ACTIVISION BLIZZARD

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

2016 ANNUAL REPORTACTIVISIONBLIZZARD.COM®

®

2016 ANNUAL REPORT2016

CORPORATE INFORMATION

RECORDREVENUES
UP 42% YEAR-OVER-YEAR▼…
A RECORD YEAR

RECORD
IN-GAME REVENUES
54% OF TOTAL REVENUES, UP 126% YEAR-OVER-YEAR▼

74% OF TOTAL REVENUES, UP 94% YEAR-OVER-YEAR▼

RECORD
DIGITAL REVENUESRECORD
NON-GAAP (REDEFINED )OPERATING MARGIN
▼

1

$6.6
$4.9

BILLIONBILLION$3.6

BILLION

BOARD OF DIRECTORSOFFICERSSPECIAL ADVISORSANNUAL MEETING

Robert Corti
Retired CFO,
Avon Products Foundation

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 1, 2017, 9:00 am PDT
Equity Office3200 Ocean Park BoulevardSanta Monica, California 90405

Hendrik Hartong III
Chairman and Chief
Executive Officer,
Brynwood Partners
Brian G. Kelly
Chairman of the Board,
Activision Blizzard

Dennis Durkin
Chief Financial Officer,
Activision Blizzard

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

Eric Hirshberg
President and Chief
Executive Officer,
Activision Publishing

Barry Meyer
Retired Chairman and CEO,
Warner Bros. Entertainment

Mike Morhaime
President and Chief
Executive Officer,
Blizzard Entertainment

Robert Morgado
Retired Chairman and CEO,
Warner Music Group
Peter Nolan
Senior Advisor,
Leonard Green & Partners

35%

Casey Wasserman
Chairman and Chief
Executive Officer,
Wasserman

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

AUDITOR
PricewaterhouseCoopers LLP
Los Angeles, California

CORPORATEHEADQUARTERS

Brian Stolz
Chief People Officer,
Activision Blizzard

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

Chris Walther
Chief Legal Officer,
Activision Blizzard

WORLD WIDE WEB SITE

Riccardo Zacconi
Chief Executive Officer,
King Digital Entertainment

E-MAILwww.activisionblizzard.com

IR@activisionblizzard.com

ANNUAL REPORTON FORM 10-K
Activision Blizzard’s Annual
Report on Form 10-K for theyear ended December 31, 2016
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 2016
Form 10-K, as filed with the SEC,
are included within this Annual
Report. Other than these
portions of the Form 10-K, allother portions of this Annual
Report are not “filed” with the
SEC and shall not be deemed so.

▼

$2.18

▼

Elaine Wynn
Co-founder, Wynn Resorts$2.2RECORD
NON-GAAP (REDEFINED )EARNINGS PER SHARE
1

UP 68% YEAR-OVER-YEAR

RECORDOPERATING CASH FLOW
UP 71% YEAR-OVER-YEAR

BILLION

COVER: IT TAKES HEROES TO MAKE HEROES.
ACTIVISION BLIZZARD HAS THE MOSTINTERNATIONAL 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

TALENTED, PASSIONATE AND DEDICATEDTEAM IN ENTERTAINMENT.
1

For full reconciliation, please see tables at the endof the annual report.

Annual Report Design:Andra Design LLC / andradesignllc.com
Printer: Phoenix Lithographing, USA© Copyright 2017 Activision Blizzard, Inc.

FRAMEWORK FOR FRANCHISE GROWTH
AUDIENCE
REACH

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PLAYERINVESTMENT
1

AUDIENCE REACH▼

2

TIME SPENT▼

3

PLAYER INVESTMENT▼

4CASH FLOW▼

We have one of the

In 2016, people played

Digital in-game revenues

Delivered a record

largest networks in theand watched our games

were a record $3.6 billion$2.2 billion of operatingworld with roughly 450

for roughly 43 billion hours2

in 2016, more thancash flow in 2016, up

doubled year over-year,

71% year-over-year

million MAUs globally1and represented overhalf of total revenues

1

2

MAUs stands for Monthly Active Users and is 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.
Includes King for full period. King acquisition closed on February 23, 2016.

1

®

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THE MOST SUCCESSFUL NEW INTELLECTUAL PROPERTY IN COMPANY’S HISTORYOVER 25 MILLION REGISTERED PLAYERS GLOBALLYTHE OVERWATCH LEAGUE, A PROFESSIONAL ESPORTS
ECOSYSTEM DEBUTING IN 2017

2

®

®

3

®

®

6TH EXPANSION, LEGION, HAD A SUCCESSFUL LAUNCH IN 2016
AND MAUs1 GREW IN THE YEAR

1
MAUs stands for Monthly Active Users and is defined as number of individuals who played 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.

4

®

®

RECORD MAUs1 IN 2016

1
MAUs stands for Monthly Active Users and is defined as number of individuals who played 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.

5

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6

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THE MOST SUCCESSFUL VIDEO GAME FRANCHISE OF THE LAST 20 YEARS1#1 TOP-SELLING CONSOLE VIDEO GAME FRANCHISE GLOBALLY FOR 2016 BASED ON REVENUE1

NPD, Gfk

1

7

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DESTINY 2 SET FOR RELEASE ON SEPTEMBER 8, 2017

8

®

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11TH BIGGEST CONSOLE FRANCHISE OF ALL TIME WITH MORE THAN 300 MILLION TOYS SOLD1

SKYLANDERS ACADEMY ANIMATED SHOW DEBUTED ON NETFLIX

1

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

92 OF TOP-10-GROSSING MOBILE GAMES FOR THE 13TH QUARTER IN A ROW 1, 2

OVER 350M MAUs3

U.S. rankings for Apple App Store and Google Play Store, per App Annie Intelligence for fourth quarter 2016.
2
King acquisition closed on February 23, 2016. Metrics as of fourth quarter 2016.
MAUs stands for Monthly Active Users and is defined as number of individuals who played 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

10

3

Candy Crush Sagais played on allseven continents,
even Antarctica!

A giant Candy Factoryhas produced every
piece of candyin the Candy Kingdom!
The Candy Kingdom
is one of the vastest
lands known to man!

CANDY CRUSH FRANCHISE MOBILE GROSS BOOKINGS GREW IN 20161

1

Gross bookings is an operating metric that represents the total cash spent by players in the period for the purchase of virtual items.
Refer to definition included in press release for additional details.

11

MAJOR LEAGUE GAMINGA LEADER IN CREATING AND STREAMING PREMIUM LIVE GAMING EVENTSAND SERVES AS THE FOUNDATION FOR ACTIVISION BLIZZARD’S ESPORTS BROADCAST NETWORK.

®

®

S

T

U

D

I

O

S

DEVOTED TO CREATING ORIGINAL CONTENT BASED ON THE COMPANY’S
EXTENSIVE LIBRARY OF ICONIC AND GLOBALLY-RECOGNIZED INTELLECTUAL PROPERTIES.

®

®

CONSUMERPRODUCTS

DEDICATED TO PROVIDING OUR PASSIONATE COMMUNITIES WITH NEW WAYS TOEXPERIENCE OUR FRANCHISES AND CHARACTERS IN THEIR EVERYDAY LIVES.

12

TO OUR SHAREHOLDERS

BOARD OF DIRECTORSAUTHORIZED A NEW 2-YEAR$1 BILLION STOCKREPURCHASE PROGRAM

Since 1991, when Brian Kelly and I
purchased our stake in the company
and were given the privilege ofmanaging it, our book value per share
has grown at a compound annual
rate of over 30%. We outperformed
Berkshire Hathaway — who we
consider to be the gold standard ofvalue creation which returned 14%
compounded since 1991 — by 19
percentage points.
If you had invested $100 in our company
twenty years ago, you would have hadover $3,600 at the end of 2016 — overeight times more than the $439 from the
S&P 500 over that same period of time.
While the last twenty years have provided
superior returns for shareholders, wewill work hard to continue deliveringvalue over the next twenty.
In 2016 we delivered record GAAP
revenues of $6.6 billion and record
non-GAAP EPS of $2.18, up 42% and
68% respectively over last year. We
delivered record non-GAAP operating
margins of 35%, and our strongest
annual operating cash flow ever at$2.2 billion, up 71% over last year.
We have always been fond of generally
accepted accounting principles but our
results do require greater context tounderstand, and we encourage you toread the footnotes in this annual reportfor a proper reconciliation to GAAP.

All figures included in this letter are non-GAAP
unless otherwise stated. For full GAAP to non-GAAP
reconciliation, please see tables at the end of thisannual report.

Our performance as a company in 2016
was strong, but before we congratulate
ourselves it is important to understandthese results by operating unit andwith some explanation — particularly
for the areas in which we didn’t do as
well as hoped.

Our Blizzard segment grew
revenues 55% and achieved its firstyear with over a billion dollars ofoperating profit. This was significant
overperformance against our plan but
does make growth more challenging.
The team at Blizzard is committed toanother year of good performance, but
the substantial overperformance lastyear has raised the bar considerably.
Our Activision segment didn’t meetour 2016 plans, and revenue declined
by 18% compared to 2015. This also
caused us to reduce our plans for
Activision in 2017. We assure you thatlots of effort is being expended tocorrect the mistakes we made (there
were quite a few) and we are confident
we will get back on track for growth infuture years.
The King segment was a mixed bagof success. Live operations helped to
grow engagement, but delays in newreleases made achieving growth inoperating income difficult.
A few non-operating items contributed
to our results this year. Our tax
rate was lower than we expected,
largely due to strong performancein our international business.
Our financial engineers were as
successful as our software engineers
and as a result, our weighted average
cost of debt decreased by over 170
basis points by the end of 2016. These
items had a favorable impact on our
financial results but aren’t the resultof operating the core business better.
Our new initiatives in consumer
products, television and film, esports
13

RECORD TOTAL REVENUES($ billions of dollars)

6.6

42% GROWTH

RECORD NON-GAAP (REDEFINED)EARNINGS PER SHARE$2.18
UP 68%
YEAR-OVER-YEAR

4.7

$1.30
leagues and networks are all off to goodstarts. None of these are delivering
operating profits yet, but they will
one day — and we think they could besignificant over the long-term.
2015

2016

RECORD DIGITAL REVENUES($ billions of dollars)

4.9

74% OF TOTALREVENUES
94% GROWTH

2016

RECORD IN-GAME REVENUES($ billions of dollars)

3.6

126% GROWTH

14

Our audiences invest billions of hours
a year consuming our content —roughly 43 billion hours in 2016.
Hundreds of millions of people in
196 countries play our games, watch
our spectator content, buy consumer
products inspired by our franchises,
2015 in tournaments
2016
competeand connect
with communities inspired by ourgames each month. Our content gives2017 DIVIDEND
our audiences joy, and a greater sense($ per share)
0.30
of purpose and belonging. It satisfies
UP 15%
a universal
urge for competition, and0.26
adds unique value to people’s lives.
One person whose life has been
touched by our work is Aaron Soetaert,
a 29-year-old U.S. Air Force veteran.
A few years ago, he suffered a terrible
injury and lost his right arm. Aaron
fought to get healthy, and sought
new ways to express his intensecompetitive spirit.

1.6

2015

2016

1.3

2.5

2015

2015

Overall, we’re pleased with ourcompany’s progress in 2016, and ourfinancialresultsreflect
RECORDOPERATING
CASH
FLOWthe unwavering($ billions of dollars)commitment we have to provide a
2.2
superior return to our shareholders.
We deliver these results through anequally unwavering commitment to
71% GROWTH
our players.

2016

2015

2016

Aaron started playing Overwatch.
He plays as the winged hero, Pharah,and he dominates the skies withjump jets and hover abilities. Aaron
competes with a team, and is partof a community that recognizes andcelebrates his skills, allows him tomeet new friends, and enables him
to inspire so many. Watching Aaron’scharacter play is thrilling; he talks
to his team, pushes them forward,
and always plays to win. His injury
doesn’t hold him back in Overwatch,
it propels him forward.
This is just one example of the timeless power of communities anchoredthrough organized competition.
In the 19th century, sports likefootball, baseball and basketball
were the hobbies of gifted amateurs.
Then they became professional
leagues organized by bodies
like FIFA, the NFL and NBA. By
investing in developing the games,
talent and community, the valueof sport only grew for our society.
The professionalization of sports
kickstarted a virtuous cycle —deepening the opportunities torecognize, reward and celebrate
the achievements of players, bydeepening fans’ sense of belonging
to a community, which in turn gave
us new ways to deepen players’
sense of achievement. Sport got
better, and sport made our lives
better.
Our franchises deliver competitive
experiences as enduring as any
traditional sport. But unlike manysports, we’ve built experiences thatare broadly accessible — competition
that allows every spectator to be acompetitor, and for almost anyone
to be a star. Our competition is moreglobal, we reach more people,

UES

RECORD NON-GAAP (REDEFINED)EARNINGS PER SHARE

6

$2.18
UP 68%
YEAR-OVER-YEAR$1.30
engage them more deeply, and create
more powerful, lasting connections
thanks to the visceral nature of play
and the breadth of the communities
we support.

6

2015

NUES

2016

RECORD OPERATING CASH FLOW($ billions of dollars)

2.2
71% GROWTH

1.3

6

2015

ENUES

2017 DIVIDEND

6

UP 15%($ per share)

2016

0.30

0.26

6

2015

1
2
3

2016

Source: Optimum Sports.
Source: Barclays.
Source: Esports audience demographic from Blizzard
Consumer Insights proprietary survey of 5,000 global
esports viewers, 2015; US professional sports
demographics from Barclays.

This is the thinking that inspired us
when we created Overwatch, a gamedesigned for online competition, withmemorable characters, an immersive
world, and fast-paced gameplay
designed for the most accessible
competition and compelling viewing.
That world is now a platform in which
millions of people can engage in
gameplay, competition, and connectingwith their friends and community —and through that platform, we have theopportunity to create a superior returnto our shareholders through player
investment, and our own investment
in delivering even greater experiences
for the community. This is how we’ve
tapped into the timeless appeal ofsports to create something reallyvaluable for our players, spectators,
company and investors — and we’vebeen able to do this over and overagain, with Call of Duty, Destiny,
StarCraft and World of Warcraft.
It took many years, and a lot of
innovation and iteration. But we arebuilding the sports of the future.
The size of the opportunity ahead for
us is vast. Around 240 million people
watch around 7 billion hours of NFLcontent annually1, generating $12.0
billion in revenues including $6.1
billion in media rights revenue2; theNBA has 176 million viewers watching
2.1 billion hours each year1, creating$5.2 billion in revenues and $1.8 billion
in media rights.2

To broadcast the organized competition
we are creating, we are building
MLG.tv into the first dedicatedchannel for professionally produced
esports and the adjacent content thatcelebrates and recognizes our players
for their accomplishments. We liken
this to the ESPN of videogames.
We are also working on an advertisingmodel fit for that future. The quicklygrowing esports audience includes
some of the hardest to reach andmost sought after demographics, witha share of millennials two to threetimes higher than any of the ‘Big
Four’ US sports.3 We will be able toprovide advertisers with direct accessto these fans and better targeting
and analytics than traditional formsof advertising. Our efforts began with
the idea of providing our King mobile
players with a chance to interact withhigh-quality advertising that is native
to the gameplay experience, without
detracting from what our audiences
like best — playing our games.
There are now around 450 million
players in our community. More thanforty billion hours were spent playing
our franchises last year. A record
three billion hours were spent viewing
our games.
Blizzard achieved their most successful new IP launch ever with Overwatch,
their fastest game to reach 25 million
users. World of Warcraft’s Legion
expansion reinvigorated the community, which in the fourth quarter grewover 20% versus the previous year.
For Activision, Call of Duty: Infinite
Warfare may have got a little lost in
15

WE HAVE ONE OF THE
LARGEST ENTERTAINMENTNETWORKS IN THE WORLD
WITH ROUGHLY 450 MILLION
MAUs1 GLOBALLY

IN 2016, PEOPLE
PLAYED AND WATCHEDOUR GAMES FOR ROUGHLY
43 BILLION HOURS2

space, but Call of Duty remained thenumber one console franchise globally,
and we’re looking forward to newCall of Duty content and Destiny 2
later this year. King continued todeliver stable performance on thestrength of a loyal user base.
Each of these results reflects ourconsistent focus on serving ouraudience. By prioritizing what allows
us to best deliver the values of play,competition and community, we’ve
worked to do what’s right for ourcommunity today, while also delivering
better experiences into the future.
And that’s how we’re approaching theopportunities for growth in 2017.
This year, we are focused on
unleashing the full potential ofprofessional esports by opening up
the sale of teams and media rightsof our leagues. We’re taking the next
step in the evolution of our company
and our community by creating evenmore engaging experiences for teams,
players and fans — something we
believe will create immense newvalue for our business in the same
way that traditional sports do, throughviewers, broadcast revenues, licensing,sponsorship and ticket sales.

MAUs stands for Monthly Active Users and isdefined as number of individuals who playeda 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
Pro-forma for King acquisition closed on
February 23, 2016.
1

16

We also have the opportunity toconnect people in new ways aroundour experiences. Through online
advertising, we’re working to serve
our players and global brands, andearly tests of our ad platform on King
have already generated impressive
results in-line with industry leaders.
And with our recently announced

consumer products division, we cangive people more ways to interact withthe franchises they love.
We will continue to stay true to ourprinciples:n Delivering innovative and compellingentertainment experiences 		with continuous investment in our
franchises and communities
n Focusing on the largest and mostpromising opportunities
n Recruiting, rewarding and retaining
diverse world-class talent, while
maintaining our shared valuesn Remaining disciplined in our 		
commitment to deliver shareholder
value
It remains a great privilege to leadour company and the extraordinarily
talented people around the world
who are so committed to excellence.
We thank all our stakeholders for theircontinuing support and encouragement,
and especially the players like Aaron
Soetaert who inspire us every day.
Sincerely,

Bobby Kotick
President and Chief Executive Officer
Activision Blizzard

Brian Kelly
Chairman of the Board
Activision Blizzard

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FINANCIAL REVIEW
2SELECTED FINANCIAL DATA

3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

34

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK36

CONTROLS AND PROCEDURES37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

38

CONSOLIDATED BALANCE SHEETS

39

CONSOLIDATED STATEMENTS OF OPERATIONS

40

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

41

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

42

CONSOLIDATED STATEMENTS OF CASH FLOWS

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

76

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER79

CAUTIONARY STATEMENT

80

FINANCIAL TABLES

AND RESULTS OF OPERATIONS

MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIESSELECTED FINANCIAL DATASELECTED FINANCIAL DATA

The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. andits subsidiaries.

Thefollowing
terms “Activision
Blizzard,”
the “Company,”“we,” “us,”and “our”
arewhichused torefer becollectively
to Activision
Inc. andThe
table summarizes
certainselected consolidated
financialdata,shouldread in conjunction
withBlizzard,
ourits subsidiaries.
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 for
Theoffollowing
certainended
selected
consolidated
financialdata,fromwhich
be read in
conjunction
with ourAlleach
the yearstablein thesummarizes
five-year period
December31, 2016
is derived
ourshould
Consolidated
Financial
Statements.
Consolidated
Financial
Statements
and
Notes
theretoandwithManagement’s
Discussion
andAnalysisofFinancial
Condition andamounts set forth in the following tables are in millions, except per share data.
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, 2016 is derived from our Consolidated
Financial
Statements.
All
For the Years Ended
December
31,
amounts set forth in the following tables are in millions, except per share data.
2016
2015
2014
2013
2012
Statement of Operations Data:
the Years Ended December 31,
Net revenues .....................................................................................
$
6,608 $ For
4,664$
4,408 $
4,583 $
4,856
2016
2015
2014
2013
2012
Net income .......................................................................................
966
892
835
1,010
1,149
Statementof Operations
Basic
net income
per shareData:...............................................................
1.30
1.21
1.14
0.96
1.01
Net revenues.....................................................................................
$ 1.286,608 $ 1.19
4,664 $ 1.13
4,408 $ 0.95
4,583 $ 1.01
4,856
Diluted
net income
per share............................................................
Net
income.......................................................................................
966
892
835
1,010
1,149
Cash dividends declared per share ...................................................
0.26
0.23
0.20
0.19
0.18
Basic net income per share ...............................................................
1.30
1.21
1.14
0.96
1.01
Dilutednet
incomepershare............................................................
1.28
1.19
1.13
0.95
1.01
Operating cash flows(1) ...................................................................
$
2,155 $
1,259 $
1,331 $
1,293 $
1,350
Cash dividends declared per share ...................................................
0.26
0.23
0.20
0.19
0.18
Balance Sheet Data:
Operatingcash flows(1)..................................................................
...................................................................
2,155 $ $ 1,840
1,259 $ $ 4,867
1,331 $ $ 4,452
1,293 $ $ 4,383
1,350
Cash
and investments(2)$ $ 3,271
Total assets .......................................................................................
17,452
15,246
14,637
13,947
14,181
Balance Sheet
Long-term
debt, Data:net(3) .....................................................................
4,887
4,074
4,319
4,687
—
Cash and debt,
investments(2)..................................................................
$ 4,940
3,271 $ 4,119
1,840 $ 4,369
4,867 $ 4,744
4,452 $
4,383
Long-termgross ......................................................................
—
Total
assets.......................................................................................
17,452
15,246
14,637
13,947
14,181Net
debt(4).......................................................................................
1,669
2,279
—
292
—
Long-term debt, net(3) .....................................................................
4,887
4,074
4,319
4,687
—
debt,
4,940
4,119 the accounting
4,369(1)Long-term
Duringthegrossthird......................................................................
quarter of 2016, we early adopted an accounting standard
which simplifies
for4,744
share-based —Net debt(4).......................................................................................
1,669
2,279
— share-based
292 payments—
payments.
The standard, among other things, requires excess tax benefits
and shortfalls
associated withto be reported within operating activities instead of financing activities, as was required under previous guidance. We elected(1)
the guidance
third quarterof 2016, we forearly
an accounting
standard
which simplifies
the accounting
for share-based
toDuring
apply thisretrospectively
all adopted
periods presented
resultingin increases
in our operating
cash flowsofpayments.
amongotherandthings,requiresfor
excesstax benefits
and shortfalls
associatedshare-based$67
million, The$39 standard,
million, $29
million,$5 million,
the years
ended December
31, 2015,
2014,with2013,
and 2012, payments
to be reported
withinoperatingactivities
instead of financing activities, as was required under previous guidance. We elected
respectively,
when
compared
to prior
periods.
to apply this guidance retrospectively for all periods presented resulting in increases in our operating cash flows of$67 million, $39 million, $29 million, and $5 million, for the years ended December 31, 2015, 2014, 2013, and 2012,(2)
Cash
and investments
consists ofcash equivalents along with short-term and long-term investments. We had
respectively,
when comparedto cashpriorandperiods.
short-term and long-term investments of $13 million and $13 million, respectively, as of December 31, 2016, $8 million and$9 million, respectively, as of December 31, 2015, $10 million and $9 million, respectively, as of December 31, 2014,(2)
Cashand investments
consistsof cash andcash
equivalents
along andwith$416
short-term
investments.
Weashad$33
millionand $9 million,
respectively,
as ofDecember31, 2013,
millionand
andlong-term$8 million,
respectively,ofshort-term31,
andlong-term
investments
of $13and $13
million,respectively,of December
31, 2016,$8 million
andDecember
2012.
Cash andinvestments
as ofmillion
December31, 2015
excludes
$3,561 asmillionof cash placedin escrowfor the$9 million,ofrespectively,of December(“King”).
31, 2015, $10 million and $9 million, respectively, as of December 31, 2014,
acquisition
King DigitalasEntertainment$33 million and $9 million, respectively, as of December 31, 2013, and $416 million and $8 million, respectively, as ofDecember 31, 2012. Cash and investments as of December 31, 2015 excludes $3,561 million of cash placed in escrow for the(3)Fordiscussionofon
ourDigitaldebt obligations,see Note
11 of the notes to consolidated financial statements included in this Annual
acquisition
King
Entertainment(“King”).
Report.
(3)
(4)
(4)

For discussion on our debt obligations, see Note 11 of the notes to consolidated financial statements included in this AnnualNetdebt is defined as long-term debt, gross less cash and investments.
Report.
Net debt is defined as long-term debt, gross less cash and investments.

