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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2016

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-15839

ACTIVISION BLIZZARD, INC.

(Exact name of registrant as specified in its charter)

Delaware		95-4803544

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3100 Ocean Park Boulevard, Santa Monica, CA		90405

(Address of principal executive offices)		(Zip Code)

(310) 255-2000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x		Accelerated Filer o

Non-accelerated filer o		Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s Common Stock outstanding at May 2, 2016 was 738,227,641.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

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	Cautionary Statement	3

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015	4

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and March 31, 2015	5

	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and March 31, 2015	6

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and March 31, 2015	7

	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three months ended March 31, 2016	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

Item 4.	Controls and Procedures	56

PART II.	OTHER INFORMATION	57

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 6.	Exhibits	57

SIGNATURE		58

EXHIBIT INDEX		59

CERTIFICATIONS

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CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains, or incorporates by reference, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those relating to product releases; (3) statements of future financial or operating performance; (4) statements relating to the acquisition of King Digital Entertainment plc and expected impact of that transaction, including without limitation, the expected impact on Activision Blizzard, Inc.’s future financial results; and (5) statements of assumptions underlying such statements. Activision Blizzard, Inc. generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict.

The Company cautions that a number of important factors could cause Activision Blizzard, Inc.’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: uncertainties as to whether and when Activision Blizzard, Inc. will be able to realize the anticipated financial results from the acquisition of King Digital Entertainment plc; the integration of King Digital Entertainment plc being more difficult, time-consuming, or costly than expected; the diversion of management time and attention to issues relating to the operations and integration of King Digital Entertainment plc; sales levels of Activision Blizzard, Inc.’s titles; increasing concentration of revenue among a small number of titles; Activision Blizzard, Inc.’s ability to predict consumer preferences, including interest in specific genres, and preferences among hardware platforms; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; adoption rate and availability of new hardware (including peripherals) and related software; counterparty risks relating to customers, licensees, licensors, and manufacturers; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality titles; changing business models, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from used games and other forms of entertainment; rapid changes in technology and industry standards; possible declines in software pricing; product returns and price protection; the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion; the seasonal and cyclical nature of the interactive entertainment market; litigation risks and associated costs; protection of proprietary rights; shifts in consumer spending trends; capital market risks; applicable regulations; domestic and international economic, financial, and political conditions and policies; tax rates and foreign exchange rates; the impact of the current macroeconomic environment; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015. The forward-looking statements contained herein are based upon information available to us as of the date of this Quarterly Report on Form 10-Q and we assume 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 our future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

Activision Blizzard, Inc.’s names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Activision Blizzard, Inc. All other product or service names are the property of their respective owners.

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Part I. Financial Information

Item 1. Financial Statements

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions, except share data)

	At March 31, 2016			At December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$		2,872	$	1,823
Accounts receivable, net of allowances of $175 and $343, at March 31, 2016 and December 31, 2015, respectively	383			679
Inventories, net	103			128
Software development	296			336
Other current assets	354			421
Total current assets	4,008			3,387
Cash in escrow	—			3,561
Software development	114			80
Property and equipment, net	246			189
Deferred income taxes, net	362			275
Other assets	316			177
Intangible assets, net	2,484			482
Goodwill	9,772			7,095
Total assets	$		17,302	$	15,246

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	150		$	284
Deferred revenues	1,207			1,702
Accrued expenses and other liabilities	901			625
Current portion of long-term debt	64			—
Total current liabilities	2,322			2,611
Long-term debt, net	5,777			4,074
Deferred income taxes, net	57			10
Other liabilities	798			483
Total liabilities	8,954			7,178
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,166,683,743 and 1,163,179,140 shares issued at March 31, 2016 and December 31, 2015, respectively	—			—
Additional paid-in capital	10,343			10,242
Less: Treasury stock, at cost, 428,676,471 shares at March 31, 2016 and December 31, 2015	(5,591)			(5,637)
Retained earnings	4,239			4,096
Accumulated other comprehensive loss	(643)			(633)
Total shareholders’ equity	8,348			8,068
Total liabilities and shareholders’ equity	$		17,302	$	15,246

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

	For the Three Months Ended March 31,
	2016		2015

Net revenues
Product sales	$	645	$	784
Subscription, licensing and other revenues	810		494
Total net revenues	1,455		1,278

Costs and expenses
Cost of sales - product costs	247		209
Cost of sales - online	64		53
Cost of sales - software royalties and amortization	144		148
Cost of sales - intellectual property licenses	36		3
Product development	175		145
Sales and marketing	168		92
General and administrative	160		86
Total costs and expenses	994		736

Operating income	461		542

Interest and other expense (income), net	52		50

Income before income tax expense	409		492

Income tax expense	73		98

Net income	$	336	$	394

Earnings per common share
Basic	$	0.45	$	0.54
Diluted	$	0.45	$	0.53

Weighted-average number of shares outstanding
Basic	735		723
Diluted	746		731

Dividends per common share	$	0.26	$	0.23

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in millions)

	For the Three Months Ended March 31,
	2016		2015
Net income	$	336	$	394

Other comprehensive loss:
Foreign currency translation adjustment	(5)		(330)
Unrealized gains (losses) on forward contracts designated as hedges, net of tax	(5)		14
Total other comprehensive loss	$	(10)	$	(316)

Comprehensive income	$	326	$	78

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

	For the Three Months Ended March 31,
	2016		2015
Cash flows from operating activities:
Net income	$	336	$	394
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	(63)		(3)
Provision for inventories	11		6
Depreciation and amortization	107		20
Amortization of capitalized software development costs and intellectual property licenses(1)	150		142
Amortization of debt discount and debt financing costs	4		2
Stock-based compensation expense(2)	34		23
Excess tax benefits from stock awards	(28)		(14)
Changes in operating assets and liabilities, net of effect from business acquisitions:
Accounts receivable, net	459		438
Inventories	14		10
Software development and intellectual property licenses	(130)		(77)
Other assets	83		108
Deferred revenues	(508)		(567)
Accounts payable	(184)		(208)
Accrued expenses and other liabilities	24		(65)
Net cash provided by operating activities	309		209

Cash flows from investing activities:
Acquisition of business, net of cash acquired	(4,588)		—
Release of cash in escrow	3,561		—
Capital expenditures	(27)		(21)
Decrease (increase) in restricted cash	(14)		5
Net cash used in investing activities	(1,068)		(16)

Cash flows from financing activities:
Proceeds from issuance of common stock to employees	24		27
Tax payment related to net share settlements on restricted stock rights	(11)		(3)
Excess tax benefits from stock awards	28		14
Proceeds from debt financing	2,550		—
Repayment of long-term debt	(750)		(250)
Payment of debt discount and financing costs	(34)		—
Net cash provided by (used in) financing activities	1,807		(212)

Effect of foreign exchange rate changes on cash and cash equivalents	1		(364)

Net increase (decrease) in cash and cash equivalents	1,049		(383)

Cash and cash equivalents at beginning of period	1,823		4,848

Cash and cash equivalents at end of period	$	2,872	$	4,465

(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.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2016

(Unaudited)

(Amounts and shares in millions, except per share data)

	Common Stock			Treasury Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive		Total Shareholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Income (Loss)		Equity
Balance at December 31, 2015	1,163	$	—	(429)	$	(5,637)	$	10,242	$	4,096	$	(633)	$	8,068

Components of comprehensive income:
Net income	—	—		—	—		—		336		—		336
Other comprehensive loss	—	—		—	—		—		—		(10)		(10)
Issuance of common stock pursuant to employee stock options	2	—		—	—		24		—		—		24
Issuance of common stock pursuant to restricted stock rights	4	—		—	—		—		—		—		—
Restricted stock surrendered for employees’ tax liability	(2)	—		—	—		(56)		—		—		(56)
Tax benefit associated with employee stock awards	—	—		—	—		27		—		—		27
Stock-based compensation expense related to employee stock options and restricted stock rights	—	—		—	—		30		—		—		30
Stock-based compensation assumed in acquisition (see Note 14)	—	—		—	—		76		—		—		76
Dividends ($0.26 per common share)	—	—		—	—		—		(193)		—		(193)
Indemnity on tax attributes assumed in connection with the Purchase Transaction (see Note 10)	—	—		—	46		—		—		—		46

Balance at March 31, 2016	1,167	$	—	(429)	$	(5,591)	$	10,343	$	4,239	$	(643)	$	8,348

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business and Basis of Consolidation and Presentation

Activision Blizzard, Inc. (“Activision Blizzard”) is a leading global developer and publisher of interactive entertainment. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries. We currently offer games for video game consoles, personal computers (“PC”), and handheld, mobile, and tablet devices. We maintain significant operations in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea, and China.

Activision Blizzard is the result of the 2008 business combination (“Business Combination”) by and among the Company (then known as Activision, Inc.), Sego Merger Corporation, a wholly-owned subsidiary of Activision, Inc., Vivendi S.A. (“Vivendi”), VGAC LLC, a wholly-owned subsidiary of Vivendi, and Vivendi Games, Inc. (“Vivendi Games”), a wholly-owned subsidiary of VGAC LLC. As a result of the consummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc.

As of March 31, 2016, we had approximately 738 million shares of common stock issued and outstanding. At that date: (i) ASAC II LP (“ASAC”), an exempted limited partnership established under the laws of the Cayman Islands, held 172 million shares, or approximately 23% of the outstanding shares of our common stock, and (ii) our other stockholders held approximately 77% of the outstanding shares of our common stock. Robert A. Kotick, our Chief Executive Officer, and Brian G. Kelly, Chairman of our Board of Directors, are affiliates of ASAC II LLC, the general partner of ASAC.

The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under the ticker symbol “ATVI.”

The King Acquisition

On November 2, 2015, we and King Digital Entertainment plc (“King”), a leading interactive mobile entertainment company, entered into a Transaction Agreement (the “Transaction Agreement”) under the terms of which we would acquire King (the “King Acquisition”) and King would become a wholly-owned subsidiary of the Company. On February 23, 2016 we completed the King Acquisition as further described in Note 14 of the Notes to the Condensed Consolidated Financial Statements. Our Condensed Consolidated Financial Statements include the operations of King commencing on February 23, 2016.

Reportable Segments

Based upon our organizational structure, we conduct our business through three reportable operating segments as follows:

(i) Activision Publishing, Inc.

Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher of interactive software products and content. Activision delivers content to a broad range of gamers, ranging from children to adults, and from core gamers to mass-market consumers, in a variety of geographies. Activision develops, markets, and sells products through retail channels or digital downloads, which are principally based on our internally-developed intellectual properties, including games in the Call of Duty® and Skylanders® franchises, as well as some licensed properties. Additionally, we have established a long-term alliance with Bungie to publish its game universe, Destiny. Activision currently offers games that operate on the Microsoft Corporation (“Microsoft”) Xbox One (“Xbox One”) and Xbox 360 (“Xbox 360”), Nintendo Co. Ltd. (“Nintendo”) Wii U (“Wii U”) and Wii (“Wii”), and Sony Computer Entertainment, Inc. (“Sony”) PlayStation 4 (“PS4”) and PlayStation 3 (“PS3”) console systems; the PC; the Nintendo 3DS, Nintendo Dual Screen, and Sony PlayStation Vita handheld game systems; and mobile and tablet devices.

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(ii) Blizzard Entertainment, Inc.

Blizzard Entertainment, Inc. (“Blizzard”) is a leader in online PC gaming, including the subscription-based massively multi-player online role-playing game category in terms of both subscriber base and revenues generated through its World of Warcraft® franchise. Blizzard also develops, markets, and sells role-playing action and strategy games for the PC, console, mobile and tablet platforms, including games in the multiple-award winning Diablo®, StarCraft®, Hearthstone®: Heroes of Warcraft™, and Heroes of the Storm™ franchises. In addition, Blizzard maintains a proprietary online gaming service, Battle.net®, which facilitates digital distribution and online social connectivity across all Blizzard games. Blizzard distributes its products and generates revenues worldwide through various means, including: subscriptions; sales of prepaid subscription cards; in-game purchases and services; retail sales of physical “boxed” products; online download sales of PC products; purchases and downloads via third-party console, mobile and tablet platforms; and licensing of software to third-party or related party companies that distribute Blizzard products.

(iii) King Digital Entertainment

King Digital Entertainment is a leading interactive mobile entertainment company that develops and distributes games on mobile platforms such as Android and iOS, and on online and social platforms such as Facebook and king.com websites. King has four category-leading free-to-play franchises: Candy Crush™, Farm Heroes™, Bubble Witch™, and Pet Rescue™, where monetization occurs through players purchasing in-game virtual currency which can be used in-game to buy virtual items.

(iv) Other

We also engage in other businesses that do not represent reportable segments, including:

· The Activision Blizzard Media Networks (“Media Networks”) business that is devoted to eSports that builds on our competitive gaming efforts by creating ways to deliver the best-in-class fan experience across games, platforms, and geographies with a long-term strategy of monetization through advertising, sponsorships, tournaments, and premium content.

· The Activision Blizzard Studios (“Studios”) business that is devoted to creating original film and television content based on our extensive library of iconic and globally-recognized intellectual properties.

· The Activision Blizzard Distribution (“Distribution”) business that consists of operations in Europe which provide warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.

Basis of Consolidation and Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been condensed or omitted if they substantially duplicate the disclosures contained in the annual audited consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015.

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The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair statement of our financial position and results of operations in accordance with U.S. GAAP have been included in the accompanying unaudited condensed consolidated financial statements. Actual results could differ from these estimates and assumptions.

The accompanying condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated.

The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

Summary of Significant Accounting Policies

During the three months ended March 31, 2016, there were no significant changes to our accounting policies but we did expand the accounting policy disclosure for revenue recognition to include virtual currency as noted below. Refer to Note 2 contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for our full summary of significant accounting policies.

Microtransaction Revenues

Microtransaction revenues are derived from the sale of virtual goods and currencies to our players to enhance their gameplay experience. Proceeds from the sales of virtual goods and currencies are initially recorded in deferred revenues. Proceeds from the sales of virtual currencies are recognized as a player uses the virtual goods purchased with the virtual currency. We categorize our virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods represent goods that are accessible to the player over an extended period of time. We recognize revenues from the sale of durable virtual goods ratably over the period of time the goods are available to the player, generally the estimated service period of the game.

Supplemental Cash Flow Information: Non-cash investing and financing activities

As of March 31, 2016, we had accrued withholding tax payments related to net share settlements on restricted stock rights of $45 million within “Accrued expenses and other liabilities.” Additionally, we had non-cash purchase price consideration of $89 million related to vested and unvested stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards in the King Acquisition. Refer to Note 14 for further discussion.

2. Inventories, Net

Our inventories, net consist of the following (amounts in millions):

	At March 31, 2016		At December 31, 2015
Finished goods	$	75	$	101
Purchased parts and components	28		27
Inventories, net	$	103	$	128

At March 31, 2016 and December 31, 2015, inventory reserves were $59 million and $54 million, respectively.

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3. Software Development and Intellectual Property Licenses

The following table summarizes the components of our capitalized software development costs and intellectual property licenses (amounts in millions):

	At March 31, 2016		At December 31, 2015
Internally-developed software costs	$	271	$	266
Payments made to third-party software developers	139		150
Total software development costs	$	410	$	416

Intellectual property licenses	$	12	$	30

Amortization of capitalized software development costs and intellectual property licenses was the following (amounts in millions):

	For the Three Months Ended March 31,
	2016		2015
Amortization of capitalized software development costs and intellectual property licenses	$	150	$	147

4. Intangible Assets, Net

Intangible assets, net consist of the following (amounts in millions):

	At March 31, 2016
	Estimated useful lives	Gross carrying amount		Accumulated amortization		Net carrying amount
Acquired definite-lived intangible assets:
Internally-developed franchises	3 - 11 years	$	1,154	$	(328)	$	826
Developed software	3 - 5 years	595		(16)		579
Customer base	2 years	617		(33)		584
Trade names	7 - 10 years	54		(1)		53
Other	1 - 8 years	18		(9)		9
Total definite-lived intangible assets		$	2,438	$	(387)	$	2,051

Acquired indefinite-lived intangible assets:
Activision trademark	Indefinite					386
Acquired trade names	Indefinite					47
Total indefinite-lived intangible assets						$	433
Total intangible assets, net						$	2,484

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	At December 31, 2015
	Estimated useful lives	Gross carrying amount		Accumulated amortization		Net carrying amount
Acquired definite-lived intangible assets:
License agreements and other	1 - 10 years	$	116	$	(93)	$	23
Internally-developed franchises	11 years	309		(298)		11
Developed software	5 years	15		—		15
Total definite-lived intangible assets		$	440	$	(391)	$	49

Acquired indefinite-lived intangible assets:
Activision trademark	Indefinite					386
Acquired trade names	Indefinite					47
Total indefinite-lived intangible assets						$	433
Total intangible assets, net						$	482

The balances of Intangible assets, net presented in the table above at March 31, 2016, does not include license agreement intangible assets that were fully amortized at December 31, 2015, and hence, have been removed from the March 31, 2016 balances as presented. Amortization expense of intangible assets was $82 million and $1 million for the three months ended March 31, 2016 and 2015, respectively.

At March 31, 2016, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):

2016 (remaining nine months)	$	624
2017	778
2018	361
2019	201
2020	66
Thereafter	21
Total	$	2,051

5. Goodwill

The changes in the carrying amount of goodwill by operating segment for the three months ended March 31, 2016 are as follows (amounts in millions):

	Activision		Blizzard		King		Other		Total
Balance at December 31, 2015	$	6,905	$	178	$	—	$	12	$	7,095
Additions through acquisition	—		—		2,678		—		2,678
Other	(1)		—		—		—		(1)
Balance at March 31, 2016	$	6,904	$	178	$	2,678	$	12	$	9,772

Other includes tax benefits credited to goodwill for tax deductions resulting from the exercise of stock options that were outstanding and vested at the consummation of the Business Combination and included in the purchase price of the Company, to the extent that the tax deduction did not exceed the fair value of those options. Conversely, to the extent that the tax deduction did exceed the fair value of those options, the tax benefit is credited to additional paid-in capital. Other also includes the impact to goodwill from changes in foreign exchange rates.

The addition to goodwill through acquisition is attributed to the King Acquisition (see Note 14 of the Notes to Condensed Consolidated Financial Statements).

