Activision Blizzard (ATVI)

Review of Fiscal Year 2006

As in prior years, for fiscal year 2006, the Compensation Committee reviewed the compensation for the Company's senior executives against the compensation provided to executives in comparable positions at peer companies. The Committee believes that this analysis assists the Compensation Committee and the Board in validating current compensation policies that promote the Company's executive retention goals, ensure the proper motivation of the senior leadership of the Company, and aid recruitment of talented individuals. As the Company pursues an aggressive business strategy, its reputation as a leader in the industry, combined with favorable notice of a healthy work environment and a highly motivated work force, are critical foundations for attracting the talent essential to achieving the Company's ambitious growth plans.

In evaluating the Company's performance and each individual executive's fiscal 2006 performance, the Compensation Committee determined that the Company and its executives met some but not all of the goals that were established for the year. For fiscal year 2006, Activision reported record consolidated net revenues of $1,468 million. The consolidated operating income for fiscal year 2006 was $18 million, which was substantially below the Company's operating plan expectations. At the same time, the Company generated significant positive cash flow from operations and financing activities. Its balance sheet indicates a healthy liquidity and cash and short-term investments balance of $945 million, which represents a 12% increase from the year ended March 31, 2005.

In addition, in establishing bonus payments for the executive officers, these financial results were also reviewed against the backdrop of the Company's other significant achievement during fiscal 2006. For example:

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The Company strengthened and broadened its franchises and intellectual property base, both of which are the enablers for future streams of revenues.

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The Company has added to its studio strength and diversity through deliberate acquisitions and through the renewal of its relationships with key developers.



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The Company delivered the number 1 selling X-Box 360 game for fiscal year 2006 and had the number 1 new intellectual property in the marketplace.

Because a significant portion of the bonus criteria is tied to the operating performance, bonuses for the 2006 fiscal year were significantly lower than the bonuses for the 2005 fiscal year.