2

22

MANAGEMENT’SDISCUSSION AND
ANALYSISOFFINANCIAL CONDITION
MANAGEMENT’S
AND
ANALYSISOFMANAGEMENT’S DISCUSSIONDISCUSSIONANDOF
ANALYSIS
OF FINANCIAL
FINANCIAL CONDITION
CONDITIONAND
RESULTSOPERATIONSANDRESULTSOFOPERATIONSAND RESULTS OF OPERATIONSBusiness
BusinessOverview
Overview
Business
Overview
Activision
ActivisionBlizzard,
Blizzard,Inc.
Inc.isis
isa aaleading
leadingglobal
globaldeveloper
developerand
andpublisher
publisherofof
ofinteractive
interactiveentertainment
entertainmentcontent
contentand
andservices.
services.We
Wedevelop
developand
andActivision
Blizzard,Inc.
leading
globaldeveloperandpublisherinteractive
entertainment
content
andservices.
Wedevelopanddistributecontent
andservices
acrossallofofthemajor
gamingplatforms,
including
video
game
consoles,personalcomputer(“PC”),
distributecontent
andservices
across
all
the
major
gamingplatforms,
including
video
game
consoles,personalcomputer(“PC”),
distribute content and services across all of the major gaming platforms, including video game consoles, personal computer (“PC”),
andandmobilemobiledevices.
devices.
andmobiledevices.
The
TheKing
KingAcquisition
Acquisition
The
King
Acquisition

On
King
OnFebruary
February23,
23,2016
2016(the(the“King“KingClosing
ClosingDate”),
Date”),we
wecompletedcompletedthe
theacquisitionacquisitionofof
Kingforforanananaggregate
aggregatepurchasepurchasepricepriceofof
ofOn
February
23,
2016
(the
“King
Closing
Date”),
wecompletedtheacquisitionof Kingforaggregatepurchase
priceapproximately$5.8
billion(the“King
Acquisition”),
asasfurther
described
ininNote
2121ofofthe
notes
tototheconsolidated
financialapproximately$5.8
billion(the“King
Acquisition”),
further
described
Note
the
notes
the
consolidated
financialapproximately $5.8 billion (the “King Acquisition”), as further described in Note 21 of the notes to the consolidated financial
statements.
King commencing
on February
23,
statements.Our
Ourconsolidated
consolidatedfinancial
financialstatements
statementsinclude
includethe
theoperations
operationsofof
23,2016.
2016.
statements.
Our
consolidated
financialstatements
includetheoperationsof King
King commencing
commencing on
on February
February 23,
2016.
Reportable
ReportableSegments
Segments
Reportable
Segments

Based
Basedupon
uponour
ourorganizationalorganizationalstructure,
structure,weweconduct
conductour
ourbusinessbusinessthroughthroughthree
threereportable
reportableoperating
operatingsegments:
segments:Activision,
Activision,Blizzard,
Blizzard,
Based
upon
our
organizational
structure,
weconduct
ourbusinessthroughthreereportable
operatingsegments:
Activision,
Blizzard,
and
King.
and
King.
and King.
(i)(i)(i)

Activision
Activision
Activision

Activisioninteractive software
products andActivisionPublishing,
Publishing,Inc.
Inc.(“Activision”),(“Activision”),isis
isa aaleading
leadingglobal
globaldeveloper
developerand
andpublisher
publisherofof
Activision
Publishing,
Inc.
(“Activision”),
leading
globaldeveloperandpublisherof interactive
interactive software
software products
products andandentertainment
content,
particularly
ininconsole
gaming.
Activision
primarily
delivers
content
throughretailchannelsorordigitalentertainment
content,
particularly
consolegaming.
Activision
primarily
delivers
content
throughretailchannels
digitalentertainment
content,
particularlyinconsolegaming.
Activision
primarily
delivers
content
throughretailchannelsor digital
downloads,
includingfull-gamesales
andin-gamepurchases,
asaswell
asaslicenses
ofofsoftware
totothird-party
ororrelated-party
companies
downloads,
includingfull-gamesales
andin-gamepurchases,
welllicenses
softwarethird-party
related-party
companies
downloads, including full-game sales and in-game purchases, as well as licenses of software to third-party or related-party companies
that
distribute
Activision
products.
Activisiondevelops,
marketsandsells
products
whichareprincipally
basedononourinternallythat
distribute
Activision
products.
Activisiondevelops,
marketsandsells
products
whichareprincipally
based
our
internallythat distribute Activision products. Activision develops, markets and sells products which are principally based on our internallydeveloped
developedintellectual
intellectualproperties,
properties,asas
aswellwellasas
assomesomelicensed
licensedproperties.
properties.Additionally,
Additionally,wewehavehaveestablishedestablisheda aalong-termlong-termalliancealliancewith
withdeveloped
intellectual
properties,
well
some
licensedproperties.
Additionally,
wehaveestablishedlong-term
alliance
with
Bungietotopublish
itsitsgame
universe,
Destiny.
Bungiepublishgame
universe,
Destiny.
Bungie to publish its game universe, Destiny.
®®
Activision’s,®a, afirst-person
shooter forthe console
and PC
platforms; Destiny,
ananonline
Activision’skey
keyproductproductfranchises
franchisesinclude:
include:CallCallofof
ofDutyDuty
Activision’s
key
product
franchises
include:CallDuty, a first-person
first-person shooter
shooter forfor thethe console
console andand PCPC platforms;
platforms; Destiny,
Destiny,
an online
online®®
universe
ofoffirst-person
actiongameplay(whichwecall
a a“shared-world
shooter”)
forconsoleplatforms;
andSkylanders,®a, akid’s
universe
first-person
actiongameplay(whichwecall“shared-world
shooter”)
forconsoleplatforms;
andSkylanders
kid’s
universeoffirst-person
actiongameplay(whichwecalla“shared-world
shooter”)
forconsoleplatforms;
andSkylanders
,
a
kid’s
game
franchisethatbringsphysicaltoys
totolife
digitally
ininthegame
primarily
forconsoleplatforms.
Call
ofofDuty,
Activision’s
game
franchisethatbringsphysicaltoys
life
digitally
thegameprimarily
forconsoleplatforms.
Call
Duty,
Activision’s
game franchise that brings physical toys to life digitally in the game primarily for console platforms. Call of Duty, Activision’s
leading
franchise, wasthe number
one console
franchise globallyin 2016,and ininNorth
America forthe 8thyear inina arow,
accordingleading
leading franchise,
franchise, waswas thethe number
number one
one console
console franchisefranchise globally
globally inin 2016,
2016, andand in North
North America
America forfor thethe 8th
8th yearyear in a row,
row, according
according
totoThe
NPD
Group,
GfK
Chart-Track,andourinternal
estimates.
The
NPD
Group,
GfK
Chart-Track,andourinternal
estimates.
to The NPD Group, GfK Chart-Track, and our internal estimates.

(ii)
(ii)
(ii)

Blizzard
Blizzard
Blizzard

Blizzard
Entertainment, Inc.
(“Blizzard”) isisa aleading
global developer
and publisher
of interactive
software products
andBlizzard
Blizzard Entertainment,
Entertainment, Inc.
Inc. (“Blizzard”)(“Blizzard”) is a leading
leading global
global developer
developer andand publisher
publisher ofof interactive
interactive software
software products
products andandentertainment
content,
particularly
ininPC
gaming.
Blizzard
primarily
delivers
content
throughretailchannelsorordigital
downloads,
entertainment
content,
particularlyPC
gaming.
Blizzard
primarily
delivers
content
throughretailchannels
digitalentertainment
content, full-gameparticularlysales,in PC
gaming.
Blizzard
primarily
delivers
content
through retailchannelsororrelated-party
digital downloads,
downloads,
including
subscriptions,andin-gamepurchases,
asaswell
asaslicenses
ofofsoftware
totothird-party
including
subscriptions,full-gamesales,
andin-gamepurchases,
welllicenses
softwarethird-partyorrelated-party
including subscriptions, full-game sales, and in-game purchases, as well as licenses of software to third-party or related-party
companiesthat distribute
Blizzard products.
Blizzard also
maintains a aproprietary
online gaming
service whichfacilitates digitalcompanies
companies thatthat distributedistribute Blizzard
Blizzard products.
products. Blizzard
Blizzard also
also maintains
maintains a proprietary
proprietary online
online gaming
gaming service
service which
which facilitates
facilitates digital
digitaldistribution
ofofBlizzard
content,
onlinesocialconnectivity
acrossallallBlizzard
games,
andthecreation
ofofuser-generated
content
for
distribution
Blizzard
content,
onlinesocialconnectivity
acrossBlizzard
games,
andthecreationuser-generated
content
for
distributionofBlizzard
content,
onlinesocialconnectivity
acrossall
Blizzard
games,
andthecreationofuser-generated
content
for
Blizzard’s
games.
Blizzard’s
games.
Blizzard’s games.

®®
Blizzard’s
key productfranchises
include:World
ofofWarcraft,®a, asubscription-based
massivemulti-player
onlinerole-playing
game
Blizzard’s
product
franchises
include:World
massivemulti-player
onlinerole-playing
game
Blizzard’s key
keyforproduct
franchises
include:Worldstrategyof Warcraft
Warcraft, a subscription-based
subscription-based
massivemulti-player
onlineforrole-playing
game
®®
®®
(“MMORPG”)
thePC;
StarCraft,®a, areal-timePCfranchise;
Diablo,®anactionrole-playing
franchisePCandconsole(“MMORPG”)
for
the
PC;
StarCraft
real-time
strategyPCfranchise;
Diablo,anactionrole-playing
franchise
for
PC
and
console(“MMORPG”) for the® PC;
StarCraft , a real-time strategy PC franchise; Diablo , an action role-playing franchise®for®
® PC and console
platforms;
Hearthstone ,®anonline collectible
cardfranchise for
the PCand mobile
platforms; Heroesof theStorm ,®a, afree-to-playplatforms;
card
platforms; Hearthstone
Hearthstone ,, anan online
online collectible
collectible
card franchisefranchise forfor thethe PCPC andand mobile
mobile platforms;
platforms; Heroes
Heroes ofof thethe Storm
Storm , a free-to-playfree-to-play®®
teambrawler
for
the
PC;
and
Overwatch,®a, ateam-based
firstpersonshooter
for
the
PC
and
consoleplatforms.
World
ofofWarcraftisteam
brawler
for
the
PC;
and
Overwatchteam-based
firstpersonshooter
for
the
PC
and
consoleplatforms.
World
Warcraftteam
brawler
for
the
PC;
and
Overwatch,ateam-based
firstpersonshooter
for
the
PC
and
consoleplatforms.
Worldof
Warcraft isistheleading
subscription-based
MMORPG
andwasinitiallylaunched
ininNovember
2004.
the
leading
subscription-based
MMORPG
andwasinitiallylaunched
November
2004.
the leading subscription-based MMORPG and was initially launched in November 2004.

(iii)
(iii)
(iii)

King
King
King

King
Digital Entertainment(“King”) isisa aleading
global developer
and publisher
of interactive
entertainment content
and services,King
King Digital
Digital Entertainment
Entertainment (“King”)(“King”) is a leading
leading global
global developer
developer andand publisher
publisher ofof interactive
interactive entertainment
entertainment content
content andand services,
services,particularly
ononmobile
platforms,
suchasasAndroid
and
iOS.
King
also
distributes
itsitscontent
andservicesonononlinesocialplatforms,
particularly
mobileplatforms,
such
Android
and
iOS.
King
also
distributes
content
andservicesonlinesocialparticularly on mobile platforms, such as Android and iOS. King also distributes its content and services on online social platforms,
platforms,
suchasFacebook
andtheking.comwebsites.
King’sgames
arefree-to-play,however
playerscanacquirein-gamevirtualitems,
eithersuch
asFacebook
andtheking.comwebsites.
King’sgames
arefree-to-play,however
playerscanacquirein-gamevirtualitems,
suchas
Facebook
andtheking.comwebsites.
King’sgames
arefree-to-play,however
playerscanacquirein-gamevirtualitems, either
eitherwith
virtualcurrency
theplayers
purchase,orordirectly
using
real
currency.
withvirtualcurrency
theplayers
purchase,
directlyusing
realcurrency.
with virtual currency the players purchase, or directly using real currency.
King’skey productfranchises, allallofofwhich
are forthe PCand mobile
platforms, include:
Candy Crush™,
which features“matchKing’sKing’s key
key productproduct franchises,
franchises, all of which
which areare forfor thethe PCPC andand mobile
mobile platforms,
platforms, include:
include: Candy
Candy Crush™,
Crush™, which
which featuresfeatures “match“matchthree”
games;
Farm
Heroes™,
which
also
features“matchthree”
games;Pet
Rescue™,which
isisa a“clicker”
game;
and
Bubblethree”
games;
Farm
Heroes™,
which
also
features“matchthree”
games;Pet
Rescue™,which“clicker”
game;and
Bubblethree” games;
Farm
Heroes™,
which
alsogames.
features“matchthree”
Pethighest-grossing
Rescue™, whichtitles
is a “clicker”
game;and ofBubbleWitch™,which
features“bubbleshooter”
King
had
two
ofofgames;
the
top
10
inintheUnitedStatesAmerica
Witch™,which
features“bubbleshooter”
games.
King
had
two
the
top
10
highest-grossing
titlestheUnitedStatesofWitch™, which features “bubble shooter” games. King had two of the top 10 highest-grossing titles in the United States of America
America33
3

3

(“U.S.”) mobile app stores for the last thirteen quarters in a row, according to App Annie Intelligence and internal estimates for AppleApp Store and Google Play Store combined.
(iv)

Other

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

The Major League Gaming (“MLG”) business (which we formerly referred to as Activision Blizzard Media Networks orMedia Networks), which is devoted to esports and builds on our competitive gaming efforts by creating ways to deliver a
best-in-class fan experience across games, platforms, and geographies with a long-term strategy of monetization throughadvertising, sponsorships, tournaments, and premium content.

•

The Activision Blizzard Studios (“Studios”) business, which is devoted to creating original film and television content
based on our library of globally recognized intellectual properties, and, in October 2016, released the first season of theanimated TV series Skylanders™ Academy on Netflix.

•

The Activision Blizzard Distribution (“Distribution”) business, which consists of operations in Europe that provide
warehousing, logistics, 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
Financial Results
The Company’s 2016 financial highlights include:•

2016 consolidated net revenues increased 42% to $6.6 billion and 2016 consolidated operating income increased 7% to$1.4 billion, inclusive of King’s results of operations since the King Closing Date, as compared to consolidated net
revenues of $4.7 billion and consolidated operating income of $1.3 billion in 2015.

•

Revenues from digital online channels increased 94% to $4.9 billion in 2016, as compared to $2.5 billion in 2015.

•

Operating margin was 21.4% for 2016, compared with 28.3% in 2015. The lower margin was driven primarily byamortization of intangible assets acquired in the King Acquisition.

•

We generated cash flows from operating activities of approximately $2.2 billion in 2016, an increase of 71% ascompared to $1.3 billion in 2015.

•

Consolidated net income increased 8% to $966 million in 2016, as compared to $892 million in 2015.

•

Our diluted earnings per common share increased 8% to $1.28 in 2016, as compared to $1.19 in 2015.

Since certain of our games are hosted or include online functionality that represents an essential component of gameplay and, as aresult, a more-than-inconsequential separate deliverable, we initially defer the software-related revenues from the sale of these games
and recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. Net revenues
for the year ended December 31, 2016 include a net effect of $9 million from the recognition of deferred net revenues.
Also, for the year ended December 31, 2016, as a result of the King Acquisition, our net revenues include $1.5 billion and our net
income includes a net loss of $230 million from King’s operations, after adjustments for purchase price accounting, inclusive ofamortization of intangible assets, share-based payments, and deferral of revenues and related cost of revenues. The majority of theseaccounting charges under accounting principals generally accepted in the United States of America ("U.S. GAAP”) do not impact theeconomics or operating cash flows of our business, although they had a material impact on our 2016 U.S. GAAP results and will havea material impact on our 2017 U.S. GAAP results.
Release Highlights
Games and digital downloadable content released, among others, during the year ended December 31, 2016 included:•

Four downloadable content packs for Call of Duty: Black Ops III;•

Three content packs for Hearthstone;•

Overwatch;•

Farm Heroes Super Saga™;

4

•World of Warcraft: Legion™;•

Destiny: Rise of Iron (expansion pack for Destiny);•

Skylanders Imaginators; and•Call of Duty: Infinite Warfare™, featuring Modern Warfare® Remastered.

Monthly Active Users (“MAUs”): Measuring the Size and Engagement of Our User Base
We monitor MAUs as a key measure of the overall size of our user base and its regular engagement with our portfolio of games.
MAUs are the number of individuals who played a particular game in a given month. We calculate average MAUs in a period byadding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the
period. An individual who plays two of our games would be counted as two users. In addition, due to technical limitations, for
Activision and King, an individual who plays the same game on two platforms or devices in the relevant period would be counted as
two users. For Blizzard, an individual who plays the same game on two platforms or devices in the relevant period would generally be
counted as a single user.
The number of MAUs for a given period can be significantly impacted by the timing of new content releases, since new releases may
cause a temporary surge in MAUs. Accordingly, although we believe that overall trending in the number of MAUs can be ameaningful performance metric, period-to-period fluctuations may not be indicative of longer-term trends. The following table details
our average MAUs on a sequential quarterly basis for our reportable segments (amounts in millions):
Activision ........................................................
Blizzard ...........................................................
King .................................................................
Total ................................................................

December 31,
2016

September 30,
2016

46
42
394
482

41
355
447

June 30,
2016

49
33
409
491

March 31,
2016

55
26
463
544

December 31,
2015

55
26
449
530

September 30,
2015

46
28
474
548

Average MAUs decreased by 35 million, or 7%, for the quarter ended December 31, 2016, as compared to the quarter ended
September 30, 2016. The decrease in King’s average MAUs is due to decreases across King’s franchises that are largely attributable toless engaged users leaving the network. The increase in Activision’s average MAUs is reflective of the launch of Call of Duty: Infinite
Warfare in November 2016 along with Call of Duty: Black Ops III continuing to have strong MAU retention relative to previous
releases.
Average MAUs decreased by 83 million, or 16%, for the quarter ended December 31, 2016, as compared to the quarter ended
December 31, 2015. The decrease in King’s average MAUs is due to decreases across King’s franchises that are largely attributable toless engaged users leaving the network. This decrease is partially offset by the increase in Blizzard’s average MAUs, driven by therelease of Overwatch in May 2016.
International Sales
International sales are a fundamental part of our business. An important element of our international strategy is to develop content thatis specifically directed toward local cultures and customs. Net revenues from international sales accounted for approximately 48%,
48%, and 50% of our total consolidated net revenues for the years ended December 31, 2016, 2015, and 2014, respectively. The
majority of our net revenues from foreign countries is generated by consumers in Australia, Canada, China, France, Germany, Italy,
Japan, the Netherlands, South Korea, Spain, Sweden, and the United Kingdom. Our international business is subject 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
Interactive Entertainment and Mobile Gaming Growth
Our business participates in the global interactive entertainment industry. Games have become an increasingly popular form ofentertainment, and we estimate the total industry has grown, on average, 19% annually over the last four years. The industry continues
to benefit from additional players entering the market as interactive entertainment becomes more common place across age groups andas more developing regions gain access to this form of entertainment.
Further, the wide adoption of smart phones globally and the free-to-play business model on those platforms has increased the total
addressable market for gaming significantly. Smart phones and associated free-to-play games have introduced gaming to new age
groups and new regions and allowed gaming to occur more widely outside the home. Mobile gaming is now estimated to be larger
than console and PC gaming and continues to grow at a significant rate. King is a leading developer of mobile and free-to-play games.
55In addition, our other segments have mobile efforts underway that present the opportunity for us to drive additional player investment
from our franchises.
Opportunities To Expand Franchises Outside of GamesOur fans spend significant time investing in our franchises through purchases of our game content, whether through purchases of fullgames or downloadable content or via microtransactions. Given the passion our players have for our franchises, we believe there are
emerging opportunities to drive player investment outside of game purchases. These opportunities include esports, film and television,and consumer products. Our efforts to build these additional opportunities are still relatively nascent, but we view them as potentiallysignificant sources of future revenues.
Concentration of Sales Among the Most Popular Franchises
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 32% of the retail sales in the U.S. interactive entertainment industry in 2016.
Similarly, a significant portion of our revenues has historically been derived from video games based on a few popular franchises andthese video games were responsible for a disproportionately high percentage of our profits. For example, the Call of Duty, Candy
Crush, World of Warcraft, and Overwatch franchises, collectively, accounted for 69% of our consolidated net revenues, and asignificantly higher percentage of our operating income, for 2016.
The top titles in the industry are also becoming more consistent as players and revenues concentrate more heavily in establishedfranchises. Of the top 10 console franchises in 2016, all 10 are from established franchises. Similarly, according to U.S rankings for
the Apple App Store and Google Play store per App Annie Intelligence, the top 10 mobile games have an average tenure of
24 months.
In addition to investing in and developing sequels and content for our top titles, we are continually exploring additional ways toexpand those franchises. Further, we invest in new properties in an effort to develop the future top franchises. In 2014, we released
Hearthstone and Destiny, in 2015, we released Heroes of the Storm, and on May 24, 2016, we released Overwatch. There is no
guarantee these investments will result in established franchises. Additionally, to diversify our portfolio of key franchises and increase
our presence in the mobile market, on February 23, 2016, we acquired King.
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. Accordingly, our ability to maintain our top franchises and our ability
to successfully compete against our competitors’ top franchises can significantly impact our performance.
Recurring Revenue Business Models and Seasonality
Increased consumer online connectivity has allowed us to offer players new investment opportunities and to shift our business to amore recurring and year-round model. Offering downloadable content and microtransactions, in addition to full games, allows ourplayers to access and invest in new content throughout the year. This incremental content not only provides additional high-margin
revenue, it can also increase engagement. Also, mobile games, and free-to-play games more broadly, are generally less seasonal.
While our business is transitioning to a year-round engagement model, the interactive entertainment industry remains somewhat
seasonal. We have historically experienced our highest sales volume, particularly for Activision, in the year-end holiday buying
season, which occurs in the fourth quarter. As we make the shift to a year-round model and also now include the operating results ofKing, which focuses on free-to-play games, less of our revenues are coming from the fourth quarter. For our reportable segments—
Activision, Blizzard, and King—the percentage of our revenue represented by the fourth quarter in 2016 decreased by 10% year-overyear to 36%, compared with 46% in 2015.
OutlookIn 2017, we will have a lighter slate of full-game releases than 2016, which we expect to result in lower revenues and earnings per
share than we had in 2016. For Activision, we do expect to release the first sequel to Destiny and a new Call of Duty title in the second
half of the year, however, our Skylanders franchise will not have a new full console game launch in 2017. Across our businesses, wewill continue to focus on our opportunities for year-round player engagement and investment.
While our results for 2017 will include the full-year operations of King, the expected results will continue to 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 purchase price accounting adjustments, and the related tax impact from the King
Acquisition. While the majority of these GAAP accounting charges will not impact the economics or operating cash flows of ourbusiness, they will have a material impact on our GAAP results.
Finally, one of our current initiatives is to create an esports equivalent of the world’s established major professional sport leagues.
This may provide for additional opportunities in 2017 through strategically important emerging new revenue streams, including
possible team sales for the Overwatch League™, the associated media rights, and in-game advertising.