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6. Fair Value Measurements

Financial Accounting Standards Board (“FASB”) literature regarding fair value measurements for financial and non-financial assets and liabilities establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” and minimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as follows:

· Level 1—Quoted prices in active markets for identical assets or liabilities;

· Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data; and

· Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Fair Value Measurements on a Recurring Basis

The table below segregates all financial assets that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date (amounts in millions):

			Fair Value Measurements at March 31, 2016 Using
	As of March 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance Sheet Classification
Financial Assets:
Recurring fair value measurements:
Money market funds	$	2,622	$	2,622	$	—	$	—	Cash and cash equivalents
Foreign government treasury bills	35		35		—		—		Cash and cash equivalents
Foreign currency forward contracts not designated as hedges	8		—		8		—		Other current assets
Auction rate securities (“ARS”)	9		—		—		9		Other assets
Total recurring fair value measurements	$	2,674	$	2,657	$	8	$	9

Financial liabilities:
Foreign currency forward contracts designated as hedges	$	(9)	$	—	$	(9)	$	—	Accrued expenses and other liabilities

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			Fair Value Measurements at December 31, 2015 Using
	As of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance Sheet Classification
Financial Assets:
Recurring fair value measurements:
Money market funds	$	1,613	$	1,613	$	—	$	—	Cash and cash equivalents
Foreign government treasury bills	34		34		—		—		Cash and cash equivalents
Foreign currency forward contracts not designated as hedges	11		—		11		—		Other current assets
ARS	9		—		—		9		Other assets
Total recurring fair value measurements	$	1,667	$	1,647	$	11	$	9

Financial liabilities:
Foreign currency forward contracts designated as hedges	$	(4)	$	—	$	(4)	$	—	Accrued expenses and other liabilities

ARS represented the only level 3 investment held by the Company. There were no changes in the fair value of these investments for the three months ended March 31, 2016.

Foreign Currency Forward Contracts

Foreign Currency Forward Contracts Not Designated as Hedges

For foreign currency forward contracts entered into to mitigate risk from foreign currency-denominated monetary assets, liabilities, and earnings that are not designated as hedging instruments in accordance with FASB Accounting Standard Codification (“ASC”) Topic 815, changes in the estimated fair value of these derivatives are recorded within “General and administrative expenses” and “Interest and other expense (income), net” in our condensed consolidated statements of operations, consistent with the nature of the underlying transactions.

At March 31, 2016, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges was approximately $376 million. The fair value of these foreign currency forward contracts was $8 million as of March 31, 2016, and recorded in “Other current assets” in our condensed consolidated balance sheet.

At December 31, 2015, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges was approximately $489 million. The fair value of these foreign currency forward contracts was $11 million as of December 31, 2015, and recorded in “Other current assets” in our condensed consolidated balance sheet.

For the three months ended March 31, 2016 and 2015, pre-tax net gains associated with these forward contracts were not material.

Foreign Currency Forward Contracts Designated as Hedges

For foreign currency forward contracts entered into to hedge forecasted intercompany cash flows that are subject to foreign currency risk and which we designated as cash flow hedges in accordance with ASC Topic 815, we assess the effectiveness of these cash flow hedges at inception and on an ongoing basis to determine if the hedges are effective at providing offsetting changes in cash flows of the hedged items. We record the effective portion of changes in the estimated fair value of these derivatives in “Accumulated other comprehensive income (loss)” and subsequently reclassify the related amount of accumulated other comprehensive income (loss) to earnings within “General and administrative expense” when the hedged item impacts earnings. Cash flows from these foreign currency forward contracts are classified in the same category as the cash flows associated with the hedged item in the condensed consolidated statements of cash flows. We measure hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be a highly effective hedge, we will discontinue hedge accounting for the derivative.

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The gross notional amount of all outstanding foreign currency forward contracts designated as cash flow hedges was approximately $449 million at March 31, 2016 and $381 million at December 31, 2015. These foreign currency forward contracts have remaining maturities of 12 months or less. During the three months ended March 31, 2016 and 2015, there was no ineffectiveness relating to these hedges. At March 31, 2016, $9 million of net unrealized losses related to these contracts are expected to be reclassified into earnings within the next twelve months.

During the three months ended March 31, 2016 and 2015, the amount pre-tax net realized losses reclassified out of “Accumulated other comprehensive income (loss)” due to maturity of these contracts was not material.

Fair Value Measurements on a Non-Recurring Basis

We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

For the three months ended March 31, 2016 and 2015, there were no impairment charges related to assets that are measured on a non-recurring basis.

7. Debt

Credit Facilities

Term Loan. On October 11, 2013, we entered into a credit agreement (the “Credit Agreement”) for a $2.5 billion secured term loan facility maturing in October 2020 (the “Term Loan”), and a $250 million secured revolving credit facility (the “Original Revolver”). A portion of the Original Revolver could be used to issue letters of credit of up to $50 million, subject to the availability of the Original Revolver.

Borrowings under the Term Loan bear interest, payable on a quarterly basis, at an annual rate equal to an applicable margin plus, at our option, (A) a base rate determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as its “prime rate,” (b) the federal funds rate plus 0.5%, and (c) the London InterBank Offered Rate (“LIBOR”) for an interest period of one month plus 1.00%, or (B) LIBOR. LIBOR borrowings under the Term Loan are subject to a LIBOR floor of 0.75%. At March 31, 2016, the Term Loan bore interest at 3.25%. In certain circumstances, our applicable interest rate under the Term Loan will increase.

In addition to paying interest on outstanding principal balances under the Term Loan, we were required to pay the lenders a commitment fee on unused commitments under the Original Revolver. Commitment fees are recorded within “Interest and other expense (income), net” on the condensed consolidated statement of operations. We are also required to pay customary letter of credit fees, if any, and agency fees.

The terms of the Credit Agreement require quarterly principal repayments of 0.25% of the Term Loan’s original principal amount, with the balance due on the maturity date. On February 11, 2014, we made a voluntary repayment of $375 million on our Term Loan. This repayment satisfied the required quarterly principal repayments for the entire term of the Credit Agreement. On February 11, 2015, we made an additional voluntary repayment of $250 million on our Term Loan. On February 25, 2016 and March 31, 2016, we made additional voluntary repayments of $500 million and $250 million, respectively, on our Term Loan.

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Tranche A Term Loans. In conjunction with the King Acquisition, the Company entered into three Amendments to the Credit Agreement (the “Amendments”). The Amendments, among other things, provided for incremental term loans in the form of Tranche A Term Loans in an aggregate principal amount of approximately $2.3 billion. The proceeds were issued and provided on February 23, 2016, upon successful closing of the King Acquisition and were used to fund the King Acquisition. On March 31, 2016, we entered into a fourth amendment to the Credit Agreement which provided for an incremental Tranche A Term Loan in the aggregate principal amount of $250 million, of which the total proceeds from the incremental borrowing were used to make the voluntary prepayment on our Term Loan discussed above.

The Tranche A Term Loans are scheduled to mature on October 11, 2020 and bear interest, at the Company’s option, at either (a) a base rate equal to the highest of (i) the federal funds rate, plus 0.5%, (ii) the prime commercial lending rate of Bank of America, N.A. and (iii) the LIBOR for an interest period of one month beginning on such day plus 1.00%, or (b) LIBOR, in each case, plus an applicable interest margin. LIBOR is subject to a floor of 0% and the base rate is subject to an effective floor of 1.00%. The applicable interest margin for Tranche A Term Loans ranges from 1.50% to 2.25% for LIBOR borrowings and from 0.50% to 1.25% for base rate borrowings and is determined by reference to a pricing grid based on the Company’s Consolidated Total Net Debt Ratio (as defined in the Credit Agreement).

The Tranche A Term Loans require quarterly principal payments of 0.625% of the stated principal amount of the Tranche A Term Loans commencing June 30, 2016, with increases to 1.250% starting on June 30, 2019 and 3.125% starting on June 30, 2020, with the remaining balance payable on the Tranche A Term Loans’ scheduled maturity date of October 11, 2020. Voluntary prepayments of the Tranche A Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty.

The Tranche A Term Loans are subject to a financial maintenance covenant requiring the Company to maintain a maximum Consolidated Total Net Debt Ratio (as defined in the Credit Agreement) of 4.00 to 1.00, which will decrease to 3.50 to 1.00 (I) after the sixth full fiscal quarter after the Tranche A Term Loans are made or (II) if the Collateral Suspension occurs prior to the date falling 18 months after the Tranche A Term Loans are made, on the later of (x) the last day of the fourth full fiscal quarter after the Tranche A Term Loans are made and (y) the last day of the fiscal quarter in which the Collateral Suspension occurs.

The Tranche A Term Loans are secured by the same collateral and guaranteed by the same guarantors that secure and guarantee the Term Loan. The other terms of the Tranche A Term Loans are also generally the same as the terms of the Term Loan. At March 31, 2016, the Tranche A Term Loans bore interest at 2.43%. In certain circumstances, our applicable interest rate under the Tranche A Term Loans will increase.

2015 Revolving Credit Facility. As part of the Amendments, upon the closing of the King Acquisition, the Company’s Original Revolver under the Credit Agreement in an aggregate principal amount of $250 million was replaced with a new revolving credit facility under the Credit Agreement in the same aggregate principal amount (the “2015 Revolving Credit Facility,” and, together with the Term Loan and Tranche A Term Loans, the “Credit Facilities”).

Borrowings under the 2015 Revolving Credit Facility may be borrowed, repaid and re-borrowed by the Company and are available for working capital and other general corporate purposes. Up to $50 million of the 2015 Revolving Credit Facility may be used for letters of credit.

The 2015 Revolving Credit Facility is scheduled to mature on October 11, 2020. Borrowings under the 2015 Revolving Credit Facility bear interest, at the Company’s option, under the same terms as the Tranche A Term Loans. Additionally, the 2015 Revolving Credit Facility is subject to the same financial maintenance covenant and is secured by the same collateral and guaranteed by the same guarantors that secure and guarantee the Tranche A Term Loans. The other terms of the 2015 Revolving Credit Facility are generally the same as the terms of the Original Revolver. To date, we have not drawn on the 2015 Revolving Credit Facility.

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The Credit Facilities are guaranteed by certain of the Company’s U.S. subsidiaries, whose assets represent approximately 68% of our consolidated total assets. The Credit Agreement contains customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of debt, granting of liens, payment of dividends, sales of assets, and mergers and acquisitions. A violation of any of these covenants could result in an event of default under the Credit Agreement. Upon the occurrence of such event of default or certain other customary events of default, payment of any outstanding amounts under the Credit Agreement may be accelerated, and the lenders’ commitments to extend credit under the Credit Agreement may be terminated. In addition, an event of default under the Credit Agreement could, under certain circumstances, permit the holders of other outstanding unsecured debt, including the debt holders described below, to accelerate the repayment of such obligations. The Company was in compliance with the terms of the Credit Facilities as of March 31, 2016.

Unsecured Senior Notes

On September 19, 2013, we issued, at par, $1.5 billion of 5.625% unsecured senior notes due September 2021 (the “2021 Notes”) and $750 million of 6.125% unsecured senior notes due September 2023 (the “2023 Notes” and, together with the 2021 Notes, the “Notes”) in a private offering to qualified institutional buyers made in accordance with Rule 144A under the Securities Act of 1933, as amended.

The Notes are general senior obligations of the Company and rank pari passu in right of payment to all of the Company’s existing and future senior indebtedness, including the Credit Facilities described above. The Notes are guaranteed on a senior basis by certain of our U.S. subsidiaries. The Notes and related guarantees are not secured and are effectively subordinated to any of the Company’s existing and future indebtedness that is secured, including the Credit Facilities. The Notes contain customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of debt, granting of liens, payment of dividends, sales of assets, and mergers and acquisitions. The Company was in compliance with the terms of the Notes as of March 31, 2016.

Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year. As of March 31, 2016 and December 31, 2015, we had interest payable of $5 million and $38 million, respectively, related to the Notes, recorded within “Accrued expenses and other liabilities” in our condensed consolidated balance sheet.

We may redeem the 2021 Notes on or after September 15, 2016 and the 2023 Notes on or after September 15, 2018, in whole or in part on any one or more occasions, at specified redemption prices, plus accrued and unpaid interest. At any time prior to September 15, 2016, with respect to the 2021 Notes, and at any time prior to September 15, 2018, with respect to the 2023 Notes, we may also redeem some or all of the Notes by paying a “make-whole premium,” plus accrued and unpaid interest. Further, upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of the aggregate principal amount of each of the 2021 Notes and 2023 Notes outstanding with the net cash proceeds from such offerings. The Notes are repayable, in whole or in part and at the option of the holders, upon the occurrence of a change in control and a ratings downgrade, at a purchase price equal to 101% of principal, plus accrued and unpaid interest. These redemption options are considered clearly and closely related to the Notes and are not accounted for separately upon issuance.

Fees associated with the closing of the Term Loan, Tranche A Term Loans, and the Notes are recorded as debt discount, which reduces their respective the carrying values, and is amortized over their respective terms. Amortization expense is recorded within “Interest and other expense (income), net” in our condensed consolidated statement of operations.

In connection with the debt financing for the King Acquisition, we incurred $38 million of issuance costs that were capitalized and recorded within “Long-term debt, net” in our condensed consolidated balance sheet. The amortization of these capitalized costs was not material to our condensed consolidated statement of operations for the three months ended March 31, 2016.

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We reclassified and presented unamortized deferred financing costs associated with the Term Loan, Tranche A Term Loans, and the Notes as a reduction of their respective gross carrying amounts for all periods presented in accordance with a recent accounting standard that became effective during the period. Refer to Note 15 for further discussion of the recent accounting standard that became effective during the period.

A summary of our debt is as follows (amounts in millions):

	At March 31, 2016
	Gross Carrying Amount		Unamortized Discount and Deferred Financing Costs		Net Carrying Amount
Term Loan	$	1,119	$	(8)	$	1,111
Tranche A Term Loans	2,550		(38)		2,512
2021 Notes	1,500		(21)		1,479
2023 Notes	750		(11)		739
Total debt	$	5,919	$	(78)	$	5,841
Less: current portion of long-term debt	(64)		—		(64)
Total long-term debt	$	5,855	$	(78)	$	5,777

	At December 31, 2015
	Gross Carrying Amount		Unamortized Discount and Deferred Financing Costs		Net Carrying Amount
Term Loan	$	1,869	$	(11)	$	1,858
2021 Notes	1,500		(22)		1,478
2023 Notes	750		(12)		738
Total long-term debt	$	4,119	$	(45)	$	4,074

For the three months ended March 31, 2016 and 2015, interest expense was $53 million and $49 million, respectively, amortization of the debt discount for the Credit Facilities and Notes was $4 million and $1 million, respectively, and commitment fees for the Original Revolver and the 2015 Revolving Credit Facility were not material.

As of March 31, 2016, the scheduled maturities and contractual principal repayments of our debt for each of the five succeeding years are as follows (amounts in millions):

For the year ending December 31,
2016 (remaining nine months)	$	48
2017	64
2018	64
2019	112
2020	3,381
Thereafter	2,250
Total	$	5,919

As of March 31, 2016 and December 31, 2015, the carrying value of the Term Loan and Tranche A Term Loans approximates the fair value, based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest period and is similar to current rates at which we can borrow funds. Based on Level 2 inputs, the fair values of the 2021 Notes and 2023 Notes were $1,577 million, and $804 million, respectively, as of March 31, 2016. Based on Level 2 inputs, the fair values of the 2021 Notes and 2023 Notes were $1,571 million and $795 million, respectively, as of December 31, 2015.

Debt Repayments

On February 2, 2016, the Board of Directors authorized debt repayments of up to $1.5 billion of our outstanding debt during 2016. As of March 31, 2016, we have made prepayments to reduce our total outstanding term loans by $500 million.

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8. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) at March 31, 2016 and 2015, were as follows (amounts in millions):

	For the Three Months Ended March 31, 2016
	Foreign currency translation adjustments		Unrealized gain (loss) on forward contracts		Unrealized gain (loss) on available- for-sale securities		Total
Balance at December 31, 2015	$	(630)	$	(4)	$	1	$	(633)
Other comprehensive loss before reclassifications	(5)		(6)		—		(11)
Amounts reclassified from accumulated other comprehensive income (loss)	—		1		—		1
Balance at March 31, 2016	$	(635)	$	(9)	$	1	$	(643)

	For the Three Months Ended March 31, 2015
	Foreign currency translation adjustments		Unrealized gain (loss) on forward contracts		Unrealized gain on available-for-sale securities		Total
Balance at December 31, 2014	$	(304)	$	—	$	1	$	(303)
Other comprehensive income (loss) before reclassifications	(330)		14		—		(316)
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		—		—
Balance at March 31, 2015	$	(634)	$	14	$	1	$	(619)

Income taxes were not provided for foreign currency translation items as these are considered indefinite investments in non-U.S. subsidiaries.

9. Operating Segments and Geographic Region

Our operating segments are consistent with our internal organizational structure, the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), the manner in which we assess operating performance and allocate resources, and the availability of separate financial information. Currently, we have three reportable operating segments (see Note 1 of the Notes to Condensed Consolidated Financial Statements). We do not aggregate operating segments.

The CODM reviews segment performance exclusive of the impact of the change in deferred revenues and related cost of sales with respect to certain of our online-enabled games, stock-based compensation expense, amortization of intangible assets as a result of purchase price accounting, and fees and other expenses related to financings and acquisitions. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto. Information on the operating segments and reconciliations of total net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense for the three months ended March 31, 2016 and 2015 are presented below (amounts in millions):

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	For the Three Months Ended March 31,
	2016		2015		2016		2015
	Net revenues				Income from operations before income tax expense
Activision	$	360	$	303	$	99	$	66
Blizzard	294		352		86		139
King	207		—		67		—
Other (1)	47		48		—		(1)
Segments total	908		703		252		204

Reconciliation to consolidated net revenues / consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales	547		575		369		362
Stock-based compensation expense	—		—		(44)		(23)
Amortization of intangible assets	—		—		(82)		(1)
Fees and other expenses related to acquisitions (2)	—		—		(34)		—
Consolidated net revenues / operating income	$	1,455	$	1,278	$	461	$	542
Interest and other expense (income), net					52		50
Consolidated income before income tax expense					$	409	$	492

(1) Other includes other income and expenses from operating segments managed outside the reportable segments, including our Media Networks, Studios, and Distribution businesses. Other also includes unallocated corporate income and expenses.

(2) Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings.

Geographic information presented below for the three months ended March 31, 2016 and 2015 is based on the location of the paying customer. Net revenues from external customers by geographic region were as follows (amounts in millions):

	For the Three Months Ended March 31,
	2016		2015
Net revenues by geographic region:
Americas	$	753	$	704
Europe	521		464
Asia Pacific	181		110
Total consolidated net revenues	$	1,455	$	1,278

The Company’s net revenues in the U.S. were 49% and 53% of consolidated net revenues for the three months ended March 31, 2016 and 2015, respectively. The Company’s net revenues in the U.K. were 11% and 12% of consolidated net revenues for the three months ended March 31, 2016 and 2015, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for the three months ended March 31, 2016 and 2015.

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Net revenues by platform were as follows (amounts in millions):

	For the Three Months Ended March 31,
	2016		2015
Net revenues by platform:
Console	$	765	$	758
PC(1)	400		386
Mobile and ancillary(2)	243		86
Other(3)	47		48
Total consolidated net revenues	$	1,455	$	1,278

(1) Net revenues from PC includes revenues that were historically shown as “Online.”

