ACTIVISION BLIZZARD, INC.
3100 OCEAN PARK BOULEVARDSANTA MONICA, CALIFORNIA 90405®

®

ACTIVISION BLIZZARD
2015 ANNUAL REPORTACTIVISIONBLIZZARD.COM

2015 ANNUAL REPORT2015:CORPORATE INFORMATIONREVENUES1$4.6

UP 4% YEAR-OVER-YEAR AT CONSTANT FX2BOARD OF DIRECTORSOFFICERSSPECIAL ADVISORSANNUAL MEETING

Robert J. Corti
Retired CFO,
Avon Products, Inc.

Robert A. Kotick
President and Chief
Executive Officer,
Activision Blizzard

Michael Griffith
Vice Chairman,
Activision Blizzard

Thomas Tippl
Chief Operating Officer,
Activision Blizzard

TRANSFER AGENT

June 2, 2016, 9:00 am PDT
Equity Office3200 Ocean Park BoulevardSanta Monica, California 90405

Hendrik J. Hartong III
Chairman and Chief
Executive Officer,
Brynwood Partners

BILLION

DIGITAL REVENUES

Brian G. Kelly
Chairman of the Board,
Activision Blizzard

57% OF TOTAL REVENUE, REPRESENTING AN ALL-TIME
HIGH AND UP 20% YEAR-OVER-YEAR

Robert A. Kotick
President and Chief
Executive Officer,
Activision Blizzard

1$2.6
BILLION

Barry Meyer
Retired Chairman and CEO,
Warner Brothers Entertainment

EARNINGS PER SHARE

Robert J. Morgado
Retired Chairman and CEO,
Warner Music GroupUP 13% YEAR-OVER-YEAR AT CONSTANT FX2Peter Nolan
Senior Advisor,
Leonard Green & Partners, L.P.

1

$1.32

Casey Wasserman
Chairman and Chief
Executive Officer,
Wasserman Media GroupOPERATING MARGIN

132

ABOVE PRIOR RECORD AT CONSTANT FX2PERCENTOPERATING CASH FLOW

$1.2

OVER $6 BILLION OVER THE LAST 5 YEARSBILLION

Dennis M. Durkin
Chief Financial Officer
and Treasurer,
Activision Blizzard
Eric Hirshberg
President and Chief
Executive Officer,
Activision Publishing
Mike Morhaime
President and Chief
Executive Officer,
Blizzard Entertainment
Chris B. Walther
Chief Legal Officer,
Activision Blizzard
Riccardo Zacconi
Chief Executive Officer,
King Digital Entertainment

Continental Stock Transfer& Trust Company
17 Battery PlaceNew York, New York 10004(800) 509-5586

AUDITOR
PricewaterhouseCoopers LLP
Los Angeles, California

CORPORATEHEADQUARTERS
Activision Blizzard, Inc.
3100 Ocean Park BoulevardSanta Monica, CA 90405(310) 255-2000

WORLD WIDE WEB SITE
www.activisionblizzard.com

E-MAILIR@activisionblizzard.com

ANNUAL REPORTON FORM 10-K
Activision Blizzard’s Annual
Report on Form 10-K for the calendar year ended December 31,
2015 is available to shareholders
without charge upon request by
calling our Investor Relations
department at (310) 255-2000 or
by mailing a request to our Corporate Secretary at our corporate
headquarters.

NON-INCORPORATION
Portions of the Company’s 2015
Form 10-K, as filed with the SEC,
are included within this Annual
Report. Other than these portions of the Form 10-K, all otherportions of this Annual Report
are not “filed” with the SEC andshould not be deemed so.

Elaine Wynn
Co-founder, Wynn Resorts

INTERNATIONAL OFFICESDOMESTIC OFFICES
Austin, Texas
Bloomington, Minnesota
Bothell, Washington
Boulder, Colorado
Carlsbad, California
Champaign, Illinois
Columbus, Ohio
Dallas, Texas
Eden Prairie, Minnesota
El Segundo, California
Foster City, California
Fresno, California
Hilliard, Ohio
Irvine, California
Los Angeles, California
Menands, New York
Middleton, Wisconsin
New York, New York

Novato, California
Portland, Maine
Redmond, Washington
Rogers, Arkansas
San Francisco, California
San Jose, California
Santa Monica, California
Seattle, Washington
Woodland Hills, California

Barcelona, Spain
Berlin, Germany
Birmingham, United Kingdom
Bucharest, Romania
Burglengenfeld, Germany
Milan, Italy
Cork, Ireland
Datchet, United Kingdom
Dublin, Ireland
Hong Kong SAR, China
Leamington Spa,
United Kingdom
London, United Kingdom
Madrid, Spain
Malmö, Sweden
St. Julians, Malta
Mexico City, Mexico
Mississauga, Canada

Munich, Germany
Paris, France
Quebec City, Canada
São Paulo, Brazil
Schiphol, The Netherlands
Seoul, South Korea
Shanghai, China
Shenzhen, China
Singapore
Stockholm, Sweden
Sydney, Australia
Taipei, Region of Taiwan
Tokyo, Japan
Vancouver, Canada
Venlo, The Netherlands
Versailles, France
Warrington, United Kingdom

FIGURES IN THIS ANNUAL REPORT DO NOT INCLUDE KINGUNLESS OTHERWISE INDICATED.

COVER: YOU ARE ONLY AS GREAT AS
THE CHARACTERS ON YOUR TEAM.
1
2

Non-GAAP; for a full reconciliation, please see tables at the end of the annual report.
Constant FX provides current period results converted into USD using the average exchange rates
from the comparative prior periods rather than the actual exchange rates in effect during therespective current periods.

Annual Report Design:Andra Design / andradesignllc.com
Printer: Phoenix Lithographing, USA© Copyright 2016 Activision Blizzard, Inc.

FRAMEWORK FOR FRANCHISE GROWTH
AUDIENCE
REACH

1

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3

AVERAGE REVENUEPER USER
1 AUDIENCE REACH

2

ACTIVISION BLIZZARD
MAU1 GREW 25% YEAR-OVERYEAR IN 2015, REACHING AN
ALL-TIME HIGH OF OVER
80 MILLION

IN 2015, PEOPLE PLAYEDOUR GAMES FOR OVER 14
BILLION HOURS, UP 16%
YEAR-OVER-YEAR, AND
WATCHED VIDEO CONTENT
BASED ON OUR GAMES FOR
OVER 1.5 BILLION HOURS

WITH KING, WE NOW HAVEOVER HALF A BILLION MAU1
GLOBALLY2

1

TIME SPENT

3

ARPU

IN-GAME REVENUES WEREOVER $1.6 BILLION IN 20153,
GROWING 57% AT CONSTANT FX4,
AND REPRESENTING OVER ONETHIRD OF TOTAL REVENUES

4CASH FLOWDELIVERED MORE THAN
$1 BILLION OF OPERATINGCASH FLOW FOR 6 OF THE
PAST 7 YEARSCONSUMER $ SPENT PER
HOUR OF ATVI ENTERTAINMENT:$0.37, MUCH LOWER THAN OTHERFORMS OF ENTERTAINMENTMAU defined as number of individuals who played a particular game in a given month averaged across the number of months in a respective period. Refer to definition included in press
release for additional details. 2 King acquisition closed on February 23, 2016. Includes fourth quarter 2015 Activision Blizzard and King MAU. 3Non-GAAP; for a full reconciliation, please seetables at the end of the annual report. 4 Constant FX provides current period results converted into USD using the average exchange rates from the comparative prior periods rather than theactual exchange rates in effect during the respective current periods.

1

2

#1 CONSOLE GAME GLOBALLY IN 20151 AND NEXT-GEN LEADER#1 FRANCHISE IN NA 7TH YEAR IN A ROW 2
RECORD FRANCHISE MAU3 AT THE END OF 2015

®

®

1

NPD, Gfk Chart-Track, and Activision Blizzard internal estimates. 2 NPD. 3 MAU defined as number of individuals who played a particular game in agiven month averaged across the number of months in a respective period. Refer to definition included in press release for additional details.

3ACHIEVED RECORD DIGITAL ATTACH RATES WITH

THE TAKEN KING EXPANSION1OVER 25 MILLION REGISTERED USERSHAVE LOGGED NEARLY 3 BILLION HOURS IN-GAME®

®

Digital attach rate refers to expansion sales as a percentage of full games sold.

1

4

NEW TELEVISION SERIES, SKYLANDERS ACADEMY,
EXPECTED TO LAUNCH IN 2016
LARGEST KIDS CONSOLE FRANCHISE SINCE ITS RELEASE1#11 CONSOLE FRANCHISE LIFE-TO-DATE1®

®

1

NPD, Gfk Chart-Track, including toys and accessories, in NA & EU.

5

#1 SUBSCRIPTION-BASED, MASSIVELY MULTIPLAYER ONLINE
ROLE-PLAYING GAME 10 YEARS RUNNING
6TH EXPANSION TO LAUNCH IN SUMMER OF 2016

®

®

6

MORE THAN 40 MILLION REGISTERED PLAYERS
RECORD ENGAGEMENT AT THE END OF 2015

®

®

7

2015 LAUNCH IN CHINA BROKE PC SALES RECORDS

®

®

8

LAUNCHED FINAL CHAPTER OF STARCRAFT II TRILOGY,LEGACY OF THE VOID, SELLING-THROUGHOVER 1 MILLION COPIES IN THE FIRST 24 HOURS

®

®

9

NUMEROUS AWARDS,INCLUDING BEST COMPETITIVE MULTIPLAYER
AND BEST MOBA1 FROM GAME INFORMER

®

®

1

10

Multiplayer online battle arena.

TEAM-BASED SHOOTER
COMING TO PC AND CONSOLE THIS SPRINGOVER 8 MILLION PEOPLE HAVE SIGNED UP FOR THE BETA

®

®

11

3 OF THE TOP-15-GROSSING MOBILE GAMESFOR 8 CONSECUTIVE QUARTERS1,2
NEARLY 450 MILLION MONTHLY ACTIVE USERS
PLAYING 1.4 BILLION GAMES PER DAY2

1

12

2

U.S. rankings for Apple App Store and Google Play Store, per App Annie Intelligence for fourth quarter 2015.
King acquisition closed on February 23, 2016. Metrics as of fourth quarter 2015.

TO OUR SHAREHOLDERS

In our letter last year, we shared a note we received from Rocco, a seven-year-old
from England. His letter was accompanied by pages torn out of a notebook, filledwith drawings of Skylanders characters he invented—and they were excellent.
This year, we want to share a letter from
Jacob, a high schooler in California.
Dear Mr. Kotick,sted in video
Ever since I can remember, I have been intere
learning about
games and how to make them. I am currently
n and career
passiomy
foundvideo game design, and I havegame designvideo
epath. It is because of my desire to pursu
beginning actionthat I am writing to you. Although this is aa reality. Yourplan, I am in need of advice to make my goals
se I know
Becau
work.
to
aspireI
company is one for which
did you get
how
ask
I
you are CEO of Activision Blizzard, may
daily?
useyou
to hold this position, and what main skills do
nding toThank you for your time in reading and respo
my letter.
Sincerely,
Jacob R.

We love receiving these letters because
they demonstrate how much our games
mean to the people who play them. Obviously Jacob will join Rocco on our future
recruitment list.
We talk to thousands of gifted people
every year to find talent with the unique
combination of passion, entrepreneurial
spirit and creativity that it takes to create
and market our games. These traits arehallmarks of our culture, embodied ineach of our over 9,000 employees. It isthese employees who consistently deliver
outstanding interactive entertainmentand strong financial results.

As a result of our team’s dedication and hard work we ended 2015 with $4.6 billionof revenues, $1.5 billion of operating income, $1.2 billion of operating cash flow
and $1.32 in earnings per share. And in 2015, our company was added to the
S&P 500 index.
Over the past 25 years, since the present management took over, Activision
Blizzard’s book value per share1 grew at a more than 30% compounded annual
rate. While book value isn’t the only objective measure of value, it is an important
one to us. Our market value has increased significantly over the past 25 years as
well. If you had invested $100 in our company 25 years ago, you would have over
$4,300 at the end of 2015—over five times more than the S&P 500 would havereturned in that same period of time. Last year alone, from January 1 throughDecember 31, we increased our market value by $13.8 billion, or 95%.

1

Based on fully diluted shares and participating securities
for the quarter ending December 31, 2015.
Please note, all figures included in the shareholder
letter are non-GAAP unless otherwise stated. For
full GAAP to non-GAAP reconciliation, please see tablesat the end of this annual report.

We continue to improve our allocation of capital. While our employees have muchto be proud of, we haven’t grown operating profits the last few years at a rate that
we believe represents the opportunities we have from the growth in the overallmarket. The overall market for interactive entertainment is growing at 13%.
We have grown earnings per share over the last few years, but this has largely
come from non-operational activities, and we intend to return good growth to ouroperating businesses over the next few years.
13

2015 DIGITAL REVENUES($ millions of dollars)

20%
GROWTH$2,628

46% of Total Revenues

57% of Total Revenues$2,198201420152016 DIVIDEND(Shares)$0.26
UP 13 %

$0.23

Our greatest challenge now is prioritizing the unusually attractive opportunities
we have
AVERAGEMAU1 ahead and finding the right people to pursue them. Since we joined the(Millions of users)
company, we don’t remember a time with more exciting prospects. Ever.

75

Interactive entertainment can be played on a variety of devices. Our company has
25% always been agnostic with respect to which devices we support. We first consider
GROWTH
whether we can put our best creative foot forward on a device. This means we canmake the very best games for the target new platform. Over the last 20 years, wehave
60 done this largely for personal computers, video game consoles and dedicatedhandheld devices.
Over the last five years, mobile phones emerged as great devices for playing
games. Because of their lower cost of entry, mobile phones—unlike PCs or game
consoles—are much less expensive, easier to use, portable and available in every
country in the world. The market for mobile games is more diverse than PCs or
2014
2015
consoles;the mobile market is eight times the size it was five years ago and is
projected to grow 64% over the next five years.
Despite the size of the opportunity, we approached the mobile market with caution
over the last few years. The type of games that are successful on mobile phones,
TIME SPENT(Billionsandof Hours)
the way you make and market these games, is different from games on PCs
and consoles. We didn’t really know how to do this well. To take advantage of this14+we decided to acquire a company with the skills and capabilities toopportunity,
16% make mobile games. We needed to find one that met our stringent criteria for how
GROWTH
we allocate capital through an acquisition. As we have outlined many times before
in these annual reports, we employ five principles to evaluate an acquisition or an12+
investment. They are:Great management with a long-term orientation
A proven history of profitable operations
Proven franchises or a proprietary technology (preferably both)Accretive to our operating modelNon-dilutive (preferably accretive) for our shareholders

2015

2016

2014
We
wanted2015
a company as committed to product excellence as we are. We wanted
a great management team that has the right balance of creativity and commercial
sensibility and operates with the same integrity that is the hallmark of our culture.
We waited for the “fat pitch,” as Warren Buffett likes to refer to investment opportunities that only come with patience.

With King we hit the ball out of the park. When we first met the management teamof King a few years ago, we were impressed. We watched as they operated theirbusiness since that first meeting, and we were even more impressed. It was hard
not to be.

14

1

ENUES

AVERAGE MAU(Millions of users)

2,628

75

King management is philosophically aligned with our strategic goals of building
enduring franchises. Like Activision and Blizzard franchises, King games can be
expanded and nurtured year-round. King also has incredible potential upside fromthe careful integration of advertising into their games. Their network is bigger
than Twitter or Snapchat, and they have well over 20 billion hours of game time
to monetize. They also have exciting new content and services planned to further
enhance the player experience.

25%
GROWTH

57% of Total Revenues

60

015

2014

2015

TIME SPENT(Billions of Hours)

0.26

14+
16%
GROWTH2014

We paid a very reasonable price for King at six times their 2015 adjusted EBITDA,
and as a result, with over 500 million users each month, we are now the world’s
largest gaming network. To understand the scale of this network, on a global basis
only Facebook, YouTube and WeChat have bigger audiences.
Last year our games generated over 14 billion hours of game play (up 16% yearover-year). Additionally, spectators watched—not played, but watched—over 1.5
billion hours of video game play. The number of people watching video gamecompetition continues to grow. We believe the esports spectator experience can be
the equivalent of professional sports both in quality of viewing experience and inadvertising, subscription and pay-per-view revenues.
To improve and accelerate our efforts in this regard, we acquired Major League
Gaming, the pioneer in esports. With Major League Gaming as our anchor, we
accelerated the growth of the Activision Blizzard Media Networks division, which isdevoted to broadcasting professionally produced esports competitions around theworld, celebrating players and highlighting their successes.

12+

2016

Like Activision and Blizzard, King has an established portfolio of beloved
franchises—Candy Crush, Farm Heroes, Pet Rescue and Bubble Witch—and
they have new potential franchises in development. They have diverse audiencesin 196 countries, and their games are played 1.4 billion times a day.

2015

Note: Does not include time spent
spectating.

With the goal of becoming the ESPN of esports, we recruited world-class talent tolead this effort and welcomed to Activision Blizzard Steve Bornstein, who as thelong-time CEO of ESPN greatly influenced how people watch and follow sports
today, and Mike Sepso, who as co-founder of Major League Gaming helped pioneer
esports more than a decade ago.
It is exciting to see the evolution of gaming. Recognition that the competition between video game players is as thrilling to watch as traditional professional sports
has resulted in over 225 million gamers watching organized gaming competitions.
Our franchises are among the most important in all of esports, and no organization has more experience creating compelling esports content than Blizzard.

1

MAU defined as number of individuals whoplayed a particular game in a given monthaveraged across the number of months in a
respective period. Refer to definition included
in press release for additional details.

This year we also created Activision Blizzard Studios, a television, film and shortform entertainment studio that will use storytelling to strengthen our franchises.
15

ACTIVISION PUBLISHING IN 2015
DIGITAL REVENUES GREW 68%
OPERATING INCOME GREW 30%
AT CONSTANT FX1
MAU2 GREW 20%

BLIZZARD ENTERTAINMENT
IN 2015

We will take a low-risk, low-investment approach to development and production
and focus on deeply engaging current fans and attracting new audiences. This
small team is led by big talents: a two-time Academy Award-nominated producer,
Stacey Sher, and a senior executive of many years at The Walt Disney Company,
Nick van Dyk.
Today we operate the largest gaming network in the world, with over 500 million
users playing our games every month. Our entertainment franchises now reachpeople on mobile, console and desktop devices in almost every country in theworld. And with Activision Blizzard Media Networks and Activision Blizzard
Studios, we are extending our franchises to new lucrative platforms.
We expect 2016 to be a record year for the company and project $6.25 billionof revenues, more than $2 billion of operating income and earnings per shareof $1.75.

REVENUES GREW AT CONSTANT FX1RECORD ALL-TIME HIGH MAU2,
WITH Q4 UP ~25% YEAR-OVER-YEAR

We are a more diversified company than we were a year ago, with a strong
core business and more opportunities ahead of us than ever before, and talentcontinues to be our greatest asset.
As we celebrate 25 years at Activision Blizzard, we always focus on remembering what has driven our success thus far. We have the most inspired anddedicated team of employees in our industry. They come to work each day
dedicated to the players they serve, the partners we team with, and theshareholders who have put their faith in us. We were grateful that for asecond year we were honored by Fortune Magazine as one of the “100 Best
Companies to Work For.” It’s a tribute to our entire team—and we also knowthat to attract and retain the most talented people we must strive to do
better each year.
So whether you first took a risk on us back in 1991 or only recently bought
your stake in Activision Blizzard, we thank you for your faith in our company.
The last 25 years have been an incredible journey, and there’s even more
excitement to come. And, we hope, more letters from the champions of
tomorrow, like Jacob and Rocco.
Sincerely,

Constant FX provides current period results
converted into USD using the average exchange
rates from the comparative prior periods rather
than the actual exchange rates in effect during
the respective current periods.
2
MAU defined as number of individuals whoplayed a particular game in a given monthaveraged across the number of months in a
respective period. Refer to definition included
in press release for additional details.
1

16

Bobby Kotick
President and Chief Executive Officer
Activision Blizzard

Brian Kelly
Chairman of the Board
Activision Blizzard

®

®

FINANCIAL REVIEW

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SELECTED FINANCIAL DATA

The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. andits subsidiaries.
The following table summarizes certain selected consolidated financial data, which should be read in conjunction with our
Consolidated Financial Statements and Notes thereto and with Management’s Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Annual Report. The selected consolidated financial data presented below at and foreach of the years in the five-year period ended December 31, 2015 is derived from our Consolidated Financial Statements. Allamounts set forth in the following tables are in millions, except per share data.
2015

Statement of Operations Data:
Net Revenues ...................................................................................
Net income .......................................................................................
Basic net income per share ...............................................................
Diluted net income per share............................................................
Cash dividends declared per share(1) ..............................................
Balance Sheet Data:
Total assets(2) ..................................................................................
Total debt, net(3) ..............................................................................

For the Years Ended December 31,
2014
2013
2012

2011

$

4,664 $
892
1.21
1.19
0.23

4,408 $
835
1.14
1.13
0.20

4,583 $
1,010
0.96
0.95
0.19

4,856 $
1,149
1.01
1.01
0.18

4,755
1,085
0.93
0.92
0.165

$

15,251 $
4,079

14,642 $4,324

13,953 $4,693

14,181 $—13,228—(1)

On February 3, 2015, our Board of Directors declared a cash dividend of $0.23 per share, payable on May 13, 2015, toshareholders of record at the close of business on March 30, 2015. On February 6, 2014, our Board of Directors declared acash dividend of $0.20 per share, payable on May 14, 2014, to shareholders of record at the close of business on March 19,
2014. On February 7, 2013, our Board of Directors declared a cash dividend of $0.19 per share, payable on May 15, 2013, toshareholders of record at the close of business on March 20, 2013. On February 9, 2012, our Board of Directors declared acash dividend of $0.18 per share, payable on May 16, 2012, to shareholders of record at the close of business on March 21,
2012. On February 9, 2011, our Board of Directors declared a cash dividend of $0.165 per share, payable on May 11, 2011,
to shareholders of record at the close of business on March 16, 2011.

(2)

As of December 31, 2015, we early adopted ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, andretroactively applied to all prior periods presented in accordance with the requirements of the new standard. As a result of
this retroactive application of the new standard, total assets as of December 31, 2014, 2013, 2012, and 2011, were reduced by$104 million, $59 million, $19 million, and $49 million, respectively. Refer to Note 21 of the Notes to Consolidated
Financial Statements included in this Annual Report for additional information regarding recent accounting pronouncements
and our early adoption of this new standard.

(3)

In connection with the Purchase Transaction, on September 19, 2013, we issued $1.5 billion of 5.625% unsecured seniornotes 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”). On October 11, 2013, we entered into a $2.5 billion secured
term loan facility (the “Term Loan”), maturing in October 2020. The carrying values of the Notes and Term Loan arepresented net of unamortized debt discount fees.

2

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSBusiness Overview
Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment.
The Business Combination and Share Repurchase
Activision, Inc. was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992.
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 aresult of the consummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc. and Vivendi becamea majority shareholder of Activision Blizzard. Activision Blizzard is a public company traded on the NASDAQ under the ticker
symbol “ATVI.”On October 11, 2013, we repurchased approximately 429 million shares of our common stock, pursuant to a stock purchase agreement(the “Stock Purchase Agreement”) we entered into with Vivendi and ASAC II LP (“ASAC”), an exempted limited partnershipestablished under the laws of the Cayman Islands, acting by its general partner, ASAC II LLC. Pursuant to the terms of the Stock
Purchase Agreement, we acquired all of the capital stock of Amber Holding Subsidiary Co., a Delaware corporation andwholly-owned subsidiary of Vivendi (“New VH”), which was the direct owner of approximately 429 million shares of our common
stock, for a cash payment of $5.83 billion, or $13.60 per share, before taking into account the benefit to the Company of certain tax
attributes of New VH assumed in the transaction (collectively, the “Purchase Transaction”). Refer to Note 11 of the Notes to theConsolidated Financial Statements for information regarding the financing of the Purchase Transaction.
Immediately following the completion of the Purchase Transaction, ASAC purchased from Vivendi 172 million shares of our common
stock, pursuant to the Stock Purchase Agreement, for a cash payment of $2.34 billion, or $13.60 per share (the “Private Sale”). Robert
A. Kotick, our Chief Executive Officer, and Brian G. Kelly, Chairman of our Board of Directors, are affiliates of ASAC II LLC.
On May 28, 2014, Vivendi sold approximately 41 million shares, or approximately 50% of its then-current holdings, of our common
stock in a registered public offering. Vivendi received proceeds of approximately $850 million from that sale; we did not receive any
proceeds.
As of December 31, 2015, we had approximately 734 million shares of common stock issued and outstanding. At that date, (i) Vivendi
held 41 million shares, or approximately 6% of the outstanding shares of our common stock, (ii) ASAC held 172 million shares, orapproximately 23% of the outstanding shares of our common stock, and (iii) our other stockholders held approximately 71% of theoutstanding shares of our common stock.
On January 13, 2016, Vivendi sold all of their remaining shares of our common stock. We did not receive any proceeds.
The King Acquisition
On November 2, 2015, we and King Digital Entertainment plc, a leading interactive entertainment company for the mobile world
incorporated under the laws of Ireland (“King”), entered into a Transaction Agreement (the “Transaction Agreement”) under the termsof 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 under the terms of the Transaction Agreement. We transferred $5.9 billion inconsideration to the existing King shareholders and share-based award holders.
The Company made this acquisition because it believes 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, and positions thecompany for future growth. The combined company has a world-class interactive entertainment portfolio of top-performing
franchises.
As the closing of the King Acquisition occurred subsequent to December 31, 2015, our financial results as of, and for the year ended
December 31, 2015, do not contain the results of King.

3

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Reportable Segments
Based upon our organizational structure, we conduct our business through two reportable operating segments, Activision
Publishing, Inc. and Blizzard Entertainment, Inc. Previously, we reported “Distribution” as a reportable segment. In the current period,
this was no longer deemed a separate reportable segment and is included in “Other”, along with our recently announced media
networks and film and television studio businesses.
(i) Activision Publishing, Inc.
Activision Publishing, Inc. (“Activision”) is a leading international developer and publisher of interactive software products andcontent. Activision delivers content to a broad range of gamers, ranging from children to adults, and from core gamers to mass-market
consumers to “value” buyers seeking budget-priced software, in a variety of geographies. Activision develops games based oninternally-developed properties, including games in the Call of Duty® and Skylanders® franchises, and to a lesser extent, based on
licensed intellectual properties. Additionally, we have established a long-term alliance with Bungie to publish its game universe,
Destiny. Activision sells games through both retail and digital online channels. Activision currently offers games that operate on theMicrosoft 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 (Xbox One, Wii U, and PS4 are collectively referred to as “next-generation”; Xbox 360, Wii, and PS3 are collectively
referred to as “prior-generation”); the personal computer (“PC”); the Nintendo 3DS, Nintendo Dual Screen, and Sony PlayStation Vita
handheld game systems; and mobile and tablet devices.
(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 (“MMORPG”) 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 andtablet platforms, including games in the multiple-award winning Diablo®, StarCraft®, Hearthstone®: Heroes of Warcraft™ and Heroesof the Storm™ franchises. In addition, Blizzard maintains a proprietary online gaming service, Battle.net®, which facilitates thecreation of user-generated content, 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 anddownloads via third-party console, mobile and tablet platforms; and licensing of software to third-party or related party companies that
distribute Blizzard products.
(iii) OtherWe also engage in other business opportunities that include:•

The Activision Blizzard Media Networks (“Media Networks”) business announced in 2015 which builds on our efforts incompetitive gaming and the growing eSports industry.

•

The Activision Blizzard Studios (“Studios”) business announced in 2015 which is devoted to creating original film andtelevision content based on the company’s extensive library of iconic and globally-recognized intellectual properties.

•

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

Business Results and Highlights
In 2015, Activision Blizzard’s consolidated net revenues were $4.7 billion and consolidated operating income was $1.3 billion, as
compared to consolidated net revenues of $4.4 billion and consolidated operating income of $1.2 billion in 2014. We generated cash
flows from operating activities of approximately $1.2 billion in 2015, as compared to $1.3 billion in 2014.
Consolidated net income was $892 million in 2015, as compared to $835 million in 2014. Our diluted earnings per common share was$1.19 in 2015, as compared to $1.13 in 2014.
Product Release Highlights
Games and digital downloadable content released, among others, during the year ended December 31, 2015 included:
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3/24/16 11:00 PM•Call of Duty: Advanced Warfare Havoc (digital downloadable content)•

Call of Duty: Advanced Warfare Ascendance (digital downloadable content)•

Call of Duty: Advanced Warfare Supremacy (digital downloadable content)•

Call of Duty: Advanced Warfare Reckoning (digital downloadable content)•

Call of Duty: Black Ops III•

Destiny Expansion II: House of Wolves•

Destiny Expansion III: The Taken King•

Guitar Hero® Live•Hearthstone: Heroes of Warcraft—Blackrock Mountain™

•

Hearthstone: Heroes of Warcraft—The Grand Tournament™

•

Hearthstone: Heroes of Warcraft—League of Explorers™

•

Heroes of the Storm•

Skylanders SuperChargers•

StarCraft II: Legacy of the Void™

In addition to the above, we released additional content within our various franchises throughout 2015 that provided additionalmonetization opportunities, such as “supply drops” in Call of Duty: Advanced Warfare and various customization microtransactions
within Destiny.
On October 27, 2015, Blizzard began the closed beta test for Overwatch™, its upcoming team-based first-person shooter.
On February 2, 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, with an expected release date to other platforms of March 3, 2016.
International Operations
International sales are a fundamental part of our business. Net revenues from international sales accounted for approximately 48%,
50%, and 47% of our total consolidated net revenues for the years ended December 31, 2015, 2014, and 2013, respectively. In
addition to our United States (“U.S.”) operations, we maintain significant operations in Australia, Canada, China, France, Germany,
Ireland, Italy, the Netherlands, South Korea, Spain, Sweden and the United Kingdom (“U.K.”). An important element of ourinternational strategy is to develop content that is specifically directed toward local cultures and customs. Our international business issubject to risks typical of an international business, including, but not limited to, foreign currency exchange rate volatility and changes
in local economies. Accordingly, our future results could be materially and adversely affected by changes in foreign currency
exchange rates and changes in local economies.
Management’s Overview of Business Trends
Digital Revenues
We provide our products through both retail and digital distribution channels. Many of our video games that are available throughretailers 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 microtransactions), 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.