6

Product sales...........................................................................................
$
2,196
33% $ 2,447
52% $ 2,786
63%
Subscription, licensing, and other revenues ...........................................
4,412
67
2,217
48
1,622
37
Total net revenues ..................................................................................
6,608 100
4,664 100
4,408 100
Costs and expenses:
Cost of revenues—productsales(1):Consolidated
Statements ofOperations Data
Product costs ......................................................................................
741
34
872
36
981
35
Software royalties, amortization, and intellectual property licenses..
331
15
370
15
265
10
The
table sets forth consolidated
statements
Costfollowingof revenues—subscription,
licensing, andother(1):of operations data for the periods indicated in dollars and as a percentage oftotal
net revenues,
for cost of costs
revenues,
which are presented as a percentage851
of associatedrevenues
in millions):Game
operationsexcept
and distribution.............................................
19274 (amounts
12
250
15
Software royalties, amortization, and intellectual property licenses..
471
11
69
3
29
2
For the Years 646
Ended December
31, 571
Product development ..............................................................................
958
14
14
13
2016 182015 162014 16
Sales and marketing ...............................................................................
1,210
734
712
Net
revenues:
Generaland administrative ....................................................................
634
10
380
8
417
9
Productsales............................................................................................
$ 5,196
2,196 79
33% $ 3,345
2,447 72
52% $ 3,225
2,786 73
63%
Total costs
andexpenses ........................................................................
Subscription,
licensing,
and
other
revenues.............................................
4,412
67
2,217
48
1,622
37
Operating income ...................................................................................
1,412
21
1,319
28
1,183
27
Total
netandrevenues....................................................................................
6,608
100
4,664
100
4,408
100
Interest
other expense (income), net................................................
214
3
198
4
202
5
Costs
and
expenses:
Loss on extinguishment of debt(2) .........................................................
92
1
—
—
—
—
Cost
of revenues—productsales(1):........................................................
Incomebefore income tax expense
1,106
17
1,121
24
981
22
741
34
872
981
........................................................................................
Income tax expense................................................................................
140
2
229
536
146
335
331
15
370
15
265
10
Softwareroyalties,
amortization,andintellectual
property
licenses........
Net income .............................................................................................
$
966
15% $
892
19% $
835
19%
Cost of revenues—subscription, licensing, and other(1):
851
19
274
12
250
15
Game operations and distribution costs............................
......................
(1)Software
In periods
to the second
quarter of 2016,
we licenses
presented
cost of revenues
statements
royalties,prioramortization,and intellectual
property.........
471in our11consolidated69
3 of operations
29
2
using the following
four financial statement captions: “Cost of sales—productsales—online,”“Cost
Product development...............................................................................
958 costs,”
14 “Cost of 646
14571of 13royalties and amortization,” and “Cost of sales—intellectual
Since16
the second quarter
Sales andsales—software
marketing.................................................................................
1,210property
18 licenses.”
734
712 of16
2016,
we have revised the presentation in our consolidated statements of operationsofGeneral andadministrative......................................................................
634
10to more clearly
380 align
8 our costs417
9revenues
with the associated revenue captions as follows:
Total costs
and expenses..........................................................................
5,196
79
3,345
72
3,225
73
Operating income.....................................................................................
1,412
21
1,319
28
1,183
27
Cost
of revenues—productInterest andotherexpense (income),sales:
net.................................................
214
3
198
4
202
5
92
1
—
—
—
—
Loss on extinguishment of debt(2) ..........................................................
(i)“Productcosts”—includes the manufacturing cost of goods produced
sold. This1,121
generally24
includes product
Income before
incometax expense..........................................................
1,106 and17
981
22
costs, manufacturing royalties, net of volume discounts, personnel-related
Income tax expense..................................................................................
140
2costs, warehousing,229
5and distribution
146 costs.
3
We generally recognize volume discounts when they are earned (typically in connection with the achievement of
Net income...............................................................................................
$
966
15%
$
892
19%
$
835
19%
unit-based milestones).

(1)

In
prior to thesecond amortization,quarter of 2016,
presentedproperty
cost of revenues
in our consolidated
statementsof operations(ii)periods“Software
royalties,
andwe
intellectual
licenses”—includes
the amortizationof capitalizedusing thesoftware
following
fourandfinancialstatement
captions:“Costsalesof sales—productcosts,”“Costcapitalizedof sales—online,”“Cost ofcosts
royalties
attributableto productrevenues. These
are costs
on the balance
sheet
sales—software
royalties
andamortization,”
and
“Cost
of
sales—intellectual
property
licenses.”
Since
the
seconduntil the respective games are released, at which time the capitalized costs are amortized. Also included isquarter of
2016, weamortization
have revisedoftheintangible
presentationin recognized
our consolidated
statementsof operations
to moreclearly salesalignrevenues.
our costs ofassetsin purchaseaccounting
attributableto productrevenues with the associated revenue captions as follows:
Cost of revenues—product sales:(i)“Product costs”—includes the manufacturing cost of goods produced and sold. This generally includes productcosts, manufacturing royalties, net of volume discounts, personnel-related costs, warehousing, and distribution costs.
We generally recognize volume discounts when they are earned (typically in connection with the achievement ofunit-based milestones).

(ii)“Software royalties, amortization, and intellectual property licenses”—includes the amortization of capitalized
software costs and royalties attributable to product sales revenues. These are costs capitalized on the balance sheet
until the respective games are released, at which time the capitalized costs are amortized. Also included isamortization of intangible assets recognized in purchase accounting attributable to product sales revenues.

Cost of revenues—subscription, licensing, and other revenues:(i)“Game operations and distribution costs”—includes costs to operate our games, such as customer service, internet
bandwidth and server costs, platform provider fees, and payment provider fees.

(ii)“Software royalties, amortization, and intellectual property licenses”—includes the amortization of capitalized
software costs and royalties attributable to subscription, licensing and other revenues. These are costs capitalized on
the balance sheet until the respective games are released,
at which time the capitalized costs are amortized. Also
7
included is amortization of intangible assets recognized in purchase accounting attributable to subscription,
licensing, and other revenues.

Prior periods have been reclassified to conform to the current presentation.
(2)

Cost
of revenues—subscription,
licensing,
andwe
other
revenues:
Represents
the loss on extinguishmentof debt
recognized
during 2016 as a result of the extinguishment of certain termloan and senior note facilities through our refinancing activities, comprised of a premium payment of $63 million and(i)operations
and distribution
costs”—includes
costs to operate our games, such as customer service, internet
write-off “Gameof unamortizeddiscountand financing
costs of $29 million.
bandwidth and server costs, platform provider fees, and payment provider fees.
(ii)“Software royalties, amortization, and intellectual property licenses”—includes the amortization of capitalized
software costs and royalties attributable to subscription, licensing and other revenues. These are costs capitalized on

7Consolidated Net Revenues
The following table summarizes our consolidated net revenues and the increase/(decrease) in deferred revenues recognized for theyears ended December 31, 2016, 2015, and 2014 (amounts in millions):

Consolidated net revenues .............................
Net effect from recognition (deferral) ofdeferred net revenues ..................................

2016

2015

For the Years Ended December 31,
Increase/
Increase/(decrease)(decrease)% Change2016 v 2015
2015 v 2014 2016 v 20152014

$ 6,608 $ 4,664 $ 4,408 $
9

43

(405)

1,944 $

256

(34)

448

42%

% Change
2015 v 20146%

Consolidated net revenues
2016 vs. 2015
The increase in consolidated net revenues for 2016, as compared to 2015, was primarily due to:•

New revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise.

•

Revenues recognized from Overwatch, a new team-based first-person shooter released in May 2016.

•

Higher revenues recognized in 2016 from Call of Duty: Black Ops III, which was released in the fourth quarter of 2015
and was the third game in our successful Black Ops series, as compared to revenues recognized in 2015 from Call of
Duty: Advanced Warfare, which was released in the fourth quarter of 2014, including, in each case, the associated digitalcontent.

The increase was partially offset by:•

Lower revenues recognized from the Destiny franchise, as Destiny debuted in September 2014 but had no comparable
full-game release in 2015.

•

Lower revenues from Skylanders Imaginators, which was released in October 2016, as compared to Skylanders
Superchargers, the comparable 2015 title, as well as lower revenues from standalone toys and accessories from theSkylanders franchise in 2016.

•

Lower revenues recognized from the Diablo franchise due to the timing of releases.

2015 vs. 2014
The increase in consolidated net revenues for 2015, as compared to 2014, was primarily due to:•Higher revenues recognized from the Destiny franchise, as Destiny debuted in September 2014.

•

Higher revenues recognized from Hearthstone, which were partially driven by its incremental release on iPhone andAndroid smartphones in April 2015.

The increase was partially offset by:•

Lower revenues from Skylanders SuperChargers, as compared to Skylanders Trap Team, the comparable 2014 title.

•

Lower revenues recognized from Diablo III: Reaper of Souls™ and Diablo III: Reaper of Souls—Ultimate Evil
Edition™, which were released in March 2014 on PC and in August 2014 on consoles, respectively.

Change in Deferred Revenues Recognized2016 vs. 2015
The decrease in net deferred revenues recognized for 2016, as compared to 2015, was primarily due to:•Deferrals of revenues associated with the release of World of Warcraft: Legion in August 2016, as compared to therecognition of deferred revenues in 2015 from the release of World of Warcraft: Warlords of Draenor® in November
2014.
9

8

•

Deferrals of revenues associated with Overwatch.

The decrease was partially offset by lower deferrals of revenues associated with the Call of Duty franchise, driven by lower revenue
deferrals from Call of Duty: Infinite Warfare, which was released in the fourth quarter of 2016, as compared to Call of Duty: BlackOps III, the comparable 2015 title.
2015 vs. 2014
The increase in net deferred revenues recognized for 2015, as compared to 2014, was primarily due to:•Lower deferrals of revenues from the Destiny franchise, which debuted in September 2014.

•

Lower deferrals of revenues from World of Warcraft, primarily associated with World of Warcraft: Warlords ofDraenor, which was released in November 2014, and value-added services

The increase was partially offset by higher deferrals of revenues from the Call of Duty franchise.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of $81 million, $373 million, and $2 million on Activision Blizzard’s
consolidated net revenues in 2016, 2015, and 2014, 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.

10

9Operating
Operating Segment
Segment Results
Results
Currently,
Currently, we
we havehave three
three reportable
reportable operating
operating segments.
segments. Our
Our operating
operating segments
segments areare consistentconsistent with
with thethe mannermanner inin whichwhich our
our
operations
operations areare reviewed
reviewed andand managed
managed by
by our
our Chief
Chief Executive
Executive Officer,
Officer, who
who isis ourour chief
chief operating
operating decision
decision maker
maker (“CODM”).
(“CODM”). The
The
CODM
CODM reviews
reviews segment
segment performance
performance exclusive
exclusive of:of: thethe impact
impact ofof thethe changechange inin deferreddeferred revenues
revenues andand related
related cost
cost ofof revenues
revenues withwithrespect
respect toto certain
certain ofof ourour online-enabledonline-enabled games;
games; share-based
share-based compensationcompensation expense;
expense; amortizationamortization ofof intangible
intangible assets
assets as
as aa result
result ofofpurchasepurchase priceprice accounting;accounting; andand fees
fees andand otherother expenses
expenses (including(including legal
legal fees,
fees, expenses
expenses andand accruals)
accruals) related
related toto acquisitions,acquisitions, associatedassociatedintegration
integration activities,
activities, andand financings.
financings. The
The CODM
CODM does
does notnot review
review any
any information
information regarding
regarding total
total assets
assets onon anan operating
operating segment
segment
basis,
basis, andand accordingly,
accordingly, nono disclosure
disclosure isis mademade with
with respect
respect thereto.
thereto.
Our
Our operating
operating segments
segments areare also
also consistentconsistent with
with our
our internalinternal organization
organization structure,
structure, thethe way
way wewe assessassess operating
operating performance
performance andandallocateallocate resources,
resources, andand thethe availability
availability ofof separate
separate financial
financial information.
information. We
We do
do notnot aggregate
aggregate operating
operating segments.
segments.
Information
Information on
on thethe operating
operating segments
segments andand reconciliations
reconciliations ofof total
total segment
segment net
net revenues
revenues andand total
total segment
segment operating
operating income
income totoconsolidated
consolidated net
net revenues
revenues fromfrom external
external customers
customers andand consolidated
consolidated income
income before
before income
income tax
tax expense
expense forfor thethe years
years ended
ended
December
December 31,
31, 2016,
2016, 2015,
2015, andand 2014
2014 areare presented
presented inin thethe tabletable below
below (amounts(amounts inin millions):
millions):
For
the
Years
Ended
December
For theYears
Ended
December
31,31, 31,
For
the
Years
Ended
December
Increase/
Increase/
Increase/
Increase/ Increase/
Increase/(decrease)(decrease)(decrease)(decrease) (decrease)(decrease)vv20142016 2016 20152016vv2015
2015
2015
2014
2015 2015 20142014 20142016
2016 v 20152015
2015
v2014

Segment
Segment net
net revenues:
revenues:
Activision$$ 2,700$$ 2,686$$$$
Activision............................................................................
............................................................................................... $ 2,220
2,700
2,686
480)(480)$ 2,220$ 2,700$ 2,686$480)
Blizzard
2,428 2,4281,565
863
Blizzard...............................................................................
..................................................................................................
1,5651,565 1,720
1,7201,720
863 863King
1,586 1,586 —King.....................................................................................
........................................................................................................
— — —— — 1,586
1,5861,586
Reportable
6,234 6,2344,265
Reportable segments
segments net
net revenues
revenuestotal
total..........................
.............................................
4,2654,265 4,406
4,4064,406 1,969
1,9691,969
Reconciliation
Reconciliation toto consolidated
consolidated net
net revenues:
revenues:
Other
365 365 356
99 9
356 356 407
407 407
Other segments(1)segments(1)...............................................................
..................................................................................
Net
9
43 43 (405)(405)(405) (34)(34) (34)
Net effecteffect fromfrom recognition
recognition(deferral)(deferral)ofofdeferreddeferrednet
netrevenues(2)revenues(2).......
9 43$ 6,608$ 4,664$ 4,408$ 1,944
Consolidated$$ 4,664$$ 4,408$$ 1,944$$
Consolidated net
net revenues
revenues ..............................................
................................................................. $ 6,608
4,664
4,408
1,944
Segment
Segment income
income fromfrom operations:operations:
Activision
788 788 868
Activision............................................................................
...............................................................................................
868 868 762
762 762 (80)(80) (80)Blizzard
1,013 1,013 561
452
Blizzard...............................................................................
..................................................................................................
561 561 756
756 756452 452King
537 537 —537
King.....................................................................................
........................................................................................................
— — —
— —
537 537
Reportable
2,338 2,3381,429
909
Reportable segments
segments income
income fromfrom operations
operationstotal
total........
...........................
1,4291,429 1,518
1,5181,518
909 909
Reconciliation
Reconciliation toto consolidated
consolidated operating
operating income
income andand consolidated
consolidated
incomeincome before
before income
income tax
tax expense:
expense:Other(4) (4) 37 37
99
9 (41)
Other segments(1)segments(1)...............................................................
..................................................................................
(41) (41)Net
Net effecteffect fromfrom recognition
recognition (deferral)(deferral) ofof deferreddeferred net
net revenues
revenues andandrelated(10) (10) (39) (39) (215)29
related cost
cost ofof revenues(2)revenues(2) ..............................................
.................................................................
(215)(215)29 29
Share-based(159) (159) (92) (92) (104)
Share-based compensationcompensation expense(3)expense(3) ...............................
..................................................
(104)(104) (67)(67) (67)
Amortization(706) (706) (11) (11) (12)Amortization ofof intangible
intangibleassets(4)assets(4)...................................
......................................................
(12) (12) (695)(695)(695)
Fees
Fees andand otherother expenses
expenses related
related toto acquisitionsacquisitions andand thethe Purchase
Purchase(47) (47) (5) (5) (13)Transaction(5)(13) (13) (42)(42) (42)Transaction(5).................................................................
....................................................................................
Consolidated
1,412 1,4121,319
93
Consolidated operating
operating income
income...............................................
..................................................................
1,3191,319 1,183
1,1831,183
93 93
Interest
214 214 198
16Interest andand otherother expense,
expense, net
net............................................
...............................................................
198 198 202
202 202
16 16
Loss
92 92 —
92
Loss onon extinguishment
extinguishment ofof debt
debt..........................................
.............................................................
— — —
— —
92 92
Consolidated$$ 1,121$$ $981$$$$$ 1,106$ 1,121$(15)
Consolidated income
income before
before income
incometax
taxexpense
expense...................
...................................... $ 1,106
1,121
981 981(15) (15)

$

$

14
14
14
(155)
(155)
(155)
—
—
—
(141)
(141)
(141)
(51)
(51)
(51)
448
448
448
256
256
256

106
106
106
(195)
(195)
(195)
—
—
—
(89)
(89)
(89)
28
28
28
176
176
176
12
12
12
111

$

888
136
136
136
(4)
(4)
(4)
—
—
—
140
140
140

(1)
(1)

Other
Other segments
segments include
include other
other income
income andand expenses
expenses fromfrom operating
operating segments
segments managed
managed outside
outside thethe reportable
reportable segments,
segments,
includingincluding ourour MLG,
MLG, Studios,
Studios, andand Distribution
Distribution businesses.
businesses. Other
Other segments
segments also
also include
include unallocatedunallocated corporate
corporate income
income andand
expenses.
expenses.

(2)
(2)

We
We havehave determined
determined thatthat some
some ofof ourour titles’
titles’ online
online functionality
functionality represents
represents anan essential
essential component
component ofof gameplay
gameplay andand asas aa
result,result, represents
represents aa more-than-inconsequential
more-than-inconsequential separate
separate deliverable.
deliverable. As
As such,such, we
we areare required
required toto recognize
recognize revenues
revenues from
from
these
these titles
titles over
over thethe estimatedestimated service
service periods,
periods, which
which areare generally
generally lessless than
than one
one year.
year. TheThe related
related cost
cost ofof revenues
revenues arearedeferreddeferred andand recognizedrecognized when
when thethe related
related revenues
revenues areare recognized.
recognized. In
In thethe operating
operating segment
segment results
results table,table, wewe reflectreflect thethe netnet
effecteffect fromfrom thethe deferral
deferral ofof revenues
revenues andand (recognition)(recognition) ofof deferreddeferred revenues,
revenues, along
along with
with thethe related
related cost
cost ofof revenues,
revenues, onon certain
certainofof ourour online
online enabled
enabled products.
products.

(3)
(3)

We
We expense
expense ourour share-based
share-based awards
awards using
using thethe grant
grant date
date fair
fair value
value over
over thethe vestingvesting periods
periods ofof thethe stockstock awards.
awards. In
In thethe casecase ofof
liability
liability awards,
awards, thethe liability
liability isis subject
subject toto revaluation
revaluation based
based onon thethe stockstock priceprice at
at thethe endend ofof thethe relevant
relevant period.
period. Included
Included
withinwithin this
this share-based
share-based compensationcompensation are
are thethe netnet effects
effects ofof capitalization,
capitalization, deferral,
deferral, andand amortization.
amortization.

(4)
(4)

We
We amortize
amortize intangible
intangible assets
assets over
over their
their estimatedestimated useful
useful lives
lives based
based onon thethe patternpattern ofof consumption
consumption ofof thethe underlying
underlying
economic
economic benefits.
benefits. The
The amounts
amounts presented
presented inin thethe tabletable represent
represent thethe effecteffect ofof thethe amortizationamortization ofof intangible
intangible assets,
assets, as
as wellwell asasotherother purchasepurchase priceprice accounting
accounting adjustments,
adjustments, where
where applicable,
applicable, inin ourour consolidated
consolidated statements
statements ofof operations.
operations.
11
11

10

(5)

We incurred fees and other expenses, such as legal, banking and professional services fees, related to (a) the October 11,
2013 repurchase of approximately 429 million shares of our common stock (the “Purchase Transaction”), pursuant to a stock
purchase agreement among us, 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, (b) the King Acquisition, and (c) other business acquisitions
and associated integration activities, in each case, inclusive of any related debt financings. Such expenses are not reviewed by
the CODM as part of segment performance.

Segment Net Revenues
Activision2016 vs. 2015
The decrease in Activision’s net revenues for 2016, as compared to 2015, was primarily due to:•Lower revenues from Call of Duty: Infinite Warfare, which was released in the fourth quarter of 2016, as compared toCall of Duty: Black Ops III, the comparable 2015 title, which was the third game in our successful Black Ops series.

•

Lower revenues from the Destiny franchise, as there were two expansion packs in 2015—House of Wolves and The
Taken King—but only one in 2016—Rise of Iron.

•

Lower revenues from Skylanders Imaginators, which was released in October 2016, as compared to Skylanders
Superchargers, the comparable 2015 title, as well as lower revenues from standalone Skylanders toys and accessories in
2016.

•

Lower revenues from Guitar Hero® Live, which was released in 2015 with no comparable release in 2016.

The decrease was partially offset by higher revenues from digital content associated with Call of Duty: Black Ops III, as compared toCall of Duty: Advanced Warfare, the comparable 2014 title.
2015 vs. 2014
The increase in Activision’s net revenues for 2015, as compared to 2014, was 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.

•

Strong digital content performance, including expansion packs and supply drops for Call of Duty: Advanced Warfare.

•

Revenues from Guitar Hero Live, which was released in the fourth quarter of 2015, with no comparable release in 2014.

The increase was partially offset by:•

Lower revenues from Skylanders SuperChargers, which was released in 2015, as compared to Skylanders Trap Team,the comparable 2014 title.

•

Lower revenues from the Destiny franchise, as Destiny debuted in September 2014 with no comparable full-game releasein 2015.

•

Lower revenues from The Amazing Spider-Man™ 2, which was released during 2014, with no corresponding releases
during 2015.

Blizzard
2016 vs. 2015
The increase in Blizzard’s net revenues for 2016, as compared to 2015, was primarily due to:•

Revenues from Overwatch, a new team-based first-person shooter released in May 2016.

•

Higher revenues from World of Warcraft, driven by the release of World of Warcraft: Legion in August 2016, with nocomparable release in 2015.

11

•

•

2015 vs. 2014

Superchargers
Skylanders franchise in 2016.

aginators

Lower revenues recognized from the Di2015 vs. 2014
The decrease in Blizzard’s net revenues for 2015, as compared to 2014, was primarily due to the timing of releases, including:•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 consoles. • Higher revenues recognized from the Destiny franchise, as Destiny•

World of Warcraft: Warlords of Draenor, which was released
November
2014,recognizedalong with fromthe overalllower revenues• in Higher
revenues
Hearthstone
from World of Warcraft due to a smaller subscriber base.
Android smartphones in April 2015.

The decrease was partially offset by:••

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theSkylanders
year, and benefited
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incremental release on iPhone and Android smartphones in April 2015.
• Lower revenues recognized from Diablo III: Reaper of Souls™ andRevenues from Heroes of the Storm and StarCraft II: Legacy of the
Void™,which
whichwerewerereleased
releasedin
inMarch2015. 2014 on PC and in August 2014
Edition™,
Change in Deferred Revenues Recognized

King

King’s net revenues represent the net revenues from the King ClosingDatethrough December 31, 2016. The revenues were primarily
2016 vs.
2015
driven by the Candy Crush franchise, which included the release of Candy Crush Jelly Saga™ in January 2016.
Segment Income from Operations•

Activision2016 vs. 2015

Deferrals of revenues associated with the release ofrecognition of deferred revenues in 2015 from the release of2014.

9
The decrease in Activision’s operating income for 2016, as compared to 2015, was primarily due to lower revenues. This was partially
offset by:•

Lower sales and marketing spend on Guitar Hero Live and the Destiny franchise given the timing of game launches.

•

The relative increase in revenues coming from the digital online channel, which typically has a higher profit margin.

2015 vs. 2014
The increase in Activision’s operating income for 2015, as compared to 2014, was primarily due to:•

The relative increase in revenues coming from the digital online channel, which typically has a higher profit margin.

•

Lower sales and marketing spending on the Destiny franchise because of the September 2014 launch of Destiny, with nocomparable full-game release in 2015.

The increase was partially offset by:•Operating losses from Guitar Hero Live, which was released in the fourth quarter of 2015, with no comparable release in
2014.

•

Lower revenues from Skylanders SuperChargers, as compared to Skylanders Trap Team.

Blizzard
2016 vs. 2015
The increase in Blizzard’s operating income for 2016, as compared to 2015, was primarily due to higher revenues. This was partially
offset by:•

New sales and marketing spending to support Overwatch.

•

Higher personnel costs due to segment performance bonuses and increased headcount to support the business growth.

13

12

2015 vs. 2014
The decrease in Blizzard’s operating income for 2015, as compared to 2014, was primarily due to:•Lower revenues.

•

Higher cost of revenues from Hearthstone related to commissions on mobile purchases following the launch on iPhone
and Android smartphones in April 2015.

•

Higher sales and marketing spending for releases, including Hearthstone and Heroes of the Storm.

•

Lower capitalization of software development costs and higher software amortization.

King
King’s operating income for the year ended December 31, 2016 represents the operating income from the King Closing Date throughDecember 31, 2016.
Foreign Exchange Impact
Changes in foreign exchange rates had a negative impact of $30 million and $338 million on reportable segment net revenues for 2016
and 2015, respectively, as compared to the same periods in the previous year. The changes are primarily due to changes in the value ofthe U.S. dollar relative to the euro and British pound.