(2) Net revenues from mobile and ancillary includes revenues from handheld, mobile and tablet devices, as well as non-platform specific game-related revenues such as standalone sales of toys and accessories products from our Skylanders franchise and other physical merchandise and accessories.

(3) Net revenues from Other include revenues from our Media Networks, Studios, and Distribution businesses.

Long-lived assets by geographic region at March 31, 2016 and December 31, 2015 were as follows (amounts in millions):

	At March 31, 2016		At December 31, 2015
Long-lived assets(1) by geographic region:
Americas	$	141	$	138
Europe	94		42
Asia Pacific	11		9
Total long-lived assets by geographic region	$	246	$	189

(1) The only long-lived assets that we classify by region are our long-term tangible fixed assets, which only include property, plant, and equipment assets; all other long-term assets are not allocated by location.

10. Income Taxes

The Company accounts for its provision for income taxes in accordance with ASC 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year. The provision for income taxes represents federal, foreign, state, and local income taxes. Our effective tax rate differs from the statutory U.S. income tax rate due to the effect of state and local income taxes, tax rates in foreign jurisdictions and certain nondeductible expenses. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of pre-tax income or loss by jurisdiction; changes in the mix of income by tax jurisdiction (as taxes are levied at relatively lower statutory rates in foreign regions and relatively higher statutory rates in the U.S.); research and development credits; changes in enacted tax laws and regulations, rulings and interpretations thereof, including with respect to tax credits, state and local income taxes; developments in tax audits and other matters; and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.

The income tax expense of $73 million for the three months ended March 31, 2016 reflects an effective tax rate of 18%, which is lower than the effective tax rate of 20% for the three months ended March 31, 2015. This decrease is the result of an incremental tax benefit included in the three months ended March 31, 2016 due to the mix of foreign earnings taxed at relatively lower statutory rates as compared to domestic earnings and the net benefit related to the settlement of a historical audit, partially offset by certain nondeductible costs incurred during the quarter.

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The effective tax rate of 18% for the three months ended March 31, 2016 differed from the U.S. statutory rate of 35%, primarily due to the tax benefit from foreign earnings taxed at relatively lower statutory rates, the net benefit related to the settlement of a historical audit, recognition of federal and California research and development credits, and federal domestic production deductions, partially offset by certain nondeductible costs incurred during the quarter and increases to the Company’s reserve for uncertain tax positions.

The overall effective income tax rate for the year will be dependent, in part, on our profitability for the remainder of the year, as well as the other factors described above.

The Internal Revenue Service (“IRS”) is currently examining Activision Blizzard’s federal tax returns for the 2009 through 2011 tax years. During the second quarter of 2015, the Company transitioned the review of its transfer pricing methodology from the advanced pricing agreement review process to the IRS examination team. Their review could result in a different allocation of profits and losses under the Company’s transfer pricing agreements. Such allocation could have a positive or negative impact on our provision for uncertain tax positions for the period in which such a determination is reached and the relevant periods thereafter. In addition, as part of the purchase price accounting, the Company assumed $77 million of uncertain tax positions primarily related to the transfer pricing of King tax years occurring prior to the King Acquisition. The Company is currently in negotiations with the relevant jurisdictions and the taxing authorities which could result in a different allocation of profits and losses between the relevant jurisdictions.

In addition, Vivendi Games’ tax year 2008 remains open to examination by the major taxing authorities. In addition, Vivendi Games’ tax return for the 2008 tax year is before the Appeals function of the IRS and is under examination by several state taxing authorities. While Vivendi Games’ results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by Vivendi or its affiliates, Vivendi Games’ results for the period July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state, and local income tax returns filed by Activision Blizzard. Additionally, the Company has several state and non-U.S. audits pending.

The final resolution of the Company’s global tax disputes is uncertain. There is significant judgment required in the analysis of disputes, including the probability determination and estimation of the potential exposure. Based on current information, in the opinion of the Company’s management, the ultimate resolution of these matters are not expected to have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company’s global tax disputes could have a material adverse effect on our business and results of operations in the period in which the matters are ultimately resolved.

In 2013, in connection with a share repurchase from Vivendi (the “Purchase Transaction”), we assumed certain tax attributes, generally consisting of net operating loss (“NOL”) carryforwards of approximately $760 million, which represent a potential future tax benefit of approximately $266 million. The utilization of such NOL carryforwards will be subject to certain annual limitations and will begin to expire in 2021. The Company also obtained indemnification from Vivendi against losses attributable to the disallowance of claimed utilization of such NOL carryforwards of up to $200 million in unrealized tax benefits in the aggregate, limited to taxable years ending on or prior to December 31, 2016. No benefit for these tax attributes or indemnification was recorded upon the close of the share repurchase. For the three months ended March 31, 2016, we utilized $184 million of the NOL, which resulted in a tax benefit of $64 million, and a corresponding reserve of $64 million was established. As of March 31, 2016, an indemnification asset of $171 million has been recorded in “Other Assets,” and, correspondingly, the same amount has been recorded as a reduction to the consideration paid for the shares repurchased in “Treasury Stock” (see Note 1 of the Notes to Condensed Consolidated Financial Statements for details about the share repurchase).

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11. Computation of Basic/Diluted Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (amounts in millions, except per share data):

	For the Three Months Ended March 31,
	2016		2015
Numerator:
Consolidated net income	$	336	$	394
Less: Distributed earnings to unvested stock-based awards that participate in earnings	(2)		(4)
Less: Undistributed earnings allocated to unvested stock-based awards that participate in earnings	(1)		(3)
Numerator for basic and diluted earnings (loss) per common share — income (loss) available to common shareholders	$	333	$	387

Denominator:
Denominator for basic earnings per common share - weighted-average common shares outstanding	735		723
Effect of potential dilutive common shares under the treasury stock method:
Employee stock options and awards	11		8
Denominator for diluted earnings per common share - weighted-average common shares outstanding plus dilutive common shares under the treasury stock method	746		731

Basic earnings (loss) per common share	$	0.45	$	0.54

Diluted earnings (loss) per common share	$	0.45	$	0.53

Certain of our unvested restricted stock rights (including certain restricted stock units and performance shares) met the definition of participating securities as they participate in earnings based on their rights to dividends or dividend equivalents. Therefore, we are required to use the two-class method in our computation of basic and diluted earnings per common share. For the three months ended March 31, 2016 and 2015, on a weighted-average basis, we had outstanding unvested restricted stock rights with respect to 4 million and 10 million shares of common stock, respectively, that are participating in earnings.

Certain of our employee-related restricted stock rights and options are contingently issuable upon the satisfaction of pre-defined performance measures. These shares are included in the weighted-average dilutive common shares only if the performance measures are met as of the end of the reporting period. Approximately 10 million and 4 million shares are not included in the computation of diluted earnings per share for the three months ended March 31, 2016 and 2015, respectively, as their respective performance measures had not yet been met.

Potential common shares are not included in the denominator of the diluted earnings per common share calculation when the inclusion of such shares would be anti-dilutive. Therefore, options to acquire 6 million shares of common stock were not included in the calculation of diluted earnings per common share for the three months ended March 31, 2016 and 2015 as the effect of their inclusion would be anti-dilutive.

12. Capital Transactions

Repurchase Program

On February 3, 2015, our Board of Directors authorized a stock repurchase program under which we may repurchase up to $750 million of our common stock during the two-year period from February 9, 2015 through February 8, 2017. As of March 31, 2016, we have not repurchased any shares under this program.

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Dividends

On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share, payable on May 11, 2016, to shareholders of record at the close of business on March 30, 2016. As such, we have included $195 million of dividends payable in “Accrued expense and other liabilities” on our condensed consolidated balance sheet as of March 31, 2016.

On February 3, 2015, our Board of Directors declared a cash dividend of $0.23 per common share, payable on May 13, 2015, to shareholders of record at the close of business on March 30, 2015. On May 13, 2015, we made an aggregate cash dividend payment of $167 million to such shareholders, and on May 29, 2015, we made related dividend equivalent payments of $3 million to certain holders of restricted stock rights.

13. Commitments and Contingencies

Legal Proceedings

We are subject to various legal proceedings and claims. SEC regulations govern disclosure of legal proceedings in periodic reports and FASB ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on us.

The outcomes of legal proceedings and other claims are subject to significant uncertainties, many of which are outside of our control. There is significant judgment required in the analysis of these matters, including the probability determination and whether a potential exposure can be reasonably estimated. In making these determinations, we, in consultation with outside counsel, examine the relevant facts and circumstances on a quarterly basis assuming, as applicable, a combination of settlement and litigated outcomes and strategies. Moreover, legal matters are inherently unpredictable and the timing of development of factors on which reasonable judgments and estimates can be based can be slow. As such, there can be no assurance that the final outcome of any legal matter will not materially and adversely affect our business, financial condition, results of operations, profitability, cash flows or liquidity.

King Initial Public Offering (the “King IPO”) Matter

Beginning on March 17, 2015, purported securities class action lawsuits were filed in the Superior Court of the State of California, County of San Francisco, against King, certain of its directors and executive officers and underwriters of the King IPO. The lawsuits were brought by purported shareholders of King seeking to represent a class consisting of all those who purchased stock pursuant and/or traceable to the Registration Statement and Prospectus issued in connection with the King IPO. The lawsuits were consolidated. Plaintiffs assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, and seek unspecified damages and other relief. The court has set a trial date of May 1, 2017. The Company has not recorded a liability in relation to these lawsuits and believes that the claims are without merit and intends to defend the lawsuits vigorously.

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Other Matters

In addition, we are party to routine claims, suits, investigations, audits and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.

14. Acquisitions

King Digital Entertainment plc

On February 23, 2016 (the “King Closing Date”) we completed the King Acquisition under the terms of the Transaction Agreement, purchasing all of the outstanding shares of King for $18.00 cash per share. As a result, King became a wholly owned subsidiary of Activision Blizzard. King is a leading interactive entertainment company that develops and distributes games on mobile platforms such as Android and iOS, and on online and social platforms such as Facebook and king.com websites. King’s results of operations since the King Closing Date are included in our condensed consolidated financial statements.

We made this acquisition because we believe that the addition of King’s highly-complementary mobile business will position the Company as a global leader in interactive entertainment across mobile, console and PC platforms, as well as positioning us for future growth.

The aggregate purchase price of the King Acquisition was approximately $5.8 billion, which was paid on the King Closing Date and funded primarily with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. The total aggregate purchase price for King was comprised of (amounts in millions):

Cash consideration for outstanding King common stock and vested equity options and awards (1)	$	5,730
Fair value of King’s existing vested and unvested stock options and awards assumed (2)	98
Total purchase price	$	5,828

(1) Represents the cash consideration paid based on $18.00 per share to common stock holders of King and the fair value of King’s existing vested options and awards that were cash settled at the King Closing Date for the portion of the fair value related to pre-combination services. No future services are required.

(2) Represents the fair value of King’s existing vested and unvested stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards. The purchase price includes the portion of fair value related to pre-combination services. The fair value of the options and awards assumed was determined using binomial-lattice and Monte Carlo models with the following assumptions: (a) volatility of 36%, (b) time varying risk free interest rates based on the U.S. Treasury yield curves, (c) an expected life ranging from approximately 0.1 years to 7.6 years, and (d) an expected dividend yield of 0.9%. See additional discussion under “Stock-Based Compensation” below.

The Company identified and recorded assets acquired and liabilities assumed at their estimated fair values at the King Closing Date, and allocated the remaining value of approximately $2.7 billion to goodwill. The values assigned to certain acquired assets and liabilities are preliminary, are based on information available as of the date of this Quarterly Report on Form 10-Q, and may be adjusted as further information becomes available during the measurement period of up to 12 months from the date of the King Acquisition. Additional information may become available subsequently and may result in changes in the values allocated to various assets and liabilities, including, the fair value of identified intangible assets, deferred income taxes, and contingent liabilities. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in material adjustments to goodwill.

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The preliminary purchase price allocation was as follows (amounts in millions):

	February 23, 2016		Estimated useful lives
Tangible assets and liabilities assumed:
Cash and cash equivalents	$	1,151
Accounts receivable	162
Other current assets	72
Property and equipment	57		2 - 7 years
Deferred income tax assets, net	27
Other assets	47
Accounts payable	(9)
Accrued expense and other liabilities	(272)
Other liabilities	(113)
Deferred income tax liabilities, net	(52)
Intangible assets
Internally-developed franchises	845		3 - 5 years
Customer base	609		2 years
Developed software	580		3 - 4 years
Trademark	46		7 years

Goodwill	2,678
Total purchase price	$	5,828

During the three months ended March 31, 2016 the Company incurred $34 million of expenses related to the King Acquisition which are included within “General and administrative” in the condensed consolidated statements of operations. In connection with the debt financing that occurred on the King Closing Date, we incurred $38 million of issuance costs that were capitalized and recorded within “Long-term debt, net” on our condensed consolidated balance sheet. The amortization of these capitalized costs was not material to our condensed consolidated statement of operations for the three months ended March 31, 2016.

Stock-Based Compensation

In connection with the King Acquisition, a majority of the outstanding King options and awards that were unvested as of the King Closing Date were converted into equivalent options and awards, with respect to shares of the Company’s common stock, using an equity award exchange ratio calculated in accordance with the Transaction Agreement. As a result, replacement equity options and awards of 10 million and 3 million, respectively, were issued in connection with the King Acquisition. The portion of the fair value related to pre-combination services of $76 million was included in the purchase price while the remaining fair value will be recognized over the remaining service periods. As of March 31, 2016, the future expense for the converted King unvested options and awards was approximately $88 million, which will be recognized over a weighted average service period of approximately 2.1 years.

The remaining portion of outstanding unvested awards that were assumed were replaced with deferred cash awards. The cash proceeds were placed in an escrow-like account with the cash releases to occur based on the awards’ original vesting schedule upon future service being rendered. The cash associated with these awards is recorded in “Other current assets” and “Other assets” in our condensed consolidated balance sheet. The portion of the fair value related to pre-combination services of $22 million was included in the purchase price while the remaining fair value of approximately $9 million will be recognized over the remaining service periods. A portion of the cash proceeds placed in an escrow-like account were released to award holders but the amount was not material.

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Identifiable Intangible Assets Acquired and Goodwill

The preliminary fair values of the identifiable intangible assets acquired from King were estimated using an income approach, with the exception of the customer base which was estimated using a cost approach. The fair value of the intangibles using the income approach was determined with the following key assumptions: (a) a weighted average cost of capital of 13%, (b) long-term revenue decay rates ranging from 0% to 65%, and (c) royalty rates ranging from 0.5% to 8%. The fair value of the intangibles using the cost approach was based on amounts that would be required to replace the asset (i.e. replacement cost).

The Internally-developed franchises, Customer base, Developed software, and Trademark intangible assets will be amortized to “Cost of Sales - intellectual property licenses,” “Sales and marketing,” “Cost of sales - software royalties and amortization,” and “General and administrative,” respectively. The intangible assets will be amortized over their estimated useful lives in proportion to the economic benefits received.

The $2.7 billion of goodwill recognized is primarily attributable to the benefits the Company expects to derive from accelerated expansion as an interactive entertainment provider in the mobile sector, future franchises and technology, as well as the management team’s proven ability to create future games and franchises. Approximately $620 million of the goodwill is expected to be deductible for tax purposes in the U.S.

Contingent Liabilities Assumed

As a result of the King Acquisition we assumed contingent liabilities related to contingent consideration associated with King’s previous acquisitions of Nonstop Games Oy and Z2Live, Inc. The remaining contingent consideration for Non Stop Games Oy is linked to amounts generated from games launched by Nonstop Games over a specified period. The range of the potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is from $0 million up to $84 million. The remaining contingent consideration for Z2Live, Inc. is linked to amounts generated from specific games launched within a defined period. The potential range of undiscounted future payments that the Company could be required to make under the contingent consideration arrangement is from $0 million up to $75 million. The fair value of the contingent consideration arrangement at the King Closing date for Nonstop Games Oy and Z2Live, Inc., was immaterial.

King Net Revenue and Earnings

The amount of net revenue and earnings attributable to King in the Company’s condensed consolidated statement of operations during the three months ended March 31, 2016 are included in the table below. The amounts presented represent the net revenues and earnings after adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferral of revenues and related cost of sales.

	For the Three Months Ended
(in millions)	March 31, 2016

Net revenues	$	183
Net loss	$	(50)

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Company and King, on a pro forma basis, as though the acquisition had occurred on January 1, 2015. The pro forma financial information presented includes the effects of adjustments related to amortization charges from acquired intangible assets, employee compensation from replacement equity awards issued in the King Acquisition and the profit sharing bonus plan established as part of the King Acquisition, and interest expense from the new debt, among other adjustments. We also adjusted for Activision Blizzard and King non-recurring acquisition related costs of approximately $60 million for the three months ended March 31, 2016. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the King Acquisition, and any borrowings undertaken to finance the King Acquisition, had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.

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	For the Three Months Ended March 31,
(in millions)	2016		2015

Net revenues	$	1,735	$	1,848
Net income	$	329	$	380
Basic earnings per common share	$	0.44	$	0.52
Diluted earnings per common share	$	0.44	$	0.51

Major League Gaming, Inc.

On December 22, 2015, we acquired the business of Major League Gaming, Inc. (“MLG”), for an aggregate purchase price of $46 million in cash. MLG is a leader in creating and streaming premium live gaming events, organizing professional competitions, and running competitive gaming leagues. MLG’s business operates under our Media Networks operating segment.

The values assigned to the acquired assets and liabilities were finalized during the three months ended March 31, 2016, and the final purchase price allocation for MLG remained unchanged from the amounts disclosed in Note 23 contained in our Annual Report on Form 10-K for the year ended December 31, 2015. Pro forma financial information has not been presented as the acquisition did not have a material impact on our consolidated financial statements.

15. Recently issued accounting pronouncements

Revenue recognition

In May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the adoption method as well as the impact of this new accounting guidance on our financial statements.

Stock-based compensation

In June 2014, the FASB issued new guidance related to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. We adopted this new standard as of January 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

Consolidations

In February 2015, the FASB issued new guidance related to consolidations. The new standard amends certain requirements for determining whether a variable interest entity must be consolidated. We adopted this new standard as of January 1, 2016. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

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Debt Issuance Costs

In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs in financial statements. The new standard requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. We adopted this change in accounting principle as of January 1, 2016, and applied it retrospectively for each period presented. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

Internal-Use Software

In April 2015, the FASB issued new guidance related to internal-use software. The new standard relates to a customer’s accounting for fees paid in cloud computing arrangements. The amendment provides guidance for customers to determine whether such arrangements include software licenses. If a cloud arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. We adopted this standard as of January 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

Inventory

In July 2015, the FASB issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new standard is effective for fiscal years beginning after December 15, 2016 and should be applied prospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.

