision and Blizzard 2,287 96 2,135 95 152 7 Distribution: Total Distribution 88 4 112 5 (24 ) (21 ) Total consolidated GAAP net revenues 2,375 100 2,247 100 128 6 Change in Deferred Net Revenues3 Activision and Blizzard: Online subscriptions1 (85 ) (27 ) PC (29 ) 292 Sony PlayStation 3 (416 ) (400 ) Microsoft Xbox 360 (421 ) (439 ) Nintendo Wii and Wii U (10 ) (26 ) Total console2 (847 ) (865 ) Other5 (1 ) (6 ) Total changes in deferred net revenues (962 ) (606 ) Non-GAAP Net Revenues by Segment/Platform Mix Activision and Blizzard: Online subscriptions1 423 30 448 27 (25 ) (6 ) PC 166 12 490 30 (324 ) (66 ) Sony PlayStation 3 193 14 136 8 57 42 Microsoft Xbox 360 268 19 145 9 123 85 Nintendo Wii and Wii U 31 2 57 3 (26 ) (46 ) Total console2 492 35 338 21 154 46 Other5 244 17 253 15 (9 ) (4 ) Total Activision and Blizzard 1,325 94 1,529 93 (204 ) (13 ) Distribution: Total Distribution 88 6 112 7 (24 ) (21 ) Total non-GAAP net revenues4 $ 1,413 100 % $ 1,641 100 % $ (228 ) (14 )% 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 Revenue from other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories. 6 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the Three Months Ended June 30, 2013 and 2012 (Amounts in millions) Three Months Ended June 30, 2013 June 30, 2012 $ Increase % Increase Amount % of Total3 Amount % of Total3 (Decrease) (Decrease) GAAP Net Revenues by Geographic Region North America $ 562 54 % $ 562 52 % $ - - % Europe 402 38 403 37 (1 ) --- Asia Pacific 86 8 110 10 (24 ) (22 ) Total consolidated GAAP net revenues 1,050 100 1,075 100 (25 ) (2 ) Change in Deferred Net Revenues1 North America (248 ) (79 ) Europe (161 ) (9 ) Asia Pacific (33 ) 67 Total changes in net revenues (442 ) (21 ) Non-GAAP Net Revenues by Geographic Region North America 314 52 483 46 (169 ) (35 ) Europe 241 40 394 37 (153 ) (39 ) Asia Pacific 53 9 177 17 (124 ) (70 ) Total non-GAAP net revenues2 $ 608 100 % $ 1,054 100 % $ (446 ) (42 )% Six Months Ended June 30, 2013 June 30, 2012 $ Increase % Increase Amount % of Total3 Amount % of Total3 (Decrease) (Decrease) GAAP Net Revenues by Geographic Region North America $ 1,300 55 % $ 1,163 52 % $ 137 12 % Europe 889 37 888 40 1 - Asia Pacific 186 8 196 9 (10 ) (5 ) Total consolidated GAAP net revenues 2,375 100 2,247 100 128 6 Change in Deferred Net Revenues1 North America (563 ) (409 ) Europe (330 ) (235 ) Asia Pacific (69 ) 38 Total changes in net revenues (962 ) (606 ) Non-GAAP Net Revenues by Geographic Region North America 737 52 754 46 (17 ) (2 ) Europe 559 40 653 40 (94 ) (14 ) Asia Pacific 117 8 234 14 (117 ) (50 ) Total non-GAAP net revenues2 $ 1,413 100 % $ 1,641 100 % $ (228 ) (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. 3 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES SEGMENT INFORMATION For the Three And Six Months Ended June 30, 2013 and 2012 (Amounts in millions) Three Months Ended June 30, 2013 June 30, 2012 $ Increase % Increase Amount % of Total4 Amount % of Total4 (Decrease) (Decrease) Segment net revenues: Activision1 $ 347 33 % $ 373 35 % $ (26 ) (7 )% Blizzard2 224 21 634 59 (410 ) (65 ) Distribution3 37 4 47 4 (10 ) (21 ) Operating segment total 608 58 1,054 98 (446 ) (42 ) Reconciliation to consolidated net revenues: Net effect from deferral of net revenues 442 42 21 2 Consolidated net revenues $ 1,050 100 % $ 1,075 100 % $ (25 ) (2 )% Segment income from operations: Activision1 $ 60 $ (71 ) $ 131 185 % Blizzard2 60 371 (311 ) (84 ) Distribution3 (1 ) --- (1 ) --- Operating segment total 119 300 (181 ) (60 )