14

13

Consolidated
Results
Consolidated
Results
Consolidated
Results
Consolidated
Consolidated
Results
Results
Consolidated
Consolidated
Net
Net
Revenues
Revenues
Net
RevenuesbyDistribution
ChannelNet
Revenues
byNet
ChannelNet
RevenuesbyDistribution
ChannelNet
Net
Revenues
Revenues
byDistribution
Distribution
byDistribution
ChannelChannelConsolidated
Net
Revenues
RevenuesThefollowing
following
table
table
summarizes
summarizes
our
our
consolidated
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netrevenues
revenues
and
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the
increase/(decrease)increase/(decrease)indeferreddeferred
revenues
revenues
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for
for
the
the
details
ourconsolidatednet
bydistribution
channel
for
years
ended
DecemberThefollowing
table
31,
2016,
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and
The
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channelyears
ended
December
31,2016,
2016,
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andanddetails
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followingtable
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channeltheforyears
ended
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summarizes
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our
consolidated
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netrevenues
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consolidated
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revenues
byand
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bydistribution
channeltheforinin
years
the
years
ended
ended
December
December
31,
31,
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2015,
2015,
and
years
years
ended
ended
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December
31,
31,
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and
and
2014
2014
(amounts(amounts
inininmillions):
millions):
2014(amounts
inmillions):
years
ended
December
December
31,
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2015,
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and
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2014
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(amounts(amounts
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millions):
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(amounts
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in31,
millions):
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For
For
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Years
Years
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December
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December
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31,
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Years
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Ended
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December
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For
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Ended
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For
the
Ended
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31,
Increase/
Increase/
Increase/
Increase/
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Increase/
Increase/
Increase/
Increase/
Increase/
Increase/
Increase/(decrease)%%(decrease)%
Change%Change% Change(decrease)(decrease)(decrease)(decrease)%%
ChangeChange%Change(decrease)(decrease)(decrease)(decrease)%
Change%%%ChangeChange%ChangeChange%ChangeChange(decrease)(decrease)%
Change%ChangeChange(decrease)(decrease)
2015
2015
vv
2014
vv201520142016 2016
2015
2014
2016
2016
v2015
v2015
2015
2015
v2014
2014
2016
2016
2015
2015
2014
2014
2016
vvv2015
vv2015
2015
2015
2015
vv2015
2014
2016
v2015
v2015
2015
2015
2015
v2014
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2014v2016
2015
2014
2016
2016 2015
2015
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2014
2014
2016
2015
2015
2014
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vvv2014v 2014
2016
2015
2015
2014
2014
2016
v 2015
2016
v2016
2015
2015
2014
2016
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2015
2015
2014
2015
2014
2016
2015
2014
2015
2014

Net
revenuesby
distribution
channelConsolidated
Consolidatednet
netrevenues
revenues..............
..............
$6,6086,608$$4,664$4,6644,664$$4,408$4,4084,408$$$$ 1,944
1,944
1,944$$ $$ 256
256
256
42%
42%
6%
6%
Net
Net
revenuesby
distribution
by distribution
channelchannelConsolidated
Consolidatednet
netrevenues
revenues..............
..............
$ $6,608$6,608$4,664$4,408
1,944
256
42%
42%
6%
6%
Net
revenues
byrevenues
distribution
distribution
channelchannelNet
revenuesby
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channelDigitalonlinechannels(1)................
2,502
1,897
$ 1,897
2,363$2,363$$ 605
NetNet
effecteffectfromfromrecognition
recognition(deferral)(deferral)
DigitalDigitalonlineonlinechannels(1)channels(1)................
................
$ 4,865$$ 4,865$ 2,502$$ 2,502$ 1,897$ $2,363$ 605
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channels(1).................................
Digitalonlinechannels(1)................................
605
94% 94%32%
Digitalonlinechannels(1)................................
605605 94%
32%
Retailchannels.................................
1,3861,386
1,806
2,104
(420) (420)(298)
RetailRetailchannelschannels.................................
.................................
1,386
1,806
1,806
2,104
2,104
(420)
(298)
(23)
(23) (14)(14)
deferreddeferrednet
net
revenues
revenues..................
..................
43
432,104
(405)
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(34)
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448
448 (23)deferrednet
net
revenues
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..................
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43
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(405)
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448
448
(23)
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Retailchannelschannels..................................................
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1,806
2,104
(420)
(298)(298)(23)(23)
Retailchannels.................................................
(420)
(298)
(23)
(14)
Other(2)............................................
356 356407 407
Other(2)Other(2)............................................
............................................ 357 357356
357
356407356
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11 1 (51)—(13)——(13) (13)(13)
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(51) (51)Other(2)............................................................
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Total
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$
6,608
$
4,664
$
4,408
$
1,944
$
256
Total
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.......
$
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$
6,608
$
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$
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$
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1,944
1,944
$
$
256
256
6%
42%
42%
6%
42%
6%
42%
42%
6%
Total Total
consolidated
net revenues........................
revenues.......................
1,9441,944$
consolidated
net revenues.......................
$ 256 256
42% 42%
6% 6%6%
Consolidated
Consolidatednet
netrevenues
revenues
Consolidatednet
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15 15
14 9 914 9 9ACTIVISION ANNUAL REPORT 10-K

THURSDAY, MARCH 16, 2019 9:00AM PST

ANDRA DESIGN LLC

The increase was partially offset by lower revenues from the Diablo franchise due to the timing of title releases.
Change in Deferred Revenues Recognized2016 vs 2015
The decrease in net deferred revenues recognized for 2016, as compared to 2015, was primarily due to:•Deferrals of revenues associated with the release of World of Warcraft: Legion in August 2016, as compared to therecognition of deferred revenues from the release of World of Warcraft: Warlords of Draenor in 2015.

•

Deferrals of revenues associated with Overwatch.

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2015 vs 2014
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from World of Warcraft, primarily associated with World of Warcraft: Warlords of Draenor and value-added services. The
increases were partially offset by higher deferrals of revenues from the Call of Duty franchise.
Retail Channel Net Revenues
Net Revenues
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full-game release in 2015.

•

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Superchargers, the comparable 2015 title, as well as lower revenues from standalone Skylanders toys and accessories in
2016.

•

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The decrease was partially offset by:•

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•

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as compared to revenues recognized in 2015 from Call of Duty: Advanced Warfare, which was released in the fourth
quarter of 2014.

2015 vs 2014
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•

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•

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which were released in March 2014 on PC and in August 2014 on consoles, respectively.

The decrease was partially offset by higher revenues recognized from the Destiny franchise and revenues from Guitar Hero Live,
which was released in October 2015.

16

15

ChangeChange
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2016

Forthe
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ChangeChange(decrease)(decrease)(decrease)(decrease)%
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2016
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Consolidated
Consolidated
netnetrevenues
revenues..............
..............
$ 6,608$ 6,608$ 4,664$ 4,664$ 4,408$ 4,408$ $ 1,944
1,944$ $256
256
Geographic
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2,409$ 2,409
2,190$ 2,190
NetNet
effecteffectfromfromrecognition
recognition(deferral)(deferral)
ofof $ 3,423$ 3,423
Americas
Americas.............................................
.............................................
$$2,409$$2,190$$
1,014$ 2,3631,014$$ $ $ 219..............................................................
1,014
219605219
Digitalonlinechannels(1)................................
deferreddeferrednet
net
revenues
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..................
9 91,806
43432,104(405)(405)480(34)(34) (83)448448
EMEA(1)
EMEA(1)............................................
............................................
2,221 2,221
1,741
1,741
1,824
1,824
480
(83)
.............................................................
1,741
1,824
480
(83)
Retailchannels.................................................
(420)
(298)
Asia PacificAsia .........................................
Pacific......................................... 964 964
514
514
394
394 450
120
Pacific..........................................................
514 356394 407450 1450120(51)120
Other(2)............................................................
Consolidated
Consolidated
revenues
net revenues......................
......................
$ 6,608$ 6,608$$4,664$$4,408$$
1,944$ 1,944
1,944$$ $ $ 256
4,664$ 4,664
4,408$ 4,408
Consolidatednet
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1,944
256256256
Totalnetconsolidated
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Consolidated
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42%
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third
third
game
game
in in
ouroursuccessful
successful
Black
Black
Ops
Ops
series,series,asas
comparedcompared
to torevenues
revenues
recognizedrecognized
in in
2015
2015
from
from
Call
Call
of of 273
• Revenues•Duty:
Revenues
recognizedrecognized
from
from
Overwatch,
aareleasednewteam-based
a newteam-based
first-person
first-person
shootershooter
released
ininMay
2016.
May
2016.
recognizedfrom Overwatch,
Overwatch,new
team-based
first-person
shooter
released
2016.
Other(2)..........................................................................................
(8)— released
—in
(8)
—
Duty:
Advanced
Advanced
Warfare,Warfare,
which
which
was
was
released
in in
the
the
fourthfourthquarterquarter
of
of
2014,
2014,
including,including,
inMay
in
each
each
case,
case,
thetheassociatedassociateddigitaldigital
Net (deferral)/recognition
impact on consolidated net revenues... $9 $43 $ (405) $(34) $
448
content.
content.
•• Higher• Higherrevenues
revenues
recognizedrecognizedin2016Call
from
of
Duty:
ofBlack
Duty:Ops
Black
III,
Ops
which
III, waswhich
was released
inintheinthe quarter
fourthofof2015,
of 2015,Higherrevenues
recognizedin 2016
2016infrom
from
Call
ofCall
Duty:
Black
Ops
III,
which
wasreleased
released
thefourthfourthquarterquarter2015,
ascomparedascomparedtorevenuestorevenues
recognizedrecognized
in
2015
in
from
2015
Call
from
of
Call
Duty:
of
Advanced
Duty:
Advanced
Warfare,Warfare,
which
was
which
releasedwasreleasedinthefourthinthefourthas
to revenues
recognizedin 2015 fromasCallof Duty:
Advanced
Warfare, which was released in the fourth
The
The
increaseincreasewaswaspartially
partially
offsetoffsetby:by:(1)
Wecompareddefinerevenues
fromdigitalonlinerevenues
fromdigitally
in
case,
the
associateddigitalquarterquarterofofincluding,2014,
including,eachchannels
case,
the associateddigitalcontent.distributed subscriptions, licensing royalties,
quarterof 2014,2014,
including,in eacheachincase,theassociateddigitalcontent.
content.
value-added
services,
downloadable
content,
microtransactions,and products.
• • Lower
Lower
revenues
revenues
recognizedrecognized
from
from
thetheDestiny
Destiny
franchise,
franchise,asas
Destiny
Destiny
debuteddebutedin in
September
September
2014
2014
butbuthad
had
nono
comparable
comparable
The
The increasewaspartially
was partially
offsetby:offset by:
The increase
increase
waspartially
offsetby:full-gamereleaserelease
in in
2015.
2015.
(2)
Netfull-gamerevenues
from
Other
include revenues from our MLG, Studios, and Distribution businesses.

•• Lower• revenues
Lower
revenues
recognizedrecognized
from
from
Destiny
the Destiny
franchise,
franchise,as
Destiny
as Destiny
debuteddebutedininSeptember
in September
2014
but
2014
had
but
no
had
comparable
no comparable
Lower
revenues
recognizedfrom thethe
Destiny
franchise,as
Destiny
debuted
September
2014
but
had
noSkylanders
comparable•Online• LowerLower
revenues
revenues
fromfromSkylanders
Skylanders
Imaginators,
Imaginators,
which
which
was
was
released
releasedin in
October
October
2016,
2016,
asas
comparedcomparedto toSkylanders
DigitalChannelNet
Revenues
full-gamefull-gamereleasein2015.
in 2015. 2015
full-gamereleaserelease
inthe
2015.
Superchargers,
Superchargers,
thecomparable
comparable
2015
title,
title,
asas
well
well
asas
lower
lower
revenues
revenues
fromfromstandalone
standalone
toys
toys
and
and
accessories
accessories
from
from
thetheSkylanders
Skylanders
franchise
franchise
in
in
2016.
2016.
Net Revenues•• Lower• revenues
Lower
revenues
fromfrom Skylanders
Imaginators,
Imaginators,
which
which
was released
ininOctoberin October
2016,
2016,
comparedas compared
totoSkylanders
to Skylanders
Lower
revenues
from Skylanders
Skylanders
Imaginators,
whichwaswasreleased
released
October
2016,asascomparedSkylanders
Superchargers,
Superchargers,
thecomparable
thecomparable
2015
title,
2015
astitle,
well
as
as
well
lower
as
revenues
lower
revenues
fromstandalone
fromstandalone
toys
and
toys
accessories
andaccessories
from theSuperchargers,
the recognizedcomparable
2015
title,
as well
as lower
revenues
fromstandalone
toys and accessoriesfrom
fromthethe• LowerLower
revenues
revenues
recognized
from
from
the
the
DiabloDiablofranchise
franchise
due
due
to to
thethetimingtimingofof
releases.
releases.
2016 vs• 2015
Skylanders
Skylanders
franchise
franchiseinin 2016.
Skylanders
franchisein 2016.
2016.

2015
2015
vs.
vs.
2014
2014in net revenues from digital online channels for 2016, as compared to 2015, was primarily due to:increase
2015
vs
2014
vs 2014
2015Thevs2015
2014
The
The
increaseincreasein inconsolidated
consolidated
netnetrevenues
revenues
forfor
2015,
2015,
asas
comparedcompared
to to
2014,
2014,
was
was
primarily
primarilydue
due
to:to:The
The increaseinrevenues
in netrevenuesinAmericasin theAmericasregionforregionforas2015,
comparedascompared
toto2014,
towas
2014,
primarily
wasdrivenprimarily
due
dueCandy
to: Crush franchise.
• netrevenues
fromKing
titlesfollowingtheKing
ClosingDate,primarily
byto:the
The increase
increase
in
netNew
revenues
in thetheAmericasregionfor 2015,
2015,
ascompared2014,
wasprimarilydueto:• • Higher
Higherrevenues
revenues
recognizedrecognized
from
from
thetheDestiny
Destiny
franchise,
franchise,asas
Destiny
Destiny
debuteddebutedin in
September
September
2014.
2014.
HigherHigherrevenues
revenues
recognizedrecognized
from
the
from
Destiny
the aDestiny
franchise.
franchise. first-person shooter released in May 2016.
• • Revenues
recognizedfromOverwatch,new
team-basedHigherrevenues
recognizedfromtheDestiny
franchise.
17
17 partially• • Higher
Higherrevenues
revenues
recognizedrecognized
from
from
Hearthstone,
Hearthstone,
which
which
were
were
partially
drivendrivenbyby
itsitsincremental
incremental
releasereleaseonon
iPhoneiPhoneandand• Android
Higherrevenues
recognizedin 2015.
2016 from digital17content associated with Call of Duty: Black Ops III, as compared toAndroid
smartphones
smartphones
in in
April
April
2015.
revenues recognized in 2015 from digital content associated with Call of Duty: Advanced Warfare, the comparable 201516
title.
The
The
increaseincreasewaswaspartially
partially
offsetoffsetby:by:••

2015 vs 2014
The increase in net revenues in the Americas region for 2015, as compared to 2014, was primarily due to:•Higher revenues recognized from the Destiny franchise.

•

Higher revenues recognized from Hearthstone.

•

Revenues recognized from Heroes of the Storm and Guitar Hero Live, which were both released in 2015 with nocomparable releases during the prior periods.

17

The increase was partially offset by:•

Lower revenues from Skylanders SuperChargers, which was released in 2015, as compared to Skylanders Trap Team,the comparable 2014 title.

•

Lower revenues recognized from the Diablo franchise due to the timing of title releases.

EMEA
2016 vs 2015
The increase in net revenues in the EMEA region for 2016, as compared to 2015, was primarily due to the same drivers and partially
offsetting factors as the Americas region discussed above.
2015 vs 2014
The decrease in net revenues in the EMEA region for 2015, as compared to 2014, was primarily due to:•Lower revenues recognized from the Diablo and Call of Duty franchises.

•

Lower revenues from Skylanders SuperChargers, which was released in 2015, as compared to Skylanders Trap Team,the comparable 2014 title.

•

Lower revenues from our Distribution business.

The decrease was partially offset by:•Higher revenues recognized from the Destiny franchise.

•

Higher revenues recognized from Hearthstone.

•

Revenues recognized from Heroes of the Storm.

Asia Pacific2016 vs 2015
The increase in net revenues in the Asia Pacific region for 2016, as compared to 2015, was primarily due to:•

New revenues from King titles following the King Closing Date, primarily driven by the Candy Crush franchise.

•

Revenues recognized from Overwatch, a new team-based first-person shooter released in May 2016.

•

Higher revenues recognized from Hearthstone.

The increase was partially offset by lower revenues recognized from the Diablo franchise due to the timing of releases.
2015 vs 2014
The increase in net revenues in the Asia Pacific region for 2015, as compared to 2014, was primarily due to:•Higher revenues recognized from Hearthstone and Call of Duty Online.

•

Revenues recognized from Heroes of the Storm, which launched in China in 2015.

The increase was partially offset by lower revenues recognized from the Diablo franchise.

17
18

NetNetRevenues
Revenues
by by
Platform
PlatformThefollowingtablesdetailrevenues
platforma percentage
total
consolidated
revenues
years
ended
The
followingtablesdetailourournetnetrevenues
byby
platform
andandas asa percentage
of of
total
consolidated
netnetrevenues
forforthetheyears
ended
December
2016,
2015,
2014
(amounts
millions):
December
31,31,
2016,
2015,
andand2014(amounts
in inmillions):
%%
of of
%%
of of
%%
of of
Year
Year
Ended
Ended
total(4)total(4) Year
Year
Ended
Ended
total(4)total(4)
Year
Year
Ended
Ended
total(4)total(4)
Increase/
Increase/
Increase/
Increase/
December
December
31,31, consolidated
consolidatedDecember
December
31,31, consolidated
consolidated December
December
31,31, consolidated
consolidated (Decrease)(Decrease) (Decrease)(Decrease)
2016
2016
netnetrevenues
revenues
2015
2015
netnetrevenues
revenues
2014
2014
netnetrevenues
revenues 20162016v 2015v 2015 20152015v 2014v 2014

Platform
Platform
netnetrevenues:
revenues:
ConsoleConsole...............................
...............................
$ $ 2,453
2,453
PC(1)
PC(1)
..................................
..................................
2,124
2,124
MobileMobileandandancillary(2)ancillary(2).....................
.....................
1,674
1,674
Other(3)Other(3)..............................
.............................. 357
357
Total
Total
consolidated
consolidated$ $ 6,608
6,608
netnetrevenues
revenues........................
........................

37%
37% $ $
3232
2525
5 5
100%
100% $ $

2,391
2,391
1,499
1,499
418
418
356
356
4,664
4,664

51%
51% $ $
3232
9 9
8 8
100%
100% $ $

2,150
2,150
1,418
1,418
433
433
407
407
4,408
4,408

49%
49%$ $
3232
1010
9 9

6262$ $
625
625
1,256
1,256
1 1

100%
100% $ $ 1,944
1,944$ $

241
241
8181
(15)
(15)
(51)
(51)
256
256

(1)(1)

NetNetrevenues
revenues
from
from
PCPC
includesincludesrevenues
revenues
that
that
were
were
historicallyhistorically
shown
shown
as as
Online.
Online.

(2)(2)

NetNetrevenues
revenues
from
from
MobileMobileandandancillaryancillaryincludesincludesrevenues
revenues
fromfromhandheld,
handheld,
mobile,mobile,andandtablettabletdevices,
devices,
as as
well
well
as as
non-platform-specificnon-platform-specificgame-related
game-related
revenues,
revenues,
such
such
as as
standalone
standalone
sales
sales
of of
toys
toys
andandaccessories
accessories
from
from
ourourSkylanders
Skylanders
franchise,
franchise,andandother
other
physical
physicalmerchandise
merchandise
andandaccessories.
accessories.

(3)(3)

NetNetrevenues
revenues
from
from
Other
Other
includeincluderevenues
revenues
fromfromourour
MLG,
MLG,
Studios,
Studios,
andandDistribution
Distribution
businesses.
businesses.

(4)(4)

The
The
percentages
percentages
of of
total
total
arearepresented
presented
as as
calculated.
calculated.
Therefore,
Therefore,
thethe
sum
sum
of of
these
these
percentages,
percentages,
as aspresented,
presented,
may
may
differdifferduedueto tothetheimpactimpactof ofrounding.
rounding.

ConsoleConsoleNetNetRevenues
Revenues
2016
2016
vs vs
2015
2015
The
increaserevenues
fromconsole2016,
compared2015,
wasprimarilyThe
increasein innetnetrevenues
fromconsoleforfor2016,
as ascompared
to to
2015,
was
primarily
duedueto:to:
Higherrevenues
recognized
2016
from
Call
Duty:
Black
Ops
which
was
releasedfourthquarter2015,• • Higher
revenues
recognized
in in
2016
from
Call
of of
Duty:
Black
Ops
III,III,
which
wasreleased
in in
thethefourthquarterof of2015,
compared
revenues
recognized
2015
from
Call
Duty:
Advanced
Warfare,which
was
releasedfourthas ascompared
to torevenues
recognized
in in
2015
from
Call
of of
Duty:
Advanced
Warfare,which
was
released
in in
thethefourthquarter2014,
including,
each
case,
associateddigitalcontent.
quarterof of2014,
including,
in in
each
case,
thetheassociateddigitalcontent.
Revenues
recognizedfromOverwatch,a newteam-based
first-person
shooter
releasedMay
2016.
• • Revenues
recognizedfromOverwatch,a newteam-based
first-person
shooter
released
in in
May
2016.
The
increase
waspartially
offsetlower
revenues
recognizedfromDestiny
franchise,
Destiny
debuted
September
2014
The
increase
waspartially
offsetbyby
lower
revenues
recognizedfromthetheDestiny
franchise,as asDestiny
debutedin in
September
2014
butbutcomparable
full-gamerelease2015.
hadhadnono
comparable
full-gamerelease
in in
2015.
2015
2014
2015
vs vs
2014
The
increaserevenues
fromconsole2015,
compared2014,
wasprimarilyThe
increasein innetnetrevenues
fromconsoleforfor2015,
as ascompared
to to
2014,
was
primarily
duedueto:to:
Higherrevenues
recognize
from
Destiny
franchise.
• • Higher
revenues
recognize
fromthetheDestiny
franchise.
Revenues
fromGuitar
Hero
Live,
which
was
released
October2015.
• • Revenues
fromGuitar
Hero
Live,
which
was
releasedin in
October
2015.
The
increase
waspartially
offsetlower
revenues
fromSkylanders
SuperChargers,
which
was
released
2015,
comparedThe
increase
waspartially
offsetbyby
lower
revenues
fromSkylanders
SuperChargers,
which
was
released
in in
2015,
as as
comparedto toSkylanders
Trap
Team,
comparable
2014
title.
Skylanders
Trap
Team,
thethecomparable
2014
title.
Revenues
PCPC
NetNetRevenues
2016
2015
2016
vs vs
2015
The
increaserevenues
from2016,
compared2015,
wasprimarilyThe
increasein innetnetrevenues
from
PCPC
forfor2016,
as ascompared
to to
2015,
was
primarily
duedueto:to:
Revenues
recognizedfromOverwatch,a newteam-based
first-person
shooter
releasedMay
2016.
• • Revenues
recognizedfromOverwatch,a newteam-based
first-person
shooter
released
in in
May
2016.
Revenues
fromKing
titlessinceKing
Closing
Date.
• • Revenues
from
King
titlessincethetheKing
ClosingDate.

18

2015 vs 2014
The increase in net revenues from PC for 2015, as compared to 2014, was primarily due to:•Higher revenues recognized from Hearthstone.

•

Revenues recognized from Heroes of the Storm, which was released in June 2015.

The increase was partially offset by lower revenues recognized in 2015 from Diablo III: Reaper of Souls, due to the title releasing inMarch 2014 and no comparable 2015 title release.
Mobile and Ancillary Net Revenues
2016 vs 2015
The increase in net revenues from mobile and ancillary for 2016, as compared to 2015, was primarily due to:•

New revenues from King titles since the King Closing Date, which were primarily driven by the Candy Crush franchise.

•

Higher revenues recognized from Hearthstone, which was released on iPhone and Android smartphones in April 2015.