Business Combinations

In September 2015, the FASB issued new guidance related to business combinations. The new standard requires that the cumulative impact of a measurement period adjustment, including the impact on prior periods, made to provisional amounts recorded at the acquisition date as a result of the business combination, be recognized in the reporting period the adjustment is identified. The standard also requires separate presentation on the face of the income statement, or disclosure in the notes, of the portion of the amount recorded in current period earnings by line item. Prior to the issuance of the standard, such adjustments to provisional amounts were recognized retrospectively. We adopted this new standard as of January 1, 2016, and applied it prospectively. No measurement period adjustments occurred as of and for the three months ended March 31, 2016.

Financial Instruments

In January 2016, the FASB issued new guidance related to the recognition and measurement of financial assets and financial liabilities. The new standard, amongst other things, generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The new standard is effective for fiscal years beginning after December 15, 2017 and the guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity investments without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. We are evaluating the impact of this new accounting guidance on our financial statements.

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Leases

In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current U.S. GAAP guidance on this topic. The new standard, amongst other things, requires a lessee to classify a lease as either a finance or operating lease in which lessees will need to recognize a right-of-use asset and a lease liability for their leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease accounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will require application of the new guidance at the beginning of the earliest comparative period presented. We are evaluating the impact of this new accounting guidance on our financial statements.

Share-Based Payments

In March 2016, the FASB issued new guidance in an effort to simplify accounting for share-based payments. The new standard, amongst other things:

· will require that all excess tax benefits and tax deficiencies be recorded as income tax expense or benefit in the statement of operations and that the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur;

· will require excess tax benefits from share-based payments to be reported as operating activities on the statement of cash flows; and

· permits an accounting policy election to either estimate the number of awards that are expected to vest using an estimated forfeiture rate, as currently required, or account for forfeitures when they occur.

The new standard is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. We are evaluating the impact of this new accounting guidance on our financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries.

The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under the ticker symbol “ATVI.”

The King Acquisition

On November 2, 2015, we and King Digital Entertainment, a leading interactive mobile entertainment company (“King”), entered into a Transaction Agreement (the “Transaction Agreement”) under the terms of which we would acquire King (the “King Acquisition”) and King would become a wholly-owned subsidiary of the Company. On February 23, 2016, (the “King Closing Date”) we completed the King Acquisition under the terms of the Transaction Agreement and purchased all of the outstanding shares of King for $18.00 cash per share. The aggregate purchase price of King was approximately $5.8 billion, which was paid on the King Closing Date and funded with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. King’s results of operations since the King Closing Date are included in our condensed consolidated financial statements.

We made this acquisition because we believe that the addition of King’s highly-complementary mobile business positions the Company as a global leader in interactive entertainment across mobile, console, and PC platforms, as well as positioning us for future growth.

Reportable Segments

Based upon our organizational structure, we conduct our business through three reportable operating segments, Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment.

(i) Activision Publishing, Inc.

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(ii) Blizzard Entertainment, Inc.

Blizzard Entertainment, Inc. (“Blizzard”) is a leader in online PC gaming, including the subscription-based massively multi-player online role-playing game category in terms of both subscriber base and revenues generated through its World of Warcraft® franchise. Blizzard also develops, markets, and sells role-playing action and strategy games for the PC, console, mobile, and tablet platforms, including games in the multiple-award winning Diablo®, StarCraft®, Hearthstone®: Heroes of Warcraft™, and Heroes of the Storm™ franchises. In addition, Blizzard maintains a proprietary online gaming service, Battle.net®, which facilitates digital distribution and online social connectivity across all Blizzard games. Blizzard distributes its products and generates revenues worldwide through various means, including: subscriptions; sales of prepaid subscription cards; in-game purchases and services; retail sales of physical “boxed” products; online download sales of PC products; purchases and downloads via third-party console, mobile, and tablet platforms; and licensing of software to third-party or related party companies that distribute Blizzard products.

(iii) King Digital Entertainment plc

King Digital Entertainment is a leading interactive mobile entertainment company that develops and distributes games on mobile platforms such as Android and iOS along with games that can be played on Facebook and king.com websites. King has four category-leading free-to-play franchises: Candy Crush™, Farm Heroes™, Bubble Witch™, and Pet Rescue™, where monetization occurs through players purchasing in-game virtual currency which can be used in-game to buy virtual items.

(iv) Other

We also engage in other businesses that do not represent reportable segments, including:

Business Highlights

For the three months ended March 31, 2016, Activision Blizzard had net revenues of $1.5 billion, as compared to net revenues of $1.3 billion for the same period in 2015. For the three months ended March 31, 2016, Activision Blizzard had earnings per diluted share of $0.45, as compared to earnings per diluted share of $0.53 for the same period in 2015.

For the three months ended March 31, 2016, as a result of the King Acquisition, our net revenues and net income include $183 million and $(50) million from King’s operations, respectively, after adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferral of revenues and related cost of sales. Our earnings under accounting principles generally accepted in the United States of America (“U.S. GAAP”) are expected to be down versus prior-year as the expected results will be impacted by accounting charges associated with the King Acquisition, which include, among other things, integration and acquisition-related costs, the amortization of intangible assets resulting from purchase price accounting adjustments, share-based payments, and the related tax impact from the King Acquisition. The majority of these GAAP accounting charges will not impact the economics or operating cash flows of our business, although they will have a material impact on our 2016 GAAP results.

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On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share, payable on May 11, 2016, to shareholders of record at the close of business on March 30, 2016.

Activision Blizzard Recent and Upcoming Product Releases

We have recently released the following titles and games, among other titles:

· King released Candy Crush Jelly Saga™, the latest installment in the Candy Crush franchise, in January 2016.

· Activision released Call of Duty: Black Ops III Awakening, the first downloadable content pack for Call of Duty: Black Ops III, on the PS4 on February 2, 2016 and on other platforms on March 3, 2016.

· Activision released Call of Duty: Black Ops III Eclipse, the second downloadable content pack for Call of Duty: Black Ops III, on the PS4 on April 19, 2016, and is expected to be released on other platforms in May 2016.

· On April 26, 2016, Blizzard released Whispers of the Old Gods™, the third expansion to Hearthstone: Heroes of Warcraft.

· On May 24, 2016, Blizzard expects to release Overwatch™, its upcoming team-based first-person shooter.

Monthly Active Users (“MAUs”)

We monitor MAUs as a key measure of the overall size of our user base and its regular engagement with our portfolio of games. MAUs are the number of individuals who played a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing by the number of months in the period. An individual who plays two of our games would be counted as two users. In addition, due to technical limitations for Activision and King MAUs, an individual who plays the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard MAUs, an individual who plays the same game on two platforms or devices in the relevant period would be counted as one user.

The number of MAUs for a given period can be significantly impacted by the timing of new content releases, since new releases can cause a temporary surge in MAUs. Accordingly, although we believe that overall trending in the number of MAUs can be a meaningful performance metric, period-to-period fluctuations may not be indicative of longer-term trends. The following table details our average MAUs on a sequential quarterly basis for our reportable segments (amounts in millions):

	March 31, 2016	December 31, 2015	September 30, 2015	June 30, 2015	March 31, 2015
Activision	55	55	46	45	50
Blizzard	26	26	28	29	21
King	463	449	474	501	550
Total	544	530	548	575	621

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Average MAUs increased by 14 million, or 3%, for the quarter ended March 31, 2016 as compared to the quarter ended December 31, 2015. Activision’s and Blizzard’s average MAUs were flat quarter-over-quarter, and the increase in King’s average MAUs was primarily due to the release of Candy Crush Jelly Saga.

Average MAUs decreased by 77 million, or 12%, for the quarter ended March 31, 2016 as compared to the quarter ended March 31, 2015. Activision’s and Blizzard’s average MAUs grew year-over-year, given the strength of the franchise portfolio, and King’s average MAUs declined year-over-year due to the performance of more mature titles.

Management’s Overview of Business Trends

Digital Online Channel Revenues

We provide our products through both retail and digital distribution channels. Many of our video games that are available through retailers as physical “boxed” software products are also available digitally (from our websites and from websites and digital distribution channels owned by third parties). In addition, we offer players digital downloadable content as add-ons to our products (e.g., new multi-player content packs or in-game microtransaction purchases), generally for a one-time fee. We also offer subscription-based services and other value-added services for World of Warcraft, all of which are digitally delivered and hosted by Battle.net.

We currently define sales via digital online channels as revenues from digitally-distributed subscriptions, licensing royalties, value-added services, downloadable content, microtransaction purchases, and products. This definition may differ from that used by our competitors or other companies.

According to Activision Blizzard internal estimates, overall industry digital gaming revenues for the three months ended March 31, 2016 increased by approximately 19% as compared to the same period in 2015, with mobile growth at 27%. The primary drivers of the increase in digital gaming revenues were increases in microtransaction purchases and consumer purchases of full games via digital channels. In addition to increasing microtransaction purchases within free-to-play games, the increase includes microtransaction purchases within purchased game software, as publishers offer increasingly new opportunities for monetization within their games to extend and enlarge the monetization cycle. Digital revenues are an important part of our business, and we continue to focus on and develop products, such as downloadable content, that can be delivered via digital channels. The amount of our digital revenues in any period may fluctuate depending, in part, on the timing and nature of our specific product releases. Our sales of digital downloadable content are driven in part by sales of, and engagement by players in, our retail products. As such, lower revenues in our retail distribution channels in the current year may impact our revenues through digital online channels in the subsequent year.

For the three months ended March 31, 2016, revenues through digital online channels increased by $345 million, as compared to the same period in 2015, and represented 64% of our total consolidated net revenues, as compared to 45% for the same period in 2015. On a non-GAAP basis (which excludes the impact of deferred revenues), revenues through digital online channels for the three months ended March 31, 2016 increased by $259 million, as compared to the same period in 2015, and represented 88% of our total non-GAAP net revenues, as compared to 76% for the same period in 2015.

Refer to the reconciliation of GAAP and non-GAAP digital online channel revenues under “Non-GAAP Financial Measures” below.

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Concentration of Top Titles

The concentration of retail revenues among key titles has continued as a trend in the overall interactive software industry. According to The NPD Group, the top 10 titles accounted for 33% of the retail sales in the U.S. interactive entertainment industry in 2015. Similarly, a significant portion of our revenues has historically been derived from video games based on a few popular franchises and these video games were responsible for a disproportionately high percentage of our profits. For example, the Call of Duty, World of Warcraft, Skylanders, and Destiny franchises combined accounted for 71% of our consolidated net revenues, and a significantly higher percentage of our operating income, for 2015. As a result, successful competition against these titles can significantly impact our performance. Notably, the toys-to-life category has become more competitive with a new entrant competing directly with us and other incumbents.

We are continually exploring additional investments in existing and future franchises. During 2015, we released Heroes of the Storm, as well as Call of Duty Online in China. In the fourth quarter of 2015,we released Overwatch into closed beta with an anticipated game release of May 24, 2016. There is no guarantee that these franchises will become key franchises.

Additionally, on February 23, 2016, we completed the King Acquisition, diversifying our portfolio of key franchises and increasing our presence in the mobile market. In this market, we see similar concentration of key titles accounting for a disproportionate amount of digital sales. According to the U.S. ranking for the Apple App Store, per App Annie Intelligence, seven titles remained in the top 10 ranking of gross sales for all four quarters during 2015.

Overall, we do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of our, and the industry’s, revenues and profits in the near future.

Consolidated Statements of Operations Data

The following table sets forth consolidated statements of operations data for the periods indicated in dollars and as a percentage of total net revenues (amounts in millions):

	For the Three Months Ended March 31,
	2016			2015
Net revenues
Product sales	$	645	44%	$	784	61%
Subscription, licensing and other revenues	810		56	494		39
Total net revenues	1,455		100	1,278		100

Costs and expenses:
Cost of sales - product costs	247		17	209		16
Cost of sales - online	64		4	53		4
Cost of sales - software royalties and amortization	144		10	148		12
Cost of sales - intellectual property licenses	36		2	3		—
Product development	175		12	145		11
Sales and marketing	168		12	92		7
General and administrative	160		11	86		7
Total costs and expenses	994		68	736		57

Operating income	461		32	542		43

Interest and other expense (income), net	52		4	50		4

Income before income tax expense	409		28	492		39

Income tax expense	73		5	98		8

Net income	$	336	23%	$	394	31%

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Operating Segment Results

The CODM reviews segment performance exclusive of the impact of the change in deferred revenues and related cost of sales with respect to certain of our online-enabled games, stock-based compensation expense, amortization of intangible assets as a result of purchase price accounting, and fees and other expenses related to financings and acquisitions. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto. Information on the operating segments and reconciliations of total segment net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense for the three months ended March 31, 2016 and 2015 are presented in the table below (amounts in millions):

	For the Three Months Ended March 31,
	2016		2015		Increase / (Decrease)
Segment net revenues:
Activision	$	360	$	303	$	57
Blizzard	294		352		(58)
King	207		—		207
Other (1)	47		48		(1)
Segments net revenues total	908		703		205

Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues	547		575
Consolidated net revenues	$	1,455	$	1,278

Segments income (loss) from operations:
Activision	$	99	$	66	$	33
Blizzard	86		139		(53)
King	67		—		67
Other (1)	—		(1)		1
Segments income from operations total	252		204		48

Reconciliation to consolidated operating income before consolidated income tax expense:
Net effect from deferral of net revenues and related cost of sales	369		362
Stock-based compensation expense	(44)		(23)
Amortization of intangible assets	(82)		(1)
Fees and other expenses related to acquisitions (2)	(34)		—

Consolidated operating income	461		542
Interest and other expense (income), net	52		50

Consolidated income before income tax expense	$	409	$	492

(2) Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings.

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Segment Net Revenues

Activision

Activision’s net revenues increased for the three months ended March 31, 2016, as compared to 2015, primarily due to higher revenues from Call of Duty: Black Ops III, which was released in the fourth quarter of 2015, and its digital content, as compared to Call of Duty: Advanced Warfare, which was released in the fourth quarter of 2014. The increase was partially offset by lower revenues from the Skylanders franchise.

Blizzard

Blizzard’s net revenues decreased for the three months ended March 31, 2016, as compared to 2015, primarily due to lower revenues from World of Warcraft due to a smaller subscriber base and lower revenues from Heroes of the Storm due to the prior year including revenues from the release of the Founders’ Pack. These decreases were partially offset by increased revenue from Hearthstone: Heroes of Warcraft which was benefited by its release on iPhone and Android smartphones in April 2015.

King

King’s net revenues represent the net revenues from the King Closing Date through March 31, 2016. The revenues were primarily driven by the Candy Crush franchise, which included the release of Candy Crush Jelly Saga in January 2016.

Segment Income from Operations

Activision

Activision’s operating income increased for the three months ended March 31, 2016, as compared to 2015, primarily due to higher revenues and an increased percentage of revenues coming from online digital channels, which typically have higher margins. This is partially offset by higher product development spending from increased bonuses to studio personnel.

Blizzard

Blizzard’s operating income decreased for the three months ended March 31, 2016, as compared to 2015, primarily due to lower revenues as well as higher spending on sales and marketing activity to support current and upcoming releases. These were partially offset by lower product development costs due to capitalization of software costs associated with the timing of title releases.

King

King’s operating income represents the operating income from the King Closing Date through March 31, 2016.

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Foreign Exchange Impact

Changes in foreign exchange rates had a negative impact of $14 million on Activision Blizzard’s segment net revenues for the three months ended March 31, 2016, as compared to the same periods in the previous year. The changes are primarily due to changes in the value of the United States (“U.S.”) dollar relative to the euro and British pound.

Non-GAAP Financial Measures

The analysis of revenues by distribution channel is presented both on a GAAP (including the impact from the change in deferred revenues) and non-GAAP (excluding the impact from the change in deferred revenues) basis. We use this non-GAAP measure internally when evaluating our operating performance; when planning, forecasting, and analyzing future periods; and when assessing the performance of our management team. We believe this is appropriate because this non-GAAP measure 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, and facilitates comparison of operating performance between periods. In addition, excluding the impact from the change in deferred net revenues provides a much more timely indication of trends in our sales and other operating results. While we believe that this non-GAAP measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP. In addition, this non-GAAP financial measure may not be the same as any non-GAAP measure presented by another company. This non-GAAP financial measure has limitations in that it does not reflect all of the items associated with our GAAP revenues. We compensate for the limitations resulting from the exclusion of the change in deferred revenues by considering the impact of that item separately and by considering our GAAP, as well as non-GAAP, revenues.

The following table provides reconciliation between GAAP and non-GAAP net revenues by distribution channel for the three months ended March 31, 2016 and 2015 (amounts in millions):

	For the Three Months Ended March 31,

	2016		2015		Increase / (decrease)

GAAP net revenues by distribution channel
Digital online channels (1)	$	926	$	581	$	345
Retail channels	482		649		(167)
Other (2)	47		48		(1)
Total consolidated GAAP net revenues	1,455		1,278		177

Change in deferred net revenues (3)
Digital online channels (1)	(129)		(43)		(86)
Retail channels	(418)		(532)		114
Total changes in deferred net revenues	(547)		(575)		28

Non-GAAP net revenues by distribution channel
Digital online channels (1)	797		538		259
Retail channels	64		117		(53)
Other (2)	47		48		(1)
Total non-GAAP net revenues (4)	$	908	$	703	$	205

(1) We define revenues from digital online channels as revenues from digitally-distributed subscriptions, licensing royalties, value-added services, downloadable content, micro-transactions, and products.

(2) Net revenues from Other include revenues from our Media Networks, Studios, and Distribution businesses.

(3) We have determined that some of our titles’ online functionality represents an essential component of gameplay and as a result, represents a more-than inconsequential separate deliverable. As such, we recognize revenues attributed to these titles over the estimated service periods, which are generally less than one year. In the table above, we present the amount of net revenues for each period as a result of this accounting treatment.

(4) Total non-GAAP net revenues presented also represents our total segment net revenues.

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Digital Online Channel Net Revenues

The increase in GAAP net revenues from digital online channels for the three months ended March 31, 2016, as compared to 2015, was primarily due to: new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise; higher revenues recognized from Hearthstone: Heroes of Warcraft; higher revenues from Call of Duty: Black Ops III, which was released in the fourth quarter of 2015, and its digital content, as compared to Call of Duty: Advanced Warfare, which was released in the fourth quarter of 2014; and higher revenues recognized from the Destiny franchise due to the strong digital performance of Destiny: The Taken King, which was released in September 2015, and in-game microtransaction purchases which were debuted in Destiny in the fourth quarter of 2015. The increase was partially offset by lower revenues from World of Warcraft due to a smaller subscriber base.

The increase in non-GAAP net revenues from digital online channels for the three months ended March 31, 2016, as compared to 2015, was primarily due to new revenues from King titles following the King Closing Date, and higher revenues from Call of Duty: Black Ops III and its digital content, as compared to Call of Duty: Advanced Warfare. The increase was partially offset by lower revenues from World of Warcraft due to a smaller subscriber base and lower revenues from Heroes of the Storm due to the prior year including revenues from the release of the Founders’ Pack.