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We currently define sales via digital online channels as revenues from digitally distributed subscriptions, licensing royalties,
value-added services, downloadable content, microtransactions, and products. This definition may differ from that used by ourcompetitors or other companies.
According to Activision Blizzard internal estimates, digital gaming revenues for the interactive entertainment industry in 2015,
increased by approximately 20% as compared to 2014. The primary drivers of the increase in digital gaming revenues were increases
in microtransactions and consumer purchases of full games via digital channels. In addition to increasing microtransactions within
free-to-play games, the increase includes microtransactions within purchased game software, as publishers offer increasingly newopportunities for monetization within their games to extend and enlarge the monetization cycle. Digital revenues are an important partof our business, and we continue to focus on and develop products, such as downloadable content, that can be delivered via digitalchannels. The amount of our digital revenues in any period may fluctuate depending, in part, on the timing and nature of our specificproduct releases. Our sales of digital downloadable content are driven in part by sales of, and engagement by players in, our retailproducts. As such, lower revenues in our retail distribution channels in one year may impact our revenues through digital online
channels in the subsequent year.
For the year ended December 31, 2015, net revenues through digital online channels increased by $605 million, as compared to 2014,
and represented 54% of our total consolidated net revenues, as compared to 43% in 2014. On a non-GAAP basis (which excludes theimpact of deferred revenues), net revenues through digital online channels for the year ended December 31, 2015 increased by$430 million, as compared to 2014, and represented 57% of our total non-GAAP net revenues, as compared to 46% in 2014.
Please refer to the reconciliation between GAAP and non-GAAP financial measures later in this document for further discussions ofretail and digital online channels.
Console Platform Transition
In November 2013, Sony released the PS4 and Microsoft released the Xbox One, their respective next-generation game consoles andentertainment systems. According to The NPD Group and GfK Chart-Track in North America and Europe, as of December 31, 2015,
the combined installed base of PS4 and Xbox One hardware was approximately 43 million units, representing growth ofapproximately 82% over the combined installed base of approximately 24 million units as of December 31, 2014. While the combined
installed base of PS3 and Xbox 360 hardware was approximately 124 million units as of December 31, 2015, at the comparable pointin their release cycle, the prior-generation platforms had only 28 million units installed.
When new console platforms are announced or introduced into the market, consumers reduce their purchases of game console
software products for prior-generation console platforms in anticipation of new platforms becoming available. During these periods,
sales of the game console software products we publish slow or even decline until the new platforms introduced achieve wide
consumer acceptance, which we believe had largely occurred with respect to the next-generation platforms by the end of 2015. We
believe that for 2016, the sales impact from the console transition will not be a meaningful driver of the business.
During platform transitions, we simultaneously incur costs to develop and market new titles for prior-generation video game platforms
and to develop and market products for next-generation platforms. We continually monitor console hardware sales and manage our
product delivery on each of the prior- and next-generation platforms in a manner we believe to be most effective to maximize ourrevenue opportunities and achieve the desired return on our investments in product development.
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 andthese video games are 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%, 72%, and 80% of our consolidated net revenues for theyears ended December 31, 2015, 2014, and 2013, respectively, and a significantly higher percentage of our operating income. As aresult, successful competition against these titles can significantly impact our performance. Notably in 2015, the toys to life category
became 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 anticipatedgame release in spring of 2016. There is no guarantee these investments will result in an established franchise.
Additionally, on February 23, 2016, we completed the King Acquisition, diversifying our portfolio of key franchises.

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Overall, we do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage ofour, and the industry’s, revenues and profits in the near future.
Seasonality
While our business is transitioning to a year-round engagement model, the interactive entertainment industry remains highly seasonal.
We have historically experienced our highest sales volume in the year-end holiday buying season, which occurs in the fourth quarter.
We defer the recognition of a significant amount of our net revenues, related to our software titles containing online functionality that
constitutes a more-than-inconsequential separate service deliverable, over an extended period of time (i.e., typically less than a year).
As a result, the quarter in which we generate the highest sales volume may be different than the quarter in which we recognize thehighest amount of net revenues. Our results can also vary based on a number of factors including, but not limited to, title release date,consumer demand, market conditions and shipment schedules.
OutlookFor 2016, our results will include the operations of King, beginning on February 23, 2016, the date the King Acquisition closed. Ourearnings under accounting principles generally accepted in the United States of America (“GAAP”) are expected to be down versus
prior-year, as the expected results will be impacted by additional accounting charges associated with the King Acquisition, which
include, among other things, integration and acquisition-related costs, the amortization of intangible assets resulting from purchaseprice accounting adjustments, 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.
For Activision, we expect to deliver multiple map packs to Call of Duty: Black Ops III, along with additional in-game content, during
2016. For the Destiny franchise, Activision expects to deliver a new expansion in 2016 with the full-game Destiny sequel to come in2017. Also in the fourth quarter of 2016, Activision plans to release new Call of Duty and Skylanders games. Blizzard plans to release
Overwatch in the spring of 2016, as well as World of Warcraft: Legion™ in the summer of 2016. In addition, Hearthstone: Heroes of
Warcraft and Heroes of the Storm will have ongoing content updates throughout the year.

7

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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):2015

Net revenues:
Product sales...........................................................................................
Subscription, licensing, and other revenues ...........................................
Total net revenues ..................................................................................
Costs and expenses:
Cost of sales—product costs ..................................................................
Cost of sales—online .............................................................................
Cost of sales—software royalties and amortization...............................
Cost of sales—intellectual property licenses .........................................
Product development ..............................................................................
Sales and marketing ...............................................................................
General and administrative ....................................................................
Total costs and expenses ........................................................................
Operating income ...................................................................................
Interest and other expense, net ...............................................................
Income before income tax expense ........................................................
Income tax expense ................................................................................
Net income .............................................................................................

$For the Years Ended December 31,
2014

2,447
2,217
4,664

52 % $
48
100

921
224
412
28
646
734
380
3,345
1,319
198
1,121
229
$
892

20
5
9
—
14
16
8
72
28
4
24
5
19%

2013

2,786
1,622
4,408

63% $
37
100

3,201
1,382
4,583

70%
30
100

999
232
260
34
571
712
417
3,225
1,183
202
981
146
$
835

23
5
6
1
13
16
9
73
27
5
22
3
19% $

1,053
204
187
87
584
606
490
3,211
1,372
53
1,319
309
1,010

23
4
4
2
13
13
11
70
30
1
29
7
22%

8

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Operating Segment Results
Our operating segments are consistent with our internal organizational structure, the manner in which our operations are reviewed andmanaged 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 two reportable
operating segments (see Note 1 of the Notes to Consolidated Financial Statements). Previously, we reported “Distribution” as areportable segment. In the current period, this was no longer deemed a reportable segment and is included in “Other” along with ourrecently announced Media Networks and Studios businesses. 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 withrespect to certain of our online-enabled games, stock-based compensation expense, amortization of intangible assets as a result ofpurchase price accounting, and fees and other expenses (including legal fees, costs, expenses and accruals) related to acquisitions andthe Purchase Transaction. The CODM does not review any information regarding total assets on an operating segment basis, andaccordingly, 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 years ended December 31, 2015, 2014, and 2013 are presented in the table below (amounts in millions):

2015

Segment net revenues:
Activision ...................................................................................
Blizzard ......................................................................................
Other(1)......................................................................................
Segments net revenues total ...............................................
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues ....................................
Consolidated net revenues .................................................
Segment income from operations:
Activision ...................................................................................
Blizzard ......................................................................................
Other(1)......................................................................................
Segments income from operations total .............................
Reconciliation to consolidated operating income and consolidated
income before income tax expense:
Net effect from deferral of net revenues and related cost of sales
Stock-based compensation expense ...........................................
Amortization of intangible assets ...............................................
Fees and other expenses related to acquisitions and the PurchaseTransaction.............................................................................
Consolidated operating income......................................................
Interest and other expense, net ...................................................
Consolidated income before income tax expense ..........................
(1)

$

$

$

For the Years Ended December 31,
Increase/(decrease)2015 v 2014
2014
2013

Increase/(decrease)2014 v 2013

2,700 $ 2,686
1,565
1,720
407
356
4,621
4,813

$ 2,895 $
1,124
323
4,342

14 $
(155)
(51)
(192)

(209)
596
84
471

(405)
43
4,664 $ 4,408

241$ 4,583 $

448
256 $

(646)
(175)

868
561
37
1,466

762
756
9
1,527

971
376
8
1,355

106
(195)
28
(61)

(209)
380
1
172

(39)
(92)
(11)

(215)
(104)
(12)

229
(110)
(23)

176
12
1

(444)
6
11

(5)
1,319
198
1,121 $

(13)
1,183
202
981

(79)
1,372
53
$ 1,319 $

8
136
(4)
140 $

66
(189)
149
(338)

Other includes other income and expenses from operating segments managed outside the reportable segments, including ourMedia Networks, Studios, and Distribution businesses. Other also includes unallocated corporate income and expenses.

For a better understanding of the differences in presentation between our segment results and the consolidated results, the following
explains the nature of each reconciling item.
Net Effect from Deferral of Net Revenues and Related Cost of Sales
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 are required to recognize revenues from these titles over theestimated service periods, which are generally less than one year. The related costs of sales are deferred and recognized when therelated revenues are recognized. In the operating segment results table, we present the amount of net revenues and related costs ofsales separately for each period as a result of this accounting treatment.

9

Stock-Based Compensation Expense
We expense our stock-based awards using the grant date fair value over the vesting periods of the stock awards. In the case of liability
awards, the liability is subject to revaluation based on the stock price at the end of the relevant period. Included within this stock-based
compensation are the net effects of capitalization, deferral, and amortization.
Amortization of Intangible Assets
We amortize intangible assets over their estimated useful lives based on the pattern of consumption of the underlying economic
benefits. The amount presented in the table represents the effect of the amortization of intangible assets, as well as other purchaseprice accounting adjustments, where applicable, in our consolidated statements of operations.
Fees and Other Expenses Related to Acquisitions and the Purchase Transaction
We incurred fees and other expenses, such as legal, banking and professional services fees, related to the Purchase Transaction, theKing Acquisition, and other business acquisitions, inclusive of related debt financings. Such expenses are not reviewed by the CODM
as part of segment performance.
Segment Net Revenues
Activision
Activision’s net revenues increased slightly for 2015, as compared to 2014, primarily due to higher revenues from the Call of Duty
franchise, specifically 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, and the strong digital content performance, including
expansion packs and supply drops for Call of Duty: Advanced Warfare. Additionally, revenue increased due to revenues from Guitar
Hero Live, which was released in the fourth quarter of 2015, with no comparable release in the prior-year. These increases werepartially offset by lower revenues from Skylanders SuperChargers, which was released in the current year, as compared to Skylanders
Trap Team, the comparable prior-year title, lower revenues from the Destiny franchise as Destiny debuted in September 2014 with nocomparable full-game release in 2015, and lower revenues from The Amazing Spider-Man 2, which was released during the prior-yearwith no corresponding release during 2015.
Activision’s net revenues decreased for 2014, as compared to 2013, primarily due to lower revenues from the Call of Duty andSkylanders franchises, partially offset by higher revenues from the release of Destiny and its first expansion pack, The Dark Below, in2014.
Blizzard
Blizzard’s net revenues decreased for 2015, as compared to 2014, primarily due to the timing of game releases; most notably Diablo
III: Reaper of Souls™, which was released in March 2014 on the PC, Diablo III: Reaper of Souls—Ultimate Evil Edition™, which
was released in August 2014 on consoles, and World of Warcraft: Warlords of Draenor®, which was released in November 2014,
along with the overall lower revenues from World of Warcraft due to a smaller subscriber base. These decreases were partially offset
by higher revenues from Hearthstone: Heroes of Warcraft, which had multiple content releases throughout the year, along withrevenues from Heroes of the Storm and Starcraft II: Legacy of the Void, which were released in 2015. In addition to already having
been released on PC, iPad, and Android tablets in the prior-year, Hearthstone: Heroes of Warcraft was released on iPhone andAndroid smartphones in April 2015, which contributed to the current period revenue performance.
Blizzard’s net revenues increased for 2014, as compared to 2013, primarily due to revenues from Diablo III: Reaper of Souls, which
was released in March 2014 on the PC, and Diablo III: Reaper of Souls—Ultimate Evil Edition, which was released in August 2014 on
certain consoles, revenue from value-added services as a result of the launch of the World of Warcraft paid character boost, revenues
from World of Warcraft: Warlords of Draenor, which was released in November 2014, and revenues from Hearthstone: Heroes of
Warcraft, which was commercially released in 2014, as compared to revenues in 2013 from StarCraft II: Heart of the Swarm®, which
was released in March 2013, and from Diablo III on consoles, which was released in September 2013.
Segment Income from Operations
Activision
Activision’s operating income increased in 2015, as compared to 2014, primarily due to an increased percentage of revenues comingfrom the higher margin online digital channels, and lower sales and marketing spending on the Destiny franchise because of theSeptember 2014 launch of Destiny with no comparable full-game release in the current year. This is partially offset by operating losses

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from Guitar Hero Live, which was released in the fourth quarter of 2015, with no comparable release in the prior-year, and lower
revenues from Skylanders SuperChargers as compared to Skylanders Trap Team.
Activision’s operating income decreased in 2014, as compared to 2013, primarily due to lower revenues, as described above, relatively
higher cost of sales—software royalties and amortization, and higher sales and marketing activities from the release of Destiny;
partially offset by lower cost of sales—product costs as a result of lower revenues, and lower general and administrative costs,
primarily resulting from lower legal-related expenses (including legal-related accruals, settlements and fees).
Blizzard
Blizzard’s operating income decreased in 2015, as compared to 2014, primarily due to lower revenues, as described above; higher
costs of sales—product costs from Hearthstone: Heroes of Warcraft related to commissions on mobile purchases with the launch on
iPhone and Android smartphones in April 2015; higher sales and marketing spending for its releases, including Hearthstone: Heroesof Warcraft and Heroes of the Storm; lower capitalization of software development costs; and higher cost of sales—software royalties
and amortization.
Blizzard’s operating income increased in 2014, as compared to 2013, primarily due to higher revenues, as described above, partially
offset by higher cost of sales—product costs, higher product development costs and higher sales and marketing activities to support ahigher number of titles released in 2014.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of $364 million on Activision Blizzard’s segment net revenues for 2015 ascompared to the same period in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative tothe 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 measureinternally 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 ofperformance 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 revenue provides a much more timely indication of trends in our sales and otheroperating results. While we believe that this non-GAAP measure is useful in evaluating our business, this information should beconsidered 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 thesame as any non-GAAP measure presented by another company. This non-GAAP financial measure has limitations in that it does notreflect all of the items associated with our GAAP revenues. We compensate for the limitations resulting from the exclusion of thechange in deferred revenues by considering the impact of that item separately and by considering our GAAP, as well as non-GAAP,
revenues.

11

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Results of Operations—Years Ended December 31, 2015, 2014, and 2013
Non-GAAP Financial Measures
The following table provides reconciliation between GAAP and non-GAAP net revenues by distribution channel for the years ended
December 31, 2015, 2014, and 2013 (amounts in millions):

2015

GAAP net revenues by distribution channel
Retail channels ....................................................
Digital online channels(1) ..................................
Total Activision and Blizzard .............................
Other(2) ..............................................................
Total consolidated GAAP net revenues ..............
Change in deferred net revenues(3)Retail channels ....................................................
Digital online channels(1) ..................................
Total changes in deferred net revenues ..............
Non-GAAP net revenues by distribution channel
Retail channels ....................................................
Digital online channels(1) ..................................
Total Activision and Blizzard .............................
Other(2) ..............................................................
Total non-GAAP net revenues(4) .......................

$

$

1,806
2,502
4,308
356
4,664

2014

$

For the Years Ended December 31,
Increase/
Increase/(decrease)(decrease)20132015 v 20142014 v 2013

2,104 $
1,897
4,001
407
4,408

2,701
1,559
4,260
323
4,583

(169)
126
(43)

104
301
405

(247)
6
(241)

(273)
(175)
(448)

351
295
646

1,637
2,628
4,265
356
4,621

2,208
2,198
4,406
407
4,813 $

2,454
1,565
4,019
323
4,342

(571)
430
(141)
(51)
(192)

(246)
633
387
84
471

$

$

$

(298)
605
307
(51)
256

$

$

(597)
338
(259)
84
(175)

% Change
2015 v 2014

% Change
2014 v 2013

(14)%
32
8
(13)
6

(22)%
22
(6)
26
(4)

(26)
20
(3)
(13)
(4)%

(10)
40
10
26
11%

(1)

We define revenues from digital online channels as revenues from digitally distributed subscriptions, licensing royalties,
value-added services, downloadable content, microtransactions, and products.

(2)

Net revenues from Other include revenues from our Media Networks and Studios businesses, along with revenues that were
historically shown as “Distribution.”(3)

We have determined that some of our titles’ online functionality represents an essential component of gameplay and as aresult, 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.

Retail Channel Net Revenues
The decrease in GAAP net revenues from retail channels for 2015, as compared to 2014, was primarily due to lower revenues fromSkylanders SuperChargers, which was released in the current year, as compared to Skylanders Trap Team, the comparable prior-year
title, lower revenues recognized from Call of Duty: Advanced Warfare, which was released in the fourth quarter of 2014, as compared
to Call of Duty: Ghosts, which was released in the fourth quarter of 2013, and lower revenues recognized from Diablo III: Reaper ofSouls and Diablo III: Reaper of Souls—Ultimate Evil Edition, which were released in March 2014 on PC and in August 2014 on
consoles, respectively. The decreases were partially offset by higher revenues recognized from the Destiny franchise and revenues
from Guitar Hero Live, which was released in October 2015.
The decrease in GAAP net revenues from retail channels for 2014, as compared to 2013, was primarily due to lower revenues from theCall of Duty and Skylanders franchises. The decreases were partially offset by revenues from Destiny, which was released in
September 2014, and revenues from Diablo III: Reaper of Souls, which was released in March 2014 on the PC, and Diablo III: Reaperof Souls—Ultimate Evil Edition, which was released in August 2014 on certain consoles.

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The decrease in non-GAAP net revenues from retail channels for 2015, as compared to 2014, was primarily due to lower revenues
from Destiny, which launched in September 2014 with no comparable full-game release in the current year, from Skylanders
SuperChargers, which was released in the current year, as compared to Skylanders Trap Team, the comparable prior-year title, andfrom the Diablo franchise due to timing of title releases. This was partially offset by revenues from Guitar Hero Live, which was
released in the fourth quarter of 2015, with no comparable release in the prior-year, and revenues 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 2014, as compared to 2013, was primarily due to lower revenues
from the Call of Duty and Skylanders franchises. The decreases were partially offset by revenues from Destiny, which was released in
September 2014, and revenues from Diablo III: Reaper of Souls, which was released in March 2014 on the PC and Diablo III: Reaperof Souls—Ultimate Evil Edition, which was released in August 2014 on certain consoles, as compared to revenues from the September
2013 release of Diablo III on the PS3 and Xbox 360.
Digital Channel Net Revenues
The increase in GAAP net revenues from digital online channels for 2015, as compared to 2014, was primarily due to: higher revenues
recognized from the Destiny franchise; higher revenues recognized from Hearthstone: Heroes of Warcraft; higher revenues
recognized from Call of Duty: Advanced Warfare and its digital content released during the current period, as compared to Call of
Duty: Ghosts and its digital content released during the prior period, including revenues recognized from Call of Duty: Advanced
Warfare’s new digital content known as “supply drops;” and revenues recognized from Heroes of the Storm, which was released inJune 2015 with no comparable release during the prior periods. The increases were partially offset by lower revenues from the Diablo
franchise due to the timing of title releases.
The increase in GAAP net revenues from digital online channels for 2014, as compared to 2013, was primarily due to higher revenues
from Hearthstone: Heroes of Warcraft, value-added services revenues from the launch of the World of Warcraft paid character boost,revenues from World of Warcraft: Warlords of Draenor, revenues from Diablo III: Reaper of Souls, which was released in March2014 on the PC, and Diablo III: Reaper of Souls—Ultimate Evil Edition, which was released in August 2014 on certain consoles, andthe release of Destiny and its first expansion pack, The Dark Below, and higher digital download revenues from Call of Duty:
Advanced Warfare. The increases were partially offset by lower revenues recognized from StarCraft II: Heart of the Swarm, which
was released in March 2013, lower revenues recognized from World of Warcraft: Mists of Pandaria®, which was released in
September 2012, and lower downloadable content revenues from the Call of Duty franchise.
The increase in non-GAAP net revenues from digital online channels for 2015, as compared to 2014, was primarily due to: revenues
from Hearthstone: Heroes of Warcraft; revenues from Destiny and its associated expansion packs, including The Taken King which
was released in September 2015; higher revenues from the Call of Duty franchise, specifically 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, and from the strong digital content performance, including expansion packs and supply drops, of Call of Duty:
Advanced Warfare; and revenues from Heroes of the Storm, which was released in June 2015 with no comparable release during theprior periods. These increases were partially offset by lower revenues from World of Warcraft, primarily due to a decline in thesubscriber base and the launch of World of Warcraft: Warlords of Draenor in November 2014 with no comparable release in thecurrent year, and lower revenues recognized from the Diablo franchise due to the timing of title releases.
The increase in non-GAAP net revenues from digital online channels for 2014, as compared to 2013, was primarily due to revenues
from Hearthstone: Heroes of Warcraft, value-added services revenues from the launch of the World of Warcraft: Warlords ofDraenor paid character boost, revenues from World of Warcraft: Warlords of Draenor, revenues from Diablo III: Reaper of Souls,
which was released in March 2014 on the PC, and Diablo III: Reaper of Souls—Ultimate Evil Edition, which was released in August
2014 on certain consoles, revenues from the release of Destiny and its first expansion pack, The Dark Below, and higher digital
downloads of Call of Duty: Advanced Warfare. The increases were partially offset by lower downloadable content revenues from theCall of Duty franchise.

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Consolidated Results
Net Revenues by Geographic Region
The following table details our consolidated net revenues by geographic region for the years ended December 31, 2015, 2014, and2013 (amounts in millions):

Geographic region net revenues:
North America ........................................
Europe ....................................................
Asia Pacific.............................................
Consolidated net revenues ..........................

$

$

2015

2014

For the Years Ended December 31,
Increase/
Increase/(decrease)(decrease)20132015 v 2014 2014 v 2013

2,409 $
1,741
514
4,664 $

2,190 $
1,824
394
4,408 $

2,414 $
1,826
343
4,583 $

219 $
(83)
120
256 $

% Change
2015 v 2014

% Change
2014 v 2013

10%
(5)
30
6

(9)%
—
15
(4)

(224)
(2)
51
(175)

The increase/(decrease) in deferred revenues recognized by geographic region for the years ended December 31, 2015, 2014, and 2013
was as follows (amounts in millions):

2015

Increase/(decrease) in deferred revenues recognized by geographic
region:
North America ..............................................................................
Europe ..........................................................................................
Asia Pacific...................................................................................
Total impact on consolidated net revenues ......................................

$

$

55 $
20
(32)
43 $

For the Years Ended December 31,
Increase/(Decrease)
2014
2013
2015 v 2014(206) $
(153)
(46)(405) $

108
107
26
241

$

$

261
173
14
448

Increase/(Decrease)2014 v 2013

$

$

(314)
(260)
(72)
(646)

Consolidated Net Revenues
Consolidated net revenues in the North America region increased in 2015 as compared to 2014, primarily due to higher revenues
recognized from the Destiny franchise, higher revenues recognized from Hearthstone: Heroes of Warcraft, and revenues recognizedfrom Heroes of the Storm and Guitar Hero Live, which were both released in 2015 with no comparable releases during the priorperiods. The increases were partially offset by lower revenues from Skylanders SuperChargers, as compared to Skylanders Trap
Team, and lower revenues recognized from the Diablo franchise due to the timing of title releases.
Consolidated net revenues in the Europe region decreased in 2015 as compared to 2014, primarily due to lower revenues recognizedfrom the Diablo and Call of Duty franchises, lower revenues from Skylanders SuperChargers, as compared to Skylanders Trap Team,and lower revenues from our Distribution business. These were partially offset by higher revenues recognized from the Destiny
franchise, higher revenues recognized from Hearthstone: Heroes of Warcraft, and revenues recognized from Heroes of the Storm.
Consolidated net revenues in the Asia Pacific region increased in 2015 as compared to 2014, primarily due to higher revenues
recognized from Hearthstone: Heroes of Warcraft, Call of Duty Online, and Heroes of the Storm, which launched in China in 2015
with no comparable prior-year titles. The increases were partially offset by lower revenues from the Diablo franchise.
Consolidated net revenues in all regions decreased in 2014 as compared to 2013, except for the Asia Pacific region. As previously
discussed, the decrease in the Company’s consolidated net revenues in 2014, as compared to the same period in 2013, was mainly due
to lower revenues from the Call of Duty and Skylanders franchises, lower revenues recognized from StarCraft II: Heart of the Swarm,
which was released in March 2013, and lower revenues recognized from World of Warcraft: Mists of Pandaria, which was released in
September 2012. The decreases were partially offset by the launch of Destiny and its first expansion pack, The Dark Below, revenues
from Hearthstone: Heroes of Warcraft, value-added services revenues from the launch of the World of Warcraft paid character boost,revenues from World of Warcraft: Warlords of Draenor, and revenues from Diablo III: Reaper of Souls, which was released in March2014 on the PC, and Diablo III: Reaper of Souls—Ultimate Evil Edition, which was released in August 2014 on certain consoles. Allof the above factors impact our year-over-year comparisons for North America and Europe. Further, in the Europe region, thedecreases were partially offset by the increase in Distribution segment revenues. In the Asia Pacific region, the higher mix of Blizzard
segment operations, as compared to Publishing segment operations, resulted in a year-over-year increase in revenues.

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Deferred Revenues Recognized
In all regions, the increase in deferred revenues recognized in 2015, as compared to 2014, was primarily due to lower deferrals ofrevenue from Destiny, from World of Warcraft, primarily associated with World of Warcraft: Warlords of Draenor and value-added
services, and from the Diablo franchise. These were partially offset by increased deferrals of revenue from the Call of Duty franchiseand deferral of revenues for StarCraft II: Legacy of the Void and Guitar Hero Live, which were released in 2015 with no comparable
prior-year releases. Additionally, in the Asia Pacific region there was an increase deferral of revenues from Hearthstone: Heroes of
Warcraft.
In all regions, the decrease in deferred revenues recognized in 2014, as compared to 2013, was primarily attributed to the higher
deferral of revenues from World of Warcraft: Warlords of Draenor, which was released in November 2014, as compared to therecognition of revenues from World of Warcraft: Mists of Pandaria, which was released in September 2012, deferral of revenues from
Destiny and its first expansion pack The Dark Below, both of which were released in 2014, and the deferral of revenues from
Hearthstone: Heroes of Warcraft, which was also released in 2014.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of $373 million, a negative impact of $2 million, and a positive impact of$33 million on Activision Blizzard’s consolidated net revenues in 2015, 2014, and 2013, respectively, as compared to the same
periods 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.
For the year ended December 31, 2014, given that a significant portion of the Company’s GAAP net consolidated revenues isgenerated in the first half of the fiscal year due to the impact of deferrals, where the euro and British pound strengthened against the
U.S dollar as compared to the same period in 2013, the negative impact from the significant weakening of the euro and British pound
relative to U.S. dollar in the later stages of 2014 was largely offset in the Company’s consolidated net revenues for the full year 2014.
Net Revenues by Platform
The following tables detail our net revenues by platform and as a percentage of total consolidated net revenues for the years ended
December 31, 2015, 2014, and 2013 (amounts in millions):
Year
Ended
December 31,
2015

Platform net revenues:
Online(1).......................................
PC .................................................
Next-generation (PS4, Xbox
One, Wii U) ..............................
Prior-generation (PS3,Xbox 360, Wii) ........................
Total Console................................
Mobile and ancillary(2) ................
Total Activision Blizzard .............
Other(3) ........................................
Total consolidated net revenues ........

$

$

% of
total(4)consolidated
net revenues

851
648

18%
14

1,492
899
2,391
418
4,308
356
4,664

Year
Ended
December 31,
2014

$

% of
total(4)consolidated
net revenues

867
551

20%
13

32

720

19
51
9
92
8
100%

1,430
2,150
433
4,001
407
4,408

$

Year
Ended
December 31,
2013

$

% of
total(4)consolidated
net revenues

Increase/(Decrease)2015 v
2014

Increase/(Decrease)2014 v
2013

$

$

912
340

20%
7

16

92

2

772

628

32
49
10
91
9
100%

2,287
2,379
629
4,260
323
4,583

50
52
14
93
7
100%

(531)
241
(15)
307
(51)
256

(857)
(229)
(196)
(259)
84
(175)

$

$

(16)
97

$

(45)
211

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The increase / (decrease) in deferred revenues recognized by platform for years ended December 31, 2015, 2014, and 2013 was asfollows (amounts in millions):

2015

Increase/(decrease) in deferred revenues recognized by platform:
Online(1) ...........................................................................................
PC ......................................................................................................
Next-generation (PS4, Xbox One, Wii U) ........................................
Prior-generation (PS3, Xbox 360, Wii) .............................................
Total console .....................................................................................
Mobile and ancillary(2) .....................................................................
Total impact on consolidated net revenues ...........................................

$For the Years Ended December 31,
Increase/
Increase/(Decrease)(Decrease)
2014
2013
2015 v 20142014 v 2013

138 $ (168) $ 107
(82)
(41)
22
(252)
(477)
(213)
274
295
324
22
(182)
111
(35)
(14)
1
$
43 $ (405) $ 241

$

$

306
(41)
225
(21)
204
(21)
448

$

$

(275)
(63)
(264)
(29)
(293)
(15)
(646)

(1)

Revenues from online consists of revenues from all World of Warcraft products, including subscriptions, boxed products,
expansion packs, licensing royalties, and value-added services.

(2)

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 andother physical merchandise and accessories.

(3)

Net revenues from Other include revenues from our Media Networks and Studios businesses, along with revenues that were
historically shown as “Distribution.”(4)

The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due tothe impact of rounding.

Net revenues from online decreased slightly in 2015, as compared to 2014, primarily due to lower World of Warcraft subscriber
levels. This was partially offset by revenue recognized from the expansion World of Warcraft: Warlords of Draenor, which was
released in November 2014, and from associated value-added services including a paid character boost.
Net revenues from online decreased in 2014, as compared to 2013, primarily due to the deferral of revenues from World of Warcraft:
Warlords of Draenor, as compared to the recognition of revenues from World of Warcraft: Mists of Pandaria, which was released in
September 2012, and lower subscription revenues from World of Warcraft. The decrease was partially offset by the strong
performance of value-added services revenues driven by the launch of the World of Warcraft paid character boost.
Net revenues from PC increased in 2015, as compared to 2014, primarily due to higher revenues recognized from Hearthstone:
Heroes of Warcraft and revenues recognized from Heroes of the Storm. This was partially offset by lower revenues recognized in2015 from Diablo III: Reaper of Souls, due to the title releasing in March 2014 and no comparable title release in 2015.
Net revenues from PC increased in 2014, as compared to 2013, primarily due to revenues from Hearthstone: Heroes of Warcraft,which had no comparable title in 2013, and higher revenues from Diablo III: Reaper of Souls, which was released in March 2014, ascompared to revenues from the release of StarCraft II: Heart of the Swarm, which was released in March 2013.
Net revenues from next-generation consoles increased in 2015, as compared to 2014, and increased in 2014, as compared to 2013, ineach case primarily due to increased consumer adoption of the PS4 and Xbox One and an increase in the number of titles released forthe next-generation console platforms. Since the introduction of the PS4 and Xbox One in the fourth quarter of 2013, we have released
the following titles, among others, on next-generation consoles: Call of Duty: Ghosts and Skylanders SWAP Force™ in the fourth
quarter of 2013; The Amazing Spider-Man™ 2 and Transformers™: Rise of the Dark Spark in the second quarter of 2014; Diablo III:
Reaper of Souls—Ultimate Evil Edition and Destiny in the third quarter of 2014, and Call of Duty: Advanced Warfare and Skylanders
Trap Team in the fourth quarter of 2014. In 2015, we have released multiple expansions or map packs for Destiny and Call of Duty:
Advanced Warfare on the next-generation consoles along with major new titles including Call of Duty: Black Ops III, Skylanders
SuperChargers, and Guitar Hero Live.
Net revenues from prior-generation consoles decreased in 2015, as compared to 2014, primarily due to lower revenues from the Callof Duty and Skylanders franchises and from the transition of players from prior-generation to next-generation platforms. The
decreases were partially offset by higher revenues recognized from the Destiny franchise and revenues from Guitar Hero Live.