The increase was partially offset by lower revenues from sales of standalone toys and accessories from the Skylanders franchise.
2015 vs 2014
The decrease in net revenues from mobile and ancillary for 2015, as compared to 2014, was primarily due to lower revenues fromsales of standalone toys and accessories from the Skylanders franchise. The decrease was partially offset by higher revenues from
Hearthstone on iOS and Android devices.
Costs and Expenses
Cost of Revenues
The following tables detail the components of cost of revenues in dollars and as a percentage of associated net revenues for the years
ended December 31, 2016, 2015, and 2014 (amounts in millions):

Cost of revenues—productsales:
Product costs...........................
Software royalties,
amortization, intellectual
property licenses.................
Cost of revenues—subscription,
licensing, and other revenues:
Game operations anddistribution costs.................
Software royalties,
amortization, intellectual
property licenses.................
Total cost of revenues.................

Year Ended
December 31,
2016

$

$

% of
associatednet revenues

Year Ended
December 31,
2015

% of
associatednet revenues

Year Ended
December 31,
2014

% of
associatednet revenues

Increase(Decrease)2016 v 2015

Increase(Decrease)2015 v 2014

741

34% $

872

36% $

981

35% $

(131) $

(109)

331

15

370

15

265

10

(39)

105

851

19

274

12

250

15

577

24

471
2,394

11
36%

69
1,585

3
34%

29
1,525

2
35%

$

$

$

402
809

$

Cost of Revenues—Product Sales:
2016 vs 2015
The decrease in product costs for 2016, as compared to 2015, was primarily due to:•Lower product costs associated with the Skylanders franchise.

•

The relative increase in revenues coming from the digital online channel, which typically have relatively lower productcosts.

19

40
60

The
Thedecrease
decreaseininsoftware
softwareroyalties,
royalties,amortization,amortization,and
andintellectual
intellectualproperty
propertylicenses
licensesrelated
relatedtotoproductproductsales
salesforfor2016,
2016,asascompared
comparedtoto
2015,
2015,waswasprimarily
primarilydue
duetotolower
lowersoftware
softwareamortizationamortizationfrom
fromthetheDestiny
Destinyfranchise,
franchise,asasDestiny
Destinywas
wasreleased
releasedininthe
thethird
thirdquarter
quarterofof
2014,
2014,butbuthadhadnonocomparable
comparablefull-gamefull-gamerelease
releaseinin2015.
2015.
This
Thisdecrease
decreasewas
waspartiallypartiallyoffset
offsetby:by:• • Software
Softwareamortizationamortizationfrom
fromOverwatch,
Overwatch,which
whichwaswasreleased
releasedininMay
May20162016with
withnonocomparable
comparable2015
2015title.
title.
• • Higher
Highersoftware
softwareamortizationamortizationassociatedassociatedwith
withCallCallofofDuty:
Duty:BlackBlackOps
OpsIII,
III,whichwhichwaswasreleased
releasedininthe
thefourthfourthquarter
quarterofof
2015,
2015,asascompared
comparedtotoCall
CallofofDuty:
Duty:Advanced
AdvancedWarfare,Warfare,which
whichwaswasreleased
releasedininthe
thefourthfourthquarter
quarterofof2014.
2014.
2015
2015vsvs2014
2014
The
Thedecrease
decreaseininproductproductcosts
costsforfor2015,
2015,asascompared
comparedtoto2014,
2014,waswasprimarily
primarilydue
dueto:to:• • The
Therelative
relativeincrease
increaseininrevenues
revenuescoming
comingfrom
fromthethedigital
digitalonline
onlinechannel,
channel,which
whichtypically
typicallyhave
haverelatively
relativelylower
lowerproductproduct
costs.
costs.
• • Decreased
Decreasedproductproductcosts
costsasasa aresult
resultofofthe
thedecrease
decreaseininrevenues
revenuesfrom
fromourourrelatively
relativelylower-margin
lower-marginDistribution
Distributionbusiness.
business.
The
Theincrease
increaseininsoftware
softwareroyalties,
royalties,amortization,amortization,and
andintellectual
intellectualproperty
propertylicenses
licensesrelated
relatedtotoproductproductsales
salesforfor2015,
2015,asascompared
comparedtoto
2014,
2014,waswasprimarily
primarilydue
duetotohigher
highersoftware
softwareamortizationamortizationfrom
fromthetheDestiny
Destinyfranchise.
franchise.
Cost
CostofofRevenues—Subscription,
Revenues—Subscription,Licensing,
Licensing,andandOther
OtherRevenues:
Revenues:
2016
2016vsvs2015
2015
The
Theincrease
increaseiningame
gameoperations
operationsand
anddistribution
distributioncosts
costsforfor2016,
2016,asascompared
comparedtoto2015,
2015,waswasprimarily
primarilydue
dueto:to:• • Increased
Increasedonline
onlinecosts
costsandandplatform
platformprovider
providerfees
feesassociatedassociatedwith
withrevenues
revenuesfrom
fromKing
Kingtitles
titlesincluded
includedsince
sincethetheKingKing
Closing
ClosingDate.
Date.
• • Increased
Increasedexpenditures
expenditurestotosupport
supportour
ourgrowing
growingonline
onlineactivity
activityacrossacrossour
ourexisting
existingand
andnew
newtitles.
titles.
The
Theincrease
increaseininsoftware
softwareroyalties,
royalties,amortization,amortization,and
andintellectual
intellectualproperty
propertylicenses
licensesrelated
relatedtotosubscription,
subscription,licensing,
licensing,and
andotherotherrevenues
revenuesfor
for2016,
2016,asascompared
comparedtoto2015,
2015,waswasprimarily
primarilydue
duetotothe
theamortizationamortizationofofinternally-developed
internally-developedfranchisefranchiseintangible
intangibleassets
assetsacquiredacquiredininthe
theKing
KingAcquisition.
Acquisition.This
Thisincrease
increasewas
waspartiallypartiallyoffset
offsetbybylower
lowersoftware
softwareamortizationamortizationfrom
fromHeroes
Heroesofofthe
theStorm,
Storm,asasit itwaswasreleased
releasedininJune
June2015.
2015.
2015
2015vsvs2014
2014
The
Theincrease
increaseiningame
gameoperations
operationsand
anddistribution
distributioncosts
costsforfor2015,
2015,asascompared
comparedtoto2014,
2014,waswasprimarily
primarilydue
duetotoincreased
increasedonline
onlinecosts
costsand
andplatform
platformprovider
providerfees
feesassociatedassociatedwith
withrevenues
revenuesfrom
fromHearthstone,
Hearthstone,which
whichwaswasreleased
releasedononiPhone
iPhoneandandAndroid
Androidsmartphones
smartphonesininApril
April
2015.
2015.
The
Theincrease
increaseininsoftware
softwareroyalties,
royalties,amortization,amortization,and
andintellectual
intellectualproperty
propertylicenses
licensesrelated
relatedtotosubscription,
subscription,licensing,
licensing,and
andotherotherrevenues
revenuesfor
for2015,
2015,asascompared
comparedtoto2014,
2014,waswasprimarily
primarilydue
duetotosoftware
softwareamortizationamortizationfrom
fromHeroes
Heroesofofthe
theStorm,
Storm,asasit itwas
wasreleased
releasedinin
June
June2015.
2015.
Product
ProductDevelopment
Development(amounts(amountsininmillions)millions)

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

Year
Year
Ended
Ended
%%ofof
Year
Year
Ended
Ended
%
Year
Year
Ended
Ended
%%
%ofof
of
Increase
Increase
Increase
Increase
Year
Ended
%%of
ofof
Year
Ended
Increase
December
December31,
31, consolidated
consolidated December
December31,
31, consolidated
consolidated December
December31,
31, consolidated
consolidated (Decrease)(Decrease)
December
31,
consolidated
December
31,
consolidated(Decrease) (Decrease)(Decrease)
2016
2016
net
net
revenues
revenues
2015
2015
net
net
revenues
revenues
2014
2014
net
net
revenues
revenues
2016
2016
v
2015
v
2015
2015
vv 20142015v 20142016
net revenues
2014
net revenues
2015
2014

$$ $

958
958
958

14%
14% $$ $
14%

646
646
646

14%
14% $$$
14%

571
571
571

13%
13% $$$
13%

2016
2016vsvs2015
2015
The
Theincrease
increaseininproductproductdevelopment
developmentcosts
costsforfor2016,
2016,asascompared
comparedtoto2015,
2015,waswasprimarily
primarilydue
dueto:to:• • ProductProductdevelopment
developmentcosts
costsassociatedassociatedwith
withKing’s
King’stitles.
titles.
• • Increased
Increasedproductproductdevelopment
developmentcosts
costsfor
forActivision
Activisionand
andBlizzard’s
Blizzard’scurrent
currentand
andupcoming
upcomingreleases.
releases.

21

20

312
312 $ $

7575
75

Product development .

Year Ended
December 31,
2016

$

958

% of
consolidated
net revenues

Year Ended
December 31,
2015

14%

$

% of
consolidated
net revenues

646Year Ended
December 31,
2014

14%

$

% of
consolidated
net revenues

571

Increase(Decrease)2016 v 201513% $Increase(Decrease)2015 v 2014

312 $

75

2016 vs 2015
The increase in product development costs for 2016, as compared to 2015, was primarily due to:•

Product development costs associated with King’s titles.

•

Increased product development costs for Activision and Blizzard’s current and upcoming releases.

2015 vs 2014

21
The increase in product development costs for 2015, as compared to 2014, was 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.

Sales and Marketing (amounts in millions)

Sales and marketing...

Year Ended
December 31,
2016

$

1,210

% of
consolidated
net revenues

Year Ended
December 31,
2015

18% $

734

% of
consolidated
net revenues

Year Ended
December 31,
2014

16% $

712

% of
consolidated
net revenues

16%

Increase(Decrease)2016 v 2015$

476

Increase(Decrease)2015 v 2014$22

2016 vs 2015
The increase in sales and marketing expenses for 2016, as compared to 2015, was primarily due to:•

Amortization of the customer base intangible assets acquired in the King Acquisition.

•

Sales and marketing spending to support King’s titles and new launches, including Candy Crush Jelly Saga and Farm
Heroes Super Saga.

•

Sales and marketing spending to support Blizzard’s new title, Overwatch.

The increase was partially offset by lower sales and marketing expenditures on Guitar Hero Live and the Destiny franchise given thetiming of game launches.
2015 vs 2014
The increase in sales and marketing expenses for 2015, as compared to 2014, was primarily due to increased spending on sales andmarketing activities to support the launches of Guitar Hero Live and Heroes of the Storm during the year. The increase was partially
offset by lower media spending on the World of Warcraft, Destiny, and Diablo franchises due to the timing of title releases.
General and Administrative (amounts in millions)

General andadministrative...

Year Ended
December 31,
2016

$

634

% of
consolidated
net revenues

10%

Year Ended
December 31,
2015

$

380

% of
consolidated
net revenues

8%

Year Ended
December 31,
2014

$

% of
consolidated
net revenues

417

9%

Increase(Decrease)2016 v 2015$

254

Increase(Decrease)2015 v 2014

$

(37)

2016 vs 2015
The increase in general and administrative expenses for 2016, as compared to 2015, was primarily due to:•King’s general and administrative costs, which are included from the King Closing Date.

•

Higher Blizzard personnel costs due to segment performance bonuses and increased headcount to support the growth of
the Blizzard business.

•

Higher professional and transaction-related fees due to the King Acquisition, which closed on February 23, 2016.

•

Lower foreign currency transaction and derivative contract gains.

2015 vs 2014
The decrease in general and administrative expenses for 2015, as compared to 2014, was primarily due to realized and unrealized
gains from our foreign currency derivative contracts and lower share-based compensation expense. This decrease was partially offset
by increased professional service fees incurred, primarily in connection with the King Acquisition.
21
Interest and Other Expense (Income), Net (amounts in millions)•Higherprofessional
and transaction-related
fees due
todue
the toKingwhich whichclosedclosed
on February
23, 2016.
• Higherprofessional
and transaction-related
fees
the Acquisition,
King Acquisition,
on February
23, 2016.

•

Lower
foreignforeign
currencytransaction
and derivative
contract
gains. gains.
• Lowercurrencytransaction
and derivative
contract2015 vs2014
2015
vs 2014The decreasein generaland administrative
expensesfor 2015,
as compared
to 2014,
was primarily
due todue
realized
and unrealized
The decreasein generaland administrative
expensesfor 2015,
as compared
to 2014,
was primarily
to realized
and unrealized
gains fromforeigncurrency
derivative
contracts
and lowershare-based
compensation
expense.
This decrease
was partially
offset offset
gainsourfrom
our foreign
currency
derivative
contracts
and lowershare-based
compensation
expense.
This decrease
was partiallyby increased
professional
serviceservice
fees incurred,
primarily
in connection
with theKingby increased
professional
fees incurred,
primarily
in connection
with
the Acquisition.
King Acquisition.
Interest
and Other
Expense(Income),Net (amounts
in millions)Interest
and Other
Expense(Income),Net (amounts
in millions)% of % of% of % ofconsolidated
consolidated
Year EndedYear EndedYear EndedYear Ended
consolidated
Year Ended
consolidated
Year Ended% of % of Increase
IncreaseIncrease
Increase
December31,
31,
31, consolidated(Decrease)(Decrease)
December
31,netnetDecember
December
31,netnetDecember
December31, consolidated(Decrease)(Decrease)2016 2016 revenues
2016 v 2015
2015 v 2014
revenues 2015 2015 revenues
revenues 2014 2014net revenues
net revenues
2016 v 2015
2015 v 2014

Interest
and other
Interest
and other
expense(income),net
expense(income),net.........

$

214

22
198 22

3% $

4% $

202

5%

$

16 $

(4)

2016
vs 20152016 vs2015
The increase
in interest
and expense,
other expense,net,
for 2016,
as compared
to 2015,
was primarily
to interest
expenseassociated
The increase
in interest
and othernet, for2016,
as compared
to 2015,
was primarily
due todueinterest
expenseassociatedwith with
the$2.3
newbillion$2.3 billion
trancheofloans
term loans“A”werethat incurred
were incurredin connection
with
the Acquisition.
King Acquisition.
This increase
was partiallythe new
trancheof term“A” thatin connection
with theKing
This increase
was partiallyby lowerinterest
expenseour term
priorloan
termbecauseloan becauseof voluntary
prepayments
the principal
we madethroughout
offset offset
by lowerinterest
expenserelatedrelated
to ourtopriorof voluntary
prepaymentson theonprincipal
we madethroughout
withthe term
priorloan
termbeingloan being
fully extinguishedin September
to “Liquidity
and Capital
Resources”
as2016, 2016,
with theprior
fully extinguishedin September
2016. 2016.
Refer Refer
to “Liquidity
and Capital
Resources”
belowbelow
asincludedthis Annual
for additional
discussion
regardingouractivities.
debt activities.
includedin thisinAnnual
ReportReportfor additional
discussion
regardingour debt
2015
vs 20142015 vs2014
Interest
and expense,
other expense,net,
for was2015comparable
was comparable
to 2014.
Interest
and othernet, for2015
to 2014.
IncomeTax Expense(Benefit)(amounts
in millions)
IncomeTax Expense(Benefit)(amounts
in millions)Year Ended% of % ofYear EndedYear Ended% of % ofYear EndedYear Ended% of % of Increase
Increase Increase
Increase
Year Ended
December
31,
December
31,
December
31,(Decrease) (Decrease)(Decrease)
December31,
Pretax Pretax
December31,
Pretax Pretax
December31,
Pretax Pretax(Decrease)2016 2016 incomeincome 2015 2015 incomeincome 2014 2014 incomeincome
2016 v 20162015 v 20152015 v 20152014 v 2014

Incometax expense
Incometax expense......... ......... $$ 140 14013% 13%$$

229 22920% 20%$$$ (89) (89)146 14615% 15%
$
$

$

83

83

For
the years
December31, 2016,
20152014,
and 2014,
the Company’s
incomeincometax expense
was $1,106
million,For theyears
endedended
December31, 2016,
2015 andthe Company’s
incomebeforebefore
incometax expense
was $1,106
million,million,and million,$981 million,
respectively,
andincomeour income
tax expense
was million$140 million(or aeffective
13% effective
tax rate),$1,121$1,121
million,and $981
respectively,
and ourtax expense
was $140(or a 13%
tax rate),$229 million(or aeffective
20% effective
tax rate),and million$146 million(or aeffective
15% effective
tax rate),
respectively.
Overall,our effective
tax rate$229 million(or a 20%
tax rate),and $146(or a 15%
tax rate),
respectively.
Overall,our effective
tax ratefromthestatutory
U.S. statutory
taxofrateof 35%,
primarily
to earnings
at relatively
rates
in foreign
jurisdictions,differsdiffersfrom theU.S.
tax rate
35%,
primarily
due todue
earnings
taxed taxed
at relatively
lower lower
rates inforeignjurisdictions,recognitionof excesstax benefits
from shared-based
payments(as discussed
below),
recognition
the researchrecognitionof excesstax benefits
from shared-based
payments(as discussed
furtherfurther
below),
recognitionof theof
research
and anddevelopment(“R&D”)
credits,
partially
by changes
the Company’s
liability
for uncertain
tax positions.
development(“R&D”)
credits,
partially
offset offset
by changes
in the inCompany’s
liability
for uncertain
tax positions.
In and20162015,
and 2015,
ourincomeU.S. income
incometax expense
was million$228 million
and million,$355 million,
respectively,
and comprised
In 2016
our U.S.
beforebefore
incometax expense
was $228
and $355
respectively,
and comprised
21% 21%and 32%,
respectively,
our consolidated
incomeincometax expense.
In and20162015,
and 2015,
our foreign
incomeincomeand 32%,
respectively,of ourofconsolidated
incomebeforebefore
incometax expense.
In 2016
our foreign
incomebeforebefore
incometax expense
was million$878 million
and million,$766 million,
respectively,
and comprised
79%68%,
and 68%,respectively,
our consolidated
incometax expense
was $878
and $766
respectively,
and comprised
79% andrespectively,of ourofconsolidated
incomeincometax expense.
beforebefore
incometax expense.
In and20162015,
and 2015,
earnings
at lowerrates
in foreign
jurisdictions,as compared
to domestic
earnings
thefederal
U.S. federal
In 2016
earnings
taxed taxed
at lowerrates inforeignjurisdictions,as compared
to domestic
earnings
taxed taxed
at the atU.S.
statutory
taxlowered
rate, lowered
our effective
taxbyrate
22 percentage
20 percentage
respectively.
The increasestatutory
tax rate,
our effective
tax rate
22 bypercentage
pointspoints
and 20and
percentage
points,points,
respectively.
The increasein the in theforeignrate differential
the overall
increasein foreign
income,is taxed
at relatively
rates
in proportion
foreignrate differential
is dueistodue
the tooverallincreasein foreign
income,whichwhich
is taxed
at relatively
lower lower
rates inproportion
to U.S.to U.S.
income.
income.
In and20152014,
and 2014,
earnings
at lowerrates
in foreign
jurisdictions,as compared
to domestic
earnings
thefederal
U.S. federal
In 2015
earnings
taxed taxed
at lowerrates inforeignjurisdictions,as compared
to domestic
earnings
taxed taxed
at the atU.S.
statutory
taxlowered
rate, lowered
our effective
taxbyrate
20 percentage
25 percentage
respectively.
The decreasestatutory
tax rate,
our effective
tax rate
20 bypercentage
pointspoints
and 25andpercentage
points,points,
respectively.
The decreasein the in theforeignrate differential
to overall
increasein foreign
incomein higher
statutory
rate jurisdictions,as compared
the year.
prior year.
foreignrate differential
is dueistodue
overallincreasein foreign
incomein higher
statutory
rate jurisdictions,as comparedto the toprior
The overall
effective
incometaxinrate
in future
periods
will depend
on a variety
of factors,
such
as changes
theofmixof incomeThe overall
effective
incometax rate
futureperiods
will depend
on a variety
of factors,
such aschangesin the inmix
incomeby taxby tax
jurisdiction,
applicableaccounting
applicabletaxandlawsregulations,and regulations,and rulings
and interpretations
thereof,developmentsinjurisdiction,
applicableaccounting
rules, rules,
applicable
tax laws
and rulings
and interpretations
thereof,developmentsintax audits
and matters,other matters,and variations
the estimatedand actual
levelof annualpre-tax
incomeorFurther,loss. Further,
the effective
tax audits
and otherand variationsin the inestimated
and actuallevel ofannualpre-tax
incomeor loss.
the effective
tax tax
rate could
fluctuate
significantly
on a quarterly
basiscould
and could
be adversely
affected
the extent
that income
incomerate could
fluctuate
significantly
on a quarterly
basis andbe adversely
affectedby theby
extentthat income(loss) (loss)
beforebefore
incometax expenses(benefit)
is lowerthan anticipatedin foreign
regions,taxes
are levied
at relatively
statutory
tax expenses(benefit)
is lowerthan anticipatedin foreign
regions,
wherewhere
taxes areleviedat relatively
lower lower
statutory
rates, rates,
and/orand/or
than anticipatedthe Unitedtaxes
are levied
at relatively
statutory
higherhigher
than anticipatedin the inUnitedStates,States,
wherewhere
taxes areleviedat relatively
higherhigher
statutory
rates. rates.
Furtheranalysisthe differences
betweenthefederal
U.S. federal
statutory
ratetheandthe consolidated
effective
taxas
rate,
as other
Furtheranalysisof theofdifferences
betweenthe U.S.
statutory
rate andconsolidated
effective
tax rate,wellasaswell
other
information
our income
is provided
in 15
Note
the notes
to consolidated
financialstatements
includedthis Annual
information
about about
our income
taxes,taxes,
is provided
in Note
of 15
theof
notes
to consolidated
financialstatements
includedin thisinAnnual
Report.
Additionally,see “Recently
Accounting
Pronouncements”
for discussion
our adoption
early adoptionof aaccounting
new accounting
Report.
Additionally,see “Recently
IssuedIssued
Accounting
Pronouncements”
for discussion
on ouronearlyof a newstandard
to share-based
payments
that requires
all excess
tax benefits
andtax deficiencies
to be recorded
as an income
standard
relatedrelated
to share-based
payments
that requiresthat allthat
excesstax benefits
and tax
deficiencies
to be recorded
as an income
tax tax
expenseor benefit
the consolidated
statementof operations.
As a result,
we recognized$81 million
as a reduction
to incomeexpenseor benefit
in the inconsolidated
statementof operations.
As a result,
we recognized$81 million
as a reduction
to incometax tax
expensein 2016.
Conversely,in and20152014,
and 2014,$65 million
andmillion,$30 million,
respectively,
were credited
to shareholders’expensein 2016.
Conversely,in 2015$65 million
and $30
respectively,
were credited
to shareholders’equity.equity.
Foreign
Exchange
ImpactForeign
Exchange
Impact22 million,
Changesin foreignexchange
ratesa had
a positive$10
a negativeof million,$242 million,a negativeof
Changesin foreignexchange
rates hadpositive
impactimpactof $10ofmillion,a negative
impactimpactof $242and a andnegative
impactimpactof$8 million
on Activision
Blizzard’s
consolidated
operatingincomein 2016,
20152014,
and 2014,
respectively.
The changes
are primarily$8 million
on Activision
Blizzard’s
consolidated
operatingincomein 2016,2015 and
respectively.
The changes
are primarily
to changes
the value
thedollar
U.S. dollar
relative
theandeuroBritish
and British
its impact
our foreign
operatingincome.
due toduechangesin the invalueof theof
U.S.
relativeto the toeuropoundpoundand itsand
impacton ouronforeign
operatingincome.