Retail Channel Net Revenues

The decrease in GAAP net revenues from retail channels for the three months ended March 31, 2016, as compared to 2015, was primarily due to lower revenues recognized from the Destiny franchise as Destiny debuted in the third quarter of 2014, with no comparable full-game release in 2015, and lower revenues from the Skylanders franchise. This was partially offset by higher revenues recognized from Call of Duty: Black Ops III, which was released in the fourth quarter of 2015, as compared to Call of Duty: Advanced Warfare, which was released in the fourth quarter of 2014.

The decrease in non-GAAP net revenues from retail channels for the three months ended March 31, 2016, as compared to 2015, was primarily due to lower revenues from the Skylanders franchise. This was partially offset by higher revenues from Call of Duty: Black Ops III as compared to Call of Duty: Advanced Warfare.

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Consolidated Results

Net Revenues by Geographic Region

The following table details our consolidated net revenues by geographic region for the three months ended March 31, 2016 and 2015 (amounts in millions):

	For the Three Months Ended March 31,

	2016		2015		Increase / (decrease)

Geographic region net revenues:
Americas	$	753	$	704	$	49
Europe	521		464		57
Asia Pacific	181		110		71
Consolidated net revenues	$	1,455	$	1,278	$	177

The increase/(decrease) in deferred revenues recognized by geographic region for the three months ended March 31, 2016 and 2015 was as follows (amounts in millions):

	For the Three Months Ended March 31,

	2016		2015		Increase / (decrease)

Increase/(decrease) in deferred revenues recognized by geographic region:
Americas	$	293	$	350	$	(57)
Europe	194		196		(2)
Asia Pacific	60		29		31
Total impact on consolidated net revenues	547		575		(28)

In all regions, net revenues increased for the three months ended March 31, 2016, as compared to 2015. This was primarily due to: new revenues from King titles following the King Closing Date, with the revenues primarily driven by the Candy Crush franchise; higher revenues recognized from Call of Duty: Black Ops III, which was released in the fourth quarter of 2015, and its digital content, as compared to Call of Duty: Advanced Warfare, which was released in the fourth quarter of 2014; and higher revenues recognized from Hearthstone: Heroes of Warcraft. These were partially offset by: lower revenues recognized from the Destiny franchise as Destiny debuted in September 2014 and had no comparable full-game release in 2015; lower revenues recognized from World of Warcraft due to a smaller subscriber base and the release of World of Warcraft: Warlords of Draenor® in November 2014 with no comparable release in 2015; lower revenues from the Skylanders franchise; and lower revenues recognized from the Diablo III franchise due to the timing of title releases.

In Americas and Europe, the decrease in deferred revenues recognized for the three months ended March 31, 2016, as compared to 2015, was primarily attributed to lower deferred revenues recognized from the Destiny franchise due to the timing of the full game release and lower deferred revenues recognized from World of Warcraft, primarily associated with World of Warcraft: Warlords of Draenor and value-added services. This was partially offset by increased deferred revenues recognized from Hearthstone: Heroes of Warcraft.

In Asia Pacific, the increase in deferred revenues recognized for the three months ended March 31, 2016, as compared to 2015, was primarily attributed to increased deferred revenues recognized from Hearthstone: Heroes of Warcraft.

Foreign Exchange Impact

Changes in foreign exchange rates had a negative impact of $21 million on our consolidated net revenues for the three months ended March 31, 2016, as compared to the same period in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and British pound.

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Net Revenues by Platform

The following tables detail our net revenues by platform and as a percentage of total consolidated net revenues for the three months ended March 31, 2016 and 2015 (amounts in millions):

	Three Months Ended March 31, 2016		% of total consolidated net revenues(4)		Three Months Ended March 31, 2015		% of total consolidated net revenues(4)		Increase/ (Decrease)

Platform net revenues:
Console	$	765	53	%	$	758	59	%	$	7
PC (1)	400		27		386		30		14
Mobile and ancillary (2)	243		17		86		7		157
Other (3)	47		3		48		4		(1)
Total consolidated net revenues	$	1,455	100	%	$	1,278	100	%	$	177

The increase/(decrease) in deferred revenues recognized by platform for the three months ended March 31, 2016 and 2015 was as follows (amounts in millions):

	For the Three Months Ended March 31,

	2016		2015		Increase / (decrease)

Increase/(decrease) in deferred revenues recognized by platform:
Console	$	437	$	526	$	(89)
PC (1)	99		50		49
Mobile and ancillary (2)	11		(1)		12
Total impact on consolidated net revenues	$	547	$	575	$	(28)

(1) Net revenues from PC includes revenues that were historically shown as “Online.”

(2) Net revenues from mobile and ancillary includes revenues from handheld, mobile, and tablet devices, as well as non-platform specific game-related revenues such as standalone sales of toys and accessories products from our Skylanders franchise and other physical merchandise and accessories.

(3) Net revenues from Other include revenues from our Media Networks, Studios, and Distribution businesses.

(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.

Net revenues from console remained relatively flat for the three months ended March 31, 2016, as compared to 2015, primarily due to higher revenues recognized from Call of Duty: Black Ops III, which was released in the fourth quarter of 2015, and its digital content, as compared to Call of Duty: Advanced Warfare, which was released in the fourth quarter of 2014, and revenues recognized from Guitar Hero® Live, which was released in the fourth quarter of 2015 with no comparable release in 2014. These increases were offset by lower revenues recognized from the Destiny franchise as Destiny debuted in the third quarter of 2014 with no comparable full-game release in 2015, and lower revenues from the Diablo III franchise due to the timing of title releases.

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Net revenues from PC increased for the three months ended March 31, 2016, as compared to 2015, primarily due to higher revenues recognized from Hearthstone: Heroes of Warcraft, revenues recognized from StarCraft II: Legacy of the Void™ which was released in the fourth quarter of 2015, and new revenues from King titles following the King Closing Date. These were partially offset by lower revenues recognized from World of Warcraft due to a smaller subscriber base and the release of World of Warcraft: Warlords of Draenor in the fourth quarter of 2014 with no comparable release in 2015.

Net revenues from mobile and ancillary increased for the three months ended March 31, 2016, as compared to 2015, primarily due to new revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise, and higher revenues recognized from the release of Hearthstone: Heroes of Warcraft on iPhone and Android smartphones in April 2015. These were partially offset by lower revenues from the Skylanders franchise.

Deferred revenues recognized from console decreased for the three months ended March 31, 2016, as compared to 2015, primarily due to lower deferred revenues recognized from the Destiny franchise due to the timing of the full game release and lower revenues recognized from the Diablo III franchise due to the timing of title releases.

Deferred revenues recognized from PC increased for the three months ended March 31, 2016, as compared to 2015, primarily due to higher deferred revenues recognized from Hearthstone: Heroes of Warcraft, deferred revenues recognized from Heroes of the Storm, which launched in the second quarter of 2015, and deferred revenues recognized from StarCraft II: Legacy of the Void, which was released in the fourth quarter of 2015. These were partially offset by lower deferred revenues recognized from World of Warcraft.

Deferred revenues recognized from mobile and ancillary increased for the three months ended March 31, 2016, as compared to 2015, primarily due to higher deferred revenues recognized from Hearthstone: Heroes of Warcraft. This was partially offset by additional deferrals of revenue from King titles, most notably the Candy Crush franchise.

Costs and Expenses

Cost of Sales

The following tables detail the components of cost of sales in dollars and as a percentage of total consolidated net revenues for the three months ended March 31, 2016 and 2015 (amounts in millions):

	Three Months Ended March 31, 2016		% of consolidated net revenues	Three Months Ended March 31, 2015		% of consolidated net revenues	Increase (Decrease)

Product costs	$	247	17%	$	209	16%	$	38
Online	64		4	53		4	11
Software royalties and amortization	144		10	148		12	(4)
Intellectual property licenses	36		2	3		—	33
Total cost of sales	$	491	33%	$	413	32%	$	78

Costs of sales — product costs includes the cost of goods produced and sold during the reporting period along with platform provider fees. Cost of sales — online includes costs to operate our games, such as customer service, internet bandwidth fees, and our payment provider fees. Cost of sales — software royalties and amortization includes the amortization of capitalized software costs and royalties. Cost of sales — intellectual property licenses includes the costs and amortization associated with intellectual property licenses expensed over the expected benefit period.

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Total cost of sales for the three months ended March 31, 2016, increased as compared to the same period in 2015, reflective of the increase in consolidated net revenues. Cost of sales — product costs increased primarily due to the mobile platform fees associated with revenues from King, along with products costs from Guitar Hero Live, which had no comparable costs in the prior year. These were partially offset by decreases in product costs due to the relative increase in Activision’s revenues coming from the digital online channel, which has relatively lower product costs, and lower product costs from the Skylanders franchise due to lower franchise revenues.

Cost of sales — online increased primarily due to increased expenditures to support our growing online activity across our titles and the online costs associated with supporting the revenues from King titles.

Cost of sales — intellectual property licenses increased primarily due to the amortization of internally-developed franchise intangible assets acquired in the King Acquisition, along with intellectual properly license fees associated with content in Guitar Hero Live, which had no comparable cost in the prior year.

Product Development (amounts in millions)

	Three Months Ended March 31, 2016		% of consolidated net revenues	Three Months Ended March 31, 2015		% of consolidated net revenues	Increase (Decrease)

Product development	$	175	12%	$	145	11%	$	30

Product development costs increased for the three months ended March 31, 2016, as compared to 2015, primarily from product development costs associated with King’s titles, along with increased product development costs from the Call of Duty franchise, primarily related to studio personnel bonuses. These were partially offset by decreased Blizzard product development costs due to the timing of cost capitalizations.

Sales and Marketing (amounts in millions)

	Three Months Ended March 31, 2016		% of consolidated net revenues	Three Months Ended March 31, 2015		% of consolidated net revenues	Increase (Decrease)

Sales and marketing	$	168	12%	$	92	7%	$	76

Sales and marketing costs increased for the three months ended March 31, 2016, as compared to 2015, primarily driven by the amortization of the customer base intangible assets acquired in the King Acquisition, sales and marketing spending to support King’s titles, and increased spending on sales and marketing activity to support current and upcoming Blizzard releases. These increases were partially offset by lower spend on Guitar Hero Live.

General and Administrative (amounts in millions)

	Three Months Ended March 31, 2016		% of consolidated net revenues	Three Months Ended March 31, 2015		% of consolidated net revenues	Increase (Decrease)

General and administrative	$	160	11%	$	86	7%	$	74

General and administrative expenses increased for the three months ended March 31, 2016, as compared to 2015, primarily due to higher professional and transaction related fees associated with the King Acquisition, which closed on February 23, 2016, and King’s general and administrative costs, included following that closing.

Interest and Other Expense (Income), Net (amounts in millions)

	Three Months Ended March 31, 2016		% of consolidated net revenues	Three Months Ended March 31, 2015		% of consolidated net revenues	Increase (Decrease)

Interest and other expense (income), net	$	52	4%	$	50	4%	$	2

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Interest and other expense (income), net, did not significantly change for the three months ended March 31, 2016, as compared to the same periods in 2015.

Income Tax Expense (amounts in millions)

	Three Months Ended March 31, 2016		% of pretax income	Three Months Ended March 31, 2015		% of pretax income	Increase (Decrease)
Income tax expense	$	73	18%	$	98	20%	$	(25)

The overall effective income tax rate for the year will be dependent, in part, on our profitability for the remainder of the year, as well as the other factors described above.

In addition, Vivendi Games’ tax year 2008 remains open to examination by the major taxing authorities. In addition, Vivendi Games’ tax return for the 2008 tax year is before the Appeals function of the IRS and is under examination by several state taxing authorities. While Vivendi Games’ results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreign, state, and local income tax returns filed by Vivendi or its affiliates, Vivendi Games’ results for the period July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state, and local income tax returns filed by Activision Blizzard. Additionally, the Company has several state and non-U.S. audits pending.

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Liquidity and Capital Resources

Sources of Liquidity (amounts in millions)

	March 31, 2016		December 31, 2015		Increase (Decrease)

Cash and cash equivalents	$	2,872	$	1,823	$	1,049
Short-term investments	16		8		8
	$	2,888	$	1,831	$	1,057

Percentage of total assets	17%		12%

	For the Three Months Ended March 31,

	2016		2015		Increase (Decrease)

Cash flows provided by operating activities	$	309	$	209	$	100
Cash flows used in investing activities	(1,068)		(16)		(1,052)
Cash flows provided by (used in) financing activities	1,807		(212)		2,019
Effect of foreign exchange rate changes	1		(364)		365
Net increase (decrease) in cash and cash equivalents	$	1,049	$	(383)	$	1,432

Cash Flows Provided By Operating Activities

The primary drivers of cash flows provided by operating activities typically include the collection of customer receivables generated by the sale of our products and digital and subscription revenues, partially offset by payments to vendors for the manufacturing, distribution, and marketing of our products, payments for customer service support for our gamers, payments to third-party developers and intellectual property holders, payments for interest on our debt, payments for software development, payments for tax liabilities, and payments to our workforce.

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Cash flows provided by operating activities were higher for the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to adjustments to net income for non-cash charges, including amortization of intangible assets and adjustments to deferred income taxes associated with the King Acquisition, along with increased operating cash flows from King’s operations. These were partially offset by changes in our operating assets and liabilities.

Cash Flows Used In Investing Activities

The primary drivers of cash flows used in investing activities typically include the net effect of capital expenditures, changes in restricted cash balances, and cash used for acquisitions.

Cash flows used in investing activities were $1.1 billion for the three months ended March 31, 2016, as compared to $16 million for the three months ended March 31, 2015. The increase in the cash used was primarily due to the $2.2 billion cash outflow for the King Acquisition in excess of the cash already in escrow, net of the $1.15 billion cash acquired.

Cash Flows Provided By (Used In) Financing Activities

The primary drivers of cash flows used in financing activities typically include the proceeds from, and repayments of, our long-term debt, and transactions involving our common stock, such as the issuance of shares of common stock to employees, the repurchase of our common stock and the payment of dividends.

Cash flows provided by financing activities were higher during the three months ended March 31, 2016, as compared to the same period in 2015, primarily due to $2.6 billion of proceeds received from debt financing. These were partially offset by higher partial repayment of our Term Loan in 2016 of $750 million, as compared to the $250 million partial repayment of our Term Loan in 2015, and payment of debt discount and financing costs.

Other Liquidity and Capital Resources

Our primary sources of liquidity are typically cash and cash equivalents, investments, and cash flows provided by operating activities. In addition, as described below, we have availability of $250 million, subject to certain restrictions, under a secured revolving credit facility. With our cash and cash equivalents and short-term investments of $2.9 billion at March 31, 2016, and expected cash flows provided by operating activities, we believe that we have sufficient liquidity to meet daily operations in the foreseeable future. We also believe that we have sufficient working capital ($1.7 billion at March 31, 2016) to finance our operational and financing requirements for at least the next twelve months, including: purchases of inventory and equipment; the development, production, marketing, and sale of new products; provision of customer service for our subscribers; acquisition of intellectual property rights for future products from third parties; and payments related to debt obligations.

As of March 31, 2016 and December 31, 2015, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $1.3 billion and $0.5 billion, respectively. If the cash and cash equivalents held outside of the U.S. is needed in the future for our operations in the U.S., we would accrue and pay the required U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.

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Debt

Unsecured Notes

On September 19, 2013, we issued, at par, $1.5 billion of 5.625% unsecured senior notes due September 2021 (the “2021 Notes”) and $750 million of 6.125% unsecured senior notes due September 2023 (the “2023 Notes” and, together with the 2021 Notes, the “Notes”). Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2014. As of March 31, 2016, the Notes had a carrying value of $2.25 billion.

We may redeem the 2021 Notes on or after September 15, 2016 and the 2023 Notes on or after September 15, 2018, in whole or in part on any one or more occasions, at specified redemption prices, plus accrued and unpaid interest. At any time prior to September 15, 2016, with respect to the 2021 Notes, and at any time prior to September 15, 2018, with respect to the 2023 Notes, we may also redeem some or all of the Notes by paying a “make-whole premium,” plus accrued and unpaid interest. In addition, upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of the aggregate principal amount of each of the 2021 Notes and 2023 Notes outstanding with the net cash proceeds from such offerings. The Notes are repayable, in whole or in part and at the option of the holders, upon the occurrence of a change in control and a ratings downgrade, at a purchase price equal to 101% of principal, plus accrued and unpaid interest.

Credit Facilities

As of March 31, 2016, the outstanding balance of our Term Loan was $1.1 billion. Borrowings under the Term Loan and bear interest at an annual rate equal to an applicable margin plus, at our option, (A) a base rate determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as its “prime rate,” (b) the federal funds rate plus 0.5%, and (c) the London InterBank Offered Rate (“LIBOR”) for an interest period of one month plus 1.00%, or (B) LIBOR. Further, LIBOR borrowings under the Term Loan are subject to a LIBOR floor of 0.75%. At March 31, 2016, the Term Loan bore interest at 3.25%. In certain circumstances, our interest rate under the Term Loan will increase.

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The Tranche A Term Loans are scheduled to mature on October 11, 2020 and bear interest, at the Company’s option, at either (a) a base rate equal to the highest of (i) the federal funds rate, plus 0.5%, (ii) the prime commercial lending rate of Bank of America, N.A., and (iii) the LIBOR for an interest period of one month beginning on such day plus 1.00%, or (b) LIBOR, in each case, plus an applicable interest margin. LIBOR is subject to a floor of 0% and the base rate is subject to an effective floor of 1.00%. The applicable interest margin for Tranche A Term Loans ranges from 1.50% to 2.25% for LIBOR borrowings and from 0.50% to 1.25% for base rate borrowings and is determined by reference to a pricing grid based on the Company’s Consolidated Total Net Debt Ratio (as defined in the Credit Agreement).

The Tranche A Term Loans require quarterly principal payments of 0.625% of the stated principal amount of the Tranche A Term Loans commencing on June 30, 2016, with increases to 1.250% starting on June 30, 2019 and 3.125% starting on June 30, 2020, with the remaining balance payable on the Tranche A Term Loans’ scheduled maturity date of October 11, 2020. Voluntary prepayments of the Tranche A Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty.

Borrowings under the 2015 Revolving Credit Facility may be borrowed, repaid, and re-borrowed by the Company and are available for working capital and other general corporate purposes. Up to $50 million of the 2015 Revolving Credit Facility may be used for letters of credit.

In connection with the debt financing for the King Acquisition, we incurred $38 million of issuance costs that were capitalized and recorded within “Long term debt, net” in our condensed consolidated balance sheet. The amortization of these capitalized costs was not material to our condensed consolidated statement of operations for the three months ended March 31, 2016.