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Net revenues from prior-generation consoles decreased in 2014, as compared to 2013, primarily due to lower revenues from the Callof Duty and Skylanders franchises. The decreases were partially offset by revenues from Destiny, the recognition of previously
deferred revenues from Diablo III for the PS3 and the Xbox 360, which was released in September 2013, and revenues from therelease of Diablo III: Reaper of Souls—Ultimate Evil Edition.
Net revenues from mobile and ancillary decreased slightly in 2015, as compared to 2014, primarily due to lower revenues from salesof standalone toys and accessories from the Skylanders franchise. The decrease was partially offset by higher revenues from
Hearthstone: Heroes of Warcraft on iOS and Android devices.
Net revenues from mobile and ancillary decreased in 2014, as compared to 2013, primarily due to lower revenues from sales ofstandalone toys and accessories from the Skylanders franchise and from handheld titles. The decrease was partially offset by anincrease in mobile and tablet platform revenues from the release of Hearthstone: Heroes of Warcraft on the iPad and Android tabletsin 2014.
Deferred revenues recognized for online increased in 2015, as compared to 2014, primarily due to the recognition of deferred revenues
from World of Warcraft: Warlords of Draenor and from value-added services revenues for World of Warcraft, including paidcharacter boosts.
Deferred revenues recognized for online decreased in 2014, as compared to 2013, primarily due to the deferral of revenues fromWorld of Warcraft: Warlords of Draenor, the deferral of value-added services revenues primarily from the launch of the World of
Warcraft paid character boost, and lower revenues recognized from World of Warcraft: Mists of Pandaria, which was released in
September 2012.
Deferred revenues recognized for PC decreased in 2015, as compared to 2014, primarily due to deferral of revenues from StarCraft II:
Legacy of the Void, which was released in November 2015, from Heroes of the Storm, and from Hearthstone: Heroes of Warcraft.
This was partially offset by the recognition of deferred revenues from Diablo III: Reaper of Souls following its release in March 2014.
The decrease in deferred revenues recognized for PC in 2014, as compared to 2013, was due to the deferral of revenues from
Hearthstone: Heroes of Warcraft and the higher deferral of revenues from Diablo III: Reaper of Souls, which was released in March
2014, as compared to revenues deferred from StarCraft II: Heart of the Swarm, which was released in March 2013.
The increase in deferred revenues recognized for next-generation consoles in 2015, as compared to 2014, was primarily due to therecognition of deferred revenues on Destiny, which was released in September 2014, without a comparable release in the 2015, andrevenues recognized from the Diablo franchise due to the timing of title releases. These increases were partially offset by revenues
deferred from the Call of Duty franchise and from the release of Guitar Hero Live in the current year.
The decrease in deferred revenues recognized for next-generation consoles in 2014, as compared to 2013, was due to the higher
deferral of revenues from Call of Duty: Advanced Warfare, which was released in November 2014, as compared to revenues deferredfrom Call of Duty: Ghosts, which was released in November 2013, and the deferral of revenues from Destiny, which was released in
September 2014. As discussed above, the PS4 and Xbox One were introduced in the fourth quarter of 2013 and we have since released
several titles, which were available on next-generation consoles for the full year in 2014, as compared to a partial year in 2013.
The decrease in deferred revenues recognized for prior-generation consoles in 2015, as compared to 2014, was due to lower deferred
revenues recognized from the Call of Duty franchise and the deferral of revenues from the release Guitar Hero Live in 2015. These
were partially offset by recognition of deferred revenues from the Destiny franchise.
The decrease in deferred revenues recognized for prior-generation consoles in 2014, as compared to 2013, was due to the deferral ofrevenues from the launch of Destiny, partially offset by lower deferral of revenues from the Call of Duty franchise and lower deferralof revenues from Diablo III: Reaper of Souls—Ultimate Evil Edition, as compared to the deferral of revenues from Diablo III on PS3
and Xbox 360, which was released in 2013.
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 theyears ended December 31, 2015, 2014, and 2013 (amounts in millions):

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Product costs .............................
Online .......................................
Software royalties andamortization ..........................
Intellectual property licenses ....
Total cost of sales .....................

Year Ended
December 31,
2015

% of
consolidated
net revenues

Year Ended
December 31,
2014

% of
consolidated
net revenues

Year Ended
December 31,
2013

% of
consolidated
net revenues

412
28
1,585

9
—
34%

260
34
1,525

6
1
35%

187
87
1,531

4
2
33%

$

921
224

$

20% $
5

$

999
232

23%
5

$

$

1,053
204

Increase(Decrease)2015 v 2014

23%
4

$

$

Increase(Decrease)2014 v 2013(78) $
(8)

(54)
28

152
(6)
60 $

73
(53)
(6)

Total cost of sales of $1,585 million increased in 2015, as compared to total cost of sales of $1,525 million in 2014, primarily due tohigher revenues in 2015. Cost of sales-product costs decreased primarily due to the relative increase in revenues coming from thedigital online channel, which has relatively lower product costs, along with decreased product costs as a result of the decreased
revenues from our relatively lower-margin Distribution business. Cost of sales-software royalties and amortization increased primarily
due to higher software amortization from the Destiny franchise and from software costs associated with new Blizzard product releases.
Total cost of sales of $1,525 million decreased in 2014, as compared to total cost of sales of $1,531 million in 2013, primarily due tolower revenues in 2014 and the relative increase in revenues coming from the digital online channel, which has relatively lower
product costs, as compared to retail revenues. Cost of sales—product costs decreased primarily due to lower retail product sales,
partially offset by increased product costs as a result of increased revenues from our relatively lower-margin Distribution business.
Cost of sales—online increased primarily due to higher online revenues and related support costs. Cost of sales—software royalties
and amortization increased primarily due to higher software amortization for introduction of new franchises and new product releases
during the year. Cost of sales—intellectual property licenses decreased primarily due to the write-down of intellectual property
licenses in 2013, with no comparable write-downs in 2014, lower amortization of our intangible assets, and a reduction in the numberof titles released by our value business in 2014, which are normally based on licensed properties.
Product Development (amounts in millions)Year Ended
December 31,
2015

Product development ...........

$

646

% of
consolidated
net revenues

Year Ended
December 31,
2014

14% $

571

% of
consolidated
net revenues

Year Ended
December 31,
2013

13% $

584

% of
consolidated
net revenues

Increase(Decrease)2015 v 2014

13% $

75

Increase(Decrease)2014 v 2013

$

(13)

For 2015, product development costs increased, as compared to 2014, primarily due to increased costs to support our future title
releases and increased Blizzard product development costs, primarily associated with higher payroll costs and bonuses to studio
personnel.
For 2014, product development costs decreased, as compared to 2013, primarily due to lower stock-based compensation expenses
associated with employees involved in product development as a result of fewer shares granted and fewer shares and options vested
during the year.
Sales and Marketing (amounts in millions)Year Ended
December 31,
2015

Sales and marketing .............

$

734

% of
consolidated
net revenues

Year Ended
December 31,
2014

16% $

712

% of
consolidated
net revenues

Year Ended
December 31,
2013

16% $

606

% of
consolidated
net revenues

Increase(Decrease)2015 v 2014

13% $Increase(Decrease)2014 v 2013

22 $

106

Sales and marketing expenses increased in 2015, as compared to 2014, primarily due to increased spending on sales and marketing
activities to support the launch of Guitar Hero Live and Heroes of the Storm during the year. The increase was partially offset bylower media spending on the World of Warcraft, Destiny, and Diablo franchises due to the timing of title releases.
Sales and marketing expenses increased in 2014, as compared to 2013, primarily due to increased spending on sales and marketing
activities to support the launch of Destiny, Hearthstone: Heroes of Warcraft, and World of Warcraft: Warlords of Draenor during theyear. The increase was partially offset by lower media spending on the Call of Duty and Skylanders franchises.
General and Administrative (amounts in millions)

General and administrative

Year Ended
December 31,
2015

$

380

% of
consolidated
net revenues

Year Ended
December 31,
2014

8% $

417

% of
consolidated
net revenues

Year Ended
December 31,
2013

9% $

490

% of
consolidated
net revenues

Increase(Decrease)2015 v 201411% $Increase(Decrease)2014 v 2013(37) $(73)

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General and administrative expenses decreased in 2015, as compared to 2014, primarily due to realized and unrealized gains from ourforeign currency derivative contracts and lower stock-based compensation expense. This decrease was partially offset by increased
professional service fees incurred, primarily in connection with the King Acquisition.
General and administrative expenses decreased in 2014, as compared to 2013, primarily due to the lower bankers’ and professional
fees related to the Purchase Transaction and related debt financings in 2014, as compared to 2013.
Interest and Other Expense, Net (amounts in millions)Year Ended
December 31,
2015

Interest and other expense,
net ..........................................

$% ofconsolidated
net revenues

198

Year Ended
December 31,
2014

4%

$

% of
consolidated
net revenues

202

Year Ended
December 31,
2013

5%

$

% of
consolidated
net revenues

53

1%

Increase(Decrease)2015 v 2014

Increase(Decrease)2014 v 2013

$

$

(4)

149

Interest and other expense, net, in 2015 was comparable to 2014.
Interest and other expense, net, was $202 million in 2014, as compared to $53 million in 2013, reflecting a full year of interest
expense incurred from the Notes and the Term Loan, which were issued and drawn, respectively, in October 2013. Interest expense for2013 reflects interest from the period in which the Notes and the Term Loan were issued and drawn, respectively, to the end of theyear.
Income Tax Expense (Benefit) (amounts in millions)Year Ended
December 31,
2015

Income tax expense ...............

$

229

% of
PretaxincomeYear Ended
December 31,
2014

20% $

146

% of
PretaxincomeYear Ended
December 31,
2013

15% $

309

% of
PretaxincomeIncrease(Decrease)2015 v 2014

23% $

83

Increase(Decrease)2014 v 2013

$

(163)

For the year ended December, 2015, 2014 and 2013, the Company’s income before income tax expense was $1,121 million,$981 million, and $1,319 million, respectively, and our income tax expense was $229 million (or a 20% effective tax rate),$146 million (or a 15% effective tax rate), and $309 million (or a 23% effective tax rate), respectively. Overall, our effective tax rate
differs from the U.S. statutory tax rate of 35%, primarily due to earnings taxed at relatively lower rates in foreign jurisdictions,recognition of the California research and development (“R&D”) credits, and recognition of the retroactive reinstatement of thefederal R&D tax credit, partially offset by changes in the Company’s liability for uncertain tax positions.
In 2015 and 2014, our U.S. income before income tax expense was $355 million and $325 million, respectively, and comprised 32%
and 33%, respectively, of our consolidated income before income tax expense. In 2015 and 2014, the foreign income before income
tax expense was $766 million and $656 million, respectively, and comprised 68% and 67%, respectively, of our consolidated income
before income tax expense.
In 2015 and 2014, earnings taxed at lower rates in foreign jurisdictions, as compared to domestic earnings taxed at the U.S. federal
statutory tax rate, lowered our effective tax rate by 20% and 25%, respectively. The decrease in the foreign rate differential is due tochanges in foreign temporary differences, as compared to the prior-year.
In 2014 and 2013, earnings taxed at lower rates in foreign jurisdictions, as compared to domestic earnings taxed at the U.S. federal
statutory tax rate, lowered our effective tax rate by 25% and 13%, respectively. The primary increase in the foreign rate differential isdue to the proportional increase over the prior-year’s earnings in foreign jurisdictions taxed at relatively lower rates. In addition, the2014 foreign tax provision resulted in a benefit due to changes in foreign temporary differences, as compared to the prior-year.
Vivendi Games results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreignstate and local income tax returns filed by Vivendi or its affiliates while Vivendi Games results for the period from 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. Vivendi Games tax year 2008 remains open to examination by the major taxing authorities. In addition, VivendiGames’ tax return for the 2008 tax year is before the appeals function of the Internal Revenue Service (“IRS”) and is under
examination by several state taxing authorities.
Activision Blizzard’s tax years 2008 through 2014 remain open to examination by the major taxing jurisdictions to which we aresubject. The IRS is currently examining the Company’s federal tax returns for the 2008 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

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transfer pricing agreements. Such allocation could have a positive or negative impact on our provision for the period in which such a
determination is reached and the relevant periods thereafter. The Company also 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 ofdisputes, including the probability determination and estimation of the potential exposure. Based on current information, in theopinion 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 theCompany’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.
The overall effective income tax rate in future periods will depend on a variety of factors, such as changes in the mix of income by tax
jurisdiction, applicable accounting rules, applicable tax laws and regulations, and rulings and interpretations thereof, developments in
tax audits and other matters, and variations in the estimated and actual level of annual pre-tax income or loss. Further, the effective tax
rate could fluctuate significantly on a quarterly basis and could be adversely affected by the extent that income (loss) before income
tax expenses (benefit) is lower than anticipated in foreign regions where taxes are levied at relatively lower statutory rates and/or
higher than anticipated in the United States where taxes are levied at relatively higher statutory rates.
A more detailed analysis of the differences between the U.S. federal statutory rate and the consolidated effective tax rate, as well asother information about our income taxes, is provided in Note 15 of the Notes to Consolidated Financial Statements included in thisAnnual Report.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of $242 million, a negative impact of $8 million, and a positive impact of$20 million on Activision Blizzard’s consolidated operating income in 2015, 2014 and 2013, respectively. The change is primarily due
to changes in the value of the U.S. dollar relative to the euro and British pound and its impact on our foreign operating income.
For the year ended December 31, 2014, given that the majority of the Company’s GAAP net consolidated operating income isgenerated in the first half of the fiscal year due to the impact of deferrals, where the euro and British pound strengthened against the
U.S dollar as compared to the same period in 2013, the negative impact from the significant weakening of the euro and British pound
relative to U.S. dollar in the later stages of 2014 was largely offset in on the Company’s consolidated operating income for the fullyear 2014.

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Liquidity and Capital Resources
Sources of Liquidity (amounts in millions)
For the Years Ended
December 31,

2015

Cash and cash equivalents ..................................................................................................
Short-term investments ......................................................................................................

$$

Percentage of total assets ...................................................................................................

2015

Cash flows provided by operating activities ............................
Cash flows (used in) provided by investing activities .............
Cash flows used in financing activities ...................................
Effect of foreign exchange rate changes ..................................
Net (decrease) increase in cash and cash equivalents ..............

$

1,192 $
(3,716)(135)(366)$ (3,025) $

1,823
8
1,831

Increase(Decrease)2015 v 2014

2014

$
$

12%

4,848 $
10
4,858 $
33%

For the Years Ended December 31,
Increase(Decrease)
2014
2013
2015 v 2014

1,292 $
1,264 $
(84)
308
(374)
(1,223)
(396)
102
438 $
451 $

(3,025)(2)(3,027)

Increase(Decrease)2014 v 2013(100) $
(3,632)239
30(3,463) $

28
(392)
849
(498)
(13)

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 players, 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.
Cash flows provided by operating activities were lower for 2015, as compared to 2014, primarily due to changes in operating assets
and liabilities, driven by the prior-year cash flows benefiting from a substantial increase in revenues which were deferred. These arepartially offset by a higher net income in 2015 as compared to 2014 and adjustments to net income for non-cash charges, including
amortization of capitalized software development costs.
Cash flows provided by operating activities for the year ended December 31, 2015 included approximately $193 million of interest
paid for the Notes and Term Loan, as compared to $201 million in 2014.
Cash flows provided by operating activities were slightly higher for 2014, as compared to 2013, primarily due to a more favorable
impact from changes in our working capital accounts, mainly related to cash flows from revenues which were deferred.
Cash Flows (Used in) Provided by Investing Activities
The primary drivers of cash flows (used in) provided by investing activities typically include the net effect of purchases andsales/maturities of short-term investments, capital expenditures, and changes in restricted cash balances.
Cash flows used in investing activities were $3.7 billion in 2015, as compared to cash flows used in investing activities of $84 million
in 2014. Increased cash flows used in investing activities were primarily due to $3.6 billion cash deposited in escrow for the King
Acquisition and the cash used to acquire Major League Gaming in the fourth quarter of 2015.
Cash flows used in investing activities were $84 million in 2014, as compared to cash flows provided by investing activities of$308 million in 2013. Lower cash flows from investing activities were primarily due to lower proceeds from the maturity ofinvestments and a higher investment in capital expenditures. In 2014, proceeds from maturities were $21 million, the majority ofwhich consisted of U.S. treasury and other government agency securities. Further, capital expenditures during 2014, primarily related
to property and equipment, were $107 million.

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Cash Flows 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, transactions involving our common stock, such as the issuance of shares of common stock to employees, the repurchase of ourcommon stock, and the payment of dividends.
Cash flows used in financing activities of $135 million were lower in 2015, as compared to $374 million used in 2014, primarily due
to $202 million of proceeds received in the settlement of the litigation related to the Purchase Transaction, and the lower partial
repayment of our Term Loan in 2015 of $250 million, as compared to the $375 million partial repayment of our Term Loan in 2014.
These were partially offset by lower proceeds from stock options exercised by our employees and the higher cash dividend payment
made during 2015, as compared to 2014.
Cash flows used in financing activities of $374 million were lower in 2014, as compared to $1,223 million used in 2013, primarily due
to the lack of share repurchases in 2014, offset by the $375 million partial repayment of our Term Loan. We also paid $147 million in
dividends and related dividend equivalents and $66 million for taxes in connection with the vesting of employees’ restricted stockrights. Cash flows from financing activities for 2014 reflected proceeds of $175 million from the issuance of shares of our common
stock to employees in connection with stock option exercises.
Effect of Foreign Exchange Rate Changes
Changes in foreign exchange rates had a negative impact of $366 million, a negative impact of $396 million and a positive impact of$102 million on our cash and cash equivalents for the years ended December 31, 2015, 2014, and 2013, respectively. The change isprimarily due to changes in the value of the U.S. dollar relative to the euro and British pound.
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 $1.8 billion at December 31, 2015, 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 of $0.8 billion at December 31, 2015, 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 players; acquisition of intellectual property rights for future
products from third parties; funding of dividends; and payments related to debt obligations.
As of December 31, 2015, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was$0.5 billion, as compared to $3.6 billion as of December 31, 2014. The decrease is due to the requirements under the Transaction
Agreement for the King Acquisition, which required us to deposit $3.6 billion in cash to be held in an escrow account until the earlierof (i) the completion of the King Acquisition, or (ii) the termination of the Transaction Agreement. The cash was not accessible to theCompany for operating cash needs as its use was administratively restricted for use in the consummation of the King Acquisition. At
December 31, 2015, we recorded the balance of the escrow account as a non-current asset, “Cash in escrow,” in our Consolidated
Balance Sheet.
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 andpay the required U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. andour current plans do not demonstrate a need to repatriate them to fund our U.S. operations.
Debt
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 December 31, 2015, the Notes had a carrying value of $2.2 billion.

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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 inpart 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 theoccurrence of one or more qualified equity offerings, we may also redeem up to 35% of the aggregate principal amount of each of the2021 Notes and 2023 Notes outstanding with the net cash proceeds from such offerings. The Notes are repayable, in whole or in partand at the option of the holders, upon the occurrence of a change in control and a ratings downgrade, at a purchase price equal to101% of principal, plus accrued and unpaid interest.
On October 11, 2013, in connection and simultaneously with the Purchase Transaction, 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 “Revolver” and, together with the Term Loan, the “Credit Facilities”). A portion of the Revolver can beused to issue letters of credit of up to $50 million, subject to the availability of the Revolver. To date, we have not drawn on the
Revolver.
As of December 31, 2015, the outstanding balance of our Term Loan was $1.9 billion. Borrowings under the Term Loan and Revolver
bear interest at an annual rate equal to an applicable margin plus, at our option, (A) a base rate determined by reference to the highestof (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 will be subject to a LIBOR floor of 0.75%. At December 31, 2015, the Term Loan bore interest at
3.25%. In certain circumstances, our interest rate under the Credit Facilities will increase.
In addition to paying interest on outstanding principal balances under the Credit Facilities, we are required to pay the lenders acommitment fee on unused commitments under the Revolver. We are also required to pay customary letter of credit fees and agency
fees.
The Credit Agreement required quarterly principal repayments of 0.25% of the Term Loan’s original principal amount, with thebalance due on the maturity date. On February 11, 2014, we made a voluntary principal 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 principal repayment, this time in the amount of $250 million, which reduced the balance dueon the maturity date. The 2015 repayment reduced the Term Loan’s outstanding principal balance to $1.9 billion and based on thisreduced balance, we expect our contractual interest payments in the future will be reduced by approximately $8 million annually,
based on the interest rate of 3.25% at December 31, 2015. Amounts borrowed under the Term Loan and repaid may not be
re-borrowed.
Agreements governing our indebtedness, including the indenture governing the Notes and the Credit Agreement, impose operating andfinancial restrictions on our activities under certain conditions. These restrictions 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.
In addition, if, in the future, we borrow under the Revolver, as described in Note 11 of the Notes to Consolidated Financial Statements
included in this Annual Report, we may be required, during certain periods where outstanding revolving loans exceed a certain
threshold, to maintain a maximum senior secured net leverage ratio calculated pursuant to a financial maintenance covenant under theCredit Agreement.
The Company was in compliance with the terms of the Notes and Credit Facilities as of December 31, 2015.
Amendments to Credit Agreement
Tranche A Term Loan In conjunction with the King Acquisition, the Company entered into three Amendments to the Credit
Agreement (the “Amendments”). The Amendments, among other things, provide for incremental term loans in the form of Tranche A
Term Loans in an aggregate principal amount of approximately $2.3 billion, the proceeds of which were to be issued upon successful
closing to fund the King Acquisition.
On February 23, 2016, we successfully completed the King Acquisition and the Tranche A Term Loans funded. 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 thehighest 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.
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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 isdetermined by reference to a pricing grid based on the Company’s Consolidated Total Net Debt Ratio (as defined in the Credit
Agreement).
The Amendments require quarterly principal payments of 0.625% of the stated principal amount of the Tranche A Term Loans, withincreases 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 theexisting Term Loans. The other terms of the Tranche A Term Loans are also generally the same as the terms of the existing Term
Loan.
Revolving Credit Facility As part of the Amendments, upon the closing of the King Acquisition, the Company’s existing revolving
credit facility under the Credit Agreement (as in effect prior to the closing of the King Acquisition) in an aggregate principal amountof $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”).
Borrowings under the 2015 Revolving Credit Facility may be borrowed, repaid and re-borrowed by the Company and are available forworking capital and other general corporate purposes. Up to $50 million of the 2015 Revolving Credit Facility may be used for lettersof 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 sameguarantors 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 Revolver.
Debt Repayments
On February 2, 2016, the Board of Directors authorized repayments of up to $1.5 billion of our outstanding debt during 2016. On
February 25, 2016, we made a voluntary principal repayment of $500 million on our Term Loan, reducing the aggregate term loans
outstanding under the Credit Agreement, which includes the $2.3 billion of Tranche A Term Loans, to $3.7 billion.
Dividends
On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share, payable on May 11, 2016, toshareholders of record at the close of business on March 30, 2016.
Capital Expenditures
We made capital expenditures of $111 million in 2015, as compared to $107 million in 2014. In 2016, we anticipate total capital
expenditures of approximately $155 million. Capital expenditures are expected to be primarily for computer hardware and softwarepurchases.
Commitments
In the normal course of business, we enter into contractual arrangements with third parties for non-cancelable operating leaseagreements for our offices, for the development of products, and for rights to intellectual property. Under these agreements, wecommit to provide specified payments to a lessor, developer or intellectual property holder, as the case may be, based upon contractual
arrangements. The payments to third-party developers are generally conditioned upon the achievement by the developers ofcontractually specified development milestones. Further, these payments to third-party developers and intellectual property holders
typically are deemed to be advances and are recoupable against future royalties earned by the developer or intellectual property holder
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3/24/16 11:00 PMbased on the sale of the related game. Additionally, in connection with certain intellectual property rights acquisitions anddevelopment agreements, we commit to spend specified amounts for marketing support for the related game(s) which is to be
developed or in which the intellectual property will be utilized. Assuming all contractual provisions are met, the total future minimum
commitments for these and other contractual arrangements in place at December 31, 2015 are scheduled to be paid as follows(amounts in millions):

For the Year Ending December 31,
2016 ..........................................................................
2017 ..........................................................................
2018 ..........................................................................
2019..........................................................................
2020 ..........................................................................
Thereafter .................................................................
Total .........................................................................

Facility andequipment leases

Contractual Obligations(1)Developer
Long-term debt
Marketingand IPobligations(2)

$

$

35
32
30
27
19
35
178

$

$

190
5
—
—
—
2
197

$

$

28 $
53
15
—
—
—
96 $

192
192
192
192
2,045
2,472
5,285

Total

$

445
282
237
219
2,064
2,509
$ 5,756(1)

We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the timing ofpotential issue resolution. Specifically, either the underlying positions have not been fully developed enough under audit toquantify at this time or the years relating to the issues for certain jurisdictions are not currently under audit. At December 31,
2015, we had $471 million of unrecognized tax benefits, of which $453 million was included in “Other liabilities” and$18 million was included in “Accrued expenses and other liabilities” in the consolidated balance sheet.

(2)

Long-term debt obligations represent our obligations related to the contractual principal repayments and interest payments
under the Term Loan and the Notes as of December 31, 2015. There was no outstanding balance under our Revolver as ofDecember 31, 2015. The Notes are subject to fixed interest rates and we have calculated the interest obligation based on theapplicable rates and payment dates for the Notes. The Term Loan bears a variable interest rate and interest is payable on aquarterly basis. We have calculated the expected interest obligation based on the outstanding principal balance and interest
rate applicable at December 31, 2015. Refer to Note 11 of the Notes to Consolidated Financial Statements included in thisAnnual Report for additional information on our debt obligations. On February 11, 2015, we made a voluntary partial
repayment of $250 million to the Term Loan. The 2015 repayment reduced our contractual interest payments, as shown in thetable above, by approximately $8 million annually, through the October 2020 maturity date, based on the interest rate of
3.25% at December 31, 2015. On February 25, 2016, we made a voluntary principal repayment of $500 million on our Term
Loan.

Off-balance Sheet Arrangements
At December 31, 2015 and 2014, 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 operation, liquidity, capital expenditures, or
capital resources.

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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 bedisclosed in our reports filed with the SEC is reported within the time periods specified in the SEC’s rules and forms, and that suchinformation 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 theaccuracy and timeliness of our disclosures, as well as in implementing and evaluating our overall disclosure process. As part of ourdisclosure 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 otherappropriate 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 and other financial information also are reviewed with the Audit Committee of theBoard 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 willcontinue to assess and monitor, and make refinements to, our disclosure controls and procedures, and our internal control overfinancial reporting.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates and assumptions. The impact and any associatedrisks related to these policies on our business operations are discussed throughout Management’s Discussion and Analysis of Financial
Condition and Results of Operations where such policies affect our reported and expected financial results. The estimates andassumptions discussed below are considered by management to be critical because they are both important to the portrayal of our
financial condition and results of operations and because their application places the most significant demands on management’s
judgment, with financial reporting results relying on estimates and assumptions about the effect of matters that are inherently
uncertain. Specific risks for these critical accounting estimates and assumptions are described in the following paragraphs.
Revenue Recognition including Revenue Arrangements with Multiple Deliverables
We recognize revenues when there is persuasive evidence of an arrangement, the product or service has been provided to thecustomer, the collection of our fees is reasonably assured, and the amount of fees to be paid by the customer is fixed or determinable.
Certain products are sold to customers with a “street date” (which is the earliest date these products may be sold by retailers). For
these products, we recognize revenues on the later of the street date or the date the product is sold to the customer.
Certain of our revenue arrangements have multiple deliverables, which we account for in accordance with Accounting Standards
Codification (“ASC”) Topic 605 and Accounting Standards Update (“ASU”) 2009-13. These revenue arrangements include productsales consisting of both software and hardware deliverables (such as peripherals or other ancillary collectors’ items sold together withphysical “boxed” software) and our sales of World of Warcraft boxed products, expansion packs and value-added services, each ofwhich is considered with the related subscription services for these purposes.