Report. Additionally, see “Recently Issued Accounting Pronouncements” for discussion on our early adoption of a new accounting
standard related to share-based payments that requires that all excess tax benefits and tax deficiencies to be recorded as an income tax
expense or benefit in the consolidated statement of operations. As a result, we recognized $81 million as a reduction to income tax
expense in 2016. Conversely, in 2015 and 2014, $65 million and $30 million, respectively, were credited to shareholders’ equity.
Foreign Exchange Impact
Changes in foreign exchange rates had a positive impact of $10 million, a negative impact of $242 million, and a negative impact of$8 million on Activision Blizzard’s consolidated operating income in 2016, 2015 and 2014, respectively. The changes are 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.
Liquidity
andCapitalResources
Liquidity
andCapitalResourcesWe
believeabilitygenerate
cash
flows
from
operatingactivities
one
fundamental
financialstrengths.
near
term,
We
believeourourabilityto togenerate
cash
flows
from
operatingactivities
is is
one
ofof
ourourfundamental
financialstrengths.
InIn
thethenear
term,
expectbusinessremainstrongandcontinue
generatesignificant
operatingcash
flows.
Our
primarysourcesofliquidity,
wewe
expectourourbusinessto toremainstrongandto tocontinue
to togeneratesignificant
operatingcash
flows.
Our
primarysourcesofliquidity,
23 dividend payments, share repurchases and scheduled debt
which
available
fund
cash
outflows
suchanticipatedwhichareareavailable
to to
usus
to to
fund
cash
outflows
such
as as
ourouranticipateddividend payments, share repurchases and scheduled debt
maturities,
include
cash
and
cash
equivalents,
shortandlong-term
investments,
and
cash
flows
provided
operatingactivities.
maturities,
includeourour
cash
and
cash
equivalents,
shortandlong-term
investments,
and
cash
flows
providedbyby
operatingactivities.
With
cash
and
cash
equivalents
andshort-term
investments$3.3
billionDecember
2016,
andexpected
cash
flows
With
ourour
cash
and
cash
equivalents
andshort-term
investments
ofof
$3.3
billionat at
December
31,31,
2016,
andthetheexpected
cash
flows
provided
operatingactivities,
believethathavesufficientliquidity
meet
daily
operations
foreseeable
future.
providedbyby
ourouroperatingactivities,
wewe
believe
that
wewe
have
sufficientliquidity
to to
meet
daily
operations
forforthetheforeseeable
future.
We
alsobelievethathavesufficientworking
capital($2.2
billionDecember
2016)
finance
operational
andfinancingWealso
believe
that
wewe
have
sufficientworking
capital($2.2
billionat at
December
31,31,
2016)
to tofinanceourouroperational
andfinancingrequirements
least
next
twelvemonths.
Additionally,
have
availability
a $250
millionrevolvingcreditfacility.
requirements
forforat at
leastthethenext
twelvemonths.
Additionally,
wewe
have
thetheavailability
ofof
a $250
millionrevolvingcreditfacility.
December2016,
amount
cash
and
cash
equivalents
heldoutsideU.S.
foreignsubsidiaries
was
AsAs
of of
December
31,31,
2016,
thetheamount
of of
cash
and
cash
equivalents
heldoutsideofofthetheU.S.
byby
ourourforeignsubsidiaries
was$1.9
billion,compared$0.5
billionDecember
2015.
cash
and
cash
equivalents
heldoutsideU.S.
needed
$1.9
billion,as ascompared
to to$0.5
billionas as
of of
December
31,31,
2015.
If Ifthethe
cash
and
cash
equivalents
heldoutsideofofthetheU.S.
areareneededfutureoperations
U.S.,
would
accrueandpayrequiredU.S.
taxes
repatriate
thesefunds.
However,ourin inthethefutureforforourouroperations
in inthethe
U.S.,
wewe
would
accrueandpaythetherequired
U.S.
taxes
to to
repatriate
thesefunds.
However,ourintentpermanently
reinvest
these
funds
outsideU.S.
andcurrent
plans
demonstrate
a needrepatriate
themintentis is
to topermanently
reinvest
these
funds
outsideof ofthetheU.S.
andourourcurrent
plans
dodo
notnotdemonstrate
a needto torepatriate
them
to to
fund
U.S.
operations.
fundourourU.S.
operations.
Furthermore,
cash
providedfromoperatingactivities
somewhat
impactedseasonality.
Working
capitalneeds
impacted
Furthermore,
ourourcash
providedfromoperatingactivities
is issomewhat
impactedbyby
seasonality.
Working
capitalneeds
areareimpacted
byby
weeklysales,
which
generally
highestfourthquarterdue
seasonal
andholiday-related
sales
patterns.
a continuing
weeklysales,
whicharearegenerally
highestin inthethefourthquarterdue
to toseasonal
andholiday-related
sales
patterns.
OnOn
a continuingbasis,
considervarioustransactions
increaseshareholder
value
and
enhancebusinessresults,
includingacquisitions,basis,
wewe
considervarioustransactions
to toincreaseshareholder
value
and
enhanceourourbusinessresults,
includingacquisitions,divestitures,
joint
ventures,share
repurchases,
and
other
structuralchanges.
Thesetransactions
may
resultfuturecash
proceeds
divestitures,
joint
ventures,share
repurchases,
and
other
structuralchanges.
Thesetransactions
may
resultin infuturecash
proceeds
oror
payments.
payments.
SourcesLiquidity(amounts
millions)
Sourcesof ofLiquidity(amounts
in inmillions)
For
Years
Ended
For
thetheYears
Ended
December
December
31,31,
2016
2016

and cashequivalents..........................................................................
3,245
Cash
and cashequivalents.................................................................................................
$$
3,245. $ $-term investments...............................................................................
13......
Short-term
investments......................................................................................................
13
3,258
$$
3,258 $ $Percentage
of total
assets............................................................................
...
1 %Percentage
of total
assets...................................................................................................
19%

Cash
flows
provided
operatingactivities.......................
Cash
flows
providedbyby
operatingactivities....................
Cash
flows
used
investingactivities...............................
Cash
flows
used
in in
investingactivities............................
Cash
flows
provided(usedfinancing
activities
Cash
flows
providedbyby(usedin)in)
financing
activities.............
Effectforeignexchangeratechanges.............................
Effectof offoreignexchangeratechanges..........................
Net
increase(decrease)
cash
cash
equivalents
Net
increase(decrease)
in in
cash
andandcash
equivalents...............

$$

2016
2016

2015
2015

Increase
Increase(Decrease)(Decrease)2016v 20152016v 2015

1,823 $ $88
1,831 $ $
1,831
12%
12%

Years
Ended
December
ForForthetheYears
Ended
December
31,31,
Increase
Increase(Decrease)(Decrease)2016v 2015
2015
2014
2016
v 20152015
2014

2,155 $ $ 1,259
1,259 $ $2,155
(1,177)(3,716)(1,177)(3,716)
500
(202)
500
(202)
(56)
(366)
(56)
(366)
1,422$ $ (3,025)(3,025) $ $$ $ 1,422

1,331 $ $
1,331
(84)
(84)
(413)
(413)
(396)
(396)
438 $ $
438

1,422
1,422
55
1,427
1,427

Increase
Increase(Decrease)(Decrease)2015
v 20142015v 2014896 $ $
896
2,539
2,539
702
702
310
310
4,447$ $
4,447

(72)
(72)
(3,632)(3,632)
211
211
3030
(3,463)(3,463)

Cash
Flows
ProvidedOperating
Activities
Cash
Flows
Provided
byby
Operating
Activities
The
primary
driverscash
flows
associatedwith
operatingactivities
includecollection
customerreceivables
generatedThe
primary
drivers
of of
cash
flows
associatedwithourouroperatingactivities
includethethecollection
ofof
customerreceivables
generatedfromsaleproducts
andservices.
These
collections
typically
partially
offsetpayments
vendorsfromthethesaleof ofourourproducts
andservices.
These
collections
arearetypically
partially
offsetby:by:
payments
to tovendors
forforthethemanufacturing,
distribution,andmarketingproducts;
payments
customer
servicesupportconsumers;
payments
manufacturing,
distribution,andmarketingof ofourourproducts;
payments
forforcustomer
servicesupportforforourourconsumers;
payments
to tothird-party
developers
andintellectual
property
holders;
payments
interest
debt;
payments
softwaredevelopment;
third-party
developers
andintellectual
property
holders;
payments
forforinterest
onon
ourourdebt;
payments
forforsoftwaredevelopment;
payments
liabilities;
andpayments
workforce.
payments
forfortaxtaxliabilities;
andpayments
to toourourworkforce.
2016
2015
2016
vsvs
2015
Cash
flows
provided
operatingactivities
2016
were
$2.16
billion,compared$1.26
billion2015.
The
increase
was
Cash
flows
providedbyby
operatingactivities
forfor
2016
were
$2.16
billion,asas
compared$1.26
billionforfor2015.
The
increase
was
primarilydueprimarily
due
to:to:
New
operating
cash
flows
contributedKing.
• • New
operating
cash
flows
contributed
byby
King.
Higherincome2016,
compared
2015,
along
with
largeradjustments
incomenon-cashcharges,• • Higher
netnetincome
in in
2016,
as as
compared
to to
2015,
along
with
largeradjustments
to tonetnetincomeforfornon-cashcharges,primarily
associatedwithamortizationacquiredintangibles
King
Acquisition,higherstock
primarily
associatedwiththetheamortization
of ofthetheacquiredintangibles
in inthetheKing
Acquisition,higherstock
compensation
expensedue
convertedawardsKing
personnel
acquisition,
and
other
non-cashcompensation
expensedue
to toconvertedawardsforforKing
personnel
in inthetheacquisition,
and
other
non-cashoror
non-operating
costs
associatedwithdebt-related
activities
duringyear.
non-operating
costs
associatedwithourourdebt-related
activities
duringthethe
year.
23
Cash
flows
provided
operatingactivities
year
ended
December2016
included$209
millioninterest
paid
our
Cash
flows
providedbyby
operatingactivities
forforthetheyear
ended
December
31,31,
2016
included$209
millionofof
interest
paid
onon
our

from the sale of our products and services. These collections are typically partially offset by: payments to vendors for the
manufacturing, distribution, and marketing of our products; payments for customer service support for our consumers; payments tothird-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.
2016 vs 2015
Cash flows provided by operating activities for 2016 were $2.16 billion, as compared $1.26 billion for 2015. The increase wasprimarily due to:•

New operating cash flows contributed by King.

•

Higher net income in 2016, as compared to 2015, along with larger adjustments to net income for non-cash charges,
primarily associated with the amortization of the acquired intangibles in the King Acquisition, higher stockcompensation expense due to converted awards for King personnel in the acquisition, and other non-cash or
non-operating costs associated with our debt-related activities during the year.

Cash flows provided by operating activities for the year ended December 31, 2016 included $209 million of interest paid on ouroutstanding debt, as compared to $193 million paid in 2015.
242015 vs 2014

Cash flows provided by operating activities for 2015 were $1.26 billion, as compared to $1.33 billion for 2014. The decrease wasprimarily due to changes in operating assets and liabilities, driven by the 2014 cash flows benefiting from a substantial increase inrevenues that were deferred. The decrease was partially offset by higher net income in 2015, as compared to 2014, along with larger
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 $193 million of interest paid on ouroutstanding debt, as compared to $201 million paid in 2014.
Cash Flows Used in Investing Activities
The primary drivers of cash flows associated with investing activities typically include capital expenditures, changes in restricted cash
balances, and cash used for acquisitions.
2016 vs 2015
Cash flows used in investing activities for 2016 were $1.18 billion, as compared to $3.72 billion for 2015. The lower amount of cashused in investing activities in 2016 was primarily due to a 2015 cash outflow of $3.6 billion for cash placed into escrow to facilitate
the King Acquisition. In 2016, when we acquired King, the cash in escrow became a cash inflow. As a result, in 2016 we had a$2.2 billion cash outflow for the King Acquisition in excess of the cash already in escrow, net of $1.15 billion of cash acquired fromKing.
2015 vs 2014
Cash flows used in investing activities for 2015 were $3.72 billion, as compared to $82 million used in 2014. The higher amount ofcash used in investing activities in 2015 was primarily due to the $3.6 billion of cash deposited in escrow to facilitate the King
Acquisition, as well as the cash used to acquire Major League Gaming in the fourth quarter of 2015.
Cash Flows Provided by (Used in) Financing Activities
The primary drivers of cash flows used in financing activities typically include the proceeds from, and repayments of, our long-term
debt and transactions involving our common stock, including the issuance of shares of common stock to employees upon the exercise
of options, as well as the payment of dividends.
2016 vs 2015
Cash flows provided by financing activities for 2016 were $500 million, as compared to cash flows used in financing activities of$202 million for 2015. The difference was primarily due to $6.9 billion of proceeds received from the following debt issuances in2016:•

Issuance of a $2.3 billion tranche of term loans “A” on February 23, 2016 to fund the King Acquisition.

•

Issuance of an additional $250 million tranche of term loans “A” on March 31, 2016.

•

Issuance of a new unsecured $2.9 billion tranche of term loans “A” in connection with the fifth amendment to our credit
agreement on August 23, 2016.

•

Issuance of $650 million of 2.3% unsecured senior notes due September 2021 on September 19, 2016.

•

Issuance of $850 million of 3.4% unsecured senior notes due September 2026 on September 19, 2016.

These issuances were partially offset by:•

24
Repayments of $1.9 billion to extinguish our term loan outstanding at December 31, 2015 (the “Original Term Loan”).

•Issuance of $650 million of 2.3% unsecured senior notes due September 2021 on September 19, 2016.

•

Issuance of $850 million of 3.4% unsecured senior notes due September 2026 on September 19, 2016.

These issuances were partially offset by:•

Repayments of $1.9 billion to extinguish our term loan outstanding at December 31, 2015 (the “Original Term Loan”).

•

Repayments of $2.5 billion in connection with the refinancing of our tranche of term loans “A” that were provided in thefirst quarter of 2016.

•

Repayments of $185 million on our new tranche of term loans “A” that were provided on August 23, 2016, which
included $167 million of voluntary prepayments, as compared to the $250 million partial repayment of our Original
Term Loan in 2015.

•

Cash payment to redeem our 5.625% unsecured senior notes due September 2021 (the “Original 2021 Notes”) of$1.5 billion, as well as the associated $63 million premium.

•

25
Higher cash dividend payments made during 2016, as compared to 2015.

Cash flows used in financing activities for 2015 also included proceeds of $202 million received in the settlement of the litigation
related to the Purchase Transaction. There were no such proceeds received in 2016.
2015 vs 2014
Cash flows used in financing activities for 2015 were $202 million, as compared to $413 million for 2014. The lower amount of cash
flows used in financing activities was primarily due to:•Proceeds of $202 million received in the settlement of the litigation related to the Purchase Transaction.

•

A lower partial repayment of our Original Term Loan during 2015 of $250 million, as compared to the $375 million
partial repayment of our Original Term Loan during 2014.

These decreases were partially offset by:•

Lower proceeds from stock options exercised by our employees during 2015 than during 2014.

•

Higher cash dividend payments made during 2015, as compared to 2014.

Effect of Foreign Exchange Rate Changes
Changes in foreign exchange rates had negative impacts of $56 million, $366 million, and $396 million on our cash and cash
equivalents for the years ended December 31, 2016, 2015, and 2014, respectively. The change is primarily due to changes in the valueof the U.S. dollar relative to the Euro and British pound.
Debt
As of December 31, 2016, our total outstanding debt was $4.9 billion, bearing interest at a weighted average rate of 2.92%, ascompared to $4.1 billion at December 31, 2015, bearing interest at a weighted average rate of 4.63%. During 2016, we had thefollowing significant debt activities:•

Entered into three amendments to our credit agreement to provide for a $2.3 billion tranche of term loans “A” on
February 23, 2016, to fund the King Acquisition.

•

Entered into a fourth amendment to our credit agreement on March 31, 2016, to provide for an additional tranche of termloans “A” in the amount of $250 million (together with the $2.3 billion tranche of term loans “A”, the “Original TLA”).

•

Made voluntary principal prepayments on the remaining balance of our Original Term Loan of $500 million,$250 million, and $800 million on February 25, March 31, and May 26, 2016, respectively, to reduce the remaining
outstanding principal balance to $319 million.

•

On August 23, 2016, entered into a fifth amendment to our credit agreement to provide for (1) a new unsecured
tranche of term loans “A” of approximately $2.9 billion (the “2016 TLA”), the proceeds of which were primarily used toextinguish the remaining outstanding principal balances of $319 million on the Original Term Loan and $2.5 billion on
the Original TLA, resulting in a write-off of unamortized discount and deferred financing costs of $10 million, and (2) a
new unsecured revolving credit facility of $250 million.

•

On September 19, 2016, issued $650 million of 2.3% unsecured senior notes due September 2021 (the “New 2021
Notes”) and $850 million of 3.4% unsecured senior notes due September 2026 (the “2026 Notes” and, together with the
New 2021 Notes, the “New Notes”).

•

On October 19, 2016, using the proceeds from the New Notes, redeemed the Original 2021 Notes in full for $1.6 billion,
25
which resulted in a loss on extinguishment of approximately$82 million, comprised of a premium payment of$63 million and a write-off of unamortized discount and deferred financing costs of $19 million.

tranche of term loans “A” of approximately $2.9 billion (the “2016 TLA”), the proceeds of which were primarily used toextinguish the remaining outstanding principal balances of $319 million on the Original Term Loan and $2.5 billion on
the Original TLA, resulting in a write-off of unamortized discount and deferred financing costs of $10 million, and (2) a
new unsecured revolving credit facility of $250 million.
•

On September 19, 2016, issued $650 million of 2.3% unsecured senior notes due September 2021 (the “New 2021
Notes”) and $850 million of 3.4% unsecured senior notes due September 2026 (the “2026 Notes” and, together with the
New 2021 Notes, the “New Notes”).

•

On October 19, 2016, using the proceeds from the New Notes, redeemed the Original 2021 Notes in full for $1.6 billion,
which resulted in a loss on extinguishment of approximately $82 million, comprised of a premium payment of$63 million and a write-off of unamortized discount and deferred financing costs of $19 million.

•

On September 30, 2016, in addition to the required quarterly repayment of $18 million, made a voluntary prepayment on
our 2016 TLA of $167 million. These payments satisfied the required quarterly principal repayments throughDecember 31, 2018.

As a result of the above activities, a summary of our debt as of December 31, 2016, is as follows (amounts in millions):
Gross
Gross
Carrying
Carrying
AmountAmountDecember 31, 2016
Unamortized
Unamortized
Discount
Discountand
andDeferredDeferredFinancing
FinancingCosts
Costs

Net
Net
Carrying
Carrying
AmountAmountGross
Gross
Carrying
Carrying
AmountAmountDecember
December31,
31,20152015
Unamortized
Unamortized
Discount
Discountand
andDeferredDeferredFinancing
FinancingCosts
Costs

Net
Net
Carrying
Carrying
AmountAmount26
2016
2016TLA
TLA...........................................................................................................
...........................................................................................................
New
New20212021Notes
Notes.................................................................................................
.................................................................................................
2023
2023Notes
Notes.........................................................................................................
.........................................................................................................
2026
2026Notes
Notes.........................................................................................................
.........................................................................................................
Total
Totaldebt
debt...........................................................................................................
...........................................................................................................

$$ 2,690
2,690 $$
650
650
750
750
850
850
$$ 4,940
4,940 $$

(27)(27) $$
(5)
(5)
(11)
(11)
(10)
(10)
(53)
(53) $$

2,663
2,663
645
645
739
739
840
840
4,887
4,887

AAsummarysummaryofofour
ourdebt
debtasasofofDecember
December31,
31,2015,
2015,isisasasfollows
follows(amounts(amountsininmillions):
millions):

Original
OriginalTerm
TermLoan
Loan.........................................................................................
.........................................................................................
Original
Original2021
2021Notes
Notes........................................................................................
........................................................................................
2023
2023Notes
Notes......................................................................................................
......................................................................................................
Total
Totallong-termlong-termdebt
debt........................................................................................
........................................................................................

$$
$$

1,869
1,869 $$
1,500
1,500
750
750
4,119
4,119 $$

(11)(11) $$
(22)
(22)
(12)
(12)
(45)
(45) $$

1,858
1,858
1,478
1,478
738
738
4,074
4,074

On
OnFebruary
February3,3,2017,2017,weweenteredenteredinto
intoa asixth
sixthamendment
amendmenttotoour
ourcredit
creditagreementagreementwhich
which(i)(i)provided
providedfor
fora anew
newtranche
trancheofofterm
termloansloans“A”“A”ininananaggregate
aggregateprincipal
principalamountamountofof$2.55$2.55billion
billion(the(the“2017“2017TLA”)
TLA”)and
and(ii)(ii)released
releasedeacheachofofour
oursubsidiarysubsidiaryguarantors
guarantorsfrom
fromtheirtheirrespective
respectiveguarantee
guaranteeprovided
providedunder
underthethecredit
creditagreement.
agreement.All
Allproceeds
proceedsofofthe
the2017
2017TLA,
TLA,together
togetherwith
withadditional
additionalcash
cashfunds
fundsononhand,
hand,
were
wereused
usedtotofully
fullyprepay
prepaythe
the2016
2016TLA
TLAoutstanding
outstandingunder
underthethecredit
creditagreementagreementimmediately
immediatelypriorpriortotothe
theeffectivenesseffectivenessofofthe
thesixth
sixth
amendment,
amendment,together
togetherwith
withallallaccrued
accruedandandunpaid
unpaidinterest
interestthereon.
thereon.The
Theterms
termsofofthe
the2017
2017TLA,
TLA,otherotherthan
thanthetheabsence
absenceofofguarantees,
guarantees,
arearegenerally
generallythe
thesamesameasasthe
theterms
termsofofthe
the2016
2016TLA.
TLA.
On
OnFebruary
February2,2,2017,2017,our
ourBoard
BoardofofDirectors
Directorsauthorized
authorizedrepayments
repaymentsofofupuptoto$500$500million
millionofofour
ouroutstanding
outstandingdebt
debtduring
during2017.
2017.During
DuringFebruary
February2017,2017,we
wemademadevoluntary
voluntaryprepayments
prepaymentsononour
ourterm
termloansloansofof$500$500million,
million,inclusive
inclusiveofof$139$139million
millionused
usedtotofully
fullyprepay
prepaythe
the20162016TLA.
TLA.TheThevoluntary
voluntaryprepayment
prepaymentsatisfied
satisfiedthe
theremaining
remainingrequired
requiredquarterly
quarterlyprincipal
principalrepayments
repaymentsfor
forthetheentire
entireterm
termofofthe
theCredit
CreditAgreement.
Agreement.
Refer
RefertotoNote
Note1111ofofthe
thenotesnotestotoconsolidated
consolidatedfinancial
financialstatements
statementsincluded
includedininthis
thisAnnual
AnnualReport
Reportfor
fordisclosures
disclosuresregarding
regardingterms
termsand
and
activities
activitiesassociatedassociatedwith
withour
ourdebt
debtobligations.
obligations.
Dividends
Dividends
InInFebruary
February2,2,2017,2017,our
ourBoard
BoardofofDirectors
Directorsapproved
approveda acash
cashdividend
dividendofof$0.30$0.30perpercommon
commonshare,share,payablepayableononMay
May10,
10,2017,2017,toto
shareholders
shareholdersofofrecord
recordatatthe
theclosecloseofofbusinessbusinessononMarch
March30,
30,2017.
2017.
CapitalCapitalExpenditures
Expenditures
We
Wemademadecapital
capitalexpenditures
expendituresofof$136$136million
millioninin2016,
2016,asascompared
comparedtoto$111$111million
millioninin2015.
2015.InIn2017,2017,we
weanticipate
anticipatetotal
totalcapital
capitalexpenditures
expendituresofofapproximately
approximately$130$130million,
million,primarily
primarilyfor
forleaseholdleaseholdimprovements,
improvements,computer
computerhardware,
hardware,and
andsoftware
softwarepurchases.
purchases.
Commitments
Commitments
Refer
RefertotoNote
Note1919ofofthe
thenotesnotestotoconsolidated
consolidatedfinancial
financialstatements
statementsincluded
includedininthis
thisAnnual
AnnualReport
Reportfor
fordisclosures
disclosuresregarding
regardingour
ourcommitments.
commitments.
Off-balance
Off-balanceSheet
SheetArrangements
Arrangements
At
AtDecember
December31,
31,20162016andand2015,
2015,Activision
ActivisionBlizzard
Blizzardhad
hadnonosignificant
significantrelationships
relationshipswith
withunconsolidated
unconsolidatedentities
entitiesororfinancial
financialparties,
parties,often
oftenreferredreferredtotoasas“structured“structuredfinance”
finance”oror“special“specialpurpose”
purpose”entities,
entities,establishedestablishedfor
forthethepurpose
purposeofoffacilitating
facilitatingoff-balance
off-balancesheet
sheet
26havearrangements
arrangementsororother
othercontractuallycontractuallynarrow
narrowororlimited
limitedpurposes,
purposes,that
that
haveororare
arereasonably
reasonablylikely
likelytotohave
havea amaterialmaterialcurrent
currentororfuture
futureeffecteffectononour
ourfinancial
financialcondition,
condition,changes
changesininfinancial
financialcondition,
condition,revenues
revenuesororexpenses,
expenses,results
resultsofofoperations,operations,liquidity,liquidity,capital
capitalexpenditures,
expenditures,ororcapital
capitalresources.
resources.