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Agreements governing our indebtedness, including the indenture governing the Notes and the Credit Agreement, impose operating and financial restrictions on our activities under certain conditions. These restrictions may require us to comply with or maintain certain financial tests and ratios. In addition, the indenture and the Credit Agreement limit or prohibit our ability to, among other things: incur additional debt or make additional guarantees; pay distributions or dividends and repurchase stock; make other restricted payments, including without limitation, certain restricted investments; create liens; enter into agreements that restrict dividends from subsidiaries; engage in transactions with affiliates; and enter into mergers, consolidations or sales of substantially all of our assets.

The Company was in compliance with the terms of the Notes and Credit Facilities as of March 31, 2016.

Debt Repayments

On February 2, 2016, the Board of Directors authorized net debt repayments of up to $1.5 billion of our outstanding debt during 2016. As of March 31, 2016, we have made prepayments to reduce our total outstanding term loans by $500 million.

Capital Expenditures

For the year ending December 31, 2016, we anticipate total capital expenditures of approximately $155 million, primarily for computer hardware and software purchases. During the first three months of 2016, we made aggregate capital expenditures of $27 million.

Off-Balance Sheet Arrangements

At March 31, 2016 and December 31, 2015, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties, often referred to as “structured finance” or “special purpose” entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Financial Disclosure

We maintain internal control over financial reporting, which generally includes those controls relating to the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). We also are focused on our “disclosure controls and procedures,” which as defined by the Securities and Exchange Commission (the “SEC”), are generally those controls and procedures designed to ensure that financial and non-financial information required to be disclosed in our reports filed with the SEC is reported within the time periods specified in the SEC’s rules and forms, and that such information is communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Our Disclosure Committee, which operates under the Board of Directors-approved Disclosure Committee Charter and Disclosure Controls & Procedures Policy, includes senior management representatives and assists executive management in its oversight of the accuracy and timeliness of our disclosures, as well as in implementing and evaluating our overall disclosure process. As part of our disclosure process, senior finance and operational representatives from all of our corporate divisions and business units prepare quarterly reports regarding their current-quarter operational performance, future trends, subsequent events, internal controls, changes in internal controls, and other accounting and disclosure relevant information. These quarterly reports are reviewed by certain key corporate finance executives. These corporate finance representatives also conduct quarterly interviews on a rotating basis with the preparers of selected quarterly reports. The results of the quarterly reports and related interviews are reviewed by the Disclosure Committee. Finance representatives also conduct interviews with our senior management team, our legal counsel and other appropriate personnel involved in the disclosure process, as appropriate. Additionally, senior finance and operational representatives provide internal certifications regarding the accuracy of information they provide that is utilized in the preparation of our periodic public reports filed with the SEC. Financial results

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and other financial information also are reviewed with the Audit Committee of the Board of Directors on a quarterly basis. As required by applicable regulatory requirements, the principal executive and financial officers review and make various certifications regarding the accuracy of our periodic public reports filed with the SEC, our disclosure controls and procedures, and our internal control over financial reporting. With the assistance of the Disclosure Committee, we will continue to assess and monitor, and make refinements to, our disclosure controls and procedures, and our internal control over financial reporting.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments, and assumptions, and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:

· Revenue Recognition including Revenue Arrangements with Multiple Deliverables

· Allowances for Returns, Price Protection, Doubtful Accounts, and Inventory Obsolescence

· Software Development Costs and Intellectual Property Licenses

· Income Taxes

· Fair Value Estimates (including Business Combinations and Assessment of Impairment of Assets)

· Stock-Based Compensation

During the three months ended March 31, 2016, there were no significant changes to the above critical accounting policies and estimates but we did expand the accounting policy disclosure for revenue recognition to include virtual currency as noted below. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015, for a more complete discussion of our critical accounting policies and estimates.

Microtransaction Revenues

Recently Issued Accounting Pronouncements

Revenue recognition

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for fiscal years and interim periods within those years beginning after December 15, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the adoption method as well as the impact of this new accounting guidance on our financial statements.

Stock-based compensation

Consolidations

Debt Issuance Costs

Internal-Use Software

Inventory

In July 2015, the FASB issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new standard is effective for fiscal years beginning after December 15, 2016, and should be applied prospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.

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Business Combinations

Financial Instruments

In January 2016, the FASB issued new guidance related to the recognition and measurement of financial assets and financial liabilities. The new standard, amongst other things, generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The new standard is effective for fiscal years beginning after December 15, 2017, and the guidance should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity investments without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. We are evaluating the impact of this new accounting guidance on our financial statements.

Leases

Share-Based Payments

In March 2016, the FASB issued new guidance in an effort to simplify accounting for share-based payments. The new standard, amongst other things:

· will require excess tax benefits from share-based payments to be reported as operating activities on the statement of cash flows; and

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from fluctuations in market rates and prices. Our market risk exposures primarily include fluctuations in foreign currency exchange rates and interest rates.

Foreign Currency Exchange Rate Risk

We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates. Revenues and related expenses generated from our international operations are generally denominated in their respective local currencies. Primary currencies include euros, British pounds, Australian dollars, South Korean won and Swedish krona. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions results in reduced revenues, operating expenses, net income, and cash flows from our international operations. Similarly, our revenues, operating expenses, net income, and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. Since we have significant international sales, but incur the majority of our costs in the U.S., the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar may have an asymmetric and disproportional impact on our business. We monitor currency volatility throughout the year.

To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities, and earnings and our foreign currency risk related to functional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, principally forward contracts. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.

We assess the nature of these derivatives in accordance with FASB Accounting Standard Codification (“ASC”) Topic 815 to determine whether such derivatives should be designated as hedging instruments. The fair value of foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period. We report the fair value of these contracts within “Other current assets,” “Accrued expense and other liabilities,” “Other assets,” or “Other liabilities,” as applicable, in our Condensed Consolidated Balance Sheets based on the prevailing exchange rates of the various hedged currencies as of the end of the relevant period.

We do not hold or purchase any foreign currency forward contracts for trading or speculative purposes.

Foreign Currency Forward Contracts Not Designated as Hedges

For foreign currency forward contracts entered into to mitigate risk from foreign currency-denominated monetary assets, liabilities, and earnings that are not designated as hedging instruments under ASC 815, changes in the estimated fair value of these derivatives are recorded within “General and administrative expenses” and “Interest and other expense (income), net” in our condensed consolidated statements of operations, consistent with the nature of the underlying transactions.

For the three months ended March 31, 2016 and 2015, pre-tax net gains associated with these forward contracts were not material.

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Foreign Currency Forward Contracts Designated as Hedges

In the absence of the hedging activities described above, for the three months ended March 31, 2016, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in potential declines of our net income of approximately $36 million. This sensitivity analysis assumes a parallel adverse shift of all foreign currency exchange rates against the U.S. dollar; however, all foreign currency exchange rates do not always move in such manner and actual results may differ materially.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and variable rate debt under the Credit Facilities. We do not currently use derivative financial instruments to manage interest rate risk. As of March 31, 2016, a hypothetical interest rate change on our variable rate debt of one percent (100 basis points) would change interest expense on an annual basis by approximately $37 million. Because we have a LIBOR floor in our Term Loan and Tranche A Term Loan, our interest expense only increases when the underlying interest rate increases and it is at a level that exceeds the LIBOR floor. This estimate does not include the effects of other actions that we may take in the future to mitigate this risk or any changes in our financial structure.

Our investment portfolio consists primarily of money market funds and government securities with high credit quality and short average maturities. Because short-term securities mature relatively quickly and must be reinvested at the then-current market rates, interest income on a portfolio consisting of cash, cash equivalents or short-term securities is more subject to market fluctuations than a portfolio of longer-term securities. Conversely, the fair value of such a portfolio is less sensitive to market fluctuations than a portfolio of longer-term securities. At March 31, 2016, our $2.87 billion of cash and cash equivalents were comprised primarily of money market funds. The Company has determined that, based on the composition of our investment portfolio as of March 31, 2016, there was no material interest rate risk exposure to the Company’s consolidated financial condition, results of operations or liquidity as of that date.

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Item 4. Controls and Procedures

Definition and Limitations of Disclosure Controls and Procedures.

Our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures at March 31, 2016, the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at March 31, 2016, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported on a timely basis, and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated any changes in our internal control over financial reporting at March 31, 2016, the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at March 31, 2016, there have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Year-End Assessment of Internal Control over Financial Reporting.

On February 23, 2016, we completed our acquisition of King Digital Entertainment plc. The acquired business constituted approximately 7 percent of total assets and 13 percent of net revenues of the consolidated financial statement amounts as of and for the three months ended March 31, 2016. We are in the process of evaluating the existing controls and procedures of the acquired business and integrating the acquired business into our internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is contemplated, we expect to exclude the acquired business from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2016.

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Part II. Other Information

Item 1. Legal Proceedings

We are subject to various legal proceedings and claims. SEC regulations govern disclosure of legal proceedings in periodic reports and Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on us.

King Initial Public Offering (the “King IPO”) Matter

Other Matters

In addition, we are party to routine claims, suits, investigations, audits, and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.

Item 1A. Risk Factors

Various risks associated with our business are described in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 5. Other Information

On May 9, 2016, the Company received notice from ASAC II LLC (the “General Partner”), the general partner of ASAC II LP (“ASAC”), an exempted limited partnership established under the laws of the Cayman Islands, pursuant to Section 3.04(b) of the Stockholders Agreement, dated October 11, 2013, by and among the Company, ASAC, and, for the limited purposes set forth in Section 3.01(c) and Section 3.07 thereof, Robert A. Kotick and Brian G. Kelly, as amended, that ASAC intends to distribute all shares allocable to the limited partners of ASAC on June 8, 2016, in accordance with the waterfall set forth in the Amended and Restated Limited Partnership Agreement of ASAC. On May 9, 2016, ASAC, the General Partner and certain other parties filed with the Securities and Exchange Commission Amendment No. 3 to a Schedule 13D containing further information.

Item 6. Exhibits

The exhibits listed on the accompanying Exhibit Index are hereby incorporated by reference into this Quarterly Report on Form 10-Q.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 9, 2016

ACTIVISION BLIZZARD, INC.

/s/ DENNIS DURKIN		/s/ STEPHEN WEREB

Dennis Durkin		Stephen Wereb
Chief Financial Officer and		Chief Accounting Officer and
Principal Financial Officer of		Principal Accounting Officer of
Activision Blizzard, Inc.		Activision Blizzard, Inc.

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EXHIBIT INDEX

Exhibit Number		Exhibit


2.1		Transaction Agreement, dated November 2, 2015, by and among King Digital Entertainment plc, ABS Partners C.V. and Activision Blizzard, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K, filed November 3, 2015).

2.2		Appendix I to the Rule 2.5 Announcement (Conditions Appendix) (incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K, filed November 3, 2015).

2.3		Expenses Reimbursement Agreement, dated November 2, 2015, by and between King Digital Entertainment plc and Activision Blizzard, Inc. (incorporated by reference to Exhibit 2.3 of the Company’s Form 8-K, filed November 3, 2015).

2.4		Form of Voting Undertaking executed by certain shareholders of King Digital Entertainment plc. (incorporated by reference to Exhibit 2.4 of the Company’s Form 8-K, filed November 3, 2015).

3.1		Third Amended and Restated Certificate of Incorporation of Activision Blizzard, Inc., dated June 5, 2014 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed June 6, 2014).

3.2		Third Amended and Restated Bylaws of the Company, adopted as of February 2, 2016 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed February 8, 2016).

10.1		Employment Agreement, dated as of July 6, 2010, between Eric Hirshberg and Activision Publishing, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended March 31, 2011).

10.2		Notice of Assignment of Hirshberg Employment Agreement to Activision Blizzard, Inc. dated December 22, 2011 (incorporated by reference to Exhibit 10.97 of the Company’s Form 10-K for the year ended December 31, 2011).

10.3*		Amendment, dated as of October 15, 2015, to Employment Agreement between Eric Hirshberg and Activision Publishing, Inc.

10.4*		Notice of Stock Option Award, dated as of November 13, 2015, to Eric Hirshberg.

10.5		Fourth Amendment to the Credit Agreement, dated as of October 11, 2013, by and among Activision Blizzard, Inc., the guarantors from time to time party thereto, the lenders from time to time party thereto, Bank of America, N.A., as administrative agent and collateral agent, and the several other agents party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed April 1, 2016).

31.1		Certification of Robert A. Kotick pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Dennis Durkin pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Robert A. Kotick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Dennis Durkin pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

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101.LAB		XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

*Indicates a management contract or compensatory plan, contract or arrangement in which a director or executive officer of the Company participates.

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015, (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and March 31, 2015, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2016 and March 31, 2015, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and March 31, 2015; (v) Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three months ended March 31, 2016; and (vi) Notes to Condensed Consolidated Financial Statements.

Exhibit 10.3

Amendment #1 to the Employment Agreement
Between Eric Hirshberg and Activision Blizzard, Inc.

This Amendment #1 to the Employment Agreement (“Amendment #1”), by and between Eric Hirshberg (“Employee”) and Activision Blizzard, Inc. (“Employer” or “Activision Blizzard” and, together with its subsidiaries, the “Activision Blizzard Group”), is entered into and is effective as of the date signed by the Employer. All capitalized terms shall have the same meaning set forth in the Employment Agreement (as defined below).

RECITALS:

Employee and Activision Publishing, Inc. (a subsidiary of Activision Blizzard) entered into an Employment Agreement dated as of July 6, 2010, which was assigned to Activision Blizzard effective January 1, 2012 (collectively, the “Employment Agreement”).

Employee and Employer desire to amend the Employment Agreement in certain respects as set forth herein.

AGREEMENT:

The parties hereby agree to amend the terms of the Employment Agreement. Except as specifically set forth in this Amendment #1, the Employment Agreement shall remain unmodified and in full force and effect. If any term or provision of the Employment Agreement is contradictory to, or inconsistent with, any term or provision of this Amendment #1, then the terms of this Amendment #1 shall in all events control. The amended terms are as follows:

1. Term of Employment: Paragraph 1(a) is replaced and shall now read as follows: “The term of your employment under this Agreement (the “Term”) shall commence on or before September 1, 2010 (the “Effective Date”) and shall end on March 31, 2018 (the “Expiration Date”) (or such earlier date on which your employment is terminated under Section 9). The Employer shall have the option to extend the Term by up to one year by notifying you in writing of its intent to do so at least six (6) months prior to the original Expiration Date. The final date of any such extended Term shall thereafter be referred to as the “Expiration Date” for purposes of this Agreement and the Term shall end on such date (or such earlier date on which your employment is terminated). Except as set forth in Section 11(s), upon the Expiration Date (or such earlier date on which your employment is terminated) all obligations and rights under this Agreement shall immediately lapse.”

2. Compensation: Paragraph 2(b) is replaced and shall now read as follows: “Effective as of September 4, 2015, you shall receive an annual base salary (“Base Salary”) of $1,000,000 (less applicable taxes and withholdings), which shall be paid in accordance with the Employer’s payroll policies. Beginning in 2017, your Base Salary shall be reviewed periodically and may be increased at any time by an amount determined by the Employer, in its sole and absolute discretion, provided, however that it shall be reviewed each March during the Term, beginning in 2017, and shall be increased not less than 5% per annum (i.e. the salary increase in March 2017 will be not less than $50,000). The Employer’s regular periodic review of the executive base salaries usually occurs in the first quarter of each calendar year.”

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3. Compensation. Paragraph 2(g) is added and shall read as follows: “Subject to the approval of the Compensation Committee, Activision Blizzard will grant to you equity awards with a total target grant value of $10,200,000 (and a total grant value of $11,730,000 if the 2015 Maximum PSU Grant Value (as defined below) were achieved) as follows:

(i) Activision Blizzard shall grant to you non-qualified stock options to purchase shares of Activision Blizzard’s common stock with a total grant value of approximately $4,080,000 (the “2015 Options”). The actual number of stock options awarded to you on the grant date shall be determined based on the official closing price of Activision Blizzard’s common stock on the effective date of the grant, as reported by NASDAQ (the “Grant Date Price”), and an applicable binomial factor selected by Activision Blizzard. The number of stock options awarded shall be rounded to the nearest whole number, and Activision Blizzard retains the discretion to modify the methodology for such calculations as needed. The 2015 Options shall be awarded with an exercise price that is equal to the Grant Date Price. Finally, two-thirds of the 2015 Options shall vest on March 30, 2018, and one-third of the 2015 Options shall vest on March 30, 2019, in each case, subject to your remaining employed by the Activision Blizzard Group through the applicable vesting date.

(ii) Activision Blizzard shall grant to you performance-vesting restricted share units which represent the conditional right to receive shares of Activision Blizzard’s common stock (the “2015 Performance Share Units”), with a target value at the time of grant of approximately $6,120,000 (the “2015 Target PSU Grant Value”). The actual number of 2015 Performance Share Units awarded to you on the grant date shall be equal to the 2015 Target PSU Grant Value divided by the Grant Date Price (it being recognized that if the maximum performance objectives are met for all of the 2015 Performance Share Units, the value of the shares received upon vesting for all of the 2015 Performance Share Units would have been $7,650,000 at the time of grant of the 2015 Performance Share Units, representing 125% of the 2015 Target PSU Grant Value (the “2015 Maximum PSU Grant Value”). The number of 2015 Performance Share Units awarded shall be rounded to the nearest whole number and shall be determined by the Compensation Committee in its sole discretion, and Activision Blizzard retains the discretion to modify the methodology for such calculations as needed. Subject to your remaining employed by the Activision Blizzard Group through the applicable vesting dates, the actual number of shares of Activision Blizzard’s common stock (“Shares”) that shall be received on each of the applicable vesting dates is determined as follows:

a. One-third of the 2015 Performance Share Units (the “First Tranche 2015 Performance Share Units”) shall vest on March 30, 2018, if, and only if, the Compensation Committee determines that

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non-GAAP operating income (“2016 OI”) for Activision Publishing is 85% or more of the annual operating plan operating income objective established by the Board of Directors (the “2016 AOP OI Objective”) for Activision Publishing (the “2016 Performance Objective”) for 2016. If the 2016 OI is less than 85% of the 2016 AOP OI Objective, then the First Tranche 2015 Performance Share Units will not vest and shall be forfeited. If the 2016 OI is 85% or more of the 2016 AOP OI Objective, the number of Shares that shall be received with regard to the First Tranche 2015 Performance Share Units on the applicable vesting date shall be equal to the product of: (1) the number of First Tranche 2015 Performance Share Units; and (2) the ratio of the 2016 OI to the 2016 AOP OI Objective, up to a maximum of 125%.

b. One-third of the 2015 Performance Share Units (the “Second Tranche 2015 Performance Share Units”) shall vest on March 30, 2018, if, and only if, the Compensation Committee determines that non-GAAP operating income (“2017 OI”) for Activision Publishing is 85% or more of the annual operating plan operating income objective established by the Board of Directors (the “2017 AOP OI Objective”) for Activision Publishing (the “2017 Performance Objective”) for 2017. If the 2017 OI is less than 85% of the 2017 AOP OI Objective, then the Second Tranche 2015 Performance Share Units will not vest and shall be forfeited. If the 2017 OI is 85% or more of the 2017 AOP OI Objective, the number of Shares that shall be received with regard to the Second Tranche 2015 Performance Share Units on the applicable vesting date shall be equal to the product of: (1) the number of Second Tranche 2015 Performance Share Units; and (2) the ratio of the 2017 OI to the 2017 AOP OI Objective, up to a maximum of 125%.

c. One-third of the 2015 Performance Share Units (the “Third Tranche 2015 Performance Share Units”) shall vest on March 30, 2019, if, and only if, the Compensation Committee determines that non-GAAP operating income (“2018 OI”) for Activision Publishing is 85% or more of the annual operating plan operating income objective established by the Board of Directors (the “2018 AOP OI Objective”) for Activision Publishing (the “2018 Performance Objective”) for 2018. If the 2018 OI is less than 85% of the 2018 AOP OI Objective, then the Third Tranche 2015 Performance Share Units will not vest and shall be forfeited. If the 2018 OI is 85% or more of the 2018 AOP OI Objective, the number of Shares that shall be received with regard to the Third Tranche 2015 Performance Share Units on the applicable vesting date shall be equal to the product of: (1) the number of Third

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Tranche 2015 Performance Share Units; and (2) the ratio of the 2018 OI to the 2018 AOP OI Objective, up to a maximum of 125%.