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Under ASC Topic 605 and ASU 2009-13, when a revenue arrangement contains multiple elements, such as hardware and software
products, licenses and/or services, we allocate revenue to each element based on a selling price hierarchy. The selling price for adeliverable is based on its vendor-specific-objective-evidence (“VSOE”) if it is available, third-party evidence (“TPE”) if VSOE is notavailable, or best estimated selling price (“BESP”) if neither VSOE nor TPE is available. In multiple element arrangements wheremore-than-incidental software deliverables are included, revenue is allocated to each separate unit of accounting for each of thenon-software deliverables and to the software deliverables as a group using the relative selling prices of each of the deliverables in thearrangement based on the aforementioned selling price hierarchy. If the arrangement contains more than one software deliverable, thearrangement consideration allocated to the software deliverables as a group is then allocated to each software deliverable using theguidance for recognizing software revenue.
As noted above, when neither VSOE nor TPE is available for a deliverable, we use BESP. We did not have significant revenue
arrangements that require BESP for the years ended December 31, 2015, 2014 and 2013. The inputs we use to determine the selling
price of our significant deliverables include the actual price charged by the Company for a deliverable that the Company sells
separately, which represents the VSOE, and the wholesale prices of the same or similar products, which represents TPE.
For product sales, which include the sale of physical products and digital full-game downloads, we consider the product or service tohave been provided to the customer upon the transfer of title and risk of loss to our customers, for physical products, or when the
product is available for download or is activated for gameplay, for digital full-game downloads. Revenues from product sales arerecognized after deducting the estimated allowance for returns and price protection.
For our software products with online functionality or that are a part of a hosted service arrangement, we evaluate whether thatfunctionality constitutes a more-than-inconsequential separate deliverable in addition to the software product. This evaluation is
performed for each software product or product add-on (including digital downloadable content), when it is released. Determining
whether the online functionality for a particular game constitutes a more-than-inconsequential deliverable is subjective and requires
management’s judgment. When we determine that the online functionality constitutes a more-than-inconsequential separate service
deliverable in addition to the product, which is principally because of the online functionality’s importance to gameplay, we consider
our performance obligation for this title to extend beyond the sale of the game. VSOE of fair value does not exist for the online
functionality of some products, as we do not separately charge for this component of every title. As a result, we initially defer all of
the software-related revenues from the sale of any such title (including digital downloadable content) and recognize the revenues
ratably over the estimated service period of the title. In addition, we initially defer the costs of sales for the title and recognize thecosts of sales as the related revenues are recognized. The costs of sales include manufacturing costs, software royalties andamortization, and intellectual property licenses and excludes intangible asset amortization.
For our software products with online functionality that are considered to be incidental to the overall product offering and areinconsequential deliverables, we recognize the related revenues when the revenue recognition criteria described above have been met.
For our World of Warcraft boxed products, expansion packs and value-added services, we recognize revenues in each case with therelated subscription service revenues, ratably over the estimated service period beginning upon activation of the software and deliveryof the related services. Revenues attributed to the sale of World of Warcraft boxed software and related expansion packs are classified
as “Product sales,” whereas revenues attributable to subscriptions and other value-added services are classified as “Subscription,
licensing, and other revenues.”
Certain of our games are offered to players on a free-to-play basis. Players can purchase virtual goods, or microtransactions, toenhance their gameplay experience. 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 consumablevirtual goods as the goods are consumed. Durable virtual goods represent virtual 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 areavailable to the player, generally the estimated service period of the game.
We determine the estimated service period for our games with consideration of various data points, including the weighted-average
number of days between players’ first and last date played online, the average total hours played, the average number of days in which
player activity stabilizes, and the weighted-average number of days between players’ first purchase date and last date played online.
We also consider known online trends and the service periods of our previously released games and disclosed service periods for ourcompetitors’ games that are similar in nature. Determining the estimated service period is subjective and requires management’s
judgment. Future usage patterns may differ from historical usage patterns and therefore the estimated service period may change in the
future. The estimated service periods for our current games is generally less than twelve months.
Allowances for Returns, Price Protection, Doubtful Accounts and Inventory Obsolescence
We closely monitor and analyze the historical performance of our various titles, the performance of products released by otherpublishers, market conditions, and the anticipated timing of other releases to assess future demand of current and upcoming titles.
Initial volumes shipped upon title launch and subsequent reorders are evaluated with the goal of ensuring that quantities are sufficient
to meet the demand from the retail markets, but at the same time are controlled to prevent excess inventory in the channel. We
benchmark units to be shipped to our customers using historical and industry data.
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We may permit product returns from, or grant price protection to, our customers under certain conditions. In general, price protectionrefers to the circumstances in which we elect to decrease, on a short- or longer-term basis, the wholesale price of a product by a certain
amount and, when granted and applicable, allow customers a credit against amounts owed by such customers to us with respect toopen and/or future invoices. The conditions our customers must meet to be granted the right to return products or price protection
credits include, among other things, compliance with applicable trading and payment terms, achievement of sell-through performancetargets in certain instances, and consistent return of inventory and delivery of sell-through reports to us. We may also consider otherfactors, including the facilitation of slow-moving inventory and other market factors.
Significant management judgments and estimates must be made and used in connection with establishing the allowance for returns
and price protection in any accounting period based on estimates of potential future product returns and price protection related tocurrent period product revenues. We estimate the amount of future returns and price protection for current period product revenues
utilizing historical experience and information regarding inventory levels and the demand and acceptance of our products by the end
consumer. The following factors are used to estimate the amount of future returns and price protection for a particular title: historicalperformance of titles in similar genres; historical performance of the hardware platform; historical performance of the franchise;console hardware life cycle; sales force and retail customer feedback; industry pricing; future pricing assumptions; weeks of on-handretail channel inventory; absolute quantity of on-hand retail channel inventory; our warehouse on-hand inventory levels; the title’s
recent sell-through history (if available); marketing trade programs; and performance of competing titles. The relative importance of
these factors varies among titles depending upon, among other items, genre, platform, seasonality, and sales strategy.
Based upon historical experience, we believe that our estimates are reasonable. However, actual returns and price protection could
vary materially from our allowance estimates due to a number of reasons, including, among others: a lack of consumer acceptance of atitle, the release in the same period of a similarly themed title by a competitor, or technological obsolescence due to the emergence of
new hardware platforms. Material differences may result in the amount and timing of our revenues for any period if factors or market
conditions change or if management makes different judgments or utilizes different estimates in determining the allowances for
returns and price protection. For example, a 1% change in our December 31, 2015 allowance for sales returns, price protection, andother allowances would have impacted net revenues by approximately $3 million.
Similarly, management must make estimates as to the collectability of our accounts receivable. In estimating the allowance for
doubtful accounts, we analyze the age of current outstanding account balances, historical bad debts, customer concentrations,customer creditworthiness, current economic trends, and changes in our customers’ payment terms and their economic condition, as
well as whether we can obtain sufficient credit insurance. Any significant changes in any of these criteria would affect management’s
estimates in establishing our allowance for doubtful accounts.
We regularly review inventory quantities on-hand and in the retail channels. We write down inventory based on excess or obsolete
inventories determined primarily by future anticipated demand for our products. Inventory write-downs are measured as the difference
between the cost of the inventory and net realizable value, based upon assumptions about future demand, which are inherently difficult
to assess and dependent on market conditions. At the point of loss recognition, a new, lower cost basis for that inventory isestablished, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly establishedbasis.
Software Development Costs and Intellectual Property Licenses
Software development costs include payments made to independent software developers under development agreements, as well as
direct costs incurred for internally developed products. Software development costs are capitalized once technological feasibility of a
product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses bothtechnical design documentation and game design documentation, or the completed and tested product design and working model.
Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established. For
products where proven technology exists, this may occur early in the development cycle. Technological feasibility is evaluated on a
product-by-product basis. Software development costs related to hosted service revenue arrangements are capitalized after the
preliminary project phase is complete and it is probable that the project will be completed and the software will be used to perform thefunction intended. Prior to a product’s release, if and when we believe capitalized costs are not recoverable, we expense the amounts
as part of “Cost of sales—software royalties and amortization.” Capitalized costs for products that are cancelled or are expected to beabandoned are charged to “Product development expense” in the period of cancellation. Amounts related to software development
which are not capitalized are charged immediately to “Product development expense.”
Commencing upon a product’s release, capitalized software development costs are amortized to “Cost of sales—software royalties andamortization” based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an
amortization period of six months or less, or over the estimated useful life, generally approximately one to two years.
Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks,
copyrights, software, technology, music or other intellectual property or proprietary rights in the development of our products.
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Depending upon the agreement with the rights holder, we may obtain the right to use the intellectual property in multiple products
over a number of years, or alternatively, for a single product. Prior to a product’s release, if and when we believe capitalized costs are
not recoverable, we expense the amounts as part of “Cost of sales—intellectual property licenses.” Capitalized intellectual property
costs for products that are cancelled or are expected to be abandoned are charged to “Product development expense” in the period ofcancellation.
Commencing upon a product’s release, capitalized intellectual property license costs are amortized to “Cost of sales—intellectual
property licenses” based on the ratio of current revenues for the specific product to total projected revenues for all products in which
the licensed property will be utilized. As intellectual property license contracts may extend for multiple years and can be used in
multiple products to be released over a period beyond one year, the amortization of capitalized intellectual property license costs
relating to such contracts may extend beyond one year.
We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis.
For products that have been released in prior periods, the primary evaluation criterion is actual title performance. For products that arescheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products towhich the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected productperformance include: historical performance of comparable products developed with comparable technology; market performance ofcomparable titles; orders for the product prior to its release; general market conditions; and, for any sequel product, estimatedperformance based on the performance of the product on which the sequel is based. Further, as many of our capitalized intellectual
property licenses extend for multiple products over multiple years, we also assess the recoverability of capitalized intellectual property
license costs based on certain qualitative factors, such as the success of other products and/or entertainment vehicles utilizing theintellectual property, whether there are any future planned theatrical releases or television series based on the intellectual property, andthe rights holder’s continued promotion and exploitation of the intellectual property.
Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating therecoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates ofadditional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in
the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could
result in an impairment charge. Material differences may result in the amount and timing of expenses for any period if management
makes different judgments or utilizes different estimates in evaluating these qualitative factors.
Income Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC Topic
740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities arerecognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized inincome in the period that includes the enactment date. We evaluate deferred tax assets each period for recoverability. For those assetsthat do not meet the threshold of “more likely than not” that they will be realized in the future, a valuation allowance is recorded.
Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain
tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining
deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, anadjustment to the valuation allowance would be charged to tax expenses in the period such determination is made. The calculation of
tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of ASC Topic 740 and othercomplex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material
impact on our business and results of operations in an interim period in which the uncertainties are ultimately resolved.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although
we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different fromthat which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts andcircumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of thesematters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which suchdetermination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that areconsidered appropriate, as well as the related net interest and penalties.
Our provision for income taxes is subject to volatility and could be adversely impacted by earnings being lower than anticipated inforeign regions where taxes are levied at relatively lower statutory rates and/or higher than anticipated in the United States where taxes
are levied at relatively higher statutory rates; by changes in the valuation of our deferred tax assets and liabilities; by expiration of, or
lapses in, the R&D tax credit laws; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments;

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by differences between amounts included in our tax filings and the estimate of such amounts included in our tax expenses; by changes
in accounting principles; or by changes in tax laws and regulations including possible U.S. changes to the taxation of earnings of ourforeign subsidiaries, the deductibility of expenses attributable to foreign income, or the foreign tax credit rules. Significant judgment isrequired to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income
taxes. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential recovery ofpreviously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes. In addition, we are subject
to the continuous examination of our income tax returns by the IRS and other tax authorities. We regularly assess the likelihood ofadverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be noassurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results andfinancial condition.
Fair Value Estimates
The preparation of financial statements in conformity with U.S. GAAP often requires us to determine the fair value of a particular
item to fairly present our Consolidated Financial Statements. Without an independent market or another representative transaction,
determining the fair value of a particular item requires us to make several assumptions that are inherently difficult to predict and canhave a material impact on the conclusion of the appropriate accounting.
There are various valuation techniques used to estimate fair value. These include (1) the market approach, where market transactions
for identical or comparable assets or liabilities are used to determine the fair value, (2) the income approach, which uses valuation
techniques to convert future amounts (for example, future cash flows or future earnings) to a single present amount, and (3) the cost
approach, which is based on the amount that would be required to replace an asset. For many of our fair value estimates, including ourestimates of the fair value of acquired intangible assets, we use the income approach. Using the income approach requires the use offinancial models, which require us to make various estimates including, but not limited to (1) the potential future cash flows for theasset, liability or equity instrument being measured, (2) the timing of receipt or payment of those future cash flows, (3) the time valueof money associated with the delayed receipt or payment of such cash flows, and (4) the inherent risk associated with the cash flows(that is, the risk premium). Determining these cash flow estimates is inherently difficult and subjective, and, if any of the estimatesused to determine the fair value using the income approach turns out to be inaccurate, our financial results may be negatively
impacted. Furthermore, relatively small changes in many of these estimates can have a significant impact on the estimated fair value
resulting from the financial models or the related accounting conclusion reached. For example, a relatively small change in theestimated fair value of an asset may change a conclusion as to whether an asset is impaired. While we are required to make certain fairvalue assessments associated with the accounting for several types of transactions, the following areas are the most sensitive to theassessments:
Business Combinations. We must estimate the fair value of assets acquired and liabilities assumed in a business combination. Ourassessment of the estimated fair value of each of these can have a material effect on our reported results as intangible assets areamortized over various estimated useful lives. Furthermore, a change in the estimated fair value of an asset or liability often has adirect impact on the amount to recognize as goodwill, which is an asset that is not amortized. Often determining the fair value of theseassets and liabilities assumed requires an assessment of the expected use of the asset, the expected cost to extinguish the liability or
our expectations related to the timing and the successful completion of development of an acquired in-process technology. Suchestimates are inherently difficult and subjective and can have a material impact on our financial statements.
Assessment of Impairment of Assets. Management evaluates the recoverability of our identifiable intangible assets and otherlong-lived assets in accordance with ASC Subtopic 360-10, which generally requires the assessment of these assets for recoverability
when events or circumstances indicate a potential impairment exists. We considered certain events and circumstances in determining
whether the carrying value of identifiable intangible assets and other long-lived assets, other than indefinite-lived intangible assets,
may not be recoverable including, but not limited to: significant changes in performance relative to expected operating results;
significant changes in the use of the assets; significant negative industry or economic trends; a significant decline in our stock price fora sustained period of time; and changes in our business strategy. In determining whether an impairment exists, we estimate theundiscounted cash flows to be generated from the use and ultimate disposition of these assets. If an impairment is indicated based on acomparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which
the carrying amount of the assets exceeds the fair value of the assets. We did not record an impairment charge to our definite-lived
intangible assets as of December 31, 2015, 2014 and 2013.
Financial Accounting Standards Board (“FASB”) literature related to the accounting for goodwill and other intangibles within ASC
Topic 350 provides companies an option to first perform a qualitative assessment to determine whether it is more likely than not thatthe fair value of a reporting unit is less than its carrying value before performing a two-step approach to testing goodwill for
impairment for each reporting unit. Our reporting units are determined by the components of our operating segments that constitute abusiness for which both (1) discrete financial information is available and (2) segment management regularly reviews the operating
results of that component. ASC Topic 350 requires that the impairment test be performed at least annually by applying a30

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fair-value-based test. The qualitative assessment is optional. The first step measures for impairment by applying fair-value-based tests
at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying fair-value-based tests to theindividual assets and liabilities within each reporting unit.
To determine the fair values of the reporting units used in the first step, we use a discounted cash flow approach. Each step requires us
to make judgments and involves the use of significant estimates and assumptions. These estimates and assumptions include long-term
growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates based on our weighted
average cost of capital, and future economic and market conditions. These estimates and assumptions have to be made for eachreporting unit evaluated for impairment. Our estimates for market growth, our market share and costs are based on historical data,various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates
we are using to manage the underlying business. If future forecasts are revised, they may indicate or require future impairment
charges. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently
uncertain. Actual future results may differ from those estimates.
The fair value of our reporting units is determined using an income approach based on discounted cash flow models. In determining
the fair value of our reporting units, we assumed a discount rate of approximately 10.0%. The estimated fair value of both theActivision and Blizzard reporting units exceeded their carrying values as of December 31, 2015. However, changes in ourassumptions underlying our estimates of fair value, which will be a function of our future financial performance, and changes in
economic conditions could result in future impairment charges.
We test acquired trade names for possible impairment by using a discounted cash flow model to estimate fair value. We havedetermined that no impairment has occurred at December 31, 2015 and 2014 based upon a set of assumptions regarding discounted
future cash flows, which represent our best estimate of future performance at this time. In determining the fair value of our trade
names, we assumed a discount rate of 10.0%, and royalty saving rates of approximately 1.5%—2.0%. A one percentage point increasein the discount rate would not yield an impairment charge to our trade names. Changes in our assumptions underlying our estimates offair value, which will be a function of our future financial performance and changes in economic conditions, could result in future
impairment charges.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation, and ASC
Subtopic 505-50, Equity-Based Payments to Non-Employees. Stock-based compensation expense is recognized during the requisite
service periods (that is, the period for which the employee is being compensated) and is based on the value of stock-based payment
awards after a reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.
We estimate the value of stock-based payment awards on the measurement date using a binomial-lattice model. Our determination offair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well asassumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our
expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
We generally determine the fair value of restricted stock rights (including restricted stock units, restricted stock awards andperformance shares) based on the closing market price of the Company’s common stock on the date of grant. Certain restricted stockrights granted to our employees and senior management vest based on the achievement of pre-established performance or market
conditions. We estimate the fair value of performance-based restricted stock rights at the closing market price of the Company’scommon stock on the date of grant. Each quarter, we update our assessment of the probability that the specified performance criteria
will be achieved. We amortize the fair values of performance-based restricted stock rights over the requisite service period adjusted
for estimated forfeitures for each separately vesting tranche of the award. We estimate the fair value of market-based restricted stockrights at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period
adjusted for estimated forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to
estimate the fair value of market-based restricted stock rights at the date of grant incorporates into the valuation the possibility that themarket condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted
stock rights at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However,the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
For a detailed discussion of the application of these and other accounting policies, see Note 2 of the Notes to Consolidated Financial
Statements included in this Annual Report.

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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 aunified 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 beentitled in exchange for those goods or services. This guidance will be effective beginning January 1, 2018 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, theperformance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies thatcompensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved andshould represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The newstandard is effective for fiscal years beginning after December 15, 2015 and can be applied either prospectively or retrospectively to
all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early
adoption is permitted. The adoption of this guidance will not have a material impact on the Company’s consolidated financial
statements.
Consolidations
In February 2015, the FASB issued new guidance related to consolidations. The new standard amends certain requirements fordetermining whether a variable interest entity must be consolidated. The new standard is effective for fiscal years beginning after
December 15, 2015. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on
our financial statements.
Debt Issuance Costs
In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs in financial statements. The newstandard 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. It is effective for annual reporting periods
beginning after December 15, 2015. The new guidance will be applied retrospectively to each prior period presented. The adoption ofthis guidance will not have a material impact on our 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 forfees 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. The new standard is effective forfiscal years beginning after December 15, 2015. Early adoption is permitted. We are evaluating the impact, if any, of adopting thisnew accounting guidance on our financial statements.
Inventory
In July 2015, the FASB issued new guidance related to the measurement of inventory which requires inventory within the scope of theguidance 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 iseffective 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
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, providing
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 thebusiness 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.
The new standard is effective for fiscal years beginning after December 15, 2015 and should be applied prospectively to measurement
period adjustments that occur after the effective date. Early adoption is permitted. The adoption of this new accounting guidance could
have a material impact on our financial statements in future periods upon occurrence of a measurement period adjustment.
Deferred Taxes
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, providing new guidance tosimplify the presentation of deferred taxes. The new standard requires that deferred tax assets and liabilities, along with any related
valuation allowance, be classified as non-current on the balance sheet. The issuance of the new standard eliminates the requirement toperform the jurisdiction analysis based on the classifications of the underlying assets and liabilities, and as a result, each jurisdiction
will only have one net non-current deferred tax asset or liability. The new standard is effective for fiscal years beginning after
December 15, 2016 and can be applied either prospectively or retrospectively. Early adoption is permitted.
As of December 31, 2015 we early adopted ASU No. 2015-17 and applied retrospectively to all periods presented. As a result, wereclassified $368 million of deferred tax assets from current “Deferred income taxes, net” resulting in non-current net deferred tax
assets and liabilities of $264 million and $10 million, respectively, in our Consolidated Balance Sheet as of December 31, 2014. The
adoption of this new guidance did not impact our compliance with debt covenant requirements.

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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 inforeign 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
United States, the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, may have an asymmetricand 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 andour foreign currency risk related to functional currency-equivalent cash flows resulting from our intercompany transactions, weperiodically enter into currency derivative contracts, principally forward contracts. These forward contracts generally have a maturityof less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.
We assess the nature of these derivatives under FASB 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 Consolidated Balance Sheets based on theprevailing 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, net” in our Consolidated Statements ofOperations, consistent with the nature of the underlying transactions.
At December 31, 2015, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges wasapproximately $489 million. During the year ended December 31, 2015, we reclassified $8 million of unrealized gains out of“Accumulated other comprehensive income (loss)” and into earnings due to dedesignating $250 million notional euro to U.S. dollar
cash flow hedges when it was determined the hedged transaction would not occur. As a result of the dedesignation, we entered into
offsetting foreign currency forward contracts. The dedesignated and offsetting foreign currency forward contracts remain outstanding
as of December 31, 2015.
The fair value of these foreign currency forward currency contracts was $11 million as of December 31, 2015, and recorded in “Other
current assets” in our consolidated balance sheet.
At December 31, 2014, outstanding foreign currency forward contracts not designated as a hedge were not material.
For the years ended December 31, 2015, 2014, and 2013, pre-tax net gains associated with these forward contracts were recorded in“General and administrative expenses” and were not material.
Foreign Currency Forward Contracts Designated as Hedges
For foreign currency forward contracts that we entered into to hedge forecasted intercompany cash flows that are subject to foreign
currency risk, and which have been designated as cash flow hedges in accordance with ASC 815, we assess the effectiveness of these34

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cash flow hedges at inception and on an ongoing basis and determine if the hedges are effective at providing offsetting changes in cash
flows of the hedged items. The Company records the effective portion of changes in the estimated fair value of these derivatives in“Accumulated other comprehensive income (loss)” and subsequently reclassifies the related amount of accumulated othercomprehensive income (loss) to earnings within “General and administrative expenses” when the hedged item impacts earnings. Cashflows from these foreign currency forward contracts are classified in the same category as the cash flows associated with the hedged
item in the consolidated statements of cash flows. We measures hedge ineffectiveness, if any, and if it is determined that a derivative
has ceased to be a highly effective hedge, the Company will discontinue hedge accounting for the derivative.
The gross notional amount of all outstanding foreign currency forward contracts designated as cash flow hedges was approximately$381 million at December 31, 2015. At December 31, 2014, there were no outstanding foreign currency forward contracts designatedas cash flow hedges. These foreign currency forward contracts have remaining maturities of 12 months or less. During the years ended
December 31, 2015 and 2014, there was no ineffectiveness relating to these hedges. At December 31, 2015, $4 million of net
unrealized losses related to these contracts are expected to be reclassified into earnings within the next twelve months.
During the year ended December 31, 2015 and 2014, pre-tax net realized gains of $6 million and $8 million, respectively, associatedwith these contracts were reclassified out of “Accumulated other comprehensive income (loss)” and into “General and administrative
expense” due to maturity of these contracts.
In the absence of the hedging activities described above, for the year ended December 31, 2015, a hypothetical adverse foreign
currency exchange rate movement of 10% would have resulted in potential declines of our net income of approximately $121 million.
This sensitivity analysis assumes a parallel adverse shift of all foreign currency exchange rates against the U.S. dollar; however, allforeign 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 December 31, 2015, a
hypothetical interest rate change on our variable rate debt of one percent (100 basis points) would change interest expense on anannual basis by approximately $19 million. Because we have a 0.75% LIBOR floor in our Term Loan, our interest expense will only
increase if the underlying interest rate increases to a level that exceeds the LIBOR floor. This estimate does not include the effects ofother 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 shortaverage 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 aportfolio of longer term securities. Conversely, the fair value of such a portfolio is less sensitive to market fluctuations than a portfolioof longer-term securities. At December 31, 2015, our $1.82 billion of cash and cash equivalents were comprised primarily of money
market funds. At December 31, 2015, our $8 million of short-term investments included $8 million of restricted cash. We also had$9 million in auction rate securities at fair value classified as long-term investments at December 31, 2015. The Company has
determined that, based on the composition of our investment portfolio as of December 31, 2015, there was no material interest raterisk exposure to the Company’s consolidated financial condition, results of operations or liquidity as of that date.

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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 Actof 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 formsand (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 theeffectiveness of our disclosure controls and procedures at December 31, 2015, the end of the period covered by this report. Based on
this evaluation, the principal executive officer and principal financial officer concluded that, at December 31, 2015, our disclosure
controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company inthe 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.
Management’s Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management, with the participation of our principal executive
officer and principal financial officer, conducted an evaluation of the effectiveness, as of December 31, 2015, of our internal control
over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control—Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control overfinancial reporting was effective as of December 31, 2015.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies and procedures may deteriorate.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited byPricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included in this Annual
Report.
Changes in Internal Control Over Financial Reporting.
There have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

36

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ReportofofIndependent
IndependentRegistered
RegisteredPublic
PublicAccounting
AccountingFirm
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ReportReport of Independent Registered Public Accounting Firm

Tothe
theBoard
BoardofofDirectors
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andShareholders
ShareholdersofofActivision
ActivisionBlizzard,
Blizzard,Inc.:
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our
opinion,theaccompanying
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sheetsandthetherelatedconsolidated
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ofbalance
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Blizzard,
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respects,thethefinancial
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Activision
income,Blizzard,
Inc.
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its
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atDecember
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and
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flows
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Blizzard,
Inc.
and
its
subsidiaries
atDecember
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2015
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and
their
cash
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for
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive
thethreeyears
yearsininthe
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prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effectBecauseinherent
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Los
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California
Los
Angeles,/s/ PricewaterhouseCoopers
LLP
February29,
29,20162016
February
Los Angeles, California
February 29, 2016

37
37
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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Amounts in millions, except share data)

AssetsCurrent assets:
Cash and cash equivalents ............................................................................................................
Short-term investments .................................................................................................................
Accounts receivable, net of allowances of $343 and $383 at December 31, 2015 and December 31,
2014, respectively .....................................................................................................................
Inventories, net .............................................................................................................................
Software development ..................................................................................................................
Intellectual property licenses ........................................................................................................
Other current assets.......................................................................................................................
Total current assets ...................................................................................................................
Cash in escrow ..............................................................................................................................
Long-term investments .................................................................................................................
Software development ..................................................................................................................
Intellectual property licenses ........................................................................................................
Property and equipment, net .........................................................................................................
Deferred income taxes, net ...........................................................................................................
Other assets ...................................................................................................................................
Intangible assets, net .....................................................................................................................
Trademark and trade names ..........................................................................................................
Goodwill .......................................................................................................................................
Total assets ...............................................................................................................................
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable ..........................................................................................................................
Deferred revenues .........................................................................................................................
Accrued expenses and other liabilities ..........................................................................................
Total current liabilities .............................................................................................................
Long-term debt, net.......................................................................................................................
Deferred income taxes, net ...........................................................................................................
Other liabilities .............................................................................................................................
Total liabilities..........................................................................................................................
Commitments and contingencies (Note 19)
Shareholders’ equity:
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,163,179,140 and
1,150,605,926 shares issued at December 31, 2015 and December 31, 2014, respectively......
Additional paid-in capital .............................................................................................................
Less: Treasury stock, at cost, 428,676,471 shares at December 31, 2015 and December 31, 2014
Retained earnings..........................................................................................................................
Accumulated other comprehensive loss ........................................................................................
Total shareholders’ equity ........................................................................................................
Total liabilities and shareholders’ equity ..................................................................................

At December 31,
2015

At December 31,
2014

$

$

$

$

$

1,823
8
679
128
336
30
383
3,387
3,561
9
80
—
189
275
173
49
433
7,095
15,251

284
1,702
625
2,611
4,079
10
483
7,183

—
10,242(5,637)
4,096
(633)
8,068
15,251

$

$

$

4,848
10
659
123
452
5
444
6,541
—
9
20
18
157
264
85
29
433
7,086
14,642

325
1,797
592
2,714
4,324
10
361
7,409

—
9,924
(5,762)
3,374
(303)
7,233
14,642

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in millions, except per share data)
For the Years Ended
December 31,
2015
2014
2013

Net revenues
Product sales ................................................................................................................................$
Subscription, licensing, and other revenues .................................................................................
Total net revenues ............................................................................................................................
Costs and expenses
Cost of sales—product costs ........................................................................................................
Cost of sales—online ...................................................................................................................
Cost of sales—software royalties and amortization .....................................................................
Cost of sales—intellectual property licenses ...............................................................................
Product development ...................................................................................................................
Sales and marketing .....................................................................................................................
General and administrative ..........................................................................................................
Total costs and expenses ..................................................................................................................
Operating income .............................................................................................................................
Interest and other expense, net .........................................................................................................
Income before income tax expense ..................................................................................................
Income tax expense ..........................................................................................................................
Net income .......................................................................................................................................$
Earnings per common share
Basic .............................................................................................................................................$
Diluted ..........................................................................................................................................$
Weighted-average number of shares outstanding
Basic .............................................................................................................................................
Diluted ..........................................................................................................................................
Dividends per common share ...........................................................................................................$

2,447 $
2,217
4,664

2,786
1,622
4,408

$

3,201
1,382
4,583

921
224
412
28
646
734
380
3,345
1,319
198
1,121
229
892

$

999
232
260
34
571
712
417
3,225
1,183
202
981
146
835

$

1,053
204
187
87
584
606
490
3,211
1,372
53
1,319
309
1,010

1.21 $

1.14

$

0.96

1.19 $

1.13

$

0.95

728
739
0.23 $

716
726
0.20

$

1,024
1,035
0.19

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in millions)
For the Years Ended
December 31,
2015
2014
2013

Net income ...................................................................................................................................
Other comprehensive income (loss):
Foreign currency translation adjustment ..................................................................................
Unrealized losses on forward contracts designated as hedges, net of tax ................................
Unrealized gains on investments, net of tax.............................................................................
Other comprehensive income (loss) .............................................................................................
Comprehensive income ................................................................................................................

$

892

$

835 $

1,010

(326)
(371)
93
(4)
—
—
—
—
1
$ (330) $ (371) $
94
$
562 $
464 $ 1,104

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2015, 2014, and 2013
(Amounts and shares in millions, except per share data)

Common Stock
Shares Amount

Balance at December 31, 2012................................................
Components of comprehensive income:Net income............................................................................
Other comprehensive income (loss) .....................................
Issuance of common stock pursuant to employee stock options
Issuance of common stock pursuant to restricted stock rights .
Restricted stock surrendered for employees’ tax liability ........
Tax benefit associated with employee stock awards ................
Stock-based compensation expense related to employee stock
options and restricted stock rights ........................................
Dividends ($0.19 per common share) .......................................
Shares repurchased (see Note 17) .............................................
Indemnity on tax attributes assumed in connection with the PurchaseTransaction (see Note 15) ....................................................
Balance at December 31, 2013 ................................................
Components of comprehensive income:Net income............................................................................
Other comprehensive income (loss) .....................................
Issuance of common stock pursuant to employee stock options
Issuance of common stock pursuant to restricted stock rights .
Restricted stock surrendered for employees’ tax liability ........
Tax benefit associated with employee stock awards ................
Stock-based compensation expense related to employee stock
options and restricted stock rights ........................................
Dividends ($0.20 per common share) .......................................
Indemnity on tax attributes assumed in connection with the PurchaseTransaction (see Note 15) ....................................................
Balance at December 31, 2014 ................................................
Components of comprehensive income:Net income............................................................................
Other comprehensive income (loss) .....................................
Issuance of common stock pursuant to employee stock options
Issuance of common stock pursuant to restricted stock rights .
Restricted stock surrendered for employees’ tax liability ........
Tax benefit associated with employee stock awards ................
Stock-based compensation expense related to employee stock
options and restricted stock rights ........................................
Dividends ($0.23 per common share) .......................................
Indemnity on tax attributes assumed in connection with the PurchaseTransaction (see Note 15) ....................................................
Shareholder settlement in connection with the Purchase Transaction(see Note 19).........................................................................
Balance at December 31, 2015................................................

1,112

—

—

—
—
16
8
(4)
—

—
—
—
—
—
—

—
—
—
—
1,132

$

Treasury Stock
Shares Amount$$

Additional
Paid-In
CapitalRetained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Shareholders’Equity

$

$

— $

9,450

$ 1,893

—
—
—
—
—
—

—
—
—
—
—
—

—
—
158
—
(49)
11

1,010
—
—
—
—
—

—
94
—
—
—
—

1,010
94
158
—
(49)
11

—
—
—

—
—
(429)

—
—
(5,830)

112
—
—

—
(217)
—

—
—
—

112
(217)
(5,830)———16(429) $(5,814) $

—
9,682

—
$ 2,686

$

(26)

—
68

$

11,317

16
6,622

—
—
14
7
(2)
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
172
—
(66)
30

835
—
—
—
—
—

—
(371)
—
—
—
—

835
(371)
172
—
(66)
30

—
—

—
—

—
—

—
—

106
—

—
(147)

—
—

106
(147)

—
9,924

—
$ 3,374

—
1,151

$

—
—

—
52
(429) $(5,762) $

$

—
(303)

$

52
7,233

—
—
8
7
(3)
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
—
—
—
—

—
—
106
—
(83)
65

892
—
—
—
—
—

—
(330)
—
—
—
—

892
(330)
106
—
(83)
65

—
—

—
—

—
—

—
—

95
—

—
(170)

—
—

95
(170)

—

—

—

58

—

—

—

58

—
67
135
(429) $(5,637) $ 10,242—$ 4,096

—
1,163

$

—
—

$

—
(633)

$

202
8,068

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in millions)
For the Years Ended
December 31,
2015
2014
2013
Cash flows from operating activities:
Net income ........................................................................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes .................................................................................................................................................
Provision for inventories..............................................................................................................................................
Depreciation and amortization .....................................................................................................................................
Loss on disposal of property and equipment ...............................................................................................................
Amortization of capitalized software development costs and intellectual property licenses(1) .................................
Amortization of debt discount and debt financing costs .............................................................................................
Stock-based compensation expense(2) ........................................................................................................................
Excess tax benefits from stock awards ........................................................................................................................
Changes in operating assets and liabilities:
Accounts receivable, net..............................................................................................................................................
Inventories ...................................................................................................................................................................
Software development and intellectual property licenses ...........................................................................................
Other assets ..................................................................................................................................................................
Deferred revenues ........................................................................................................................................................
Accounts payable .........................................................................................................................................................
Accrued expenses and other liabilities ........................................................................................................................
Net cash provided by operating activities .........................................................................................................................
Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments .............................................................................................
Proceeds from sales of available-for-sale investments .....................................................................................................
Purchases of available-for-sale investments .....................................................................................................................
Acquisition of business (see Note 23) ..............................................................................................................................
Cash in escrow (see Note 24) ...........................................................................................................................................
Capital expenditures .........................................................................................................................................................
Decrease in restricted cash................................................................................................................................................
Net cash (used in) provided by investing activities ..........................................................................................................
Cash flows from financing activities:
Proceeds from issuance of common stock to employees..................................................................................................
Tax payment related to net share settlements on restricted stock rights...........................................................................
Excess tax benefits from stock awards .............................................................................................................................
Repurchase of common stock ...........................................................................................................................................
Dividends paid ..................................................................................................................................................................
Proceeds from issuance of long-term debt........................................................................................................................
Repayment of long-term debt ...........................................................................................................................................
Payment of debt financing costs .......................................................................................................................................
Proceeds received from shareholder settlement ...............................................................................................................
Net cash used in financing activities ................................................................................................................................
Effect of foreign exchange rate changes on cash and cash equivalents ................................................................................
Net (decrease) increase in cash and cash equivalents ............................................................................................................
Cash and cash equivalents at beginning of period .................................................................................................................
Cash and cash equivalents at end of period ...........................................................................................................................