Refer to Note 19 of the notes to consolidated financial statements included in this Annual Report for disclosures regarding ourcommitments.
Off-balance Sheet Arrangements
At December 31, 2016 and 2015, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties,
often referred to as “structured finance” or “special purpose” entities, established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes, that have or are reasonably likely to have a material current or future
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources.
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 policies, estimates,
and assumptions 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 and27
assumptions about the effect of matters that are inherently
uncertain. Specific risks for these critical accounting policies, estimates, and assumptions are described in the following paragraphs.
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.
Revenue Arrangements with Multiple Deliverables
Certain of our revenue arrangements have multiple deliverables, which we account for in accordance with Accounting Standards
Codification (“ASC”) Topic 605. These revenue arrangements include product sales consisting of both software, service (such as
ongoing hosting arrangements), and hardware deliverables (such as peripherals or other ancillary collectors’ items sold together withphysical “boxed” software).
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 a deliverable is based on its vendor-specificobjective evidence (“VSOE”) if it is available, third-party evidence (“TPE”) if VSOE is not available, or best estimated selling price(“BESP”) if neither VSOE nor TPE is available. In multiple element arrangements where more-than-incidental software deliverables
are included, revenue is allocated to each separate unit of accounting for each of the non-software deliverables and to the softwaredeliverables as a group using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned
selling price hierarchy. Further, if the arrangement contains more than one software deliverable, the arrangement consideration
allocated to the software deliverables as a group is then allocated to each software deliverable using the guidance 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 required using BESP for the years ended December 31, 2016, 2015, and 2014. The inputs we use to determine theselling price of our significant deliverables include the actual price charged by the Company for deliverables that the Company sells
separately (which represents VSOE) and the wholesale prices of the same or similar products for deliverables not sold separately(which represents TPE).
Product Sales
Product sales consists of sales of our games, including physical products and digital full-game downloads. We recognize revenues
from the sale of our products after both (1) title and risk of loss have been transferred to our customers and (2) all performanceobligations have been completed. With respect to digital full-game downloads, this is 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.
Product 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 that online
functionality 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 downloadable content), when it is released. Determining whether
the online functionality for a particular product 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. In addition, VSOE of fair value does not exist for the
online functionality of some products, as we do not separately charge for this component. As a result, we initially defer all of thesoftware-related revenues from the sale of any such title (including downloadable content) and recognize the revenues ratably over theestimated service period of the title. In addition, we initially defer the cost of revenues for the title and recognize the cost of revenues
27initially deferred include manufacturing costs, software royalties
as the related revenues are recognized. The cost of revenues that are
and amortization, and intellectual property licenses and exclude intangible asset amortization.

from the sale of our products after both (1) title and risk of loss have been transferred to our customers and (2) all performanceobligations have been completed. With respect to digital full-game downloads, this is 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.
Product 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 that online
functionality 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 downloadable content), when it is released. Determining whether
the online functionality for a particular product 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. In addition, VSOE of fair value does not exist for the
online functionality of some products, as we do not separately charge for this component. As a result, we initially defer all of thesoftware-related revenues from the sale of any such title (including downloadable content) and recognize the revenues ratably over theestimated service period of the title. In addition, we initially defer the cost of revenues for the title and recognize the cost of revenues
as the related revenues are recognized. The cost of revenues that are initially deferred include manufacturing costs, software royalties
and amortization, and intellectual property licenses and exclude 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 the activation of the software anddelivery of the related services. For revenues associated with the sales of subscriptions, the revenues are deferred until the subscription
service is activated by the consumer and are then recognized ratably over the subscription period. Revenues attributed to the sale ofWorld of Warcraft boxed software and related expansion packs are classified as “Product sales,” whereas revenues attributable tosubscriptions and other value-added services are classified as “Subscription, licensing, and other revenues.”
Microtransaction Revenues

28
Microtransaction revenues are derived from the sale of virtual goods and currencies to our players to enhance their gameplay
experience. Proceeds from the sales of virtual goods and currencies are initially recorded in deferred revenues. Proceeds from the salesof virtual currencies are recognized as revenues when a player uses the virtual goods purchased with the virtual currency. Proceedsfrom the sales of virtual goods directly are also recognized as revenues when a player uses the virtual goods. We categorize our virtual
goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action;accordingly, we recognize revenues from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods
represent goods that are accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale ofdurable virtual goods ratably over the period of time the goods are available to the player, which is generally the estimated service
period of the game.
Estimated Service Period
We determine the estimated service period for players of our games with consideration of various data points, including theweighted-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 andlast date played online. We also consider known online trends, the service periods of our previously released games, and the service
periods of our competitors’ games that are similar in nature to ours, to the extent they are publicly available. Determining theestimated 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 players of our current
games are generally less than twelve months.
Allowances for Returns and Price Protection
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 receive priceprotection credits include, among other things, compliance with applicable trading and payment terms and consistent return of
inventory and delivery of sell-through reports to us. We may also consider other factors, including achievement of sell-throughperformance targets in certain instances, the facilitation of slow-moving inventory, and other market factors.

Significant management judgments and estimates with respect to potential future product returns and price protection related tocurrent period product revenues must be made and used when establishing the allowance for returns and price protection in any
accounting period. 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;
28 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 the performance of competing titles. The relative importanceopen and/or future invoices. The conditions our customers must meet to be granted the right to return products or receive priceprotection credits include, among other things, compliance with applicable trading and payment terms and consistent return of
inventory and delivery of sell-through reports to us. We may also consider other factors, including achievement of sell-throughperformance targets in certain instances, the facilitation of slow-moving inventory, and other market factors.
Significant management judgments and estimates with respect to potential future product returns and price protection related tocurrent period product revenues must be made and used when establishing the allowance for returns and price protection in any
accounting period. 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 the performance of competing titles. The relative importanceof these factors varies among titles depending upon, among other things, 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. There may be material differences in the amount and timing of our revenues for any period if factors ormarket conditions change or if matters resolve in a manner that is inconsistent with management’s assumptions utilized in determining
the allowances for returns and price protection. For example, a 1% change in our December 31, 2016 allowance for sales returns, priceprotection, and other allowances would have impacted net revenues by approximately $3 million.
Allowance for Inventory Obsolescence
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

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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 the technological feasibilityof a product is established and such costs are determined to be recoverable. Technological feasibility of a product requires bothtechnical design documentation and game design documentation, or the completed and tested product design and a working model.
Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established and theevaluation is performed on a product-by-product basis. For products where proven technology exists, this may occur early in thedevelopment cycle. 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 the function
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 revenues—software royalties, amortization, and intellectual property licenses.” Capitalized costs for products that arecancelled or are expected to be abandoned are charged to “Product development” in the period of cancellation. Amounts related tosoftware development which are not capitalized are charged immediately to “Product development.”
Commencing upon a product’s release, capitalized software development costs are amortized to “Cost of revenues—software
royalties, amortization, and intellectual property licenses” based on the ratio of current revenues to total projected revenues for the
specific product, generally resulting in an amortization period of six months to approximately two years.
We evaluate the future recoverability of capitalized software development costs on a quarterly basis. For products that have beenreleased in prior periods, the primary evaluation criterion is the actual performance of the title to which the costs relate. For productsthat are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specificproducts to which the costs relate. Criteria used to evaluate expected product performance include: historical performance ofcomparable products developed with comparable technology; market performance of comparable titles; orders for the product prior to
its release; general market conditions; and, for any sequel product, estimated performance based on the performance of the product onwhich the sequel is based.
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 matters resolve
in a manner that is inconsistent with management’s expectations.
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 evaluate29deferred 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.

additional 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 matters resolve
in a manner that is inconsistent with management’s expectations.
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 complex
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: (1) 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; (2) changes in the valuation of our deferred tax assets and liabilities; (3) tax effects ofnondeductible compensation; (4) tax costs related to intercompany realignments; (5) differences between amounts included in our tax
filings and the estimate of such amounts included in our tax expenses; (6) changes in accounting principles; or (7) changes in tax laws,
regulations, administrative practices, principles or interpretations, including fundamental changes to the tax laws applicable tomultinational corporations, such as changes currently being considered in the U.S., the European Union and its member states, andother countries. Significant judgment is required to determine the recognition
and measurement attributes prescribed in the accounting
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guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax positions,
including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision forincome taxes. In addition, we are subject to the continuous examination of our income tax returns by the IRS and are regularly subject
to audit by other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations todetermine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous
examinations will not have an adverse impact on our operating results and financial 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. Such
30 impact on our financial statements.
estimates are inherently difficult and subjective and can have a material

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. We evaluate the recoverability of our identifiable amortizable 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 consider 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: (1) significant changes in performance relative to expected operating results;(2) significant changes in the use of the assets; (3) significant negative industry or economic trends; (4) a significant decline in ourstock price for a sustained period of time; and (5) changes in our business strategy. In determining whether an impairment exists, weestimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. 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 did not record an impairment charge toour definite-lived intangible assets as of December 31, 2016, 2015 or 2014.
Financial Accounting Standards Board (“FASB”) literature related to the accounting for goodwill and other indefinite lived intangibles
provides companies an option to first perform a qualitative assessment to determine whether it is more likely than not that the fairvalue of a reporting unit is less than its carrying value before performing a two-step approach to testing goodwill for impairment foreach reporting unit as part of our annual impairment test performed as of December 31. Our reporting units are determined by thecomponents of our operating segments that constitute a business 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 a fair value-based test. 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 the individual 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 must be made for each reporting
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 areusing 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
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future results may differ from those estimates.
In determining the fair value of our significant reporting units—namely Activision, Blizzard, and King—we assumed discount rates
ranging from 8.5% to 11.5% and terminal growth rates of 0.0% to 4.0%, depending on the reporting unit and its specificcharacteristics and risk profiles. Based on our quantitative evaluation, we determined the estimated fair value of all of the reporting
units exceeded their carrying values as of December 31, 2016. For our King reporting unit, which includes $2.7 billion of goodwill,
the estimated fair value exceeded the book value by approximately 18%, while the remaining reporting units had excesses of at least
100%. However, changes in our assumptions underlying our estimates of fair value, which will be a function of our future financial
performance, our ability to successfully release new products and maintain our existing franchises, monetization of our user network,and changes in economic conditions, including those which may change our discount rates and are outside of our control, could resultin future impairment charges. For example, as of December 31, 2016, a 100 basis point increase in the discount rate for our King
reporting unit would reduce the percentage by which the fair value of the reporting unit exceeded its carrying value to 10%.
We test our acquired trade names for possible impairment by using a discounted cash flow model to estimate fair value. At
December 31, 2016 and 2015, we concluded that no impairment had occurred and that no impairment was reasonably likely to occur.
In determining the fair value of these trade names, we assumed a discount rate of 8.5%, and royalty saving rates of approximately
1.5%-2.0%. Changes in our assumptions 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.
Share-Based Payments
We account for share-based payments in accordance with ASC Subtopic 718-10 and ASC Subtopic 505-50. Share-based
compensation expense for a given grant is recognized over the requisite service period (that is, the period for which the employee isbeing compensated) and is based on the value of share-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 generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock price, as well asassumptions regarding a number of highly complex and subjective variables, including our expected stock price volatility over theterm of the awards, and actual and projected employee stock option exercise behaviors.
We generally determine the fair value of restricted stock rights based on the closing market price of the Company’s common stock on
the date of grant, reduced by the present value of the estimated future dividends during the vesting period in which the restricted stockrights holder will not participate. Certain restricted stock rights granted to our employees and senior management vest based on theachievement of pre-established performance or market conditions. 31
For performance-based restricted stock rights, 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, adjusting for estimated forfeitures for each separately

December 31, 2016 and 2015, we concluded that no impairment had occurred and that no impairment was reasonably likely to occur.
In determining the fair value of these trade names, we assumed a discount rate of 8.5%, and royalty saving rates of approximately
1.5%-2.0%. Changes in our assumptions 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.
Share-Based Payments
We account for share-based payments in accordance with ASC Subtopic 718-10 and ASC Subtopic 505-50. Share-based
compensation expense for a given grant is recognized over the requisite service period (that is, the period for which the employee isbeing compensated) and is based on the value of share-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 generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock price, as well asassumptions regarding a number of highly complex and subjective variables, including our expected stock price volatility over theterm of the awards, and actual and projected employee stock option exercise behaviors.
We generally determine the fair value of restricted stock rights based on the closing market price of the Company’s common stock on
the date of grant, reduced by the present value of the estimated future dividends during the vesting period in which the restricted stockrights holder will not participate. Certain restricted stock rights granted to our employees and senior management vest based on theachievement of pre-established performance or market conditions. For performance-based restricted stock rights, 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, adjusting for estimated forfeitures for each separately
vesting tranche of the award. For market-based restricted stock rights, we estimate the fair value at the date of grant using a Monte
Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated forfeitures foreach 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 the market 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 share-based compensation grants that are liability classified, we update our grant date valuation at each reporting period andrecognize a cumulative catch-up adjustment for changes in the value related to the requisite service already rendered.
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.
Recently Issued Accounting Pronouncements
Below are recently issued accounting pronouncements that were most significant to our accounting policy activities for fiscal 2016.
For a detailed discussion of recently issued accounting pronouncements, see Note 22 of the notes to consolidated financial statements
included in this Annual Report.
Recently adopted accounting pronouncements
Share-Based Payments
In March 2016, the FASB issued new guidance to simplify accounting for share-based payments. The new standard, amongst otherthings:•••requires that all excess tax benefits and tax deficiencies be recorded as an income tax expense or benefit in the
consolidated statement of operations and that the tax effects of exercised or vested awards be treated as discrete items in
the reporting period in which they occur;
32
requires excess tax benefits from share-based payments to be reported as operating activities on the statement of cash
flows; andpermits an accounting policy election to either estimate the number of awards that are expected to vest using an
estimated forfeiture rate, as currently required, or account for forfeitures when they occur.

We elected to early adopt this new standard in the third quarter of 2016, which requires us to reflect any adjustments as of January 1,
2016. As part of the adoption, we made certain elections, including the following:•

to apply the presentation requirements for our consolidated statement of cash flows related to excess tax benefits
retrospectively to all periods presented; and•to continue to estimate the number of awards that are expected to vest using an estimated forfeiture rate.

As a result of the adoption, we recognized excess tax benefits of $81 million as a reduction to income tax expense in our consolidated
statement of operations for the year ended December 31, 2016. Further, given our retrospective application of the presentation
requirements for our consolidated statement of cash flows related to excess tax benefits, our net cash provided by operating activities
and net cash used in financing activities increased by $67 million and $39 million for the years ended December 31, 2015, andDecember 31, 2014, respectively. The other provisions of the standard did not have a material impact on our consolidated financial
statements.
Statement of Cash Flows32

In August 2016, the FASB issued new guidance related to the classification of certain cash items in the statement of cash flows. Therequirements for our consolidated statement of cash flows related to excess tax benefits, our net cash provided by operating activities
and net cash used in financing activities increased by $67 million and $39 million for the years ended December 31, 2015, andDecember 31, 2014, respectively. The other provisions of the standard did not have a material impact on our consolidated financial
statements.
Statement of Cash Flows
In August 2016, the FASB issued new guidance related to the classification of certain cash items in the statement of cash flows. The
new standard requires, among other things, that cash payments for debt prepayment or debt extinguishment costs should be classified
as cash outflows for financing activities, as opposed to operating activities as is required under existing guidance. We elected to early
adopt this standard in the third quarter of 2016 and applied it retrospectively. As a result of the adoption of this standard, our cash
flows from financing activities for the year ended December 31, 2016 included the $63 million premium payment from theOctober 19, 2016 redemption of our Original 2021 Notes. The adoption of this standard did not have a material impact on ourconsolidated statements of cash flows upon adoption for the years ended December 31, 2015 and 2014.
Recent accounting pronouncements not yet adopted
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, providing a unified model to determine when and how
revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services
to customers in an amount that reflects the consideration the company expects to be entitled to in exchange for those goods orservices. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017,and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We
are evaluating the adoption method, as well as the impact of this new accounting guidance on our financial statements and related
disclosures. As previously disclosed, we believe the adoption of the new revenue recognition standard may have a significant impact
on the accounting for our sales of our games with significant online functionality for which we do not have VSOE for unspecified
future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements isrequired. This requirement will be eliminated under the new standard. Accordingly, we may be required to recognize as revenue a
portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales priceratably over an estimated offering period. This potential difference may have a material impact on our consolidated financial
statements upon adoption of this new guidance. As accounting implementation guidance and clarifications regarding this matter are
still evolving, we continue to evaluate the impact this guidance will have on our consolidated financial statements and related
disclosures.
LeasesIn February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current
U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or
financing lease and lessees will need to recognize a lease liability and a right-of-use asset for their leases. The liability will be equal tothe present value of lease payments. The asset will be based on the liability, subject to adjustment for initial direct costs, lease
incentives received and any prepaid lease payments. Operating leases will result in straight-line expense, while finance leases will
result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current leaseaccounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will requireapplication of the new guidance at the beginning of the earliest comparative period presented. We are evaluating the impact of thisnew accounting guidance on our consolidated financial statements.
Statement of Cash Flows—Restricted Cash
In November 2016, the FASB issued new guidance related to the classificationof restricted cash in the statement of cash flows. The
33
new standard requires that a statement of cash flows explain the change during the period in total cash, cash equivalents, and restricted
cash. Therefore, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period andend-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after
December 15, 2018 and should be applied retrospectively. Early adoption is permitted.
We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements. We expect there would bea significant impact to the consolidated statements of cash flows for the years ended December 31, 2015 and 2016, as those years
include, as an investing activity, the $3.6 billion movement in restricted cash as a result of transferring cash into escrow at
December 31, 2015 to facilitate the King Acquisition and the subsequent release of that cash in 2016 in connection with the King
Acquisition. Under this new standard, the restricted cash balance would be included in the beginning and ending total cash, cash
equivalents, and restricted cash balances and hence would not be included as an investing activity in the statement of cash flows.

33

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQUANTITATIVE 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
Marketrisk ispotential
loss arisingfromfluctuations
in rates.
market rates and prices. Our market risk exposures primarily include
fluctuationsin theforeigncurrency
exchangerates
and interest
fluctuations in foreign currency exchange rates and interest rates.
Foreign Currency Exchange Rate Risk
Foreign Currency Exchange Rate Risk
We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations inWetransactbusinessin manydifferent
foreignand may
be exposed
financialmarketoperations
risk resulting
fluctuations inforeigncurrency
exchange
rates.
Revenues
and currencies
related expenses
generatedfromtoourinternational
are from
generally
foreign currency
exchange
rates.local
Revenues
and related
expenses
generated
ourBritish
international
generally
denominatedin theirrespective
currencies.
Primary
currencies
includefrom
euros,
pounds,operations
Australianare
dollars,
South Koreanwon,Chineseinyuan,
Swedishlocal
krona.
To the extent
the currencies
U.S. dollarinclude
strengthens
currencies,
translation
these
denominatedtheirand
respective
currencies.
Primary
euros,against
Britishforeign
pounds,Australianthe
dollars,
SouthofKoreanwon, Chinese
yuan, and Swedishkrona. To results
the extent
the U.S.revenues,
dollar strengthens
foreigncurrencies,
the translation
these
foreigncurrency-denominatedtransactions
in reduced
operating against
expenses,
net income
and cashflows fromofour
foreign currency-denominatedtransactions
resultsoperatingin reduced
revenues,
expenses,
net income
and cashfrom ourinternational
operations. Similarly,
our revenues,
expenses,
netoperating
income andcash flows
will increase
forflows
our international
operations
if theU.S. dollar
weakens
foreigncurrencies.
Sincenet
weincome
have significant
internationalsales, but
incur
the majority ofinternational
operations.
Similarly,
ouragainst
revenues,
operatingexpenses,and cash flows
will increasefor ourinternational
operations
theUnited
U.S. dollar
weakens
againstforeigncurrency
currencies.
Since we havesignificant
international sales,
incur
the maymajority
ourcosts iniftheStates,the impactof foreign
fluctuations,particularly
the strengtheningof thebut
U.S.
dollar,haveofourasymmetriccosts in the andUnitedStates, the impact
currency
fluctuations,particularly
the strengthening
ofyear.
the U.S. dollar, may haveandisproportional
impactofonforeign
our business.
We
monitor currency
volatility
throughout thean asymmetric and disproportional impact on our business. We monitor currency volatility throughout the year.
To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities and earnings andTo mitigate
our foreignrisk
resultingcurrency-equivalentfrom our foreign currency-denominatedmonetary
assets, liabilities
and earnings
ourforeign currency
riskcurrency
related tofunctional
cash flows resulting from
our intercompany
transactions,
we andour foreign currency
relatedderivative
to functional
currency-equivalent
cash flows
resultingfrom
our intercompany
transactions,periodicallyenter intorisk
currency
contracts,
principally forward
contracts.
These
forwardcontracts generally
have a wematurityofless than one
year.
counterparties
our currency
derivative
contracts
are large
andreputablecommercial
or investmentbanks.
periodically
enter
intoThecurrency
derivativefor
contracts,
principally
forwardcontracts.
These
forwardcontracts
generally
have a maturityof less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.
The fair value of foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies as
Thethefairvalue
of period.
foreign currency contracts are estimated based on the prevailing exchange rates of the various hedged currencies asofendof theof the end of the period.
We do not hold or purchase any foreign currency forward contracts for trading or speculative purposes.
We do not hold or purchase any foreign currency forward contracts for trading or speculative purposes.
For a detailed discussion of our accounting policies for our foreign currency forward contracts, see Note 2 of the notes to consolidated
For a detailed
discussionof ourfinancialstatements
includedin accounting
this Annualpolicies
Report.for our foreign currency forward contracts, see Note 2 of the notes to consolidated
financial statements included in this Annual Report.
Foreign Currency Forward Contracts Not Designated as Hedges
Foreign Currency Forward Contracts Not Designated as Hedges
At December 31, 2016, we did not have any outstanding foreign currency forward contracts not designated as hedges.
At December 31, 2016, we did not have any outstanding 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.
Duringthe year
endedofDecember
31,foreign
2015, wereclassified$8 contracts
million ofnot
unrealized
gains
out of wasAt
December 31,
2015,
the grossnotional
amountoutstanding
currency
forwarddesignatedas hedges
approximately $489
During loss”
the year
December
we reclassified$8 millionof unrealized
gains
out cashof flow“Accumulated
other million.
comprehensive
andended
into earnings
due31,
to 2015,dedesignating$250 million
notional
euro to U.S.
dollar
“Accumulatedcomprehensiveloss” andinto earnings
due
dedesignating$250
millionnotional euro
U.S. dollar
cash flow
hedgeswhen it otherwas determined
the hedgedtransaction
would
nottooccur.
As a resultof thededesignation,
we toenteredinto offsetting
foreigncurrency
forwardcontracts.
The dedesignatedoffsetting
foreigncontracts remained
outstanding
as ofhedges when
it wasdetermined
the hedgedtransactionandwould
not occur.
As acurrency
result offorward
the dedesignation,
we enteredinto offsetting
foreign currency
forwardcontracts.
The
dedesignatedand offsetting
currency
forwardremained31,
outstanding
as ofDecember31, 2015.
The fairvalue ofthese
foreign currency
forwardforeign
contracts
was $11
millioncontracts
as of December
2015.
December 31, 2015. The fair value of these foreign currency forward contracts was $11 million as of December 31, 2015.
For the years ended December 31, 2016, 2015, and 2014, pre-tax net gains associated with these forward contracts were not material.
For the years ended December 31, 2016, 2015, and 2014, pre-tax net gains associated with these forward contracts were not material.
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)
At December 31, 2016, the gross notional amount of outstanding Cash Flow Hedges was approximately $346 million. The fair value
At these
December31, 2016,
themillion
gross notionalamount ofgains
outstanding
Cash Flow
Hedges ofwasmillion. Theofcontracts
was $22of net unrealizedwith remaining
maturities
12approximately
months or less.$346
Additionally,
at fair value
December31, 2016,
hadmillion$7 million
net realized
but with
unrecognizedrecorded
within“Accumulated
other comprehensiveof these contracts
waswe$22
of netofunrealized
gains
remaininggains
maturitiesof 12monthsor less. Additionally,atDecember31, 2016,
we had$7 contracts
million ofthat
netsettled
realized
but unrecognized
gainsdeferredrecordedandwithinothercomprehensive
income(loss)”
associatedwithduringthe year but were
will “Accumulated
be amortized into
earnings
along withincome(loss)”hedged
associatedwith contracts
that settled
duringthe yearinto
butearnings
were deferredamortized
into earnings along withtheassociatedrevenues.
Such amounts
will bereclassified
withinandthe will
nextbetwelvemonths.
the associated hedged revenues. Such amounts will be reclassified into earnings within the next twelve months.
At December 31, 2015, the gross notional amount of all outstanding Cash Flow Hedges was approximately $381 million. The fairAt December
2015, thenotional
amountof all outstanding
Flow 31,
Hedgesvalueof these 31,
contracts
wasgross$4 millionof netunrealized
losses as of Cash
December2015.was approximately $381 million. The fairvalue of these contracts was $4 million of net unrealized losses as of December 31, 2015.
During the years ended December 31, 2016 and 2015, there was no ineffectiveness relating to our Cash Flow Hedges. During theyears
December
2016 andof pre-tax
netineffectivenessrealized gains relating
associated
withCashtheseFlowcontracts
thatDuring
were theDuringended
the years
ended 31,
December
31,2015,
2016theandamount
2015, there
was noto ourHedges.
years ended out
December31, 2016 and2015,
the amount of
pre-tax
net realized
associatedreclassifiedof “Accumulated
othercomprehensiveloss”
and into
earningsgains
was notmaterial.with these contracts that werereclassified out of “Accumulated other comprehensive loss” and into earnings was not material.
In the absence of hedging activities for the year ended December 31, 2016, a hypothetical adverse foreign currency exchange rate
movementof 10%
would haveresultedin potential
declinesof our31,
net2016,
incomeof approximately
million.
This exchangesensitivityrate
analysis
In the absenceof hedging
activities
for theyear ended
Decembera hypothetical
adverse$105
foreigncurrency
movement of 10% would have resulted in potential declines of our35
net income of approximately $105 million. This sensitivity analysis
35
34