If, prior to the vesting of any portion of the 2015 Performance Share Units, as provided for in this provision, your job responsibilities are changed to include a different or additional business unit, then Activision Blizzard, in its sole discretion, acting through the Compensation Committee or Activision Blizzard’s management, as applicable, may adjust the Performance Objective for the relevant fiscal year(s) by substituting the OI and AOP OI Objective of your new or additional business unit for that of your original business unit or by prorating or otherwise combining the OI and AOP OI Objective of the applicable business units, in each case for purposes of determining whether or not the conditions of the unvested 2015 Performance Share Units have been satisfied.

Collectively, the 2015 Options and the 2015 Performance Share Units shall be referred to as the “2015 Equity Awards”. You acknowledge that the grant of 2015 Equity Awards pursuant to this Section 2(g) is expressly conditioned upon approval by the Compensation Committee and that the Compensation Committee has discretion to approve or disapprove the grants and/or to determine and make modifications to the terms of the grants. The 2015 Equity Awards shall be subject to all terms of the Incentive Plan pursuant to which they are granted, the Employer’s Executive Stock Ownership Guidelines (including, but not limited to, all of the limitations on equity awards described therein) which are attached as Exhibit C, and Activision Blizzard’s standard forms of award agreement (as modified to the extent necessary to reflect the provisions of Section 10). In the event of a conflict between this Agreement and the terms of the Incentive Plan or award agreements, the Incentive Plan or the award agreements, as applicable, shall govern. These Equity Awards, if and when approved by the Compensation Committee, shall be in addition to any previous equity incentive awards made to you.”

4. Compensation. The following provisions are deleted: Sections 2(c)(ii) and Section 2(f).

5. Other Benefits. The following sentences are added to the end of Section 6(a): “After this Amendment #1 is signed by both parties, Employer will provide to you through the Expiration Date, and at Employer’s expense, a supplemental term life insurance policy with a face amount of $5,000,000 through a carrier of Employer’s choice (the “Target Face Amount”), subject to your insurability. You will be the owner of the policy and shall have all powers of ownership, including the power to designate a beneficiary or beneficiaries.”

6. Termination of Obligations and Severance Payments. Section 10(d)(ii) is replaced and shall read now as follows: “Salary Continuation. You or your legal representative, as the case may be, shall receive the payment of an amount equal to the Base Salary (at the rate in effect on the Termination Date) that you would have received had you remained employed through the Expiration Date, which amount shall be paid in equal installments commencing on the first payroll date following the 60th day following the Termination Date in accordance with the Employer’s payroll practices as in effect from time to time, provided that the first such payment shall include any installments relating to the 60 day period following the Termination

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Date, provided, however, that, to the extent doing so will not result in the imposition of additional taxes under Section 409A, this amount shall be reduced by any payments which you have received or to which you become entitled under any Employer-sponsored long-term disability plan;”.

7. Termination of Obligations and Severance Payments. Section 10(f)(ii) is replaced and shall read now as follows: “Bonus Severance. You or your legal representative, as the case may be, shall receive payment of the Bonus Severance in a lump sum no later than the 15th day of the third month of the year following the year to which the underlying amount relates;”.

8. Termination of Obligations and Severance Payments. In Sections 10(b), 10(c), 10(e), and 10(f), all references to “Equity Awards” shall change to “Equity Awards and 2015 Equity Awards”. Similarly, all references in Section 10 to “RSUs” shall change to “RSUs and 2015 Performance Share Units”. Wherever the sentence “The Option shall be treated as set forth in Section 2 above.” appears in Section 10, is shall be modified to read as follows: “The Option shall be treated as set forth in Section 2 above; with respect to the 2015 Options, any vested portion of the 2015 Options shall remain exercisable until the earlier of (x) thirty (30) days after the Termination Date and (y) the original expiration date of the 2015 Options.”

9. Termination of Obligations and Severance Payments. Section 10(d)(iv) is replaced by Sections 10(d)(iv)(a) and 10(d)(iv)(b), which shall read as follows:

10(d)(iv)(a): “Impact on Equity Awards and 2015 Options. All outstanding Equity Awards and 2015 Options shall cease to vest. The Option shall be treated as set forth in Section 2 above. Any vested portion of the 2015 Options shall remain exercisable until the earlier of (x) thirty (30) days after the Termination Date and (y) the original expiration date of the 2015 Options. Any Equity Awards and 2015 Options that are not vested as of your Termination Date will be cancelled immediately.”

10(d)(iv)(b): Impact on 2015 Performance Share Units: All vested RSUs and vested 2015 Performance Share Units shall be paid in accordance with their terms.

All unvested 2015 Performance Share Units will cease to vest and be cancelled immediately. Notwithstanding the foregoing, in the event that (i) your Termination Date occurs after the completion of one or more performance periods (i.e. fiscal years 2016, 2017 and/or 2018), (ii) your employment is terminated pursuant to Section 9(b) or 9(c)); and b) the Compensation Committee determines that the applicable Performance Objective(s) (i.e. 2016 Performance Objective, 2017 Performance Objective and/or 2018 Performance Objective) have been achieved for each performance period completed prior to your Termination Date, then an amount to be calculated as provided for below in Paragraph 10(d)(iv)(b)[i] shall be paid to you, (the “PSU Termination Consideration”). This amount shall be paid no later than the later of the 60th day following the Termination Date and 30 days after the date the Compensation Committee determines that the applicable Performance Objective(s) (i.e. 2016 Performance Objective, 2017

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Performance Objective and/or 2018 Performance Objective) have been achieved (if any), and will be subject to applicable taxes and withholdings.

[i] The formula for determining the PSU Termination Consideration for each applicable tranche of cancelled 2015 Performance Share Units, if any, (i.e. the First Tranche 2015 Performance Share Units, the Second Tranche 2015 Performance Share Units and/or the Third Tranche 2015 Performance Share Units) is as follows: multiply the Grant Date Price by the product of the number of performance share units for the applicable tranche by the ratio, as determined by the Compensation Committee, in its discretion, of the non-GAAP operating income (the “OI”) for the applicable fiscal year to the AOP OI Objective for the applicable fiscal year (e.g. the Performance Objective for the applicable fiscal year), up to a maximum of 125%.

For clarity, the following examples are provided as illustration, but not by way of limitation:

(x) in the event that your employment terminates on January 1, 2017, pursuant to Section 9(b) or 9(c), the Compensation Committee determines that 86% of the 2016 Performance Objective is achieved, the number of performance share units granted for the First Tranche 2015 Performance Share Units is 68,000, and the Grant Date Price is $30, then $1,754,400 will be paid using the following calculation: $30 x [68,000 x .86] = $1,754,400. You will receive no payment with respect to the cancelled Second or Third Tranche 2015 Performance Share Units.

(y) in the event that your employment terminates on January 1, 2018, pursuant to Section 9(b) or 9(c), the Compensation Committee determines that 80% of the 2016 Performance Objective is achieved, 135% of the 2017 Performance Objective is achieved, the Grant Date Price is $30 and the number of performance share units granted for each of the First Tranche 2015 Performance Share Units and the Second Tranche 2015 Performance Share Units is 68,000, then $2,550,000 will be paid using the following calculation: $30 x [68,000 x 1.25] = $2,550,000. You will receive no payment with respect to the cancelled Third Tranche 2015 Performance Share Units.”

10. Additional Severance. A new section 10(d)(v) is added as follows:

10(d)(v): “Additional Severance.

(a) You or your legal representative, as the case may be, shall receive payment of $1,360,000, if and only if, (i) your employment is terminated pursuant to Section 9(b) or 9(c), (ii) your Termination Date is after December 31, 2016, and (iii) the Compensation Committee determines, in its sole discretion, that Activision Publishing’s [i] 2016 OI is $1or greater and [ii] 2016 OI is 85% or greater than the 2016 AOP OI Objective;

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(b) You or your legal representative, as the case may be, shall receive payment of $1,360,000, if an only if, (i) your employment is terminated pursuant to Section 9(b) or 9(c) , (ii) your Termination Date is after December 31, 2017, and (iii) the Compensation Committee determines, in its sole discretion, that Activision Publishing’s [i] 2017 OI is $1or greater and [ii] 2017 OI is 85% or greater than the 2017 AOP OI Objective; and

(c) You or your legal representative, as the case may be, shall receive payment of $1,360,000, if an only if, (i) your employment is terminated pursuant to Section 9(b) or 9(c), (ii) your Termination Date is after December 31, 2018, and (iii) the Compensation Committee determines, in its sole discretion, that Activision Publishing’s [i] 2018 OI is $1or greater and [ii] 2018 OI is 85% or greater than the 2018 AOP OI Objective.

The amounts set forth in Sections 10(d)(v)(a) through (c) are intended to be cumulative to the extent the applicable conditions are satisfied; provided, however, no payment pursuant to Section 10(d)(v)(a) or (b) shall be due to you if your Termination Date is on or after March 30, 2018. All amounts owed pursuant to this Section 10(d)(v) will be paid to you no later than the later of the 60th day following the Termination Date and 30 days after the date the Compensation Committee determines that the applicable OI conditions have been achieved (if any), and will be subject to applicable taxes; and”

11. Termination of Obligations and Severance Payments. Section 10(d)(v) is re-labeled as Section 10(d)(vi) and amended so that the words “Section 10(d)(ii) and Section 10(d)(iii)” in the first sentence are replaced with “Sections 10(d)(ii)-(v)”.

12. General Provisions. Section 11(a) is deleted and replaced with the following: “Entire Agreement. This Agreement, the Proprietary Information Agreement, the Activision Blizzard Group Dispute Resolution Agreement (the “Dispute Resolution Agreement”, as defined in Section 11(k)), and the New Employee Letter and Certification (as defined in Section 11(d)), supersede all prior or contemporaneous agreements and statements, whether written or oral, concerning the terms of your employment with the Activision Blizzard Group, and no amendment or modification of these agreements shall be binding unless it is set forth in a writing signed by both the Employer and you. To the extent that this Agreement conflicts with any of the Employer’s policies, procedures, rules or regulations, this Agreement shall supersede the other policies, procedures, rules or regulations.”

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13. General Provisions. Section 11(k) is deleted and replaced with the following: “Except as otherwise provided in this Agreement, both parties agree that any dispute or controversy between them will be settled by final and binding arbitration pursuant to the terms of the Dispute Resolution Agreement (attached hereto as Exhibit D).

AGREED AND ACCEPTED:

Employer			Employee

ACTIVISION BLIZZARD, INC.


By:	/s/ Humam Sakhnini		/s/ Eric Hirshberg
	Humam Sakhnini		Eric Hirshberg
	Chief Strategy and Talent Officer

Date:		10/15/2015	Date:	10/12/15

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Exhibit 10.4

ACTIVISION BLIZZARD, INC.

2014 INCENTIVE PLAN

NOTICE OF STOCK OPTION AWARD

You have been awarded an option to purchase Common Shares of Activision Blizzard, Inc. (the “Company”), as follows:

· Your name: Eric Hirshberg

· Total number of Shares purchasable upon exercise of the Stock Option awarded: 398,820

· Exercise Price: US$34.59 per Share

· Date of Grant: November 13, 2015

· Expiration Date: November 13, 2025

· Grant ID: 01404052

· Your Award of the Stock Option is governed by the terms and conditions set forth in:

· this Notice of Stock Option Award;

· the Stock Option Award Terms attached hereto as Exhibit A (the “Award Terms”); and

· the Company’s 2014 Incentive Plan, the receipt of a copy of which you hereby acknowledge.

· Schedule for Vesting: Except as otherwise provided under the Award Terms, the Stock Option awarded to you will vest and become exercisable as follows, provided you remain continuously employed by the Company or one of its subsidiaries through the applicable vesting date:

Date of Vesting		No. of Shares Vesting at Vesting Date

March 30, 2018		265,880
March 30, 2019		132,940

· Please sign and return to the Company this Notice of Stock Option Award, which bears an original signature on behalf of the Company. You are urged to do so promptly.

· Please return the signed Notice of Stock Option Award to the Company at:

Activision Blizzard, Inc.
3100 Ocean Park Boulevard
Santa Monica, CA 90405
Attn: Stock Plan Administration

· By accepting the Award, you are deemed to be bound by the terms and conditions set forth in the 2014 Incentive Plan, this Notice of Stock Option Award and the Award Terms.

You should retain the enclosed duplicate copy of this Notice of Stock Option Award for your records.

Any capitalized term used but not otherwise defined herein shall have the meaning ascribed to such term in the Award Terms.

		ACTIVISION BLIZZARD, INC.


		/s/ Humam Sakhnini
		Humam Sakhnini
		Chief Strategy & Talent Officer

		Date:	1/8/2015


ACCEPTED AND AGREED:


/s/ Eric Hirshberg
Eric Hirshberg

Date:	1/21/2015

EXHIBIT A

ACTIVISION BLIZZARD, INC.

2014 INCENTIVE PLAN

STOCK OPTION AWARD TERMS

1. Definitions.

(a) For purposes of these Award Terms, the following terms shall have the meanings set forth below:

“Award” means the award described on the Grant Notice.

“Cause” (i) shall have the meaning given to such term in any employment agreement or offer letter between the Holder and any entity in the Company Group in effect at the time of the determination or (ii) if the Holder is not then party to any agreement or offer letter with any entity in the Company Group or any such agreement or offer letter does not contain a definition of “cause,” shall mean a good faith determination by the Company that the Holder (A) engaged in misconduct or gross negligence in the performance of his or her duties or willfully and continuously failed or refused to perform any duties reasonably requested in the course of his or her employment; (B) engaged in fraud, dishonesty, or any other conduct that causes, or has the potential to cause, harm to any entity in the Company Group, including its business reputation or financial condition; (C) violated any lawful directives or policies of the Company Group or any applicable laws, rules or regulations; (D) materially breached his or her employment agreement, proprietary information agreement or confidentiality agreement with any entity in the Company Group; (E) was convicted of, or pled guilty or no contest to, a felony or crime involving dishonesty or moral turpitude; or (F) breached his or her fiduciary duties to the Company Group.

“Common Shares” means the shares of common stock, par value $0.000001 per share, of the Company or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to in Section 9 hereof.

“Company” means Activision Blizzard, Inc. and any successor thereto.

“Company Group” means the Company and its subsidiaries.

“Company-Sponsored Equity Account” means an account that is created with the Equity Account Administrator in connection with the administration of the Company’s equity plans and programs, including the Plan.

“Date of Grant” means the Date of Grant of the Award set forth on the Grant Notice.

“Disability” (i) shall have the meaning given to such term in, or otherwise be determined in accordance with, any employment agreement or offer letter between the Holder and any entity in the Company Group in effect at the time of the determination or (ii) if the Holder is not then party to any agreement or offer letter with any entity in the Company Group or

Option Grant Award Agreement

any such agreement or offer letter does not contain a definition of “disability” or otherwise provide a method for determining whether the Holder is disabled, shall mean the Holder is receiving benefits under any long-term disability plan of the Company Group then in effect.

“Employment Violation” means any material breach by the Holder of his or her employment agreement with any entity in the Company Group for so long as the terms of such employment agreement shall apply to the Holder (with any breach of the post-termination obligations contained therein deemed to be material for purposes of this definition).

“Equity Account Administrator” means the brokerage firm utilized by the Company from time to time to create and administer accounts for participants in the Company’s equity plans and programs, including the Plan.

“Exercise Price” means the Exercise Price set forth on the Grant Notice.

“Exercise Rules and Regulations” means (i) the Securities Act or any comparable federal securities law and all applicable state securities laws, (ii) the requirements of any securities exchange, securities association, market system or quotation system on which Common Shares are then traded or quoted, (iii) any restrictions on transfer imposed by the Company’s certificate of incorporation or bylaws, and (iv) any policy or procedure the Company has adopted with respect to the trading of its securities, in each case as in effect on the date of the intended transaction.

“Expiration Date” means the Expiration Date set forth on the Grant Notice.

“Grant Notice” means the Notice of Stock Option Award to which these Award Terms are attached as Exhibit A.

“Holder” means the recipient of the Award named on the Grant Notice.

“Look-back Period” means, with respect to any Employment Violation by the Holder, the period beginning on the date which is 12 months prior to the date of such Employment Violation by the Holder and ending on the date of computation of the Recapture Amount with respect to such Employment Violation.

“Option” means the Stock Option to purchase Common Shares awarded to the Holder on the terms and conditions described in the Grant Notice and these Award Terms.

“Plan” means the 2014 Incentive Plan, as amended from time to time.

“Recapture Amount” means, with respect to any Employment Violation by the Holder, the gross gain realized or unrealized by the Holder upon all exercises of the Stock Option during the Look-back Period with respect to such Employment Violation, which gain shall be calculated as the sum of:

(i) if the Holder has exercised any portion of the Stock Option during such Look-back Period and sold any of the Shares acquired on exercise thereafter, an amount equal to (A) the sum of the sales price for all such Shares sold minus (B) the aggregate Exercise Price for such Shares; plus

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(ii) if the Holder has exercised any portion of the Stock Option during such Look-back Period and not sold all of the Shares acquired on exercise thereafter, an amount equal to the product of (A) the greatest of the following, minus the Exercise Price: (1) the Market Value per Share of Common Shares on the date of exercise, (2) the arithmetic average of the per share closing sales prices of Common Shares as reported on NASDAQ for the 30 trading day period ending on the trading day immediately preceding the date of the Company’s written notice of its exercise of its rights under Section 12 hereof, or (3) the arithmetic average of the per share closing sales prices of Common Shares as reported on NASDAQ for the 30 trading day period ending on the trading day immediately preceding the date of computation times (B) the number of Shares as to which the Stock Option was exercised and which were not sold.