$

892

835 $

1,010

(27)
43
95
—
399
7
92
(67)

(44)
39
90
1
256
7
104
(39)

161
33
108
—
207
1
108
(29)

(40)
(54)
(350)
21
(27)
(25)
233
1,192

(177)
(2)
(349)
18
475
(12)
90
1,292

198
6
(268)
(67)
(275)
7
64
1,264

145
—
(145)
(46)
(3,561)(111)
2(3,716)

21
—
—
—
—
(107)
2
(84)

304
98
(26)
—
—
(74)
6
308

106
(83)
67
—
(170)
—
(250)
(7)
202
(135)
(366)
(3,025)
4,848
$
1,823

$

$

(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.

175
158
(66)
(49)
39
29
—
(5,830)
(147)
(216)
—
4,750
(375)
(6)
—
(59)
—
—
(374)
(1,223)
(396)
102
438
451
4,410
3,959
4,848 $
4,410

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

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business
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.
The King Acquisition
On November 2, 2015, we and King Digital Entertainment plc, a leading interactive entertainment company for the mobile world
incorporated under the laws of Ireland (“King”), entered into a Transaction Agreement (the “Transaction Agreement”) under the termsof 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 24 below.
As the closing of the King Acquisition occurred subsequent to December 31, 2015, our financial results as of and for the year ended
December 31, 2015 do not contain the results of King.
The Business Combination and Share Repurchase
Activision Blizzard is the result of the 2008 business combination (“Business Combination”) by and among 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 theconsummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc. and Vivendi became a majority
shareholder of Activision. The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under the ticker symbol“ATVI.”On October 11, 2013, we repurchased approximately 429 million shares of our common stock, pursuant to a stock purchase agreement(the “Stock Purchase Agreement”) we entered into with Vivendi and ASAC II LP (“ASAC”), an exempted limited partnershipestablished under the laws of the Cayman Islands, acting by its general partner, ASAC II LLC. Pursuant to the terms of the Stock
Purchase Agreement, we acquired all of the capital stock of Amber Holding Subsidiary Co., a Delaware corporation andwholly-owned subsidiary of Vivendi (“New VH”), which was the direct owner of approximately 429 million shares of our common
stock, for a cash payment of $5.83 billion, or $13.60 per share, before taking into account the benefit to the Company of certain tax
attributes of New VH assumed in the transaction (collectively, the “Purchase Transaction”). Refer to Note 11 of the Notes toConsolidated Financial Statements for further information regarding the financing of the Purchase Transaction
Immediately following the completion of the Purchase Transaction, ASAC purchased from Vivendi 172 million shares of Activision
Blizzard’s common stock, pursuant to the Stock Purchase Agreement, for a cash payment of $2.34 billion, or $13.60 per share (the“Private Sale”). Robert A. Kotick, our Chief Executive Officer, and Brian G. Kelly, Chairman of our Board of Directors, are affiliatesof ASAC II LLC.
On May 28, 2014, Vivendi sold approximately 41 million shares, or approximately 50% of its then-current holdings, of our common
stock in a registered public offering. Vivendi received proceeds of approximately $850 million from that sale; we did not receive any
proceeds.
As of December 31, 2015, we had approximately 734 million shares of common stock issued and outstanding. At that date, (i) Vivendi
held 41 million shares, or approximately 6% of the outstanding shares of our common stock, (ii) ASAC held 172 million shares, orapproximately 23% of the outstanding shares of our common stock, and (iii) our other stockholders held approximately 71% of theoutstanding shares of our common stock.
On January 13, 2016, Vivendi sold all of their remaining shares of our common stock. We did not receive any proceeds.

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Based upon our organizational structure, we conduct our business through two reportable operating segments, Activision
Publishing, Inc. and Blizzard Entertainment, Inc. Previously, we reported “Distribution” as a reportable segment. In the current period,
this was no longer deemed a separate reportable segment and is included in “Other”, along with our recently announced media
networks and film and television studio businesses.
(i) Activision Publishing, Inc.
Activision Publishing, Inc. (“Activision”) is a leading international developer and publisher of interactive software products andcontent. Activision delivers content to a broad range of gamers, ranging from children to adults, and from core gamers to mass-market
consumers to “value” buyers seeking budget-priced software, in a variety of geographies. Activision develops games based oninternally-developed properties, including games in the Call of Duty® and Skylanders® franchises, and to a lesser extent, based on
licensed intellectual properties. Additionally, we have established a long-term alliance with Bungie to publish its game universe,
Destiny®. Activision sells games through both retail and digital online channels. Activision currently offers games that operate on theMicrosoft 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 (Xbox One, Wii U, and PS4 are collectively referred to as “next-generation”; Xbox 360, Wii, and PS3 are collectively
referred to as “prior-generation”); the PC; the Nintendo 3DS, Nintendo Dual Screen, and Sony PlayStation Vita handheld gamesystems; and mobile and tablet devices.
(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 (“MMORPG”) 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 andtablet platforms, including games in the multiple-award winning Diablo®, StarCraft®, Hearthstone®: Heroes of Warcraft™ and Heroesof the Storm™ franchises. In addition, Blizzard maintains a proprietary online gaming service, Battle.net®, which facilitates thecreation of user-generated content, 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 anddownloads via third-party console, mobile and tablet platforms; and licensing of software to third-party or related party companies that
distribute Blizzard products.
(iii) OtherWe also engage in other business opportunities including:•

The Activision Blizzard Media Networks (“Media Networks”) business, announced in 2015 which builds on our efforts incompetitive gaming and the growing eSports industry;•

The Activision Blizzard Studios (“Studios”) business, announced in 2015 which is devoted to creating original film andtelevision content based on the company’s extensive library of iconic and globally-recognized intellectual properties; and•The Activision Blizzard Distribution (“Distribution”) business, which consists of operations in Europe that provide
warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, ourown publishing operations, and manufacturers of interactive entertainment hardware.

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2. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
The accompanying consolidated financial statements include the accounts and operations of the Company. All intercompany accounts
and transactions have been eliminated. The consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and assumptions.
Certain reclassifications have been made to prior-year amounts to conform to the current period presentation.
The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, toprovide additional evidence relative to certain estimates or to identify matters that require additional disclosures.
Cash and Cash Equivalents
We consider all money market funds and highly liquid investments with original maturities of three months or less at the time ofpurchase to be “Cash and cash equivalents.”
Investment Securities
Investments designated as available-for-sale securities are carried at fair value, which is based on quoted market prices for suchsecurities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics.
Unrealized gains and losses of the Company’s available-for-sale securities are excluded from earnings and are reported as acomponent of “Other comprehensive income (loss).”
Investments with original maturities greater than 90 days and remaining maturities of less than one year are normally classified within“Short-term investments.” In addition, investments with maturities beyond one year may be classified within “Short-term
investments” if they are highly liquid in nature and represent the investment of cash that is available for current operations.
The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in“Interest and other investment income (expense), net” in our consolidated statements of operations.
Cash in Escrow
As part of the King Acquisition, we were required to deposit $3.56 billion in cash to be held in an escrow account until the earlier of(i) the completion of the King Acquisition, or (ii) the termination of the Transaction Agreement. The cash was not accessible to theCompany for operating cash needs as its use had been administratively restricted for use in the consummation of the King Acquisition.
At December 31, 2015, we recorded the balance of the escrow account as a non-current asset, “Cash in escrow,” in our Consolidated
Balance Sheet.
Financial Instruments
The carrying amounts of “Cash and cash equivalents,” “Accounts receivable,” “Accounts payable,” and “Accrued expenses”
approximate fair value due to the short-term nature of these accounts. Our investments in U.S. treasuries, government agency
securities, and corporate bonds, if any, are carried at fair value, which is based on quoted market prices for such securities, if available,
or is estimated on the basis of quoted market prices of financial instruments with similar characteristics.
The Company transacts business in various foreign currencies and has significant international sales and expenses denominated inforeign currencies, subjecting us to foreign currency risk. 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. These forward contracts generally have a maturity of less than one year. The counterparties for our currency derivative
contracts are large and reputable commercial or investment banks.
We assess the nature of these derivatives under Financial Accounting Standards Board (“FASB”) Accounting Standards 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,” or45

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“Other liabilities,” as applicable, in our 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.
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, net” in our Consolidated Statements ofOperations, consistent with the nature of the underlying transactions.
For foreign currency forward contracts that we entered into to hedge forecasted intercompany cash flows that are subject to foreign
currency risk and which have been designated as cash flow hedges in accordance with ASC 815, we assess the effectiveness of thesecash flow hedges at inception and on an ongoing basis and determine if the hedges are effective at providing offsetting changes in cash
flows of the hedged items. The Company records the effective portion of changes in the estimated fair value of these derivatives in“Accumulated other comprehensive income (loss)” and subsequently reclassifies the related amount of accumulated othercomprehensive income (loss) to earnings within “General and administrative expenses” when the hedged item impacts earnings. The
Company measures hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be a highly effective hedge, theCompany will discontinue hedge accounting for the derivative.
Concentration of Credit Risk
Our concentration of credit risk relates to depositors holding the Company’s cash and cash equivalents and customers with significant
accounts receivable balances.
Our cash and cash equivalents are invested primarily in money market funds consisting of short-term, high-quality debt instruments
issued by governments and governmental organizations, financial institutions and industrial companies.
Our customer base includes retailers and distributors, including mass-market retailers, consumer electronics stores, discountwarehouses, and game specialty stores in the U.S. and other countries worldwide. We perform ongoing credit evaluations of ourcustomers and maintain allowances for potential credit losses. We generally do not require collateral or other security from ourcustomers. We had two customers, Sony and Microsoft, who accounted for 12% and 10%, respectively, of net revenues for the year
ended December 31, 2015. We did not have any single customer that accounted for 10% or more of net revenues for the years ended
December 31, 2014, and 2013. We had three customers, Sony, Microsoft, and Wal-Mart, who accounted for 18%, 13%, and 11% ofconsolidated gross receivables at December 31, 2015, respectively, and 13%, 17%, and 11% of consolidated gross receivables at
December 31, 2014, respectively.
Software Development Costs and Intellectual Property Licenses
Software development costs include payments made to independent software developers under development agreements, as well as
direct costs incurred for internally developed products. Software development costs are capitalized once technological feasibility of a
product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses bothtechnical design documentation and game design documentation, or the completed and tested product design and working model.
Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established. For
products where proven technology exists, this may occur early in the development cycle. Technological feasibility is evaluated on a
product-by-product basis. Software development costs related to hosted service revenue arrangements are capitalized after the
preliminary project phase is complete and it is probable that the project will be completed and the software will be used to perform thefunction intended. Prior to a product’s release, if and when we believe capitalized costs are not recoverable, we expense the amounts
as part of “Cost of sales—software royalties and amortization.” Capitalized costs for products that are canceled or are expected to beabandoned are charged to “Product development expense” in the period of cancellation. Amounts related to software development
which are not capitalized are charged immediately to “Product development expense.”
Commencing upon a product’s release, capitalized software development costs are amortized to “Cost of sales—software royalties andamortization” based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an
amortization period of six months or less, or over the estimated useful life, generally approximately one to two years.
Intellectual property license costs represent license fees paid to intellectual property rights holders for use of their trademarks,
copyrights, software, technology, music or other intellectual property or proprietary rights in the development of our products.
Depending upon the agreement with the rights holder, we may obtain the right to use the intellectual property in multiple products
over a number of years, or alternatively, for a single product. Prior to a product’s release, if and when we believe capitalized costs are
not recoverable, we expense the amounts as part of “Cost of sales—intellectual property licenses.” Capitalized intellectual property
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costs for products that are canceled or are expected to be abandoned are charged to “Product development expense” in the period ofcancellation.
Commencing upon a product’s release, capitalized intellectual property license costs are amortized to “Cost of sales—intellectual
property licenses” based on the ratio of current revenues for the specific product to total projected revenues for all products in which
the licensed property will be utilized. As intellectual property license contracts may extend for multiple years and can be used in
multiple products to be released over a period beyond one year, the amortization of capitalized intellectual property license costs
relating to such contracts may extend beyond one year.
We evaluate the future recoverability of capitalized software development costs and intellectual property licenses on a quarterly basis.
For products that have been released in prior periods, the primary evaluation criterion is actual title performance. For products that arescheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products towhich the costs relate or in which the licensed trademark or copyright is to be used. Criteria used to evaluate expected productperformance include: historical performance of comparable products developed with comparable technology; market performance ofcomparable titles; orders for the product prior to its release; general market conditions; and, for any sequel product, estimatedperformance based on the performance of the product on which the sequel is based. Further, as many of our capitalized intellectual
property licenses extend for multiple products over multiple years, we also assess the recoverability of capitalized intellectual property
license costs based on certain qualitative factors, such as the success of other products and/or entertainment vehicles utilizing theintellectual property, whether there are any future planned theatrical releases or television series based on the intellectual property, andthe rights holder’s continued promotion and exploitation of the intellectual property.
Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating therecoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates ofadditional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in
the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could
result in an impairment charge. Material differences may result in the amount and timing of expenses for any period if management
makes different judgments or utilizes different estimates in evaluating these qualitative factors.
Inventories
Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor, and freight-in and are statedat the lower of cost (weighted-average method) or net realizable value. Inventories are relieved on a weighted-average cost method.
Long-Lived Assets
Property and Equipment. Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimateduseful life (i.e., 25 to 33 years for buildings, and 2 to 5 years for computer equipment, office furniture and other equipment) of theasset. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed and any resulting gains orlosses are included in the consolidated statements of operations. Leasehold improvements are amortized using the straight-line method
over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance costs are expensed as incurred.
Goodwill and Other Indefinite-Lived Assets. We account for goodwill in accordance with ASC Topic 350. Under ASC Topic 350,
goodwill is considered to have an indefinite life, and is carried at cost. Acquired trade names are assessed as indefinite lived assets if
there is no foreseeable limits on the periods of time over which they are expected to contribute cash flows. Goodwill andindefinite-lived assets are not amortized, but are subject to an annual impairment test, as well as between annual tests when events orcircumstances indicate that the carrying value may not be recoverable. We perform our annual impairment testing at December 31st.
Our annual goodwill impairment test is performed at the reporting unit level. We have determined our reporting units based on theguidance within ASC Subtopic 350-20. As of December 31, 2015 and 2014, our reporting units are the same as our operating
segments. We test goodwill for possible impairment by first determining the fair value of the related reporting unit and comparing thisvalue to the recorded net assets of the reporting unit, including goodwill. The fair value of our reporting units is determined using an
income approach based on discounted cash flow models. In the event the recorded net assets of the reporting unit exceed the estimatedfair value of such assets, we perform a second step to measure the amount of the impairment, which is equal to the amount by which
the recorded goodwill exceeds the implied fair value of the goodwill after assessing the fair value of each of the assets and liabilities
within the reporting unit. We have determined that no impairment has occurred at December 31, 2015, 2014 and 2013 based upon aset of assumptions regarding discounted future cash flows, which represent our best estimate of future performance at this time.
We test indefinite lived acquired trade names for possible impairment by using a discounted cash flow model to estimate fair value.
We have determined that no impairment has occurred at December 31, 2015, 2014 and 2013 based upon a set of assumptions
regarding discounted future cash flows, which represent our best estimate of future performance at this time.
Changes in our assumptions underlying our estimates of fair value, which will be a function of our future financial performance andchanges in economic conditions, could result in future impairment charges.
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Amortizable Intangible Assets. Intangible assets subject to amortization are carried at cost less accumulated amortization, andamortized over the estimated useful life in proportion to the economic benefits received.
Management evaluates the recoverability of our identifiable intangible assets and other long-lived assets in accordance with ASC
Subtopic 360-10, which generally requires the assessment of these assets for recoverability when events or circumstances indicate apotential impairment exists. We considered certain events and circumstances in determining whether the carrying value of identifiableintangible assets and other long-lived assets, other than indefinite-lived intangible assets, may not be recoverable including, but notlimited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets;
significant negative industry or economic trends; a significant decline in our stock price for a sustained period of time; and changes inour business strategy. If we determine that the carrying value may not be recoverable, we estimate the undiscounted cash flows to begenerated from the use and ultimate disposition of these assets to determine whether an impairment exists. If an impairment isindicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as
the amount by which the carrying amount of the assets exceeds the fair value of the assets. We have determined that there are no
events or circumstances that indicate a potential impairment exists at December 31, 2015, 2014, and 2013.
Revenue Recognition
We recognize revenues when there is persuasive evidence of an arrangement, the product or service has been provided to thecustomer, the collection of our fees is reasonably assured and the amount of fees to be paid by the customer is fixed or determinable.
Certain products are sold to customers with a “street date” (which is the earliest date these products may be sold by retailers). For
these products, we recognize revenues on the later of the street date or the date the product is sold to the customer. Revenues arerecorded net of taxes assessed by governmental authorities that are both imposed on and concurrent with the specificrevenue-producing transaction between us and our customer, such as sales and value-added taxes.
Revenue Arrangements with Multiple Deliverables
Certain of our revenue arrangements have multiple deliverables, which we account for in accordance with ASC Topic 605 andAccounting Standards Update (“ASU”) 2009-13. These revenue arrangements include product sales consisting of both software andhardware deliverables (such as peripherals or other ancillary collectors’ items sold together with physical “boxed” software) and oursales of World of Warcraft boxed products, expansion packs and value-added services, each of which is considered with the related
subscription services for these purposes.
Under ASC Topic 605 and ASU 2009-13, when a revenue arrangement contains multiple elements, such as hardware and software
products, licenses and/or services, we allocate revenue to each element based on a selling price hierarchy. The selling price for adeliverable is based on its vendor-specific-objective-evidence (“VSOE”) if it is available, third-party evidence (“TPE”) if VSOE is notavailable, or best estimated selling price (“BESP”) if neither VSOE nor TPE is available. In multiple element arrangements wheremore-than-incidental software deliverables are included, revenue is allocated to each separate unit of accounting for each of thenon-software deliverables and to the software deliverables as a group using the relative selling prices of each of the deliverables in thearrangement based on the aforementioned selling price hierarchy. If the arrangement contains more than one software deliverable, thearrangement consideration allocated to the software deliverables as a group is then allocated to each software deliverable using theguidance for recognizing software revenue.
As noted above, when neither VSOE nor TPE is available for a deliverable, we use BESP. We did not have significant revenue
arrangements that require BESP for the years ended December 31, 2015, 2014, and 2013. The inputs we use to determine the selling
price of our significant deliverables include the actual price charged by the Company for a deliverable that the Company sells
separately, which represents the VSOE, and the wholesale prices of the same or similar products, which represents TPE.
Product Sales
Product sales represent sales of our games, including physical products and digital full-game downloads. We recognize revenues fromthe sale of our products upon the transfer of title and risk of loss to our customers and once all performance obligations have been
completed. With respect to digital full-game downloads, we recognize revenues when the product is available for download or isactivated for gameplay. Revenues from product sales are recognized after deducting the estimated allowance for returns and priceprotection. Sales incentives and other consideration given by us to our customers, such as rebates and product placement fees, areconsidered adjustments of the selling price of our products and are reflected as reductions to revenues. Sales incentives and otherconsideration that represent costs incurred by us for assets or services received, such as the appearance of our products in a customer’snational circular ad, are reflected as sales and marketing expenses when the benefit from the sales incentive is separable from sales tothe same customer and we can reasonably estimate the fair value of the benefit.

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Products with Online Functionality or Hosted Service Arrangements
For our software products with online functionality or that are part of a hosted service arrangement, we evaluate whether thatfunctionality constitutes a more-than-inconsequential separate deliverable in addition to the software product. This evaluation is
performed for each software product or product add-on (including digital downloadable content), when it is released. Determining
whether the online functionality for a particular game constitutes a more-than-inconsequential deliverable is subjective and requires
management’s judgment. When we determine that the online functionality constitutes a more-than-inconsequential separate service
deliverable in addition to the product, which is principally because of the online functionality’s importance to gameplay, we consider
our performance obligation for this title to extend beyond the sale of the game. VSOE of fair value does not exist for the online
functionality of some products, as we do not separately charge for this component of every title. As a result, we initially defer all of
the software-related revenues from the sale of any such title (including digital downloadable content) and recognize the revenues
ratably over the estimated service period of the title. In addition, we initially defer the costs of sales for the title and recognize thecosts of sales as the related revenues are recognized. The costs of sales include manufacturing costs, software royalties andamortization, and intellectual property licenses and exclude intangible asset amortization.
For our software products with online functionality that we consider to be incidental to the overall product offering and areinconsequential deliverables, we recognize the related revenues when the revenue recognition criteria described above have been met.
For our World of Warcraft boxed products, expansion packs and value-added services, we recognize revenues in each case with therelated subscription service revenues, ratably over the estimated service period, beginning upon the activation of the software anddelivery of the related services. Revenues attributed to the sale of World of Warcraft boxed software and related expansion packs areclassified as “Product sales,” whereas revenues attributable to subscriptions and other value-added services are classified as“Subscription, licensing, and other revenues.”
Subscription Revenues
Subscription revenues are mostly derived from World of Warcraft. World of Warcraft is a game that is playable through Blizzard’sservers and is generally sold on a subscription-only basis.
For World of Warcraft, after the first month of free usage that is included with the World of Warcraft boxed software, the World of
Warcraft end user may enter into a subscription agreement for additional future access. Revenues associated with the sales ofsubscriptions via boxed software and prepaid subscription cards, as well as prepaid subscriptions sales, are deferred until thesubscription service is activated by the consumer and are then recognized ratably over the subscription period. Value-added service
revenues associated with subscriptions are recognized ratably over the estimated service periods.
Licensing Revenues
Third-party licensees in Russia, China and Taiwan distribute and host certain Blizzard games in their respective countries underlicense agreements, for which they pay the Company a royalty. We recognize these royalties as revenues based on the end users’
activation of the underlying prepaid time, if all other performance obligations have been completed, or based on usage by the end user,when we have continuing service obligations. We recognize any upfront licensing fees received over the term of the contracts.
With respect to license agreements that provide customers the right to make multiple copies in exchange for guaranteed amounts,
revenues are generally recognized upon delivery of a master copy. Per copy royalties on sales that exceed the guarantee are recognized
as earned. In addition, persuasive evidence of an arrangement must exist and collection of the related receivable must be probable.
Other Revenues
Other revenues primarily include revenues from digital downloadable content (e.g. multi-player content packs), microtransactions andthe licensing of intellectual property other than software to third-parties.
Microtransaction revenues are derived from the sale of virtual goods to our players to enhance their gameplay experience. Proceedsfrom the sales of virtual goods are initially recorded in deferred revenues. 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 areaccessible to the player over an extended period of time. We recognize revenues from the sale of durable virtual goods ratably over theperiod of time the goods are available to the player, generally the estimated service period of the game.
Revenues from the licensing of intellectual property other than software to third-parties are recorded upon the receipt of licensee
statements, or upon the receipt of cash, provided the license period has begun and all performance obligations have been completed.

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Estimated Service Period
We determine the estimated service period for our games with consideration of various data points, including the weighted average
number of days between players’ first and last days played online, the average total hours played, the average number of days in which
player activity stabilizes, and the weighted-average number of days between players’ first purchase date and last date played online.
We also consider known online trends and the service periods of our previously released games and disclosed service periods for ourcompetitors’ games that are similar in nature. Determining the estimated service period is subjective and requires management’s
judgment. Future usage patterns may differ from historical usage patterns and therefore the estimated service period may change in the
future. The estimated service periods for our current games is generally less than 12 months.
Allowances for Returns, Price Protection, Doubtful Accounts, and Inventory Obsolescence
We closely monitor and analyze the historical performance of our various titles, the performance of products released by otherpublishers, market conditions, and the anticipated timing of other releases to assess future demand of current and upcoming titles.
Initial volumes shipped upon title launch and subsequent reorders are evaluated with the goal of ensuring that quantities are sufficient
to meet the demand from the retail markets, but at the same time are controlled to prevent excess inventory in the channel. We
benchmark units to be shipped to our customers using historical and industry data.
We may permit product returns from, or grant price protection to, our customers under certain conditions. In general, price protectionrefers to the circumstances in which we elect to decrease, on a short- or longer-term basis, the wholesale price of a product by a certain
amount and, when granted and applicable, allow customers a credit against amounts owed by such customers to us with respect toopen and/or future invoices. The conditions our customers must meet to be granted the right to return products or price protection
credits include, among other things, compliance with applicable trading and payment terms, achievement of sell-through performancetargets in certain instances, and consistent return of inventory and delivery of sell-through reports to us. We may also consider otherfactors, including the facilitation of slow-moving inventory and other market factors.
Significant management judgments and estimates must be made and used in connection with establishing the allowance for returns
and price protection in any accounting period based on estimates of potential future product returns and price protection related tocurrent period product revenues. We estimate the amount of future returns and price protection for current period product revenues
utilizing historical experience and information regarding inventory levels and the demand and acceptance of our products by the end
consumer. The following factors are used to estimate the amount of future returns and price protection for a particular title: historicalperformance of titles in similar genres; historical performance of the hardware platform; historical performance of the franchise;console hardware life cycle; sales force and retail customer feedback; industry pricing; future pricing assumptions; weeks of on-handretail channel inventory; absolute quantity of on-hand retail channel inventory; our warehouse on-hand inventory levels; the title’s
recent sell-through history (if available); marketing trade programs; and performance of competing titles. The relative importance of
these factors varies among titles depending upon, among other items, genre, platform, seasonality, and sales strategy.
Based upon historical experience, we believe that our estimates are reasonable. However, actual returns and price protection could
vary materially from our allowance estimates due to a number of reasons, including, among others: a lack of consumer acceptance of atitle, the release in the same period of a similarly themed title by a competitor, or technological obsolescence due to the emergence of
new hardware platforms. Material differences may result in the amount and timing of our revenues for any period if factors or market
conditions change or if management makes different judgments or utilizes different estimates in determining the allowances for
returns and price protection.
Similarly, management must make estimates as to the collectability of our accounts receivable. In estimating the allowance for
doubtful accounts, we analyze the age of current outstanding account balances, historical bad debts, customer concentrations,customer creditworthiness, current economic trends, and changes in our customers’ payment terms and their economic condition, as
well as whether we can obtain sufficient credit insurance. Any significant changes in any of these criteria would affect management’s
estimates in establishing our allowance for doubtful accounts.
We regularly review inventory quantities on-hand and in the retail channels. We write down inventory based on excess or obsolete
inventories determined primarily by future anticipated demand for our products. Inventory write-downs are measured as the difference
between the cost of the inventory and net realizable value, based upon assumptions about future demand, which are inherently difficult
to assess and dependent on market conditions. At the point of a loss recognition, a new, lower cost basis for that inventory isestablished, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly establishedbasis.

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Shipping and Handling
Shipping and handling costs, which consist primarily of packaging and transportation charges incurred to move finished goods tocustomers, are included in “Cost of sales—product costs.”
Advertising Expenses
We expense advertising as incurred, except for production costs associated with media advertising, which are deferred and charged to
expense when the related advertisement is run for the first time. Advertising expenses for the years ended December 31, 2015, 2014,
and 2013 were $523 million, $495 million, and $401 million, respectively, and are included in “Sales and marketing expense” in the
consolidated statements of operations.
Income Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC Topic
740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities arerecognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. We evaluate deferred tax assets each period for recoverability. For those assets that do notmeet the threshold of “more likely than not” that they will be realized in the future, a valuation allowance is recorded.
We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.
We recognize interest and penalties, if any, related to unrecognized tax benefits in “Income tax expense.”
Foreign Currency Translation
All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet
date, and revenue and expenses are translated at average exchange rates during the period. The resulting translation adjustments arereflected as a component of “Accumulated other comprehensive income (loss)” in shareholders’ equity.
Earnings (Loss) Per Common Share“Basic earnings (loss) per common share” is computed by dividing income (loss) available to common shareholders by theweighted-average number of common shares outstanding for the periods presented. “Diluted earnings per share” is computed by
dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding, increasedby the weighted-average number of common stock equivalents. Common stock equivalents are calculated using the treasury stock
method and represent incremental shares issuable upon exercise of our outstanding options. However, potential common shares are
not included in the denominator of the diluted earnings (loss) per share calculation when inclusion of such shares would beanti-dilutive, such as in a period in which a net loss is recorded.
When we determine whether instruments granted in stock-based payment transactions are participating securities, unvested
stock-based awards which include the right to receive non-forfeitable dividends or dividend equivalents are considered to participate
with common stock in undistributed earnings. With participating securities, we are required to calculate basic and diluted earnings percommon share amounts under the two-class method. The two-class method excludes from the earnings per common share calculation
any dividends paid or owed to participating securities and any undistributed earnings considered to be attributable to participating
securities.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation, and ASC
Subtopic 505-50, Equity-Based Payments to Non-Employees. Stock-based compensation expense is recognized during the requisite
service period (that is, the period for which the employee is being compensated) and is based on the value of stock-based payment
awards after a reduction for estimated forfeitures. Forfeitures are estimated at the time of grant and are revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.
We estimate the value of stock-based payment awards on the measurement date using a binomial-lattice model. Our determination offair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as

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assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our
expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
We generally determine the fair value of restricted stock rights (including restricted stock units, restricted stock awards andperformance shares) based on the closing market price of the Company’s common stock on the date of grant. Certain restricted stockrights granted to our employees and senior management vest based on the achievement of pre-established performance or market
conditions. We estimate the fair value of performance-based restricted stock rights at the closing market price of the Company’scommon stock on the date of grant. Each quarter, we update our assessment of the probability that the specified performance criteria
will be achieved. We amortize the fair values of performance-based restricted stock rights over the requisite service period adjusted
for estimated forfeitures for each separately vesting tranche of the award. We estimate the fair value of market-based restricted stockrights at the date of grant using a Monte Carlo valuation methodology and amortize those fair values over the requisite service period
adjusted for estimated forfeitures for each separately vesting tranche of the award. The Monte Carlo methodology that we use to
estimate the fair value of market-based restricted stock rights at the date of grant incorporates into the valuation the possibility that themarket condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the market-based restricted
stock rights at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However,the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
3. Cash and Cash Equivalents
The following table summarizes the components of our cash and cash equivalents with original maturities of three months or less atthe date of purchase (amounts in millions):
At December 31,
2015
2014

Cash ..................................................................................................................................
$ 176
Foreign government treasury bills .................................................................................... 34
Money market funds .........................................................................................................
1,613
Cash and cash equivalents ................................................................................................
$ 1,823

$

333
40
4,475
$ 4,848

4. Inventories, Net
Our inventories, net consist of the following (amounts in millions):At
December 31,
2015
2014

Finished goods ...........................................................................................................................
$ 101 $ 112
Purchased parts and components ...............................................................................................
27
11
Inventories, net...........................................................................................................................
$ 128 $ 123
Inventory reserves were $54 million and $52 million at December 31, 2015 and 2014, respectively.
5. 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
December 31,
2015

Internally developed software costs .......................................................
$
Payments made to third-party software developers ...............................
Total software development costs..........................................................
$
Intellectual property licenses .................................................................
$

266 $
150
416 $
30 $

At
December 31,
2014

262
210
472
23

Amortization, write-offs and impairments of capitalized software development costs and intellectual property licenses are comprisedof the following (amounts in millions):

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For the Years Ended
December 31,
2015
2014
2013

Amortization of capitalized software development costs and intellectual$ 410 $ 272 $ 195
property licenses ......................................................................................................
Write-offs and impairments ......................................................................................... 4—29

6. Property and Equipment, Net
Property and equipment, net was comprised of the following (amounts in millions):
At December 31,
2015
2014

Land ...............................................................................................
Buildings ........................................................................................
Leasehold improvements ...............................................................
Computer equipment......................................................................
Office furniture and other equipment ............................................
Total cost of property and equipment ........................................
Less accumulated depreciation ......................................................
Property and equipment, net ......................................................