Reconciliation to consolidated operating income and consolidated income before income tax expense:

Net effect from deferral of net revenues and related cost of sales 338 (40 ) Stock-based compensation expense (24 ) (31 ) Amortization of intangible assets (3 ) (2 ) Consolidated operating income 430 227 203 89 Investment and other income (expense), net --- 2 Consolidated income before income tax expense $ 430 $ 229 $ 201 88 % Operating margin from total operating segments 20 % 28 % Six Months Ended June 30, 2013 June 30, 2012 $ Increase % Increase Amount % of Total4 Amount % of Total4 (Decrease) (Decrease) Segment net revenues: Activision1 $ 771 32 % $ 645 29 % $ 126 20 % Blizzard2 554 23 884 39 (330 ) (37 ) Distribution3 88 4 112 5 (24 ) (21 ) Operating segment total 1,413 59 1,641 73 (228 ) (14 ) Reconciliation to consolidated net revenues: Net effect from deferral of net revenues 962 41 606 27 Consolidated net revenues $ 2,375 100 % $ 2,247 100 % $ 128 6 % Segment income from operations: Activision1 $ 173 $ (70 ) $ 243 NM% Blizzard2 194 460 (266 ) (58 ) Distribution3 (1 ) --- (1 ) --- Operating segment total 366 390 (24 ) (6 )

Reconciliation to consolidated operating income and consolidated income before income tax expense:

Net effect from deferral of net revenues and related cost of sales 707 407 Stock-based compensation expense (50 ) (52 ) Amortization of intangible assets (6 ) (5 ) Consolidated operating income 1,017 740 277 37 Investment and other income (expense), net 3 3 Consolidated income before income tax expense $ 1,020 $ 743 $ 277 37 % Operating margin from total operating segments 26 % 24 % 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. 4 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES 2013 Earnings Per Share Actual Results For the Quarters Ending March 31 and June 30, 2013 Outlook for the Quarters Ending September 30 and December 31, 2013 and Year Ending December 31, 2013

On a Pre-transaction 1, Post-transaction, as reported 2, and Pro-forma 3 Basis (as applicable)

Outlook for

Quarter Ending Quarter Ending Quarter Ending Quarter Ending Year Ending March 31, June 30, September 30, December 31, December 31, 2013 2013 2013 2013 2013

Pre-transaction 1

Earnings Per Diluted Share (GAAP) $ 0.40 $ 0.28 $ 0.03 $ 0.06 $ 0.77 Earnings Per Diluted Share (Non-GAAP) $ 0.17 $ 0.08 $ 0.03 $

0.54

$ 0.82 Fully Diluted Weighted Average Shares (in billions) 1.15 1.15 1.17 1.17 1.16

Post-transaction, as reported 2

Earnings Per Diluted Share (GAAP)4

$ 0.01-0.04 $ 0.80-0.82

Earnings Per Diluted Share (Non-GAAP)4

$ 0.76-0.79 $ 0.85-0.87

Fully Diluted Weighted Average Shares (in billions ("B") or millions ("M"), as noted)

743M 1.05B

Pro-forma 3

Earnings Per Diluted Share (GAAP)4

$ 0.91-0.99

Earnings Per Diluted Share (Non-GAAP)4

$ 1.01-1.09

Fully Diluted Weighted Average Shares (in millions)

725

1 Without giving effect to proposed transactions with Vivendi.

2 Post-transaction, as reported assumes the transaction and its related financial impact (including interest expense from debt, associated fees and expenses, and lower weighted average share count as a result of the share repurchase) commences on September 30, 2013.

3 Pro-forma assumes the transaction and its related financial impact (including interest expense from debt, associated fees and expenses, and lower weighted average share count as a result of the share repurchase) commences on January 1, 2013.

4 The range reflects our expectation on interest expense from the debt.

GAAP and non-GAAP earnings (loss) per share (EPS) information is presented as calculated. The sum of quarterly EPS would not result in the full year EPS as the number of shares are on a weighted average basis. Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis.