“Section 409A” means Section 409A of the Code and the guidance and regulations promulgated thereunder.

“Securities Act” means the Securities Act of 1933, as amended.

“Shares” means the Common Shares purchasable upon exercise of the Stock Option.

“Withholding Taxes” means any taxes, including, but not limited to, social security and Medicare taxes and federal, state and local income taxes, required under any applicable law to be withheld from amounts otherwise payable to the Holder.

(b) Any capitalized term used but not otherwise defined herein shall have the meaning ascribed to such term in the Plan.

2. Expiration. The Stock Option shall expire on the Expiration Date and, after such expiration, shall no longer be exercisable.

3. Vesting and Exercise.

(a) Vesting Schedule. Except as otherwise set forth in these Award Terms, the Stock Option shall vest, and thereupon become exercisable, in accordance with the “Schedule for Vesting” set forth on the Grant Notice.

(b) Exercisable Only by the Holder. Except as otherwise permitted under the Plan or Section 11 hereof, the Stock Option may be exercised during the Holder’s lifetime only by the Holder or, in the event of the Holder’s legal incapacity to do so, by the Holder’s guardian or legal representative acting on behalf of the Holder in a fiduciary capacity under court supervision and/or applicable law.

(c) Procedure for Exercise. The Stock Option may be exercised by the Holder as to all or any of the Shares as to which the Stock Option has vested (i) by following the procedures for exercise established by the Equity Account Administrator and posted on the Equity Account Administrator’s website from time to time or (ii) with the Company’s consent, by giving the Company written notice of exercise, in such form as may be prescribed by the Company from time to time, specifying the number of Shares to be purchased.

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(d) Payment of Exercise Price. To be valid, any exercise of the Stock Option must be accompanied by full payment of the aggregate Exercise Price of the Shares being purchased. The Company shall determine the method or methods the Holder may use to make such payment, which may include any of the following: (i) by bank check or certified check or wire transfer of immediately available funds, (ii) if securities of the Company of the same class as the Shares are then traded or quoted on a national securities exchange, the Nasdaq Stock Market, Inc. or a national quotation system sponsored by the National Association of Securities Dealers, Inc., through the delivery of irrevocable written instructions, in a form acceptable to the Company, to the Equity Account Administrator (or, with the Company’s consent, such other brokerage firm as may be requested by the person exercising the Stock Option) to sell some or all of the Shares being purchased upon such exercise and to thereafter deliver promptly to the Company from the proceeds of such sale an amount in cash equal to the aggregate Exercise Price of the Shares being purchased, (iii) by tendering previously owned shares (valued at their Market Value per Share as of the date of tender), (iv) through the withholding of Shares otherwise deliverable upon exercise, or (v) any combination of (i), (ii), (iii) or (iv) above or any other manner permitted pursuant to the Plan.

(e) No Fractional Shares. In no event may the Stock Option be exercised for a fraction of a Share.

(f) No Adjustment for Dividends or Other Rights. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date as of which the issuance or transfer of Shares to the person entitled thereto has been evidenced on the books and records of the Company pursuant to clause (ii) of Section 3(g) hereof following exercise of the Stock Option.

(g) Issuance and Delivery of Shares. As soon as practicable (and, in any event, within 30 days) after the valid exercise of the Stock Option, the Company shall (i) effect the issuance or transfer of the Shares purchased upon such exercise, (ii) cause the issuance or transfer of such Shares to be evidenced on the books and records of the Company, and (iii) cause such Shares to be delivered to a Company-Sponsored Equity Account in the name of the person entitled to such Shares (or, with the Company’s consent, such other brokerage account as may be requested by such person); provided, however, that, in the event such Shares are subject to a legend as set forth in Section 15 hereof, the Company shall instead cause a certificate evidencing such Shares and bearing such legend to be delivered to the person entitled thereto.

(h) Partial Exercise. If the Stock Option shall have been exercised with respect to less than all of the Shares purchasable upon exercise of the Stock Option, the Company shall make a notation in its books and records to reflect the partial exercise of the Stock Option and the number of Shares that thereafter remain available for purchase upon exercise of the Stock Option.

4. Termination of Employment.

(a) Cause. In the event that the Holder’s employment is terminated by any entity in the Company Group for Cause, as of the date of such termination of employment the Stock Option shall (i) cease to vest, if not then fully vested, (ii) no longer be exercisable, whether or not vested, and (iii) be immediately cancelled.

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(b) Death or Disability. Unless the Committee determines otherwise, in the event that the Holder dies while employed by any entity in the Company Group or the Holder’s employment with any entity in the Company Group is terminated due to the Holder’s Disability, the Stock Option shall (i) cease to vest as of the date of the Holder’s death or the first date of the Holder’s Disability (as determined by the Committee), as the case may be, and (ii) to the extent vested as of the date of the Holder’s death or the first date of the Holder’s Disability, as the case may be, remain exercisable in accordance with these Award Terms until the earlier of (A) the first anniversary of the date of the Holder’s death or termination of employment, as the case may be, and (B) the Expiration Date, after which the Stock Option shall no longer be exercisable and shall be immediately cancelled. To the extent not vested as of the date of the Holder’s death or the first date of the Holder’s Disability, as the case may be, the Stock Option shall be immediately cancelled and shall no longer be exercisable.

(c) Other. Unless the Committee determines otherwise, in the event that the Holder’s employment is terminated for any reason not addressed by Section 4(a) or 4(b) hereof, the Stock Option shall (i) cease to vest as of the date of such termination of employment and (ii) to the extent vested as of the date of such termination of employment, be exercisable in accordance with these Award Terms until the earlier of (A) the 30th day after the date of such termination of employment (or, if the Holder is prohibited from exercising the Stock Option during some or all of the 30-day period following such termination date because such exercise would not be in compliance with the Exercise Rules and Regulations, whatever later date may be determined in accordance with a Committee-approved policy) and (B) the Expiration Date, after which the Stock Option shall no longer be exercisable and shall be immediately cancelled. To the extent not vested as of the date of such termination of service, the Stock Option shall be immediately cancelled and shall no longer be exercisable.

5. Tax Withholding. The Company shall have the right to require the Holder to satisfy any Withholding Taxes resulting from the exercise (in whole or in part) of the Stock Option, the issuance or transfer of any Shares upon exercise of the Stock Option or otherwise in connection with the Award at the time such Withholding Taxes become due. The Company shall determine the method or methods the Holder may use to satisfy any Withholding Taxes contemplated by this Section 5, which may include any of the following: (a) by delivery to the Company of a bank check or certified check or wire transfer of immediately available funds; (b) if securities of the Company of the same class as the Shares are then traded or quoted on a national securities exchange, the Nasdaq Stock Market, Inc. or a national quotation system sponsored by the National Association of Securities Dealers, Inc., through the delivery of irrevocable written instructions, in a form acceptable to the Company, to the Equity Account Administrator (or, with the Company’s consent, such other brokerage firm as may be requested by the person exercising the Stock Option) to sell some or all of the Shares being purchased upon such exercise and to thereafter deliver promptly to the Company from the proceeds of such sale an amount in cash equal to the aggregate amount of such Withholding Taxes; (c) by tendering previously owned shares (valued at their Market Value per Share as of the date of tender); (d) through the withholding of Shares otherwise deliverable upon exercise; or (e) by any combination of (a), (b), (c) or (d) above. Notwithstanding anything to the contrary contained herein, any entity in the Company Group shall have the right to ensure that all Withholding Taxes contemplated by this Section 5 are satisfied by (i) withholding from the Holder’s compensation, (ii) withholding Shares otherwise then deliverable (in which case the Holder will be deemed to have been issued the full number of Shares purchased upon exercise of the Stock

Option Grant Award Agreement

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Option), and (iii) arranging for the sale, on the Holder’s behalf, of Shares otherwise then deliverable. The Company shall have no obligation to deliver any Shares upon exercise of the Stock Option unless and until all Withholding Taxes contemplated by this Section 5 have been satisfied.

6. Deemed Agreement. By accepting the Award, the Holder is deemed to be bound by the terms and conditions set forth in the Plan, the Grant Notice and these Award Terms.

7. Reservation of Shares. The Company shall at all times reserve for issuance or delivery upon exercise of the Stock Option such number of Common Shares as shall be required for issuance or delivery upon exercise thereof.

8. Committee Discretion. Except as may otherwise be provided in the Plan, the Committee shall have sole discretion to (a) interpret any provision of the Plan, the Grant Notice and these Award Terms, (b) make any determinations necessary or advisable for the administration of the Plan and the Award, and (c) waive any conditions or rights of the Company under the Award, the Grant Notice or these Award Terms. Without intending to limit the generality or effect of the foregoing, any decision or determination to be made by the Committee pursuant to these Award Terms, including whether to grant or withhold any consent, shall be made by the Committee in its sole and absolute discretion, subject only to the terms of the Plan. Subject to the terms of the Plan, the Committee may amend the terms of the Award prospectively or retroactively; however, no such amendment may materially and adversely affect the rights of the Holder taken as a whole without the Holder’s consent. Without intending to limit the generality or effect of the foregoing, the Committee may amend the terms of the Award (i) in recognition of unusual or nonrecurring events (including, without limitation, events described in Section 9 hereof) affecting any entity in the Company Group or any of the Company’s other affiliates or the financial statements of any entity in the Company Group or any of the Company’s other affiliates, (ii) in response to changes in applicable laws, regulations or accounting principles and interpretations thereof, or (iii) to prevent the Award from becoming subject to Section 409A.

9. Adjustments. Notwithstanding anything to the contrary contained herein, pursuant to Section 13 of the Plan, the Committee will make or provide for such adjustments to the Award as are equitably required to prevent dilution or enlargement of the rights of the Holder that otherwise would result from (a) any stock dividend, extraordinary dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) any change of control, merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, or issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee, in its discretion, may provide in substitution for the Award such alternative consideration (including, without limitation, cash), if any, as it may determine to be equitable in the circumstances and may require in connection therewith the surrender of the Award.

10. Registration and Listing. Notwithstanding anything to the contrary contained herein, the Stock Option may not be exercised, and the Stock Option and Shares purchasable upon exercise of the Stock Option may not be purchased, sold, assigned, transferred, pledged,

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hypothecated or otherwise disposed of or encumbered in any way, unless such transaction is in compliance with all Exercise Rules and Regulations. The Company is under no obligation to register, qualify or list, or maintain the registration, qualification or listing of, the Stock Option or Shares with the SEC, any state securities commission or any securities exchange, securities association, market system or quotation system to effect such compliance. The Holder shall make such representations and furnish such information as may be appropriate to permit the Company, in light of the then existence or non-existence of an effective registration statement under the Securities Act relating to the Stock Option or Shares, to issue or transfer the Stock Option or Shares in compliance with the provisions of that or any comparable federal securities law and all applicable state securities laws. The Company shall have the right, but not the obligation, to register the issuance or resale of the Stock Option or Shares under the Securities Act or any comparable federal securities law or applicable state securities law.

11. Transferability. Subject to the terms of the Plan and only with the Company’s consent, the Holder may transfer all or part of the Stock Option for estate planning purposes or pursuant to a domestic relations order; provided, however, that any transferee shall be bound by all of the terms and conditions of the Plan, the Grant Notice and these Award Terms and shall execute an agreement in form and substance satisfactory to the Company in connection with such transfer; and provided further that the Holder will remain bound by the terms and conditions of the Plan, the Grant Notice and these Award Terms. Except as otherwise permitted under the Plan or this Section 11, the Stock Option shall not be transferable by the Holder other than by will or the laws of descent and distribution.

12. Employment Violation. The terms of this Section 12 shall apply to the Stock Option if the Holder is or becomes subject to an employment agreement with any entity in the Company Group. In the event of an Employment Violation, the Company shall have the right to require (a) the termination and cancellation of the Stock Option, whether vested or unvested, and (b) payment by the Holder to the Company of the Recapture Amount with respect to such Employment Violation; provided, however, that, in lieu of payment by the Holder to the Company of the Recapture Amount, the Holder, in his or her discretion, may tender to the Company the Shares acquired upon exercise of the Stock Option during the Look-back Period with respect to such Employment Violation (without any consideration from the Company in exchange therefor). Any such termination of the Stock Option and payment of the Recapture Amount, as the case may be, shall be in addition to, and not in lieu of, any other right or remedy available to the Company arising out of or in connection with such Employment Violation, including, without limitation, the right to terminate the Holder’s employment if not already terminated and to seek injunctive relief and additional monetary damages.

13. Compliance with Applicable Laws and Regulations and Company Policies and Procedures.

(a) The Holder is responsible for complying with (i) any federal, state and local taxation laws applicable to the Holder in connection with the Award and (ii) all Exercise Rules and Regulations.

(b) The Award is subject to the terms and conditions of any policy requiring or permitting the Company to recover any gains realized by the Holder in connection with the

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Award, including, without limitation, the Policy on Recoupment of Performance-Based Compensation Related to Certain Financial Restatements.

14. Section 409A. As the Exercise Price is equal to the fair market value of a Share on the Date of Grant, payments contemplated with respect to the Award are intended to be exempt from Section 409A, and all provisions of the Plan, the Grant Notice and these Award Terms shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A. Notwithstanding the foregoing, (a) nothing in the Plan, the Grant Notice and these Award Terms shall guarantee that the Award is not subject to taxes or penalties under Section 409A and (b) if any provision of the Plan, the Grant Notice or these Award Terms would, in the reasonable, good faith judgment of the Company, result or likely result in the imposition on the Holder or any other person of taxes, interest or penalties under Section 409A, the Committee may, in its sole discretion, modify the terms of the Plan, the Grant Notice or these Award Terms, without the consent of the Holder, in the manner that the Committee may reasonably and in good faith determine to be necessary or advisable to avoid the imposition of such taxes, interest or penalties; provided, however, that this Section 13 does not create an obligation on the part of the Committee or the Company to make any such modification, and in no event shall the Company be liable for the payment of or gross up in connection with any taxes, interest or penalties owed by the Holder pursuant to Section 409A.

15. Legend. The Company may, if determined by it based on the advice of counsel to be appropriate, cause any certificate evidencing Shares to bear a legend substantially as follows:

“THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ‘ACT’), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT.”

16. No Right to Continued Employment. Nothing contained in the Grant Notice or these Award Terms shall be construed to confer upon the Holder any right to be continued in the employ of any entity in the Company Group or derogate from any right of any entity in the Company Group to retire, request the resignation of, or discharge the Holder at any time, with or without Cause.

17. No Rights as Stockholder. No holder of the Stock Option shall, by virtue of the Grant Notice or these Award Terms, be entitled to any right of a stockholder of the Company, either at law or in equity, and the rights of any such holder are limited to those expressed, and are not enforceable against the Company except to the extent set forth, in the Plan, the Grant Notice or these Award Terms.

18. Severability. In the event that one or more of the provisions of these Award Terms shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable.

19. Venue and Governing Law.

Option Grant Award Agreement

A-8

(a) For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the grant of the Stock Option or these Award Terms, the parties submit and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of Los Angeles County, California or the federal courts of the United States for the Central District of California, and no other courts, regardless of where the grant of the Stock Option is made and/or to be performed.

(b) To the extent that federal law does not otherwise control, the validity, interpretation, performance and enforcement of the Grant Notice and these Award Terms shall be governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws thereof.

20. Successors and Assigns. The provisions of the Grant Notice and these Award Terms shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Holder and, to the extent applicable, the Holder’s permitted assigns under Section 3(b) hereof and the Holder’s estate or beneficiaries as determined by will or the laws of descent and distribution.

21. Notices.

(a) Any notice or other document which the Holder may be required or permitted to deliver to the Company pursuant to or in connection with the Grant Notice or these Award Terms shall be in writing, and may be delivered personally or by mail, postage prepaid, or overnight courier, addressed to the Company, at its office at 3100 Ocean Park Boulevard, Santa Monica, California 90405, Attn: Stock Plan Administration, or such other address as the Company by notice to the Holder may designate in writing from time to time. Notices shall be effective upon delivery.

(b) Any notice or other document which the Company may be required or permitted to deliver to the Holder pursuant to or in connection with the Grant Notice or these Award Terms shall be in writing, and may be delivered personally or by mail, postage prepaid, or overnight courier, addressed to the Holder at the address shown on any employment agreement or offer letter between the Holder and any entity in the Company Group in effect at the time, or such other address as the Holder by notice to the Company may designate in writing from time to time. The Company may also, in its sole discretion, deliver any such document to the Holder electronically via an e-mail to the Holder at his or her Company-provided email address or through a notice delivered to such e-mail address that such document is available on a website established and maintained on behalf of the Company or a third party designated by the Company, including, without limitation, the Equity Account Administrator. Notices shall be effective upon delivery.

Option Grant Award Agreement

A-9

22. Conflict with Employment Agreement or Plan. In the event of any conflict between the terms of any employment agreement or offer letter between the Holder and any entity in the Company Group in effect at the time and the terms of the Grant Notice or these Award Terms, the terms of the Grant Notice or these Award Terms, as the case may be, shall control. In the event of any conflict between the terms of any employment agreement or offer letter between the Holder and any entity in the Company Group in effect at the time, the Grant Notice or these Award Terms and the terms of the Plan, the terms of the Plan shall control.

23. Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Holder’s participation in the Plan, on the Stock Option and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to facilitate the administration of the Plan, and to require the Holder to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

24. Waiver. The Holder acknowledges that a waiver by the Company of a breach of any provision of these Award Terms shall not operate or be construed as a waiver of any other provision of these Award Terms, or of any subsequent breach by the Holder or any other holder of an equity award from the Company.

Option Grant Award Agreement

A-10

Exhibit 31.1

CERTIFICATION

I, Robert A. Kotick, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Activision Blizzard, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2016

	/s/ ROBERT A. KOTICK
	Robert A. Kotick
	Chief Executive Officer and
	Principal Executive Officer of
	Activision Blizzard, Inc.

Exhibit 31.2

CERTIFICATION

I, Dennis Durkin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Activision Blizzard, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2016

	/s/ DENNIS DURKIN
	Dennis Durkin
	Chief Financial Officer and
	Principal Financial Officer of
	Activision Blizzard, Inc.

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Activision Blizzard, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert A. Kotick, Chief Executive Officer and Principal Executive Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 9, 2016

	/s/ ROBERT A. KOTICK
	Robert A. Kotick
	Chief Executive Officer and Principal Executive Officer of Activision Blizzard, Inc.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Activision Blizzard, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis Durkin, Chief Financial Officer and Principal Financial Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 9, 2016

	/s/ DENNIS DURKIN
	Dennis Durkin
	Chief Financial Officer and
	Principal Financial Officer of Activision Blizzard, Inc.