$

$

1 $
4
109
431
52
597
(408)
189 $

1
4
104
347
45
501
(344)
157

Depreciation expense for the years ended December 31, 2015, 2014, and 2013 was $82 million, $76 million, and $84 million,
respectively.
Rental expense was $39 million, $38 million and $35 million for the years ended December 31, 2015, 2014, and 2013, respectively.
7. Intangible Assets, Net
Intangible assets, net consist of the following (amounts in millions):
Estimated
usefullives

Acquired definite-lived intangible assets:
License agreements and other .................................................................
Internally-developed franchises ..............................................................
Developed software .................................................................................
Total definite-lived intangible assets ..........................................................

1 - 10 years
11 years
5 years

Acquired indefinite-lived intangible assets:
Activision trademark ...............................................................................
Acquired trade names ..............................................................................
Total indefinite-lived intangible assets .......................................................

Indefinite
Indefinite

Net
carrying
amount$$$Estimated
usefullives

Acquired definite-lived intangible assets:
License agreements and other ..............................................................
Internally-developed franchises ...........................................................
Total definite-lived intangible assets .......................................................
Acquired indefinite-lived intangible assets:
Activision trademark ............................................................................
Acquired trade names...........................................................................
Total indefinite-lived intangible assets ....................................................

At December 31, 2015
Gross
Accumulated
carrying
amortization
amount3 - 10 years
11 years

116
309
15
440

$

$

(93)
(298)
—
(391)

At December 31, 2014
Gross
Accumulated
carrying
amortization
amount

$
$

98
309
407

$
$

$

23
11
15
49

$

386
47
433

Net
carrying
amount(92) $(286)(378) $

6
23
29

$

386
47
433

Indefinite
Indefinite

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Amortization expense of intangible assets was $13 million, $13 million, and $24 million for the years ended December 31, 2015,2014, and 2013, respectively.
At December 31, 2015, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):
2016 ..........................................................................................................................................................
$ 172017 ..........................................................................................................................................................
122018 ..........................................................................................................................................................
72019 ..........................................................................................................................................................
52020 ..........................................................................................................................................................
4
Thereafter ..................................................................................................................................................
4
Total ..........................................................................................................................................................
$ 49
We did not record any impairment charges against our intangible assets for the years ended December 31, 2015, 2014 and 2013.
8. Goodwill
The changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2015 and 2014 are as follows(amounts in millions):
Activision

Balance at December 31, 2013 ..........................................
$Tax benefit credited to goodwill ....................................
Foreign exchange ...........................................................
Balance at December 31, 2014 ..........................................
$
Additions through acquisition ........................................
Tax benefit credited to goodwill ....................................
Foreign exchange ...........................................................
Balance at December 31, 2015 ..........................................
$

6,914
(5)
(1)
6,908
—
(2)
(1)
6,905

Blizzard

Other

Total

$

$

$ 7,092(5)(1)$ 7,086
12(2)(1)$ 7,095

$

$

178
—
—
178
—
—
—
178

$

$

—
—
—
—
12
—
—
12

The tax benefit credited to goodwill represents the tax deduction resulting from the exercise of stock options that were outstanding andvested 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. The addition to goodwill through acquisition is attributed to theacquisition of the business of Major League Gaming (“MLG”) (see Note 23).
At December 31, 2015 and 2014, there were no accumulated impairment losses.
9. Other Current Assets and Current Accrued Expenses and Other Liabilities
Included in “Other current assets” of our consolidated balance sheets are deferred cost of sales—product costs of $216 million and$257 million at December 31, 2015 and 2014, respectively.
Included in “Accrued expenses and other liabilities” of our consolidated balance sheets are accrued payroll-related costs of$246 million and $267 million at December 31, 2015 and 2014, respectively.
10. Fair Value Measurements
FASB literature regarding fair value measurements for financial and non-financial assets and liabilities establishes a three-level fairvalue 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; and54

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•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of theassets 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 levelwithin the fair value hierarchy based on the inputs used to determine the fair value at the measurement date (amounts in millions):

Financial Assets:
Recurring fair value measurements:
Money market funds .............................
Foreign government treasury bills ........
Foreign currency forward contracts
not designated as hedges ...................
Auction rate securities (“ARS”) ............
Total recurring fair value measurements
Financial Liabilities:
Foreign currency forward contracts
designated as hedges .........................

Financial Assets:
Recurring fair value measurements:
Money market funds .............................
Foreign government treasury bills ........
ARS.......................................................
Total recurring fair value measurements

As ofDecember 31,
2015

Fair Value Measurements at
December 31, 2015 Using
QuotedPrices in
ActiveSignificant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs(Level 1)(Level 2)(Level 3)

$

$

$
$

1,613
34
11
9
1,667

$

1,613
34

— $
—

— Cash and cash equivalents— Cash and cash equivalents

$

11
—
11 $

— Other current assets
9 Long-term investments
9

— $

(4) $

Accrued expenses and other— liabilities

—
—
1,647

(4) $

$

As of
December 31,
2014

Fair Value Measurements at
December 31, 2014 Using
QuotedPrices in
ActiveSignificant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs(Level 1)(Level 2)(Level 3)

$

$

$

4,475
40
9
4,524

$

Balance SheetClassification

4,475 $
40—
4,515 $

— $
—
—
— $

Balance SheetClassification— Cash and cash equivalents— Cash and cash equivalents
9 Long-term investments
9

ARS represented the only level 3 investment held by the Company. The fair value of these investments has been unchanged for theyears ended December 31, 2015, 2014, and 2013.
Foreign Currency Forward Contracts
Foreign Currency Forward Contracts Not Designated as Hedges
At December 31, 2015, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges wasapproximately $489 million. During the year ended December 31, 2015, we reclassified $8 million of unrealized gains out of“Accumulated other comprehensive income (loss)” and into earnings due to dedesignating $250 million notional euro to U.S. dollar
cash flow hedges when it was determined the hedged transaction would not occur. As a result of the dedesignation, we entered into
offsetting foreign currency forward contracts. The dedesignated and offsetting foreign currency forward contracts remain outstanding
as of December 31, 2015.

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The fair value of these foreign currency forward currency contracts was $11 million as of December 31, 2015, and recorded in “Other
current assets” in our consolidated balance sheet.
At December 31, 2014, outstanding foreign currency forward contracts not designated as hedges were not material.
For the years ended December 31, 2015, 2014, and 2013, pre-tax net gains associated with these forward contracts were recorded in“General and administrative expenses” and 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 othercomprehensive income (loss)” and subsequently reclassify the related amount of accumulated other comprehensive income (loss) toearnings 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 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.
The gross notional amount of all outstanding foreign currency forward contracts designated as cash flow hedges was approximately$381 million at December 31, 2015. At December 31, 2014, there were no outstanding foreign currency forward contracts designatedas cash flow hedges. These foreign currency forward contracts have remaining maturities of 12 months or less. During the years ended
December 31, 2015 and 2014, there was no ineffectiveness relating to these hedges. At December 31, 2015, $4 million of net
unrealized losses related to these contracts are expected to be reclassified into earnings within the next twelve months.
During the year ended December 31, 2015 and 2014, pre-tax net realized gains of $6 million and $8 million, respectively, associatedwith these contracts were reclassified out of “Accumulated other comprehensive income (loss)” and into “General and administrative
expense” due to maturity of these contracts.
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 circumstancesindicate that the carrying amount of the assets may not be recoverable.
For the years ended December 31, 2015, 2014, and 2013, there were no impairment charges related to assets that are measured on a
non-recurring basis.
11. Debt
Credit Facilities
On October 11, 2013, in connection and simultaneously with the Purchase Transaction, 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 “Revolver” and, together with the Term Loan, the “Credit Facilities”). A portion of the Revolver can beused to issue letters of credit of up to $50 million, subject to the availability of the Revolver. To date, we have not drawn on the
Revolver.
Borrowings under the Term Loan and the Revolver bear interest, payable on a quarterly basis, at an annual rate equal to an applicablemargin plus, at our option, (A) a base rate determined by reference to the highest of (a) the interest rate in effect determined by theadministrative 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 will be subject to a LIBOR
floor of 0.75%. At December 31, 2015, the Credit Facilities bore interest at 3.25%. In certain circumstances, our applicable interest
rate under the Credit Facilities would increase.
In addition to paying interest on outstanding principal balances under the Credit Facilities, we are required to pay the lenders acommitment fee on unused commitments under the Revolver. Commitment fees are recorded within “Interest and other investment
income (expense), net” on the consolidated statement of operations. We are also required to pay customary letter of credit fees, if any,
and agency fees.

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The terms of the Credit Agreement required 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.
The Credit Facilities are guaranteed by certain of the Company’s U.S. subsidiaries, whose assets represent approximately 67% of ourconsolidated 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. If ourobligations under the Revolver exceed 15% of the total facility amount as of the end of any fiscal quarter (subject to certain exclusions
for letters of credit), we are also subject to certain financial covenants. A violation of any of these covenants could result in an event ofdefault 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 therepayment of such obligations. The Company was in compliance with the terms of the Credit Facilities as of December 31, 2015.
Amendments to Credit Agreement
In conjunction with the King Acquisition, the Company entered into three Amendments to the Credit Agreement (the “Amendments”).
The Amendments, among other things, provide for incremental term loans in the form of Tranche A Term Loans in an aggregate
principal amount of approximately $2.3 billion, the proceeds of which were to be issued upon successful closing to fund the King
Acquisition. On February 23, 2016, we successfully completed the King Acquisition. Refer to Note 24 for additional information
regarding the closing of the King Acquisition and impact on our debt obligations.
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 andfuture senior indebtedness, including the Credit Facilities described above. The Notes are guaranteed on a senior basis by the
Guarantors. The Notes and related guarantees are not secured and are effectively subordinated to any of the Company’s existing andfuture indebtedness that is secured, including the Credit Facilities. The Notes contain customary covenants that place restrictions incertain circumstances on, among other things, the incurrence of debt, granting of liens, payment of dividends, sales of assets andmergers and acquisitions. The Company was in compliance with the terms of the Notes as of December 31, 2015.
Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year. As of December 31, 2015 and2014, we had interest payable of $38 million, related to the Notes, recorded within “Accrued expenses and other liabilities” in ourconsolidated 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 inpart 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. Upon the occurrenceof 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 theoption of the holders, upon the occurrence of a change in control and a ratings downgrade, at a purchase price equal to 101% ofprincipal, 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 and the Notes are recorded as debt discount, which reduce the carrying value of the
Term Loan and the Notes. The debt discount is amortized over the respective terms of the Term Loan and the Notes. Amortization
expense related to the debt discount is recorded within “Interest and other expense, net” in our consolidated statement of operations.

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

Gross Carrying
AmountTerm Loan............................................................$
2021 Notes ...........................................................
2023 Notes ...........................................................
Total long-term debt ............................................$

December 31, 2015
Unamortized
Discount

1,869
1,500
750
4,119

Gross Carrying
AmountTerm Loan............................................................$
2021 Notes ...........................................................
2023 Notes ...........................................................
Total long-term debt ............................................$

$

$

(9)
(20)
(11)
(40)

Net Carrying
Amount$$December 31, 2014
Unamortized
Discount

2,119
1,500
750
4,369

$

$

(10)
(23)
(12)
(45)

1,860
1,480
739
4,079

Net Carrying
Amount

$

2,109
1,477
738
4,324

$

For the years ended December 31, 2015 and 2014, interest expense was $193 million and $201 million, respectively, amortization of
the debt discount for the Credit Facilities and Notes was $6 million and $6 million, respectively, and commitment fees for the
Revolver were not material.
As of December 31, 2015, 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 ...............................................................................................................................................
$—
2017 ............................................................................................................................................... —2018 ............................................................................................................................................... —2019 ............................................................................................................................................... —2020 ...............................................................................................................................................
1,869
Thereafter .......................................................................................................................................
2,250
Total ...........................................................................................................................................
$ 4,119
As of December 31, 2015 and 2014, the carrying value of the Term Loan 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 tocurrent rates at which we can borrow funds. 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 and $1,586 million and $810 million, respectively, as ofDecember 31, 2014.
12. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) at December 31, 2015 and 2014, were as follows (amounts inmillions):
For the Year Ended December 31, 2015
Unrealized
Foreign
Unrealized gain
gain
currency(loss)(loss)
translation
on available-foron forward
adjustments
sale securities
contracts

Balance at December 31, 2014 .....................................................
Other comprehensive income (loss) before reclassifications ...
Amounts reclassified from accumulated other comprehensive
income (loss) ........................................................................
Balance at December 31, 2015 .....................................................

$

$

Total

(304) $
(326)

1
1

$

—
10

$ (303)(315)—(630) $

(1)
1 $

(14)
(4)

(15)
$ (633)58

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For the Year Ended December 31, 2014
Unrealized gain
(loss)
Foreign currency
Unrealized gain
on forward
translation
on available-forcontracts
adjustments
sale securities

Balance at December 31, 2013 ..................................................
Other comprehensive income (loss) before reclassifications .
Amounts reclassified from accumulated other comprehensive
income (loss) ......................................................................
Balance at December 31, 2014 ..................................................

$

67
(371)

—
(304)

$

$

$

Total

1 $
—

— $
68
8
(363)

—
1 $

(8)
(8)
— $ (303)

Income taxes were not provided for foreign currency translation items as these are considered indefinite investments in non-U.S.
subsidiaries.
13. Operating Segments and Geographic Region
Our operating segments are consistent with our internal organizational structure, the manner in which our operations are reviewed andmanaged 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 two reportable
operating segments (see Note 1 of the Notes to Consolidated Financial Statements). Previously, we reported “Distribution” as areportable segment. In the current period, this was no longer deemed a reportable segment and is included in “Other,” along with ourrecently announced Media Networks and Studios businesses. 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 withrespect to certain of our online-enabled games, stock-based compensation expense, amortization of intangible assets as a result ofpurchase price accounting, and fees and other expenses (including legal fees, costs, expenses and accruals) related to acquisitions andthe Purchase Transaction. The CODM does not review any information regarding total assets on an operating segment basis, andaccordingly, 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 years ended December 31, 2015, 2014 and 2013 are presented below (amounts in millions):
Years Ended December 31,
2013
2015
2014
2013
Income fromoperations before income
tax expense
Net revenues
2,700 $
2,686 $ 2,895 $
868 $
762 $
971
1,565
1,720
1,124
561
756
376
356
407
323
37
9
8
4,621
4,813
4,342
1,466
1,527
1,355

2015

Activision .......................................................................................................
Blizzard...........................................................................................................
Other(1) ..........................................................................................................
Segments total ...........................................................................................
Reconciliation to consolidated net revenues / consolidated income before income
tax expense:
Net effect from deferral of net revenues and related cost of sales ................
Stock-based compensation expense ...............................................................
Amortization of intangible assets ...................................................................
Fees and other expenses related to acquisitions and the Purchase Transaction(2)Consolidated net revenues / operating income ...................................................
Interest and other expense, net .......................................................................
Consolidated income before income tax expense ...............................................

$

$

43
—
—
—
4,664

2014

$

(405)
—
—
—
4,408

$

241
—
—
—
4,583

$
$

(39)
(92)
(11)
(5)

(215)
(104)
(12)
(13)

229
(110)
(23)
(79)

1,319 $
198
1,121 $

1,183 $
202
981 $

1,372
53
1,319

(1)

Other includes other income and expenses from operating segments managed outside the reportable segments, including ourMedia Networks, Studios, and Distribution businesses. Other also includes unallocated corporate income and expenses.

(2)

Reflects fees and other expenses related to the Purchase Transaction and the King Acquisition, inclusive of related debt
financings.

Geographic information presented below for the years ended December 31, 2015, 2014, and 2013 is based on the location of theselling entity. Net revenues from external customers by geographic region were as follows (amounts in millions):

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2015

Net revenues by geographic region:
North America ............................................................................................
$ 2,409
Europe .........................................................................................................1,741
Asia Pacific ................................................................................................. 514
Total consolidated net revenues ......................................................................
$ 4,664

Years Ended
December 31,
2014

2013

$ 2,190
1,824
394$ 4,408$ 2,4141,826
343$ 4,583

The Company’s net revenues in the U.S. were 48%, 48%, and 51% of consolidated net revenues for the years ended December 31,
2015, 2014, and 2013, respectively. The Company’s net revenues in the U.K. were 14%, 16%, and 14% of consolidated net revenues
for the years ended December 31, 2015, 2014, and 2013, respectively. The Company’s net revenues in France were 14% and 12% ofconsolidated net revenues for the years ended December 31, 2014 and 2013, respectively. No other country’s net revenues exceeded
10% of consolidated net revenues.
Net revenues by platform were as follows (amounts in millions):2015

Net revenues by platform:
Console .......................................................................................................
$ 2,391
Online(1) ..................................................................................................... 851
PC ............................................................................................................... 648
Mobile and ancillary(2) .............................................................................. 418
Total Activision Blizzard net revenues ...........................................................4,308
Other(3) ........................................................................................................... 356
Total consolidated net revenues ......................................................................
$ 4,664

Years Ended
December 31,
2014

2013

$ 2,150
867
551
433
4,001
407
$ 4,408$ 2,379
912
340
629
4,260
323
$ 4,583(1)

Revenues from online consist of revenues from all World of Warcraft products, including subscriptions,boxed products, expansion packs, licensing royalties, and value-added services.

(2)

Revenues from Mobile and ancillary include 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 fromthe Skylanders franchise and other physical merchandise and accessories.

(3)

Net revenues from Other include revenues from our Media Networks and Studios businesses, along withrevenues that were historically shown as “Distribution.”Long-lived assets by geographic region at December 31, 2015, 2014, and 2013 were as follows (amounts in millions):
Years Ended
December 31,
2015
2014
2013

Long-lived assets* by geographic region:
North America .........................................................................................................
$ 138 $ 122 $ 102
Europe ......................................................................................................................42
29
29
Asia Pacific ..............................................................................................................9
6
7
Total long-lived assets by geographic region ..............................................................
$ 189 $ 157 $ 138*

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.

For information regarding significant customers, see “Concentration of Credit Risk” in Note 2 of the Notes to Consolidated Financial
Statements.

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14. Stock-Based Compensation
Activision Blizzard Equity Incentive Plans
On June 5, 2014, our shareholders approved the Activision Blizzard, Inc. 2014 Incentive Plan (the “2014 Plan”) and the 2014 Planbecame effective. The 2014 Plan authorizes the Compensation Committee of our Board of Directors to provide stock-based
compensation in the form of stock options, share appreciation rights, restricted stock, restricted stock units, performance shares,
performance units and other performance- or value-based awards structured by the Compensation Committee within parameters set
forth in the 2014 Plan, including custom awards that are denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of our common stock, or factors that may influence the value of our common stock or that arevalued based on our performance or the performance of any of our subsidiaries or business units or other factors designated by theCompensation Committee, as well as incentive bonuses, for the purpose of providing incentives and rewards for superior performanceto the directors, officers, employees of, and consultants to, Activision Blizzard and its subsidiaries.
While the Compensation Committee has broad discretion to create equity incentives, our stock-based compensation program for themost part currently utilizes a combination of options and restricted stock units. Options have time-based vesting schedules, generally
vesting annually over a period of three to five years, and all options expire ten years from the grant date. Restricted stock units either
have time-based vesting schedules, generally vesting in their entirety on an anniversary of the date of grant, or vesting annually over a
period of three to five years, or vest only if certain performance measures are met. In addition, under the terms of the 2014 Plan, theexercise price for the options must be equal to or greater than the closing price per share of our common stock on the date the award is
granted, as reported on NASDAQ.
Upon the effective date of the 2014 Plan, we ceased making awards under the following equity incentive plans (collectively, the “Prior
Plans”), although such plans will remain in effect and continue to govern outstanding awards: (i) Activision, Inc. 1998 Incentive Plan,
as amended; (ii) Activision, Inc. 1999 Incentive Plan, as amended; (iii) Activision, Inc. 2001 Incentive Plan, as amended;(iv) Activision, Inc. 2002 Incentive Plan, as amended; (v) Activision, Inc. 2002 Executive Incentive Plan, as amended;(vi) Activision, Inc. 2002 Studio Employee Retention Incentive Plan, as amended; (vii) Activision, Inc. 2003 Incentive Plan, as
amended; (viii) Activision, Inc. 2007 Incentive Plan; and (ix) Activision Blizzard, Inc. 2008 Incentive Plan.
As of the date it was approved by our shareholders, there were 46 million shares available for issuance under the 2014 Plan. The
number of shares of our common stock reserved for issuance under the 2014 Plan has been, and may be further, increased from time totime by: (i) the number of shares relating to awards outstanding under any Prior Plan that: (a) expire, or are forfeited, terminated orcanceled, without the issuance of shares; (b) are settled in cash in lieu of shares; or (c) are exchanged, prior to the issuance of shares ofour common stock, for awards not involving our common stock; (ii) if the exercise price of any option outstanding under any Prior
Plan is, or the tax withholding requirements with respect to any award outstanding under any Prior Plan are, satisfied by withholding
shares otherwise then deliverable in respect of the award or the actual or constructive transfer to the Company of shares alreadyowned, the number of shares equal to the withheld or transferred shares; and (iii) if a share appreciation right is exercised and settled
in shares, a number of shares equal to the difference between the total number of shares with respect to which the award is exercised
and the number of shares actually issued or transferred. As of December 31, 2015, we had approximately 40 million shares of ourcommon stock reserved for future issuance under the 2014 Plan. Shares issued in connection with awards made under the 2014 Plan
are generally issued as new stock issuances.
Method and Assumptions on Valuation of Stock Options
Our employee stock options have features that differentiate them from exchange-traded options. These features include lack oftransferability, early exercise, vesting restrictions, pre- and post-vesting termination provisions, blackout dates, and time-varying
inputs. A binomial-lattice model was selected because it is better able to explicitly address these features than closed-form models
such as the Black-Scholes model, and is able to reflect expected future changes in model inputs, including changes in volatility, during
the option’s contractual term.
We have estimated expected future changes in model inputs during the option’s contractual term. The inputs required by our
binomial-lattice model include expected volatility, risk-free interest rate, risk-adjusted stock return, dividend yield, contractual term,and vesting schedule, as well as measures of employees’ forfeiture, exercise, and post-vesting termination behavior. Statisticalmethods were used to estimate employee rank-specific termination rates. These termination rates, in turn, were used to model thenumber of options that are expected to vest and post-vesting termination behavior. Employee rank-specific estimates of Expected
Time-To-Exercise (“ETTE”) were used to reflect employee exercise behavior. ETTE was estimated by using statistical procedures tofirst estimate the conditional probability of exercise occurring during each time period, conditional on the option surviving to that time
period and then using those probabilities to estimate ETTE. The model was calibrated by adjusting parameters controlling exercise
and post-vesting termination behavior so that the measures output by the model matched values of these measures that were estimatedfrom historical data.
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The following tables present the weighted-average assumptions and the weighted-average fair value at grant date using thebinomial-lattice model:
Employee andDirector Options
For the Years
Ended December 31,
2015
2014
2013

Expected life (in years) ...................................................................................
6.26
5.97
6.44
Risk free interest rate ......................................................................................
1.90%
1.82%
1.86%
Volatility .........................................................................................................
36.13% 37.09% 39.00%
Dividend yield.................................................................................................
0.72%
0.98%
1.08%
Weighted-average fair value at grant date ......................................................
$ 9.87$ 5.87$ 4.97
To estimate volatility for the binomial-lattice model, we use methods that consider the implied volatility method based upon thevolatilities for exchange-traded options on our stock to estimate short-term volatility, the historical method (annualized standard
deviation of the instantaneous returns on Activision Blizzard’s stock) during the option’s contractual term to estimate long-term
volatility, and a statistical model to estimate the transition or “mean reversion” from short-term volatility to long-term volatility. Basedon these methods, for options granted during the year ended December 31, 2015, the expected stock price volatility ranged from26.96% to 37.00%.
As is the case for volatility, the risk-free rate is assumed to change during the option’s contractual term. Consistent with thecalculation required by a binomial-lattice model, the risk-free rate reflects the expected movement in the interest rate from one time
period to the next (“forward rate”) as opposed to the interest rate from the grant date to the given time period (“spot rate”). The
expected dividend yield assumption for options granted during the year ended December 31, 2015 is based on the Company’s
historical and expected future amount of dividend payouts.
The expected life of employee stock options represents the weighted-average period the stock options are expected to remain
outstanding and is an output from the binomial-lattice model. The expected life of employee stock options depends on all of theunderlying assumptions and calibration of our model. A binomial-lattice model can be viewed as assuming that employees will
exercise their options when the stock price equals or exceeds an exercise multiples, of which the multiple is based on historicalemployee exercise behaviors.
As stock-based compensation expense recognized in the consolidated statement of operations for the years ended December 31, 2015,2014, and 2013 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimatedat the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were
estimated based on historical experience.
Accuracy of Fair Value Estimates
We developed the assumptions used in the binomial-lattice model, including model inputs and measures of employees’ exercise andpost-vesting termination behavior. Our ability to accurately estimate the fair value of stock-based payment awards at the grant datedepends upon the accuracy of the model and our ability to accurately forecast model inputs as long as ten years into the future. These
inputs include, but are not limited to, expected stock price volatility, risk-free rate, dividend yield, and employee termination rates.
Although the fair value of employee stock options is determined using an option-pricing model, the estimates that are produced by thismodel may not be indicative of the fair value observed between a willing buyer and a willing seller. Unfortunately, it is difficult todetermine if this is the case, as markets do not currently exist that permit the active trading of employee stock option and otherstock-based instruments.

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Stock Option Activities
Stock option activities for the year ended December 31, 2015 are as follows (amounts in millions, except number of shares, which arein thousands, and per share amounts):

SharesOutstanding stock options at December 31, 2014 .........................
Granted .........................................................................................
Exercised.......................................................................................
Forfeited ........................................................................................
Expired ..........................................................................................
Outstanding stock options at December 31, 2015 .........................
Vested and expected to vest at December 31, 2015 ......................
Exercisable at December 31, 2015 ................................................

29,486
4,133(8,356)(928)(6)
24,32923,44815,270Weighted-average
exercise price

$

$
$
$

14.50
32.55
13.08
18.44
8.73
17.90
17.57
13.51

Weighted-averageremaining
contractual term

Aggregate
intrinsic value

5.98
5.86
4.19

$
$
$

506
496
385

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e. the difference between our closing stock
price on the last trading day of the period and the exercise price, times the number of shares for options where the exercise price isbelow the closing stock price) that would have been received by the option holders had all option holders exercised their options onthat date. This amount changes based on the market value of our stock. The total intrinsic value of options actually exercised was$125 million, $117 million, and $104 million for the years ended December 31, 2015, 2014, and 2013, respectively. The total grant
date fair value of options vested was $19 million, $19 million, and $29 million for the years ended December 31, 2015, 2014, and2013, respectively.
At December 31, 2015, $43 million of total unrecognized compensation cost related to stock options is expected to be recognized overa weighted-average period of 1.53 years.
Restricted Stock Units and Restricted Stock Awards Activities
We grant restricted stock units, which represent the right to receive shares of our common stock, and restricted stock awards, which
are issued and outstanding upon grant but subject to the risk of forfeiture (collectively referred to as “restricted stock rights”). Vesting
for restricted stock rights is contingent upon the holders’ continued employment with us and may be subject to other conditions (which
may include the satisfaction of a performance measure). Also, certain of our performance-vesting restricted stock rights include a
range of shares that may be released at vesting which are above or below the targeted number of restricted stock rights based on actual
performance relative to the grant date performance measure. If the vesting conditions are not met, unvested restricted stock rights will
be forfeited. Holders of restricted stock are restricted from selling the shares until they vest. Upon vesting of restricted stock rights, we
may withhold shares otherwise deliverable to satisfy minimum tax withholding requirements.
The following table summarizes our restricted stock rights activity for the year ended December 31, 2015, with performance-vesting
restricted stock right grants presented at the maximum potential shares that could be earned and issued at vesting (amounts inthousands except per share amounts):

Unvested restricted stock rights balance at December 31, 2014
Granted* .........................................................................
Vested .............................................................................
Forfeited..........................................................................
Unvested restricted stock rights balance at December 31, 2015*

Restricted Stock
Rights17,9672,330(7,146)(1,221)
11,930WeightedAverage Grant
Date Fair Value

$

$

11.85
29.31
12.80
15.23
12.74

1.7 million of the performance-vesting restricted stock rights granted at maximum potential shares did nothave an accounting grant date as there is not a mutual understanding between the Company and the employeeof the performance terms. Accordingly, no grant date fair value was established and the weighted averaged
grant date fair value calculated above excludes these shares.

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At December 31, 2015, approximately $39 million of total unrecognized compensation cost was related to restricted stock rights and is
expected to be recognized over a weighted-average period of 1.14 years. Of the total unrecognized compensation cost, $17 million
was related to performance-vesting restricted stock rights, which is expected to be recognized over a weighted-average period of
1.28 years. The total grant date fair value of vested restricted stock rights was $93 million, $92 million and $57 million for the years
ended December 31, 2015, 2014 and 2013, respectively.
The income tax benefit from stock option exercises and restricted stock rights was $109 million, $89 million, and $77 million for theyears ended December 31, 2015, 2014, and 2013, respectively.
Certain of our performance-vesting restricted stock rights do not have an accounting grant date as of December 31, 2015, as there is
not a mutual understanding between the Company and the employee of the performance terms. Generally, these performance terms
relate to revenue and operating income performance for future years where the performance goals have not yet been set. As of
December 31, 2015, there were 3.4 million performance-vesting restricted stock rights for which the accounting grant date has notbeen set.
Stock-Based Compensation Expense
The following table sets forth the total stock-based compensation expense included in our consolidated statements of operations forthe years ended December 31, 2015, 2014, and 2013 (amounts in millions):
For the Years Ended
December 31,
2015
2014
2013

Cost of sales—online ..............................................................................................................................
Cost of sales—software royalties and amortization ................................................................................
Product development ...............................................................................................................................
Sales and marketing ................................................................................................................................
General and administrative .....................................................................................................................
Stock-based compensation expense before income taxes .......................................................................
Income tax benefit ...................................................................................................................................
Total stock-based compensation expense, net of income tax benefit .....................................................