GAAP to Non-GAAP reconciliation tables are presented separately. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES Actual Results For the Quarters Ending March 31 and June 30, 2013

Outlook for the Quarters Ending September 30 and December 31, 2013 and Year Ending December 31, 2013 on a pre-transaction* basis

GAAP to Non-GAAP Reconciliation (Amounts in millions, except per share data) Outlook for Outlook for Outlook for Quarter Ending Quarter Ending Quarter Ending Quarter Ending Year Ending March 31, June 30, September 30, December 31, December 31,

Pre-transaction *

2013 2013 2013 2013 2013 Net Revenues (GAAP)

1,324

$ 1,050 $ 635 $ 1,300 $ 4,310

Excluding the impact of:

Change in deferred net revenues (a) (520 ) (442 ) (50 ) 952 (60 ) Non-GAAP Net Revenues

804

$ 608 $ 585 $ 2,252 $ 4,250 Earnings Per Diluted Share (GAAP)

0.40

$ 0.28 $ 0.03 $ 0.06 $ 0.77

Excluding the impact of:

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

(b) (0.24 ) (0.22 ) (0.03 ) 0.44 (0.04 ) Stock-based compensation (c) 0.02 0.01 0.02 0.02 0.07 Amortization of intangible assets (d) - - - 0.01 0.01

Fees and other expenses related to the transaction

(e) - - 0.01 - 0.01 Earnings Per Diluted Share (Non-GAAP)

0.17

$ 0.08 $ 0.03 $

0.54

$ 0.82 (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 expenses related to stock-based compensation. (d) Reflects amortization of intangible assets from purchase price accounting. (e) Reflects fees and other expenses related to the transaction.

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.

* Without giving effect to proposed transactions with Vivendi.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOK

For the Quarter and Year Ending December 31, 2013 on a post-transaction, as reported* basis

GAAP to Non-GAAP Reconciliation (Amounts in millions, except per share data)

Outlook for Outlook for

Quarter Ending Year Ending

Post-transaction, as reported*

December 31, 2013 December 31, 2013 Low end of range High end of range Low end of range High end of range Earnings Per Diluted Share (GAAP)

$ 0.01 $ 0.04 $ 0.80 $ 0.82

Excluding the impact of:

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

(a)

0.71 0.71 (0.04 ) (0.04 ) Stock-based compensation (b)

0.03 0.03 0.07 0.07 Amortization of intangible assets (c)

0.01 0.01 0.01 0.01 Fees and other expenses related to the transaction (d)

- - 0.01 0.01 Earnings Per Diluted Share (Non-GAAP)

$ 0.76 $ 0.79 $ 0.85 $ 0.87 (a) Reflects the net change in deferred net revenues and related cost of sales. (b) Reflects expenses related to stock-based compensation. (c) Reflects amortization of intangible assets from purchase price accounting. (d) Reflects fees and other expenses related to the transaction.

* Post-transaction, as reported assumes the transaction and its related financial impact (including interest expense from debt, associated fees and expenses, and lower weighted average share count as a result of the share repurchase) commences on September 30, 2013.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES OUTLOOK

For the Year Ending December 31, 2013 on a pro-forma* basis

GAAP to Non-GAAP Reconciliation (Amounts in millions, except per share data) Outlook for Year Ending

Pro-forma*

December 31, 2013 Low end of range High end of range Earnings Per Diluted Share (GAAP) $ 0.91 $ 0.99

Excluding the impact of:

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

(a) (0.05 ) (0.05 ) Stock-based compensation (b) 0.11 0.11 Amortization of intangible assets (c) 0.02 0.02 Fees and other expenses related to the transaction (d) 0.02 0.02 Earnings Per Diluted Share (Non-GAAP) $ 1.01 $ 1.09 (a) Reflects the net change in deferred net revenues and related cost of sales. (b) Reflects expenses related to stock-based compensation. (c) Reflects amortization of intangible assets from purchase price accounting.

(d) Reflects fees and other expenses related to the transaction.

* Pro-forma assumes the transaction and its related financial impact (including interest expense from debt, associated fees and expenses, and lower weighted average share count as a result of the share repurchase) commences on January 1, 2013.

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