$

— $
1 $ —
15
17
17
25
22
33
9
8
7
43
56
53
92
104
110
(27)
(38)
(40)
$
65 $ 66 $ 70

The following table summarizes stock-based compensation included in our consolidated balance sheets as a component of “Softwaredevelopment” (amounts in millions):
SoftwareDevelopment

Balance at December 31, 2012............................................................................................................................
Stock-based compensation expense capitalized and deferred during period ......................................................
Amortization of capitalized and deferred stock-based compensation expense ...................................................
Balance at December 31, 2013............................................................................................................................
Stock-based compensation expense capitalized and deferred during period ......................................................
Amortization of capitalized and deferred stock-based compensation expense ...................................................
Balance at December 31, 2014............................................................................................................................
Stock-based compensation expense capitalized and deferred during period ......................................................
Amortization of capitalized and deferred stock-based compensation expense ...................................................
Balance at December 31, 2015............................................................................................................................

$

$

$

19
34
(31)
$22
27
(23)
26
36
(34)
28

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15. Income Taxes
Domestic and foreign income (loss) before income taxes and details of the income tax expense (benefit) are as follows (amounts inmillions):
For the Years Ended
December 31,
2015
2014
2013

Income before income tax expense:
Domestic ...........................................................................................................................................
Foreign ..............................................................................................................................................
Income tax expense (benefit):
Current:
Federal ...........................................................................................................................................
State ...............................................................................................................................................
Foreign ..........................................................................................................................................
Total current ..................................................................................................................................
Deferred:Federal ...........................................................................................................................................
State ...............................................................................................................................................
Foreign ..........................................................................................................................................
Total deferred ................................................................................................................................
Income tax expense ...............................................................................................................................

$

355 $ 325
766
656
$ 1,121 $ 981

$

$

$

169 $ 146
31
12
40
38
240
196

1
26
(21) (18)
9 (58)(11) (50)$ 229 $ 146626
693$ 1,319

110
7
31
148

134
(12)
39
161
$ 309

For the year ended December 31, 2015, 2014, and 2013, income tax benefits attributable to equity-based compensation transactions
exceeded the amounts recorded based on grant date fair value. Accordingly, $65 million, $30 million, and $11 million were credited toshareholder’s equity, respectively, in these years.
The items accounting for the difference between income taxes computed at the U.S. federal statutory income tax rate and the income
tax expense (benefit) at the effective tax rate for each of the years are as follows (amounts in millions):
2015

Federal income tax provision at statutory rate .......................................
State taxes, net of federal benefit ...........................................................
Research and development credits .........................................................
Foreign rate differential..........................................................................
Change in tax reserves ...........................................................................
Net operating loss tax attribute assumed from the Purchase Transaction
Other .......................................................................................................
Income tax expense ................................................................................

$

392
5
(26)
(228)
136
(63)
13
$
229

For the Years Ended December 31,
2014

35%
—
(2)
(20)
12
(6)
1
20%

$

343
5
(24)
(245)
128
(52)
(9)
$
146

35%
—
(2)
(25)
13
(5)
(1)
15%

$

2013

462
6
(49)
(174)
89
(16)
(9)
$
309

35%
—
(4)
(13)
7
(1)
(1)
23%

The Company’s tax rate is affected by the tax rates in the jurisdictions in which the Company operates, the relative amount of income
earned by jurisdiction, and the jurisdictions with a statutory tax rate less than the U.S. rate of 35%.
For the year ended December, 2015, 2014 and 2013, the Company’s income before income tax expense was $1,121 million,$981 million, and $1,319 million, respectively, and our income tax expense was $229 million (or a 20% effective tax rate),$146 million (or a 15% effective tax rate), and $309 million (or a 23% effective tax rate), respectively. Overall, our effective tax rate
differs from the U.S. statutory tax rate of 35%, primarily due to earnings taxed at relatively lower rates in foreign jurisdictions,recognition of the California research and development (“R&D”) credits, and recognition of the retroactive reinstatement of thefederal R&D tax credit, partially offset by changes in the Company’s liability for uncertain tax positions.

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In connection with the Purchase Transaction, we assumed certain tax attributes of New VH, which generally consist of New VH’s 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 Purchase Transaction.
For the year ended December 31, 2015 and 2014, we utilized $180 million and $148 million, respectively, of the NOL, which resulted
in benefits of $63 million and $52 million, respectively. The benefits for the year ended December 31, 2015, were reduced by$5 million for return to provision adjustments recorded. As of December 31, 2015, and 2014, a corresponding reserve of $58 million
and $52 million, respectively, were established. As of December 31, 2015, an indemnification asset of $125 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 Consolidated Financial Statements for details about the share repurchase).
Deferred income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities for accounting
purposes and the amounts used for income tax purposes. The components of the net deferred tax assets (liabilities) are as follows(amounts in millions):
As of
December 31,
2015
2014

Deferred tax assets:
Allowance for sales returns and price protection..........................................................
$
66
Inventory reserve .......................................................................................................... 11
Accrued expenses ......................................................................................................... 40
Deferred revenue...........................................................................................................288
Tax credit carryforwards ............................................................................................... 58
Net operating loss carryforwards .................................................................................. 10
Stock-based compensation ............................................................................................ 54
Transaction costs........................................................................................................... 9
Other ............................................................................................................................. 19
Deferred tax assets ............................................................................................................555
Valuation allowance ......................................................................................................... —Deferred tax assets, net of valuation allowance ................................................................555
Deferred tax liabilities:
Intangibles .....................................................................................................................
(166)
Prepaid royalties ...........................................................................................................(30)Capitalized software development expenses ................................................................(81)State taxes ..................................................................................................................... (7)Other ............................................................................................................................. (6)Deferred tax liabilities ......................................................................................................
(290)
Net deferred tax assets ......................................................................................................
$ 265

$

74
9
38
291
50
10
69
9
13
563
—
563

(169)
(22)
(84)
(34)
—
(309)
$ 254

As of December 31, 2015, we have gross tax credit carryforwards of $40 million and $119 million for federal and state purposes,
respectively, which begin to expire in fiscal 2025. The tax credit carryforwards are presented in “Deferred tax assets” net of unrealized
tax benefits that would apply upon the realization of uncertain tax positions. Through our foreign operations, we have approximately$36 million in NOL carryforwards at December 31, 2015, attributed mainly to losses in France and Ireland, the majority of which canbe carried forward indefinitely.
We evaluate our deferred tax assets, including net operating losses and tax credits, to determine if a valuation allowance is required.
We assess whether a valuation allowance should be established or released based on the consideration of all available evidence using a“more-likely-than-not” standard. Realization of the U.S. deferred tax assets is dependent upon the continued generation of sufficienttaxable income. In making such judgments, significant weight is given to evidence that can be objectively verified. Althoughrealization is not assured, management believes it is more likely than not that the net carrying value of the U.S. deferred tax assets will
be realized. At December 31, 2015 and 2014, there are no valuation allowances on deferred tax assets.
Cumulative undistributed earnings of foreign subsidiaries for which no deferred taxes have been provided approximated$4,084 million at December 31, 2015. Deferred income taxes on these earnings have not been provided as these amounts are
considered to be permanent in duration. Determination of the unrecognized deferred tax liability on unremitted foreign earnings is not

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practicable because of the complexity of the hypothetical calculation. In the event of a distribution of these earnings to the U.S. in theform of a dividend, we may be subject to both foreign withholding taxes and U.S. income taxes net of allowable foreign tax credits.
Vivendi Games results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreignstate and local income tax returns filed by Vivendi or its affiliates while Vivendi Games results for the period from 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. Vivendi Games tax year 2008 remains open to examination by the major taxing authorities. In addition, VivendiGames’ tax return for the 2008 tax year is before the appeals function of the IRS and is under examination by several state taxing
authorities.
Activision Blizzard’s tax years 2008 through 2014 remain open to examination by the major taxing jurisdictions to which we aresubject. The IRS is currently examining the Company’s federal tax returns for the 2008 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’stransfer pricing agreements. Such allocation could have a positive or negative impact on our provision for the period in which such a
determination is reached and the relevant periods thereafter. The Company also has several state and non-U.S. audits pending.
As of December 31, 2015, we had approximately $552 million of gross unrecognized tax benefits, of which $529 million would affectour effective tax rate if recognized. A reconciliation of total gross unrecognized tax benefits for the years ended December 31, 2015,2014, and 2013 is as follows (amounts in millions):
For the Years Ended
December 31,
2015
2014
2013

Unrecognized tax benefits balance at January 1 ..........................................................
$ 419 $ 294 $ 207
Gross increase for tax positions of prior-years ............................................................ 82
1
Gross decrease for tax positions of prior-years ...........................................................
(11)——
Gross increase for tax positions of current year ..........................................................
136
125
91
Settlement with taxing authorities ...............................................................................—(2)—
Lapse of statute of limitations ......................................................................................——(5)
Unrecognized tax benefits balance at December 31 ....................................................
$ 552 $ 419 $ 294
We recognize interest and penalties related to uncertain tax positions in “Income tax expense”. As of December 31, 2015 and 2014,
we had approximately $41 million and $18 million, respectively, of accrued interest and penalties related to uncertain tax positions.
For the year ended December 31, 2015, 2014, and 2013, we recorded $10 million, $5 million, and $2 million, respectively, of interest
expense related to uncertain tax positions.
Based on the current status with the IRS, there is insufficient information to identify any significant changes in unrecognized tax
benefits in the next twelve months. However, the Company may recognize a benefit of up to approximately $18 million related to thesettlement of tax audits and/or the expiration of statutes of limitations in the next twelve months.
Although the final resolution of the Company’s global tax disputes, audits, or any particular issue with the applicable taxing authority
is uncertain, based on current information, in the opinion of the Company’s management, the ultimate resolution of these matters will
not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, any
settlement or resolution of the Company’s global tax disputes, audits, or any particular issue with the applicable taxing authority could
have a material favorable or unfavorable effect on our business and results of operations in the period in which the matters areultimately resolved.

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16. 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 sharedata):For the Years Ended December 31,
2015
2014
2013

Numerator:
Consolidated net income ............................................................................................................
Less: Distributed earnings to unvested stock-based awards that participate in earnings ......
Less: Undistributed earnings allocated to unvested stock-based awards that participate inearnings ..............................................................................................................................
Numerator for basic and diluted earnings per common share—income available to commonshareholders ...........................................................................................................................
Denominator:
Denominator for basic earnings per common share—weighted-average common shares
outstanding .............................................................................................................................
Effect of potential dilutive common shares under the treasury stock method: Employee stock
options ....................................................................................................................................
Denominator for diluted earnings per common share—weighted-average common shares
outstanding plus dilutive effect of employee stock options ...................................................
Basic earnings per common share..................................................................................................
Diluted earnings per common share ..............................................................................................

$

$

892 $
(4)

835 $
(4)

1,010
(5)

(7)

(14)

(18)

881 $

817

728

716

1,024

11

10

11

$

987

$

739
1.21

$

726
1.14

$

1,035
0.96

$

1.19

$

1.13

$

0.95

Certain of our unvested restricted stock rights (including certain restricted stock units, restricted stock awards, and performance
shares) met the definition of participating securities 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 years ended
December 31, 2015 and 2014, on a weighted-average basis, we had outstanding unvested restricted stock rights with respect to8 million and 15 million shares of common stock that are participating in earnings, respectively.
Certain of our employee-related restricted stock rights are contingently issuable upon the satisfaction of pre-defined performancemeasures. These shares are included in the weighted-average dilutive common shares only if the performance measures are met as ofthe end of the reporting period. Approximately 3 million shares are not included in the computation of diluted earnings per share forthe year ended December 31, 2015 as their respective performance measures have not been met. Approximately 4 million shares are
not included in the computation of diluted earnings per share for the year ended December 31, 2014 as their respective performancemeasures have not been met.
Potential common shares are not included in the denominator of the diluted earnings per common share calculation when the inclusionof such shares would be anti-dilutive, such as in a period in which a net loss is recorded. Therefore, options to acquire 1 million,
2 million, and 5 million shares of common stock were not included in the calculation of diluted earnings per common share for theyears ended December 31, 2015, 2014, and 2013, respectively, as the effect of their inclusion would be anti-dilutive.
See Note 1 of the Notes to Consolidated Financial Statements for details of the Purchase Transaction which reduced outstanding
shares in 2014 as compared to 2013.
17. Capital Transactions
Stock Purchase Agreement
On October 11, 2013, as described in Note 1 of the Notes to Consolidated Financial Statements, we completed the PurchaseTransaction, repurchasing approximately 429 million shares of our common stock for a cash payment of $5.83 billion, pursuant to theterms of the Stock Purchase Agreement (refer to Note 11 of the Notes to Consolidated Financial Statements for financing details of thePurchase Transaction). The repurchased shares were recorded in “Treasury Stock” in our consolidated balance sheet.
Repurchase Programs
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. During the year
ended December 31, 2015, there were no repurchases pursuant to this stock repurchase program.
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Dividend
On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share, payable on May 11, 2016, toshareholders of record at the close of business on March 30, 2016.
On February 3, 2015, our Board of Directors declared a cash dividend of $0.23 per common share, payable on May 13, 2015, toshareholders 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.
On February 6, 2014, our Board of Directors declared a cash dividend of $0.20 per common share, payable on May 14, 2014, toshareholders of record at the close of business on March 19, 2014. On May 14, 2014, we made an aggregate cash dividend payment of$143 million to such shareholders, and on May 30, 2014, we made related dividend equivalent payments of $4 million to the holdersof restricted stock rights.
On February 7, 2013, our Board of Directors declared a cash dividend of $0.19 per common share, payable on May 15, 2013, toshareholders of record at the close of business on March 20, 2013. On May 15, 2013, we made an aggregate cash dividend payment of$212 million to such shareholders, and on May 31, 2013, we made related dividend equivalent payments of $4 million to the holdersof restricted stock rights.
18. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (amounts in millions):
For the Years Ended
December 31,
2015
2014
2013

Supplemental cash flow information:
Cash paid for income taxes, net of refunds..............................................................
$ 20
Cash paid for interest ...............................................................................................193

$

34
201

$ 138
19

19. Commitments and Contingencies
Letters of Credit
As described in Note 11 of the Notes to Consolidated Financial Statements, a portion of our Revolver can be used to issue letters ofcredit of up to $50 million, subject to the availability of the Revolver. At December 31, 2015, we did not have any letters of credit
issued under the Revolver.
We maintain two irrevocable standby letters of credit, which are required by one of our inventory manufacturers so that we can qualify
for certain payment terms on our inventory purchases. Our standby letters of credit were for $8 million and 3 million euros($3 million) at December 31, 2015, and $10 million and 1 million euros ($1 million) at December 31, 2014. For the standby letter ofcredit denominated in U.S. dollars, under the terms of the arrangements, we are required to maintain a compensating balance on
deposit with a bank, restricted as to use, of not less than the sum of the available amount of the letter of credit plus the aggregate
amount of any drawings under the letter of credit that have been honored thereunder, but not reimbursed. Both letters of credit were
undrawn at December 31, 2015 and 2014.

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Commitments
In the normal course of business, we enter into contractual arrangements with third parties for non-cancelable operating leaseagreements for our offices, for the development of products and for the rights to intellectual property. Under these agreements, wecommit to provide specified payments to a lessor, developer or intellectual property holder, as the case may be, based upon contractual
arrangements. The payments to third-party developers are generally conditioned upon the achievement by the developers ofcontractually specified development milestones. Further, these payments to third-party developers and intellectual property holders
typically are deemed to be advances and, as such, are recoupable against future royalties earned by the developer or intellectual
property holder based on sales of the related game. Additionally, in connection with certain intellectual property rights, acquisitions
and development agreements, we commit to spend specified amounts for marketing support for the game(s) which is (are) to be
developed or in which the intellectual property will be utilized. Assuming all contractual provisions are met, the total future minimum
commitments for these and other contractual arrangements in place at December 31, 2015 are scheduled to be paid as follows(amounts in millions):
Facility andEquipment
LeasesFor the years ending December 31,
2016 ....................................................
2017 ....................................................
2018 ....................................................
2019 ....................................................
2020 ....................................................
Thereafter ............................................
Total ................................................
(1)

$

35
32
30
27
19
35
178

$

Contractual Obligations(1)Developer andIntellectualMarketing
Properties

$

$

190
5
—
—
—
2
197

$

$

28 $
53
15
—
—
—
96 $

Total

253
90
45
27
19
37
471

We have omitted uncertain tax liabilities from this table due to the inherent uncertainty regarding the timingof potential issue resolution. Specifically, either (a) the underlying positions have not been fully developed
under audit to quantify at this time or, (b) the years relating to the issues for certain jurisdictions are notcurrently under audit. At December 31, 2015, we had $471 million of unrecognized tax benefits, of which$453 million was included in “Other liabilities” and $18 million was included in “Accrued expenses andother liabilities” in our consolidated balance sheet.

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 otherclaims. 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., morethan 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 relevantfacts and circumstances on a quarterly basis assuming, as applicable, a combination of settlement and litigated outcomes andstrategies. 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.

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Purchase Transaction Matters
In prior periods, the Company reported on litigation related to the Purchase Transaction. During the period ended June 30, 2015, thecases were resolved and dismissed with prejudice. As part of the resolution of the claims, we received a settlement payment of$202 million in July 2015 from Vivendi, ASAC, and our insurers. We recorded the settlement within “Shareholders’ equity” in ourconsolidated balance sheet as of December 31, 2015.
Other Matters
In addition, we are party to routine claims, suits, investigations, audits and other proceedings arising from the ordinary course ofbusiness, 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.
20. Related Party Transactions
Transactions with Vivendi and Its Affiliates
As part of the Business Combination in 2008, we entered into various transactions and agreements, including cash management
services agreements, a tax sharing agreement and an investor agreement, with Vivendi and its subsidiaries. In connection with theconsummation of the Purchase Transaction, we terminated the cash management arrangements with Vivendi and amended ourinvestor agreement with Vivendi. We are also party to a number of agreements with subsidiaries and other affiliates of Vivendi,
including music licensing and distribution arrangements and promotional arrangements, none of which were impacted by the PurchaseTransaction. None of these services, transactions, and agreements with Vivendi and its affiliates were material, either individually orin the aggregate, to the consolidated financial statements as a whole. As discussed in Note 1 of the Notes to Consolidated Financial
Statements, on May 28, 2014, Vivendi sold 41 million shares, reducing its ownership interest below 10%, and is no longer considereda related party. Subsequent to December 31, 2015, Vivendi sold their remaining shares of our common stock.
Transactions with ASAC’s Affiliates
Pursuant to the Stock Purchase Agreement, the Company and each of Mr. Kotick, the Company’s Chief Executive Officer, andMr. Kelly, the Company’s Chairman of the board of directors, entered into a waiver and acknowledgement letters (together, the“Waivers”), which provide, among other things, (i) that the Purchase Transaction, Private Sale, any public offerings by Vivendi andrestructurings by Vivendi and its subsidiaries contemplated by the Stock Purchase Agreement and other transaction documents, shallnot (or shall be deemed not to) constitute a “change in control” (or similar term) under their respective employment arrangements,
including their employment agreements with the Company, the Company’s 2008 Incentive Plan or any award agreements in respect ofawards granted thereunder, or any Other Benefit Plans and Arrangements (as defined in the Waivers), (ii) (A) that the shares of ourcommon stock acquired by ASAC and held or controlled by the ASAC Investors (as defined in the Waivers) in connection with theTransactions (as defined in the Waivers) will not be included in or count toward, (B) that the ASAC Investors will not be deemed to
be a group for purposes of, and (C) any changes in the composition in the Board of Directors of the Company, in connection with or
during the one-year period following the consummation of the Transactions will not contribute towards, a determination that a“change in control” or similar term has occurred with respect to Messrs. Kotick and Kelly’s employment arrangements with theCompany, and (iii) for the waiver by Messrs. Kotick and Kelly of their rights to change in control payments or benefits under theiremployment agreements with the Company, the Company’s 2008 Incentive Plan or any award agreements in respect of awards
granted thereunder, and any Other Benefit Plans and Arrangements (in each case, with respect to all current and future grants, awards,
benefits or entitlements) in connection with or as a consequence of the Transactions.
Also pursuant to the Stock Purchase Agreement, on October 11, 2013, we, ASAC and, for the limited purposes set forth therein,
Messrs. Kotick and Kelly entered into the Stockholders Agreement. The Stockholders Agreement contains various agreements among
the parties regarding voting rights, transfer rights, and a standstill agreement, among other things. In connection with the settlement of
the litigation related to the Purchase Transaction, the parties to the Stockholders Agreement amended that agreement on May 28,
2015.

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21. Recently Issued Accounting Pronouncements
Revenue recognition
In May 2014, the FASB issued new accounting guidance related to revenue recognition. This 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 aunified 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 beentitled in exchange for those goods or services. This guidance will be effective beginning January 1, 2018 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, theperformance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies thatcompensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved andshould represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The newstandard is effective for fiscal years beginning after December 15, 2015 and can be applied either prospectively or retrospectively to
all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early
adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.
Consolidations
In February 2015, the FASB issued new guidance related to consolidations. The new standard amends certain requirements fordetermining whether a variable interest entity must be consolidated. The new standard is effective for fiscal years beginning after
December 15, 2015. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on
our financial statements.
Debt Issuance Costs
In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs in financial statements. The newstandard 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. It is effective for annual reporting periods
beginning after December 15, 2015. The new guidance will be applied retrospectively to each prior period presented. The adoption ofthis guidance will not have a material impact on our 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 forfees 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 and account for the non-software element
as a service contract. If a cloud computing arrangement does not include a software license, the customer should account for thearrangement as a service contract. The new standard is effective for fiscal years beginning after December 15, 2015. Early adoption ispermitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.
Inventory
In July 2015, the FASB issued new guidance related to the measurement of inventory which requires inventory within the scope of theguidance 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 iseffective 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 ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, providing
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 thebusiness combination, be recognized in the reporting period the adjustment is identified. The standard also requires separate

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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.
The new standard is effective for fiscal years beginning after December 15, 2015 and should be applied prospectively to measurement
period adjustments that occur after the effective date. Early adoption is permitted. The adoption of this new accounting guidance could
have a material impact on our financial statements in future periods upon occurrence of a measurement period adjustment.
Deferred Taxes
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, providing new guidance tosimplify the presentation of deferred taxes. The new standard requires that deferred tax assets and liabilities, along with any related
valuation allowance, be classified as non-current on the balance sheet. The issuance of the new standard eliminates the requirement toperform the jurisdiction analysis based on the classifications of the underlying assets and liabilities, and as a result, each jurisdiction
will only have one net non-current deferred tax asset or liability. The new standard is effective for fiscal years beginning after
December 15, 2016 and can be applied either prospectively or retrospectively. Early adoption is permitted.
As of December 31, 2015 we early adopted ASU No. 2015-17 and applied retrospectively to all periods presented. As a result, wereclassified $368 million of deferred tax assets from current “Deferred income taxes, net” resulting in non-current net deferred tax
assets and liabilities of $264 million and $10 million, respectively, in our Consolidated Balance Sheet as of December 31, 2014. The
adoption of this new guidance did not impact our compliance with debt covenant requirements.
22. Quarterly Financial Information (Unaudited)
For the Quarters Ended
December 31,
September 30,
June 30,
March 31,
2015
2015
2015
2015
(Amounts in millions, except per share data)

Net revenues ....................................
Cost of sales .....................................
Operating income .............................
Net income .......................................
Basic earnings per share ..................
Diluted earnings per share ...............

$

1,353
538
250
159
0.22
0.21
December 31,
2014

$

990
337
196
127
0.17
0.17

$

1,044
297
332
212
0.29
0.29

For the Quarters Ended
September 30,
June 30,
2014
2014

$

1,278
413
542
394
0.54
0.53

March 31,
2014

(Amounts in millions, except per share data)

Net revenues .......................................
Cost of sales ........................................
Operating income ................................
Net income (loss) ................................
Basic earnings (loss) per share............
Diluted earnings (loss) per share ........

$

1,575
631
438
361
0.49
0.49

$

753 $
253
8
(23)
(0.03)(0.03)

970 $
300
310
204
0.28
0.28

1,111
342
427
293
0.40
0.40

23. Acquisitions
Major League Gaming
On December 22, 2015, we acquired the business of Major League Gaming, Inc. 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 runningcompetitive gaming leagues. MLG’s business will operate under our Media Networks operating segment.
We identified and recorded the assets acquired at their estimated fair values at the date of acquisition, and allocated the remaining
value of $12 million to goodwill. The goodwill recorded is expected to be tax deductible for tax purposes. The primary intangible
asset acquired relates to the developed technology. The values assigned to the acquired assets were preliminary estimates of fair value
available as of the date of the Annual Report on the Form 10-K, and may be adjusted as further information becomes available during
the measurement period of up to 12 months from the date of the acquisition. The primary areas of the preliminary purchase priceallocation that are not yet finalized due to information that may become available subsequently include any changes in these fairvalues which could potentially result in adjustments to goodwill. The individual tangible and intangible assets acquired in theacquisition were immaterial to the Company’s consolidated financial statements. We did not assume any significant liabilities as partof the acquisition.

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The following net assets were recognized resulting from the acquisitions:
December 22,
2015

Net tangible assets ................................................................................................................
$
Definite-lived intangible assets .............................................................................................
Goodwill ...............................................................................................................................
Total net assets recognized ...................................................................................................
$

1
33
12
46

Pro forma financial information has not been presented as the acquisition did not have a material impact on our consolidated financial
statements for 2015.

24. Subsequent Events
The King Acquisition
On November 2, 2015, we and King entered into a Transaction Agreement under the terms of which we would acquire King and King
would become a wholly-owned subsidiary of the Company. On February 23, 2016 we completed the King Acquisition under the termsof the Transaction Agreement. We transferred $5.9 billion in consideration to the existing King shareholders and share-based award
holders.
The Company made this acquisition because it believes 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, and positions thecompany for future growth. The combined company has a world-class interactive entertainment portfolio of top-performing
franchises.
As the closing of the King Acquisition occurred subsequent to December 31, 2015, our financial results as of and for the year ended
December 31, 2015 do not contain the results of King.
The purchase price, including replacement share awards, is made up of the net assets acquired, including tangible assets, trademark,franchises, developed technology, other intangibles, and goodwill. A portion of the goodwill associated with this purchase is expected
to be deductible for U.S. income tax purposes. Due to the timing of the close of the King Acquisition, we did not have sufficient time
to complete the valuation of the acquired assets and assumed liabilities, and therefore, the purchase price allocation and amount of
goodwill and the tax deduction cannot be determined at this time. Additionally, supplemental pro forma information has not been
provided for King as due to the timing of the closing of the King Acquisition, compilation of such data is impracticable.
Credit Facilities
Tranche A Term Loan In connection with the closing of the King Acquisition, the Company was provided with incremental termloans, in the form of Tranche A Term Loans, in an aggregate principal amount of approximately $2.3 billion, of which the proceeds
were used to fund the King Acquisition.
The Tranche A Term Loans are scheduled to mature on October 11, 2020 and bear interest, at the Company’s option, at either (a) abase 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 anapplicable interest margin. LIBOR is subject to a floor of 0% and the base rate is subject to an effective floor of 1.00%. The applicableinterest margin for Tranche A Term Loans ranges from 1.50% to 2.25% for LIBOR borrowings and from 0.50% to 1.25% for baserate borrowings and is determined by reference to a pricing grid based on the Company’s Consolidated Total Net Debt Ratio (asdefined 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, 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 Loansare 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.

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The Tranche A Term Loans are secured by the same collateral and guaranteed by the same guarantors that secure and guarantee theexisting Term Loans. The other terms of the Tranche A Term Loans are also generally the same as the terms of the existing Term
Loan.
Revolving Credit Facility As part of the Amendments, upon the closing of the King Acquisition, the Company’s existing revolving
credit facility under the Credit Agreement (as in effect prior to the closing of the King Acquisition) in an aggregate principal amountof $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”).
Borrowings under the 2015 Revolving Credit Facility may be borrowed, repaid and re-borrowed by the Company and are available forworking capital and other general corporate purposes. Up to $50 million of the 2015 Revolving Credit Facility may be used for lettersof 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 sameguarantors 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 Revolver.
Debt Repayments
On February 2, 2016, the Board of Directors authorized repayments of up to $1.5 billion of our outstanding debt during 2016. On
February 25, 2016, we made a voluntary principal repayment of $500 million on our Term Loan, reducing the aggregate term loans
outstanding under the Credit Agreement, which includes the $2.3 billion of Tranche A Term Loans, to $3.7 billion. Since thisrepayment was not a contractual requirement and was not authorized by the Board of Directors until February 2016, we did not reflect
the repayment as a “Current portion of long-term debt” in our consolidated balance sheet as of December 31, 2015.

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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIESMarket Information and Holders
Our common stock is quoted on the NASDAQ National Market under the symbol “ATVI.”The following table sets forth, for the periods indicated, the high and low reported sale prices for our common stock. At February 22,
2016, there were 1,752 holders of record of our common stock.
2014
First Quarter Ended March 31, 2014.............................................................................................................
Second Quarter Ended June 30, 2014 ...........................................................................................................
Third Quarter Ended September 30, 2014 ....................................................................................................
Fourth Quarter Ended December 31, 2014 ...................................................................................................
2015
First Quarter Ended March 31, 2015.............................................................................................................
Second Quarter Ended June 30, 2015 ...........................................................................................................
Third Quarter Ended September 30, 2015 ....................................................................................................
Fourth Quarter Ended December 31, 2015 ...................................................................................................

$

$

High

Low

21.50 $
22.40
24.18
21.98

16.55
18.82
20.65
17.73

High

Low

23.69 $
26.09
32.50
39.93

18.43
22.28
24.04
30.25

Stock Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to theliabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Activision Blizzard, Inc. under
the Exchange Act or the Securities Act of 1933.
The graph below matches the cumulative five-year total return of holders of our common stock with the cumulative total returns of the
NASDAQ Composite index, the S&P 500, and the RDG Technology Composite index. The graph assumes that the value of theinvestment in our common stock and in each of the indexes (including reinvestment of dividends) was $100 on December 31, 2010,
and tracks each such investment through December 31, 2015.

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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
OFInc.,
5 YEARCUMULATIVETOTAL
Among COMPARISON
Activision Blizzard,
the NASDAQ
Composite
Index, RETURN*
the S&P 500 Index,
Among Activision Blizzard,
Inc.,
the
NASDAQ
Composite
Index,and the RDG Technology Composite Index the S&P 500 Index,
and the RDG Technology Composite Index
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Activision Blizzard, Inc., the NASDAQ Composite Index, the S&P 500 Index,
and the RDG Technology Composite Index
$3 50
$3 00
$2 50
$2 00

▲

▲
▲

$1 50
▲

$1 00

▲

$ 50
$0
12/ 1012/ 11

12/ 12

12/ 13

12/ 14**▲ index,
Acti vi on
si on12/31/10
Bli z z ard, Inc.
NASDAQ
Composite
S& P 500$100 invested
in stock or
includingreinvestment
of dividends.
$100 invested on 12/31/10 in stock or index, including reinvestment of dividends.

*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends.

Fiscal Year Ending December 31,
FiscalYearBlizzard,
Ending December
31,
Activision
Inc. ..............................................
Activision Blizzard, Inc. ..............................................

12/10
12/10

12/11
12/11

12/12
12/12

12/ 15

RDG

Technology

12/13

Composi te

12/14

12/15

12/13
12/14
12/15
$
$
$ 100.00 $ 100.54
87.91 $ 149.54 $ 170.59 $ 331.08$ 100.00$ 100.54
170.59331.0887.91 $ 149.54
NASDAQ
Composite...................................................
100.00100.53116.92
166.19 $ 12/14
188.78 $ 12/15
199.95
Fiscal YearComposite
Ending December
31,
12/10
12/11
12/12
12/13
NASDAQ...................................................
100.00100.53116.92
166.19188.78199.95
S&P 500 ........................................................................
100.00102.11118.45156.82
178.29180.75
Activision
Blizzard, Inc. ..............................................
$
S&P........................................................................
100.00102.11118.45156.82
178.29180.75
RDG500Technology
Composite ......................................
100.00100.56115.30152.75177.73
181.32$ 100.00
100.00 $ 100.56
100.54149.54 $ 177.73
170.59 $ 181.32
331.0887.91 $ 152.75
RDG Technology Composite ......................................
115.30
NASDAQ Composite ...................................................
100.00100.53116.92
166.19188.78199.95The
stock
price performance included in this graph is not necessarily
indicativeof future stock
price performance.
S&P
500........................................................................
100.00102.11118.45156.82
178.29180.75The stock price performance included in this graph is not necessarily indicative of future stock price performance.
RDG Technology Composite ......................................
100.00100.56115.30152.75177.73
181.32
Cash Dividends
Cash Dividends
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share, payable on May 11, 2016, toOn
February 2,
Board
of of
Directors
a cashdividend of $0.26 per common share, payable on May 11, 2016, toshareholdersof 2016,
recordourat theclose
businessdeclaredon March
30, 2016.
Cash Dividends
shareholdersof record at the close of business on March 30, 2016.

On
February
3,
2015,
our
Board
of
Directors
declaredcash
dividend
of
$0.23
per
commonshare,
payableon MayMay 13,2015,
toOn February
February 3,
2, 2015,
2016, our
our Board
Board ofof Directors
Directors declareddeclared aaa cash
cash dividend
dividend ofof $0.23$0.26 perper common
common share,share, payablepayable on
on
11, 2015,
2016, to
to
On
May
13,
shareholders
ofrecord
at
the
close
of
business
on
March
30,
2015.
On
May
13,
2015,
we
made
an
aggregate
cash
dividend
payment
ofshareholders
ofrecord
at
the
close
of
business
on
March
30,
2016.
shareholders
at the close ofbusiness
March
Maydividend
13, 2015,equivalent
we made payments
an aggregate
cash
dividend
payment of$167 million of
to recordsuch shareholders,andon Mayon29,
2015,30,we2015.
madeOnrelatedof $3
millionto certain$167
millionto such stock
shareholders,
holdersof restricted
rights. and on May 29, 2015, we made related dividend equivalent payments of $3 million to certain
On February
3, 2015,stock
our Boardholdersof restricted
rights. of Directors declared a cash dividend of $0.23 per common share, payable on May 13, 2015, toshareholders of record at the close of business on March 30, 2015. On May 13, 2015, we made an aggregate cash dividend payment ofOn
February6,
2014,
our Board of andDirectors
declareda cashdividendof $0.20
per commonshare,
payableonMay
14, 2014,
to$167
million 6,
to 2014,such shareholders,on May29, 2015,
we dividend
maderelateddividend
equivalent
payments
of on$3 MaymillioncertainOn
February
our
Board
of of
Directors
declareda cashof$0.20
percommonshare,
payable
14,to
2014,
to
shareholders
ofrecordattheclosebusiness
on
March
19,
2014.
On
May
14,
2014,
we
made
an
aggregate
cash
dividend
paymentofholders of restricted
stockrights.
shareholders
at theclose ofbusiness
March
Maydividend
14, 2014,equivalent
we made payments
an aggregate
cash
dividend
payment$143 million of
to recordsuch shareholders,andon Mayon30,
2014,19,
we2014.
madeOnrelatedof $4
millionto holders
of of
$143
millionto units.
such shareholders, and on May 30, 2014, we made related dividend equivalent payments of $4 million to holders ofrestricted
stock
On February
6, units.
2014, our Board of Directors declared a cash dividend of $0.20 per common share, payable on May 14, 2014, to
restricted
stock
shareholders of record at the close of business on March 19, 2014. On May 14, 2014, we made an aggregate cash dividend payment of
Futuredividends
will depend upon andour onearnings,
financialcondition,
cash requirements,
future payments
prospects, ofand otherfactors
deemed$143 million
to such
May 30,2014, wemade related
dividend equivalentmillionto holdersof
Futuredividends
will shareholders,
dependupon ourearnings,
financialcondition,
cash
requirements,
future prospects,
and$4
other
factors
deemedrelevant
by
our
Board
of
Directors.
Further,
agreements
governingourindebtedness,
includingtheindenture
governingtheNotes andrestricted
stock
units.
relevant by our Board of Directors. Further, agreements governing our indebtedness, including the indenture governing the Notes andFuture dividends will depend upon our earnings, financial condition, cash requirements, future prospects, and other factors deemed
relevant by our Board of Directors. Further, agreements governing7 our indebtedness, including the indenture governing the Notes and
ACTIVISION ANNUAL REPORT 10-K

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ANDRA DESIGN

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the Credit Agreement, as described in Note 11 of the Notes to Consolidated Financial Statements included in this Annual Report, limit
our ability to pay distributions or dividends with certain exceptions. There can be no assurances that dividends will be declared in the
future.
10b5-1 Stock Trading Plans
The Company’s directors and employees may, at a time they are not aware of material non-public information, enter into plans(“Rule 10b5-1 Plans”) to purchase or sell shares of our common stock that satisfy the requirements of Exchange Act Rule 10b5-1.
Rule 10b5-1 permits trading on a pre-arranged, “automatic-pilot” basis, subject to certain conditions, including that the person forwhom the plan is created (or anyone else aware of material non-public information acting on such person’s behalf) not exercise any
subsequent influence regarding the amount, price and dates of transactions under the plan. In addition, any such plan of theCompany’s directors and employees is required to be established and maintained in accordance with the Company’s “Policy on
Establishing and Maintaining 10b5-1 Trading Plans.”
Rule 10b5-1 Plans permit persons whose ability to purchase or sell our common stock may otherwise be substantially restricted (byquarterly and special stock-trading blackouts and by their possession from time to time of material nonpublic information) to engage
in pre-arranged trading. Trades under a Rule 10b5-1 Plan by our directors and employees are not necessarily indicative of theirrespective opinions of our current or potential future performance at the time of the trade. Trades by our directors and executive
officers pursuant to a Rule 10b5-1 Plan will be disclosed publicly through Form 144 and Form 4 filings with the SEC, in accordancewith applicable laws, rules and regulations.
Issuer Purchase of Equity Securities
On February 3, 2015, our Board of Directors authorized a stock repurchase program pursuant to which we are authorized torepurchase up to $750 million of the Company’s common stock during the two-year period from February 9, 2015 through February 8,
2017. No repurchases have been made under this authorized stock repurchase program.
On October 11, 2013, we repurchased 428,676,471 shares of our common stock, pursuant to a stock purchase agreement we enteredinto on July 25, 2013, with Vivendi and ASAC II LP, an exempted limited partnership established under the laws of the Cayman
Islands, acting by its general partner, ASAC II LLC. Pursuant to the terms of the Stock Purchase Agreement, we acquired all of thecapital stock of Amber Holding Subsidiary Co., a Delaware corporation and wholly-owned subsidiary of Vivendi, which was the
direct owner of 428,676,471 shares of our common stock, for a cash payment of $5.83 billion, or $13.60 per share, before taking into
account the benefit to the Company of certain tax attributes of New VH assumed in the transaction. The repurchased shares wererecorded in “Treasury Stock” in our consolidated balance sheet.

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CAUTIONARY STATEMENT

This Annual Report 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 andinclude, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or otherfinancial items; (2) statements of our plans and objectives, including those relating to product releases; (3) statements of futurefinancial or operating performance; (4) statements relating to the acquisition of King Digital Entertainment plc and expected impactof that transaction, including without limitation, the expected impact on Activision Blizzard’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. Our actual results could differ materially from expectations stated in forward-looking
statements. Some of the risk factors that could cause our actual results to differ from those stated in forward-looking statements canbe found in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K. The forward-looking statements
contained herein are based upon information available to us as of the date of our Annual Report on Form 10-K 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 torisks, uncertainties and other factors, some of which are beyond our control and may cause actual results to differ materially fromcurrent 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. All other product or service names are the property of their respective
owners.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATION
For the Year Ended December 31, 2015 and 2014
(Amounts in millions)Year Ended
December 31, 2015
AmountDecember 31, 2014

% of Total1% of Total1

Amount$ Increase(Decrease)% Increase(Decrease)

GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online2$851

18 % $

867

20 % $

(16)

(2 )%

648

14

551

13

97

18

Next-generation (PS4, Xbox One, Wii U)

1,492

32

720

16

772

107

Prior-generation (PS3, Xbox 360, Wii)

899

19

1,430

32

(531)

(37)

2,391

51

2,150

49

241

11

418

9

433

10

(15)

(3)

4,308

92

4,001

91

307

8

356

8

407

9

(51)

(13)

4,664

100

4,408

100

256

6

PC

Total console

3

Mobile and ancillary4

Total Activision and Blizzard
Other5
Total consolidated GAAP net revenues
Change in Deferred Revenues6
Activision and Blizzard:
Online2

(138)

168

82

41

Next-generation (PS4, Xbox One, Wii U)

252

477

Prior-generation (PS3, Xbox 360, Wii)

(274)

(295)

(22)

182

PC

Total console3
Mobile and ancillary4
Total changes in deferred revenues

35

14

(43)

405

Non-GAAP Net Revenues by Segment/Platform Mix
Activision and Blizzard:
Online2

713

15

1,035

22

(322)

(31)

PC

730

16

592

12

138

23

Next-generation (PS4, Xbox One, Wii U)

1,744

38

1,197

25

547

46

Prior-generation (PS3, Xbox 360, Wii)

625

14

1,135

24

(510)

(45)

2,369

51

2,332

48

37

2

453

10

447

9

6

1

4,265

92

4,406

92

(141)

(3)

356

8

407

8

(51)

(13)

4,621

100 % $

4,813

100 % $

(192)

(4 )%

Total console3
Mobile and ancillary4

Total Activision and Blizzard
Other5
Total consolidated non-GAAP net revenues7
1
2

3
4

5
6
7

$

The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
Revenues from online consists of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, andvalue-added services.
Downloadable content and their related revenues are included in each respective console platforms and total console.
Revenues from mobile and ancillary include 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 the Skylanders franchise and other physical merchandise and accessories.
Net revenues from Other include revenues from our Media Networks and Studios businesses, along with revenues that were historically shown as “Distribution.”
We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
Total non-GAAP net revenues presented also represents our total operating segment net revenues.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATION
For the Year Ended December 31, 2015 and 2014
(Amounts in millions)Year Ended
December 31, 2015

December 31, 2014

% ofTotal1

AmountAmount% ofTotal1$ Increase(Decrease)% Increase(Decrease)

GAAP Net Revenues by Distribution Channel
Retail channels$

Digital online channels2
Total Activision and Blizzard
Other

3

Total consolidated GAAP net revenues

1,806

39 % $

2,104

48 % $(298)(14 )%

2,502

54

1,897

43

605

32

4,308

92

4,001

91

307

8

356

8

407

9

(51)

(13)

4,664

100

4,408

100

256

6

(571)

(26)

Change in Deferred Revenues4
Retail channels

(169)

104

Digital online channels2

126

301

(43)

405

Total changes in deferred revenues
Non-GAAP Net Revenues by Distribution Channel
Retail channels
2

Digital online channels

Total Activision and Blizzard
Other

3

Total non-GAAP net revenues

1
2

3
4
5

5

$

1,637

35

2,208

46

2,628

57

2,198

46

430

20

4,265

92

4,406

92

(141)

(3 )

356

8

407

8

(51)

(13)

4,621

100 % $

4,813

100 % $

(192)

(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 digital online channels represent revenues from digitally distributed subscriptions, licensing royalties, value-added services, downloadable
content, micro-transactions, and products.
Net revenues from Other include revenues from our Media Networks and Studios businesses, along with revenues that were historically shown as “Distribution.”
We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred revenues.
Total non-GAAP net revenues presented also represents our total operating segment net revenues.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATION
For the Year Ended December 31, 2015 and 2014
(Amounts in millions)Year Ended
December 31, 2015
AmountDecember 31, 2014

% of Total1% of Total1

Amount$ Increase(Decrease)% Increase(Decrease)

GAAP Net Revenues by Geographic Region
North America$

EuropeAsia PacificTotal consolidated GAAP net revenues

2,409

52 % $

2,190

50 % $

219

10 %

1,741

37

1,824

41

(83)

(5)

514

11

394

9

120

30

4,664

100

4,408

100

256

6

Change in Deferred Revenues2
North America

(55)

206

Europe(20)

153

Asia Pacific

32

46

(43)

405

Total changes in net revenues

Non-GAAP Net Revenues by Geographic Region
North America

2,354

51

2,396

50

(42)

(2)

Europe

1,721

37

1,977

41

(256)

(13)

546

12

440

9

106

24

4,813

100 % $

(192)

(4 )%

Asia PacificTotal non-GAAP net revenues3
1
2
3

$

4,621

100 % $The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.
Total non-GAAP net revenues presented also represents our total operating segment net revenues.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESSEGMENT INFORMATION
For the Year Ended December 31, 2015 and 2014
(Amounts in millions)

Segment net revenues:
Activision2
Blizzard3
Other4
Segments net revenues total
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues
Consolidated net revenues$$

Segment income from operations:
Activision2$
Blizzard3
Other4
Segments income from operations total
Reconciliation to consolidated operating income andconsolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales
Stock-based compensation expense
Amortization of intangible assets
Fees and other expenses related to acquisitions and the PurchaseTransaction and related debt financings5
Consolidated operating income
Interest and other expense, net
Consolidated income before income tax expense
Operating margin from total operating segments

1
2
3
4

5

Year Ended
December 31, 2014
Amount% ofTotal1

December 31, 2015
Amount% ofTotal1

$

2,700
1,565
356
4,621

58 % $
34
8
100 %

2,686
1,720
407
4,813

43
4,664

$

(405)
4,408

868
561
37
1,466

$

762
756
9
1,527

(39)

(215)

(92)
(11)

(104)
(12)

(5)

(13)

1,319
198
1,121

1,183
202
981

31.7 %$

56 % $
36
8
100 %

$

$ Increase(Decrease)% Increase(Decrease)

14
(155)
(51)
(192)

1%
(9)
(13)
(4)

256

6%

106
(195)
28
(61)

14 %
(26)
NM
(4)

136

11

140

14 %

31.7 %The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.
Activision Publishing (“Activision”) — publishes interactive entertainment products and content.
Blizzard Entertainment, Inc. (“Blizzard”) — publishes PC games and online subscription-based games in the MMORPG category.
Other includes other income and expenses from operating segments managed outside the reportable segments, including our Media Networks, Studios, andDistribution, as well as other unallocated corporate income and expenses.
Reflects fees and other expenses related to the Purchase Transaction and the King Acquisition, inclusive of related debt financings.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF G AAP NET INCOME TO NON- G AAP MEASURES( A m ounts i n m i l l i ons , e xc e pt e a r ni ngs
pe r s ha r e da t a )G AAP
Measurement

Year Ended December 31, 2015

Net evenues
Cost of Sales - Product Costs
Cost of Sales - Online
Cost of Sales - Software oyalties and Amorti ation
Cost of Sales - ntellectual Property icenses
Product Development
Sales and Mar eting
General and Administrative
Total Costs and Expenses

Year Ended December 31, 2015

Operating ncome
Net ncomeasic Earnings per Share
Diluted Earnings per Share
1
2
3
4

$

$

4,664
921
224
412
28
646
734
380
3,345

G AAP
Measurement

$

$

Less:
Net ef f ect f rom
Less:
def erral of net
Stock revenues and related
based
cost of sales 1
compensati on 2

1,319
892
1.21
1.19

$

$

(43)
(32)
—
(55)
5
—
—
—
(82)

$

$

—
—
—
(15)
—
(25)
(9)
(43)
(92)

Less:
Less:
Net ef f ect f rom
Stock def erral of net
based
revenues and relatedcompensati on 2
cost of sales 1

$

$

39
19
0.02
0.02

$

$

92
65
0.09
0.09

Less:
Amorti z ati onof i ntangi ble
assets 3

$

$

—
—
—
—
(11)
—
—
—
(11)

Less:
Amorti z ati onof i ntangi ble
assets 3

$

$

11
8
0.01
0.01

Less:
Fees and otherexp enses related toacq ui si ti ons 4

$

$

—
—
—
—
—
—
—
(5)
(5)

Less:
Fees and otherexp enses related toacq ui si ti ons 4

$

$

5
5
0.01
0.01

Non- G AAP
Measurement

$

$

4,621
889
224
342
22
621
725
332
3,155

Non- G AAP
Measurement$ 1,466989
1.34$ 1.32

eflects the net change in deferred revenues and related cost of sales.
ncludes expenses related to stoc -based compensation.
eflects amorti ation of intangible assets from purchase price accounting.
eflects fees and other expenses related to ac uisitions, including the ing Ac uisition, and the debt nancings related thereto.

The per share ad ustments and the GAAP and non-GAAP earnings per share information are presented as calculated. The sum of these measures, as presented, maydiffer due to the impact of rounding.
The company calculates earnings per share pursuant to the two-class method which re uires the allocation of net income between common shareholders andparticipating security holders. For the year ended December 31, 2015, net income attributable to Activision li ard, nc. common shareholders used to calculate
non-GAAP earnings per common share, assuming dilution, was $977 million, as compared to total net income of $989 million, for the same period. For purposes ofcalculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 728 million, participating securities of approximately 8 million,
and dilutive shares of 11 million during the year ended December 31, 2015.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF G AAP NET INCOME TO NON- G AAP MEASURES( A m ounts i n m i l l i ons , e xc e pt e a r ni ngs
pe r s ha r e d a t a )G AAP
Measurement

Year Ended December 31, 2014

Net evenues
Cost of Sales - Product Costs
Cost of Sales - Online
Cost of Sales - Software oyalties and Amorti ation
Cost of Sales - ntellectual Property icenses
Product Development
Sales and Mar eting
General and Administrative
Total Costs and Expenses

Year Ended December 31, 2014

Operating ncome
Net ncomeasic Earnings per Share
Diluted Earnings per Share
1
2
3
4

$

4,408
999
232
260
34
571
712
417
$ 3,225

G AAP
Measurement

$

$

1,183
835
1.14
1.13

Less:
Net ef f ect f rom
Less:
def erral of net
Stock revenues and related
based
cost of sales 1
compensati on 2

$

$

405
29
—
161
—
—
—
—
190

$

$

—
—
(1)
(17)
—
(22)
(8)
(56)
(104)

Less:
Net ef f ect f rom
Less:
def erral of net
Stock revenues and related
based
cost of sales 1
compensati on 2

$

$

215
136
0.19
0.18

$

$

104
65
0.09
0.09

Less:
Amorti z ati onof i ntangi ble
assets 3

$

$

—
—
—
—
(12)
—
—
—
(12)

Less:
Amorti z ati onof i ntangi ble
assets 3

$

$

12
8
0.01
0.01

Less:
Fees and otherexp enses related to thePurchase Transacti on
and related
Non- G AAP
debt financings 4
Measurement

$

$

—
—
—
—
—
—
—
(13)
(13)

$

$

4,813
1,028
231
404
22
549
704
348
3,286

Less:
Fees and otherexp enses related to thePurchase Transacti on
and related
Non- G AAP
debt financings 4
Measurement

$

$

13
13
0.02
0.02

$

$

1,527
1,057
1.44
1.42

eflects the net change in deferred revenues and related cost of sales.
ncludes expenses related to stoc -based compensation.
eflects amorti ation of intangible assets from purchase price accounting.
eflects fees and other expenses (including legal fees, costs, expenses and accruals) related to the repurchase of 429 million shares of our common stocfrom ivendi (the Purchase Transaction ) completed on October 11, 2013 and related debt nancings.

The per share ad ustments and the GAAP and non-GAAP earnings per share information are presented as calculated. The sum of these measures, as presented,
may differ due to the impact of rounding.
The company calculates earnings per share pursuant to the two-class method which re uires the allocation of net income between common shareholders andparticipating security holders. For the year ended December 31, 2014, net income attributable to Activision li ard, nc. common shareholders used to calculate
non-GAAP earnings per common share, assuming dilution, was $1,034 million, as compared to total net income of $1,057 million, for the same period. For
purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 716 million, participating securities ofapproximately 15 million, and dilutive shares of 10 million during the year ended December 31, 2014.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF G AAP NET INCOME TO NON- G AAP MEASURES( A m ounts i n m i l l i ons , e xc e pt e a r ni ngs
pe r s ha r e da t a )G AAP
Measurement

Year Ended December 31, 2013

Net evenues
Cost of Sales - Product Costs
Cost of Sales - Online
Cost of Sales - Software oyalties and Amorti ation
Cost of Sales - ntellectual Property icenses
Product Development
Sales and Mar eting
General and Administrative
Total Costs and Expenses

Year Ended December 31, 2013

Operating ncome
Net ncomeasic Earnings per Share
Diluted Earnings per Share
1
2
3
4

$

$

4,583
1,053
204
187
87
584
606
490
3,211

G AAP
Measurement

$

$

1,372
1,010
0.96
0.95

Less:
Net ef f ect f rom
Less:
def erral of net
Stock revenues and related
based
cost of sales 1
compensati on 2

$

$

(241)
(10)
—
2
(4)
—
—
—
(12)

$

$

—
—
—
(17)
—
(33)
(7)
(53)
(110)

Less:
Net ef f ect f rom
Less:
def erral of net
Stock revenues and related
based
cost of sales 1
compensati on 2

$

$

(229)
(150)
(0.14)(0.14)

$

$

110
71
0.07
0.07

Less:
Fees and otherexp enses related to theLess:
Amorti z ati on Purchase Transacti on
and relatedof i ntangi ble
Non- G AAP
debt financings 4
assets 3
Measurement

$

$

—
—
—
—
(23)
—
—
—
(23)

$

$

—
—
—
—
—
—
—
(79)
(79)

$

4,342
1,043
204
172
60
551
599
358
$ 2,987

Less:
Fees and otherLess:
exp enses related to theAmorti z ati on Purchase Transacti on
Non- G AAP
of i ntangi bleand related
assets 3
debt financings 4 Measurement

$

$

23
14
0.01
0.01

$

$

79
54
0.05
0.05

$ 1,355999
0.95$ 0.94eflects the net change in deferred revenues and related cost of sales.
ncludes expenses related to stoc -based compensation.
eflects amorti ation of intangible assets from purchase price accounting.
eflects fees and other expenses (including legal fees, costs, expenses and accruals) related to the repurchase of 429 million shares of our common stocfrom ivendi (the Purchase Transaction ) completed on October 11, 2013 and related debt nancings.

The per share ad ustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum ofthese measures, as presented, may differ due to the impac of rounding.
The company calculates earnings per share pursuant to the two-class method which re uires the allocation of net income between common shareholders andparticipating security holders. Net income attributable to Activision li ard nc. common shareholders used to calculate non-GAAP earnings per common shareassuming dilution was $976 million for the year ended December 31, 2013 as compared to total non-GAAP net income of $999 million for the same period.
For purpose of calculation of earnings per share, we had, on a weighted-average basis, common shares outstanding of 1,024 million, participating securities ofapproximately 24 million, and dilutive shares of 11 million during the year ended December 31, 2013.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION(Amounts in millions)Three Months Ended
Three Months Ended

Cash Flow Data
Operating Cash Flow
Capital Expenditures
Non-GAAP Free Cash Flow1
Operating Cash Flow - TTM2
Capital Expenditures - TTM2
Non-GAAP Free Cash Flow - TTM2

December 31,
2013

$

880
16
864

1,264
74
$ 1,190

March 31,2014

June 30,
2014

$

$

136
37
99

106
25
81

1,075
94
$ 981

1,072
100
$
972

March 31,2015

June 30,
2015

$

$

September 30,
2014

$

$

(145)
28
(173)
977
106
871

December 31,
2014

$

$

1,195
17
1,178

36%
6
36

1,292
107
1,185

2
45
—%

Three Months Ended
Three Months Ended

Cash Flow Data
Operating Cash Flow
Capital Expenditures
Non-GAAP Free Cash Flow1
Operating Cash Flow - TTM2
Capital Expenditures - TTM2
Non-GAAP Free Cash Flow - TTM2
1

209
21
188

1,365
91
$ 1,274

135
28
107

1,394
94
$ 1,300

September 30,
2015

$

$

(181)
46
(227)
1,358
112
1,246

December 31,
2015

$

$

Year over Year
% Increase(Decrease)

Year over Year
% Increase(Decrease)

1,029
16
1,013

(14)%
(6)
(14)

1,192
111
1,081

(8)
4)
(9)%

Non-GAAP free cash flow represents operating cash flow minus capital expenditures.

TTM represents trailing twelve months. Operating Cash Flow for the three months ended December 31, 2013, three months ended September 30, 2013, threemonths ended June 30, 2013, and three months ended March 31, 2013 was $880 million, $(50) million, $109 million, and $325 million, respectively. Capital
Expenditures for the three months ended December 31, 2013, three months ended September 30, 2013, three months ended June 30, 2013, and three months ended
March 31, 2013 was $16 million, $22 million, $19 million, and $17 million, respectively.
2

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFor the Trai li ng Twelve Months Endi ng D ecember 31, 2015
EBITDA and Adj usted EBITDA( A m ounts i n m i l l i ons )March 31,2015

G AAP Net Income
nterest Expense, net
Provision for income taxes
Depreciation and amorti ation
EBITDA
Deferral of net revenues and related cost of sales1
Stoc -based compensation expense2
Fees and other expenses related to ac uisitions3
Adj usted EBITDA
1
2
3

$

394
50
98
20
562
( 362)
23—
223$

June 30,
2015

$

$

212
50
70
21
353
( 181)
21—
193

September 30,
2015

$

$

127
51
18
25
221
26
28
—
275

December 31,
2015

$

$

159
50
42
30
281
54
22
5
862

Trai li ng Twelve
Months Endi ng
December 31,
2015

$

$

892
200
229
95
1,416
39
92
5
1,552

eflects the net change in deferred revenues and related cost of sales.
ncludes expenses related to stoc -based compensation.
eflects fees and other expenses related to ac uisitions, including the ing Ac uisition, and the debt nancings related thereto.

Trailing twelve months amounts are presented as calculated. Therefore the sum of the four uarters, as presented, may differ due to the impact of rounding.

8
ACTIVISION ANNUAL REPORT 10-K88 TUESDAY, APRIL 5, 2016
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10:00AM PST ANDRA DESIGN

4/5/16 9:19 PM

2015:CORPORATE INFORMATIONREVENUES1$4.6

UP 4% YEAR-OVER-YEAR AT CONSTANT FX2BOARD OF DIRECTORSOFFICERSSPECIAL ADVISORSANNUAL MEETING

Robert J. Corti
Retired CFO,
Avon Products, Inc.

Robert A. Kotick
President and Chief
Executive Officer,
Activision Blizzard

Michael Griffith
Vice Chairman,
Activision Blizzard

Thomas Tippl
Chief Operating Officer,
Activision Blizzard

TRANSFER AGENT

June 2, 2016, 9:00 am PDT
Equity Office3200 Ocean Park BoulevardSanta Monica, California 90405

Hendrik J. Hartong III
Chairman and Chief
Executive Officer,
Brynwood Partners

BILLION

DIGITAL REVENUES

Brian G. Kelly
Chairman of the Board,
Activision Blizzard

57% OF TOTAL REVENUE, REPRESENTING AN ALL-TIME
HIGH AND UP 20% YEAR-OVER-YEAR

Robert A. Kotick
President and Chief
Executive Officer,
Activision Blizzard

1$2.6
BILLION

Barry Meyer
Retired Chairman and CEO,
Warner Brothers Entertainment

EARNINGS PER SHARE

Robert J. Morgado
Retired Chairman and CEO,
Warner Music GroupUP 13% YEAR-OVER-YEAR AT CONSTANT FX2Peter Nolan
Senior Advisor,
Leonard Green & Partners, L.P.

1

$1.32

Casey Wasserman
Chairman and Chief
Executive Officer,
Wasserman Media GroupOPERATING MARGIN

132

ABOVE PRIOR RECORD AT CONSTANT FX2PERCENTOPERATING CASH FLOW

$1.2

OVER $6 BILLION OVER THE LAST 5 YEARSBILLION

Dennis M. Durkin
Chief Financial Officer
and Treasurer,
Activision Blizzard
Eric Hirshberg
President and Chief
Executive Officer,
Activision Publishing
Mike Morhaime
President and Chief
Executive Officer,
Blizzard Entertainment
Chris B. Walther
Chief Legal Officer,
Activision Blizzard
Riccardo Zacconi
Chief Executive Officer,
King Digital Entertainment

Continental Stock Transfer& Trust Company
17 Battery PlaceNew York, New York 10004(800) 509-5586

AUDITOR
PricewaterhouseCoopers LLP
Los Angeles, California

CORPORATEHEADQUARTERS
Activision Blizzard, Inc.
3100 Ocean Park BoulevardSanta Monica, CA 90405(310) 255-2000

WORLD WIDE WEB SITE
www.activisionblizzard.com

E-MAILIR@activisionblizzard.com

ANNUAL REPORTON FORM 10-K
Activision Blizzard’s Annual
Report on Form 10-K for the calendar year ended December 31,
2015 is available to shareholders
without charge upon request by
calling our Investor Relations
department at (310) 255-2000 or
by mailing a request to our Corporate Secretary at our corporate
headquarters.

NON-INCORPORATION
Portions of the Company’s 2015
Form 10-K, as filed with the SEC,
are included within this Annual
Report. Other than these portions of the Form 10-K, all otherportions of this Annual Report
are not “filed” with the SEC andshould not be deemed so.

Elaine Wynn
Co-founder, Wynn Resorts

INTERNATIONAL OFFICESDOMESTIC OFFICES
Austin, Texas
Bloomington, Minnesota
Bothell, Washington
Boulder, Colorado
Carlsbad, California
Champaign, Illinois
Columbus, Ohio
Dallas, Texas
Eden Prairie, Minnesota
El Segundo, California
Foster City, California
Fresno, California
Hilliard, Ohio
Irvine, California
Los Angeles, California
Menands, New York
Middleton, Wisconsin
New York, New York

Novato, California
Portland, Maine
Redmond, Washington
Rogers, Arkansas
San Francisco, California
San Jose, California
Santa Monica, California
Seattle, Washington
Woodland Hills, California

Barcelona, Spain
Berlin, Germany
Birmingham, United Kingdom
Bucharest, Romania
Burglengenfeld, Germany
Milan, Italy
Cork, Ireland
Datchet, United Kingdom
Dublin, Ireland
Hong Kong SAR, China
Leamington Spa,
United Kingdom
London, United Kingdom
Madrid, Spain
Malmö, Sweden
St. Julians, Malta
Mexico City, Mexico
Mississauga, Canada

Munich, Germany
Paris, France
Quebec City, Canada
São Paulo, Brazil
Schiphol, The Netherlands
Seoul, South Korea
Shanghai, China
Shenzhen, China
Singapore
Stockholm, Sweden
Sydney, Australia
Taipei, Region of Taiwan
Tokyo, Japan
Vancouver, Canada
Venlo, The Netherlands
Versailles, France
Warrington, United Kingdom

FIGURES IN THIS ANNUAL REPORT DO NOT INCLUDE KINGUNLESS OTHERWISE INDICATED.

COVER: YOU ARE ONLY AS GREAT AS
THE CHARACTERS ON YOUR TEAM.
1
2

Non-GAAP; for a full reconciliation, please see tables at the end of the annual report.
Constant FX provides current period results converted into USD using the average exchange rates
from the comparative prior periods rather than the actual exchange rates in effect during therespective current periods.

Annual Report Design:Andra Design / andradesignllc.com
Printer: Phoenix Lithographing, USA© Copyright 2016 Activision Blizzard, Inc.

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2015 ANNUAL REPORTACTIVISIONBLIZZARD.COM

2015 ANNUAL REPORT