For the years ended December 31, 2016, 2015, and 2014, pre-tax net gains associated with these forward contracts were not material.
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)
At December 31, 2016, the gross notional amount of outstanding Cash Flow Hedges was approximately $346 million. The fair valueof these contracts was $22 million of net unrealized gains with remaining maturities of 12 months or less. Additionally, at
December 31, 2016, we had $7 million of net realized but unrecognized gains recorded within “Accumulated other comprehensive
income (loss)” associated with contracts that settled during the year but were deferred and will be amortized into earnings along withthe associated hedged revenues. Such amounts will be reclassified into earnings within the next twelve months.
At December 31, 2015, the gross notional amount of all outstanding Cash Flow Hedges was approximately $381 million. The fairvalue of these contracts was $4 million of net unrealized losses as of December 31, 2015.
During the years ended December 31, 2016 and 2015, there was no ineffectiveness relating to our Cash Flow Hedges. During theyears ended December 31, 2016 and 2015, the amount of pre-tax net realized gains associated with these contracts that werereclassified out of “Accumulated other comprehensive loss” and into earnings was not material.
In the absence of hedging activities for the year ended December 31, 2016, a hypothetical adverse foreign currency exchange rate
movement of 10% would have resulted in potential declines of our net income of approximately $105 million. This sensitivity analysis
assumes a parallel adverse shift of all foreign currency exchange rates
35 against the U.S. dollar; however, all foreign currency exchange
rates do not always move in such manner and actual results may differ materially.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and variable rate debt under
our credit agreement. We do not currently use derivative financial instruments to manage interest rate risk. As of December 31, 2016
and 2015, a hypothetical interest rate change on our variable rate debt of one percent (100 basis points) would have changed interest
expense on an annual basis by approximately $27 million and $19 million, respectively. This estimate does not include a change ininterest income from our investment portfolio that may result from such a hypothetical interest rate change nor does it include theeffects of other actions that we may take in the future to mitigate this risk or any changes in our financial structure. Refer to Note 11 of
the notes to consolidated financial statements included in this Annual Report for disclosures regarding terms and interest rates
associated with our debt obligations.
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 thana portfolio of longer-term securities. Conversely, the fair value of such a portfolio is less sensitive to market fluctuations than aportfolio of longer-term securities. At December 31, 2016, our $3.25 billion of cash and cash equivalents was comprised primarily ofmoney market funds.
The Company has determined that, based on the composition of our investment portfolio as of December 31, 2016, there was nomaterial interest rate risk exposure to the Company’s consolidated financial condition, results of operations, or liquidity as of that date.

35

CONTROLS AND PROCEDURESCONTROLS AND PROCEDURES

Definition and Limitations of Disclosure 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 Exchange Act) are
Our disclosure
controls ensure
and procedures(as suchrequired
term is definedin Rulesin13a-15(e)andfiled
15d-15(e)underthe Exchangearedesigned
to reasonablythat information
to be disclosed
our reports
under theExchange
Act is: Act)(1) recorded,
processed,tosummarized,
and reported
within therequired
time periods
forms,and (2) accumulated
designedreasonably ensurethat information
to be specified
disclosedininthe
ourSEC’sreportsrules
filedandunder
the Exchange
Act is: (1) andrecorded,processed,
summarized,
and reported
withintime periods
specified
the principal
SEC’s rules
and forms,
andas(2)accumulated
and timely
communicatedto management,
includingourtheprincipal
executive
officerinand
financial
officer,
appropriate,
to allow
communicatedto management,
including Aour
principal
executive
officerprincipal
financial
officer,canas appropriate,allow timely
decisions regarding
required disclosures.
controlsystem,no matterhowandwell
designedand operated,
provide onlytoreasonableassurance regardingthat it willrequired
detect ordisclosures.
uncover failures
withinthe Company
disclose
otherwise
required
be set forthdecisions
A control
system,no mattertohow
well material
designedinformationand operated,
can provide
onlytoreasonableassurancethat itreports.
will detect
or uncover
failureswithinthe Company
to disclose
information
otherwise
to bein our periodic
Inherent
limitations
to anysystemof disclosure
controlsmaterial
and procedures
include,but arerequired
not limited
to,settheforthinour periodic
reports.
Inherent
limitations
to anyorsystemof disclosure
controls by
andoneprocedures
include, In
butaddition,
are not limited
to,designed
thepossibilityof humanerror
and thecircumvention
overridingof such controls
or more persons.
we haveour system ofof humancontrolserror
basedcertainassumptions,which we ofbelieveare reasonable,
thepersons.
likelihoodof future weevents,ourpossibility
andonthecircumvention
or overriding
such controls
by one about
or moreIn addition,
haveanddesignedoursystemof controlson certain
assumptions,which
we believe
areallreasonable,
aboutevents.
the likelihood of future events, and oursystemof controls
maybased
therefore
not achieve
its desired
objectives
underpossible futuresystem of controls may therefore not achieve its desired objectives under all possible future events.
Evaluation of Disclosure Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the
Ourmanagement,
the participationof ourprincipalatexecutive
officerand principal
officer,
has byevaluatedthe Based on
effectivenessof ourwith
disclosure
controls andprocedures
December31, 2016,
the end offinancial
the period
coveredthis report.
effectivenessof theourprincipal
disclosure
controls officer
and proceduresat December
2016,
the end ofthat,the atperiodcoveredthis report.
Based onthis evaluation,
executive
and principal
financial31,
officerconcluded
December
31,by
2016,
our disclosure
controls
and procedures
wereexecutive
effective officer
to provide
assurancethat information
required
to be disclosedby thethisevaluation,
the principal
andreasonable
principal financial
officerconcluded that,at December
31, 2016,
our Company
disclosurein
controls
andthatprocedures
effective
reasonableassurance
information
required to
bereported
disclosedonbya the
Companyinthe reports
it files orwere
submits
undertotheprovide
Exchange
Act is (i)recorded,thatprocessed,
summarized,andtimelybasis, andthethat itand
filescommunicatedor submits under
the Exchangeincluding
Act is (i) ourrecorded,processed,
summarized,
reported
on a timely(ii) reports
accumulated
to management,
principal
executive
officer and andprincipal
financial
officer,basis,
as andappropriate
to allow
decisionstoregarding
required
disclosures.
(ii)
accumulated
and timely
communicatedmanagement,
includingour 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.
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 isdefinedin Rules 13a-15(f)and 15d-15(f)under theAct).
Our management,
withoverthe participationof our (asprincipal
executive
Our
management
is responsible
for establishingandExchange
maintaining
adequateinternal control
financial reporting
such termisdefinedandin Rules13a-15(f)andofficer,
15d-15(f)under theOur
management,
the participation
ofof
ourprincipal
officerprincipal
financialconducted
anExchange
evaluationAct).
of theeffectiveness,
as withof December
31, 2016,
ourinternalexecutive
control
officerand principal
financial
officer,
conductedof theof
effectiveness,
as of Decemberof31,
of ourCommissioninternal control
over financial
reportingusing thecriteria
set forthanbyevaluation
the Committee
Sponsoring Organizations
the2016,
TreadwayinInternal
Control—Integrated
this evaluation,
our management
concluded
our internal
control over
overfinancialreporting usingFramework
the criteria (2013).
set forthBasedby theonCommitteeof Sponsoring
Organizationsof thethat
Treadway
Commission
inInternal
Framework(2013). Basedon this evaluation, our management concluded that our internal control overfinancialControl—Integrated
reporting was effective
as of December
31, 2016.
financial reporting was effective as of December 31, 2016.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluationof effectivenessfuture periods
are subject
to therisks that
may become
becauseof projections
changes in
Becauseof its inherent
limitations,tointernal
control overfinancialreportingmaycontrols
not preventor detectinadequate
misstatements.
Also,of
any evaluation
to future periods
subjectand
to therisks thatmay
controls
may become inadequate because of changes in
conditions,or thatof
theeffectivenessdegree of compliancewith theare
policies
procedures
deteriorate.
conditions, or that the degree of compliance with the policies and procedures may deteriorate.
On February 23, 2016, we completed our acquisition of King. The acquired business constituted approximately 7% of total assets and
23%Februaryof net revenues
of wethecompleted
consolidated
statement
amounts
as of andfor theconstituted
year endedapproximately
December 31,7%
2016.
In accordanceOn23, 2016,
ourfinancial
acquisitionof King.
The acquired
businessof total
assets and23%of netstaff
revenuesof theconsolidated
financialof and forthemanagement’s
year ended December
31, of2016.
In accordanceof
with SEC
guidance
permitting
a company
to statement
exclude anamounts
acquiredasbusinessfromassessment
the effectivenesswith SEC
staff guidance
permitting
a company
to exclude
an acquired
businessfrom management’s
assessmentof theinternal
control
over financial
reportingfor the year
in whichthe acquisition
is completed,
we excluded
King fromour effectivenessassessment ofof
the effectivenessof internal
control
overforfinancialreportingof acquisition
December 31,
2016.
internal
control overfinancialreportingthe yearin whichasthe
is completed,
we excluded King from our assessment of
the effectiveness of internal control over financial reporting as of December 31, 2016.
The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by
The
effectiveness of our internal
over financial
reportingas of December
2016 inhastheirbeenreport
auditedbyPricewaterhouseCoopers
LLP, ancontrol
independent
registeredpublic accounting
firm, 31,
as stated
includedin this Annual
Report.
PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report included in this Annual
Report.
Changes in Internal Control Over Financial Reporting.
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 havemateriallyarechanges
reasonably
likelyto materiallyaffect,our internal
control
overthefinancialreporting.
There
haveaffected,
not beenorany
in ourinternal
control overfinancialreportingduringmost recent
fiscal quarter that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

37
37
36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Activision Blizzard, Inc.:

theopinion,
Board oftheDirectors
and Shareholdersof balance
Activision
Blizzard,
Inc.:
InToouraccompanying
consolidated
sheetsand therelated consolidated statements of operations, of comprehensive
income, of changes in shareholders’ equity and of cash flows, present fairly, in all material respects, the financial position of
In our opinion,
the accompanying
consolidatedbalance sheets
and andthe related
consolidatedof operations,of comprehensive
Activision
Blizzard,
Inc. and its subsidiaries
at December
31, 2016
2015, andthe resultsstatementsof their operations
and their
cash flows
income,changesin shareholders’equityandof cash flows,present
fairly, in allmaterial
respects,
the financial
positionof in theforeach ofofthe
three years
in the period
ended
December31, 2016
in conformity
withaccounting
principles
generally
accepted
Activision
Blizzard,
Inc. andits subsidiaries
at December
31, 2016statementand 2015,scheduleand the listed
resultsinofthe
theiroperations andtheircash flows
UnitedStatesof America.
In addition,in our opinion,
the financial
accompanying
index
appearingfor each
the threepresents
years infairly,
the period
Decemberin conformity
withaccounting
principles
generallywith
acceptedinunder
Itemof15(a)(2)in allended
material
respects,31,
the2016
information
set forth
thereinwhen readin conjunction
the related
the United Statesof America.
Also
in ouropinion,the theCompany
maintained,
in allrespects,
effective
internal
controlconsolidated
financialstatements.
Also
in ouropinion,Company
maintained,
in material
all material
respects,
effective
internal
control
overfinancial
financialreporting
reportingasasofofDecember
December31,
31,2016,
2016,based
basedononcriteria
criteriaestablishedestablishedininInternalInternalControl—Integrated
Control—IntegratedFramework
Framework(2013)(2013)
overissuedby
bythe
theCommittee
CommitteeofofSponsoring
SponsoringOrganizations
Organizationsofofthe
theTreadway
TreadwayCommission
Commission(COSO).
(COSO).The
TheCompany’s
Company’smanagement
managementisis
issuedresponsiblefor
forthese
thesefinancial
financialstatements
statements,and
forfinancial
maintaining
effective
internalfor
control
over financial
reportingfor its
assessment
responsible
statementschedule,maintaining
effective
internal andcontrol
overfinancial of theeffectivenessof internal
controlofover
reporting,includedin Management’s
on included
Internal Control
over Financial
Reportingreportingand forits assessment
the financial
effectivenessof internal
control
over financial Reportreporting,in Management’s
Reportonappearingon pageof this Annual
Reportto Shareholders. Our responsibility is to express opinions.on
thesefinancial statements
Internal
Control
over36Financial
Reportingappearing
Our
responsibility
is to express
and on theinternal
controlon
overon ourand
integrated
audits. We internal
conducted
our auditsin accordanceon Company’s
these financial
statements,
thefinancial
financialreportingstatementbasedschedule,
on the Company’scontrol
over financial
opinions
reportingbased on our
integrated
audits. WeAccounting
conducted Oversight
our audits Boardin accordancetheThosestandardsof the require
Public Company
with the standardsof thePublic Company(United with
States).
standards
that we plan andAccounting
Board reasonable(United States).
Thoseaboutstandards
requirethat we planand perform
to obtain
reasonable
perform theOversight
audits to obtainassurance
whetherthe financial
statements
are freetheofauditsmaterial
misstatement
and whether
assurance
about whether
financialstatementsof material
misstatement
and whether
effective
internal
control
over financial
effective internal
controlthe
overfinancialreportingare
wasfreemaintainedin allmaterial respects.
Our auditsof thefinancialstatements
includedreportingwasonmaintainedin evidence
all material
respects.theOuramounts
audits ofthedisclosuresfinancial statements
includedexamining,
on a test
evidence
examining,a test basis,
supportingandin the financial
statements,
assessing
the basis,
accounting
supportingand disclosures
the financial
statements,
thetheaccounting
principles
used andsignificant estimatesprinciples theusedamounts
and significant
estimatesinmadeby management,
andassessing
evaluating
overall financial
statement
presentation.
Our audit
madeby management,
evaluating
the overall
financialstatement
presentation.
auditcontrol
of internaloverfinancialof internal
control overandfinancialreportingincludedobtaining
an understandingofOur
internal
overcontrol
financialreporting,assessingreportingincludedobtaining
an understandingof internal
control overreporting,assessing
the riskofthat
a material
weaknessthe risk thata material
weakness
exists, and testingand evaluating
thefinancial
design andoperatingeffectivenessinternal
control
based
exists,testingrisk.
andOurevaluating
the design
andperforming
operating effectivenessof internal
based onnecessary
the assessedrisk.
Our audits also
on theandassessedaudits also
includedsuch other procedures
ascontrol
we consideredin thecircumstances.
included
performing
such otherprocedures
as webasis
considered
We believethat our audits
providea reasonable
for ournecessary
opinions. in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
As discussed in Note 22 to the consolidated financial statements, the Company changed the manner in which it accounts for incomeAs
discussed
22 to theconsolidated
financialCompanychangedin which
it accounts
incometaxes
related in
to Noteshare-based
payments
and themannerstatements,
in which ittheclassifies
certainitemsthein manner
the statementof cashflows infor
2016.
taxes related to share-based payments and the manner in which it classifies certain items in the statement of cash flows in 2016.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
Afinancial
company’s
internal
control
over financial
reportingis a process
to provide
regarding
the reliabilityofreportingandthe preparationof financial
statements
for designed
external purposes
inreasonableaccordanceassurancewith generally
acceptedaccounting
with generally
acceptedaccounting
financialreportingand theinternal
preparationof overfinancialstatements
for includes
external purposesin accordance
principles.
A company’scontrolfinancialreportingthose policies
and proceduresthat (i) pertain
to theprinciples. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany;(ii)(ii)provide
providereasonablereasonableassurance
assurancethat
thattransactionstransactionsare
arerecorded
recordedasasnecessary
necessarytotopermit
permitpreparation
preparationof
offinancial
financial statements
statements inincompany;
accordancewith
withgenerally
generallyaccepted
acceptedaccounting
accountingprinciples,
principles,andandthatthatreceipts
receiptsand
andexpenditures
expendituresofofthe
thecompany
companyare
arebeing
beingmademadeonly
onlyininaccordance
accordancewith
withauthorizations
authorizationsofofmanagement
managementand
anddirectors
directorsofofthe
thecompany;
company;andand(iii)(iii)provide
providereasonablereasonableassurance
assuranceregarding
regardingaccordance
preventionorortimely
timelydetection
detectionofofunauthorized
unauthorizedacquisition,acquisition,use,
use,orordisposition
dispositionof
ofthe
thecompany’s
company’sassets
assetsthat
thatcould
couldhave
haveaamaterialmaterial
prevention
effectonthefinancialstatements.
effect on the financial statements.
Becauseofofits
itsinherent
inherentlimitations,limitations,internalinternalcontrol
controlover
overfinancial
financial reporting
reporting may
may not
not prevent
prevent oror detectdetect misstatements.
misstatements. Also,
Also, projections
projections
Becauseanyevaluation
evaluationofofeffectivenesseffectivenesstotofuture
futureperiods
periodsare
aresubject
subjecttotothe
theriskriskthatthatcontrols
controlsmay
maybecomebecomeinadequate
inadequatebecause
becauseof
ofchanges
changesinin
ofofany
conditions,ororthat
thatthethedegreedegreeofofcompliancecompliancewith
withthethepolicies
policiesororprocedures
proceduresmay
maydeteriorate.
deteriorate.
conditions,
Asdescribed
describedininManagement’s
Management’sReport
Reporton
onInternalInternalControl
Controlover
overFinancial
FinancialReporting,
Reporting,management
managementhas
hasexcluded
excludedKing
KingDigital
DigitalAsEntertainment(“King”)(“King”)fromfromits
itsassessment
assessmentofofinternalinternalcontrol
controlover
overfinancial
financialreporting
reportingasasofofDecember
December31,
31,20162016because
becauseititwas
wasEntertainment
acquiredby
bythe
theCompany
Companyininaapurchasepurchasebusinessbusinesscombination
combinationduring
during2016.
2016.We
Wehavehavealso
alsoexcluded
excludedKing
Kingfrom
fromourouraudit
auditofofinternalinternalacquired
controlover
overfinancial
financialreporting.
reporting.King
Kingisisaawholly-owned
wholly-ownedsubsidiarysubsidiaryofofActivision
ActivisionBlizzard,
Blizzard,Inc.
Inc.whose
whosetotal
totalassets
assetsandandtotal
totalnetnet
controlrevenuesrepresent
represent7%
7%and
and23%,
23%,respectively,
respectively,ofofthe
therelated
relatedconsolidated
consolidatedfinancial
financialstatement
statementamounts
amountsasasofofand
andforforthetheyearyearended
ended
revenues
December31,
31,2016.
2016.
December

Los
LosAngeles,
Angeles,California
California
February
February28,
28,2017
2017

38
37

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Amounts in millions, except share data)
At December 31,
2016 31,
At December
2016

AssetsAssetsCurrent assets:
Current assets:
Cashandandcashcashequivalents.........................................................................................
equivalents ........................................................................................
3,245
Cash
$$
3,245
Accounts
receivable,
netofallowances
of
$261
and
$343,
at
December
31,
2016
and
Accounts receivable, net of allowances of $261 and $343,
December 31, 2015, respectively..........................................................................
732
732
December31, 2015, respectively...............................
Inventories,net
net..........................................................................................................
49
Inventories,..........................................................................................................
49
Software412
Softwaredevelopment...............................................................................................
development ..............................................................................................
412
Other
...................................................................................................
392
Othercurrent
currentassets
assets...................................................................................................
392
Total
current
assets................................................................................................
4,830
Total current assets ...............................................................................................
4,830
Cash in escrow...........................................................................................................
—Cash in escrow ..........................................................................................................
—
Software development...............................................................................................
54
Softwaredevelopment
54
Propertyandequipment,..............................................................................................
net......................................................................................
258
Propertyincome
and equipment,.....................................................................................
258
Deferredtaxes, netnet........................................................................................
283
Deferredincome taxes, net .......................................................................................
283
Other
assets................................................................................................................
401
Intangible
assets,net..................................................................................................
1,858
Other assets...............................................................................................................
401
Goodwill....................................................................................................................
9,768
Intangible assets, net .................................................................................................
1,858
Total assets............................................................................................................
$
17,452
Goodwill...................................................................................................................
9,768
Liabilities
andassets
Shareholders’EquityTotal............................................................................................................
$
17,452Current liabilities:
Liabilities
andShareholders’ Equity
Accounts
payable......................................................................................................
$
222
Current
liabilities:
Deferred
revenues......................................................................................................
1,628
Accounts
payableand......................................................................................................
$
222
Accruedexpensesother liabilities ......................................................................
806
Deferred
revenues.....................................................................................................
1,628
Total current
liabilities..........................................................................................
2,656
Long-term
debt, net ...................................................................................................
4,887
Accrued expenses
and other liabilities ......................................................................
806
Deferredincometaxes,
net........................................................................................
44
Total current liabilities ..........................................................................................
2,656
Other
liabilities..........................................................................................................
746
Long-term debt, net ...................................................................................................
4,887
Total liabilities.......................................................................................................
8,333
Deferredincome taxes, net .......................................................................................
44
Commitments and contingencies (Note 19)
Other liabilities..........................................................................................................
746
Shareholders’ equity:
Total
liabilities......................................................................................................
8,333
Commonstock,$0.000001
par value, 2,400,000,000 shares authorized,
1,163,179,140
Commitments and andcontingencies(Noteshares
19) issued at December 31, 2016 andDecember equity:
31, 2015,.........................................................................
—
Shareholders’Additional
paid-in
capital..........................................................................................
10,442
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,174,163,069
Less:andTreasurystock, atsharescost, 428,676,471
shares at
2016 and
1,163,179,140
issued at December
31,December
2016 and31,
December31, 2015,
December 31, 2015................................................................................................
(5,563)
respectively...........................................................................................................
—
Retained earnings ......................................................................................................
4,869
Additional
paid-in
capital.........................................................................................
10,442
Accumulated other comprehensive loss ....................................................................
(629)
Less:
stock,equity
at cost,428,676,471 shares at December 31, 2016 andTotalTreasury
shareholders’.....................................................................................
9,119
December31, and2015shareholders’...............................................................................................
(5,563)Total
liabilities
equity..............................................................
$
17,452Retained earnings ......................................................................................................
4,869
Accumulated other comprehensive loss....................................................................
(629)
The accompanying notes are an integral part of these Consolidated Financial Statements.
Total shareholders’ equity.....................................................................................
9,119
Total liabilities and shareholders’ equity ..............................................................
$
17,452
The accompanying notes are an integral part of these Consolidated Financial Statements.

42
38

At December 31,
2015 31,
At December
2015

$$

$
$

$
$

1,823
1,823
679
679
128
128
336
336
421
421
3,387
3,387
3,561
3,561
80
80
189
189
275
275
177
482
177
7,095
482
15,246
7,095
15,246

284
1,702
284
625
1,702
2,611
4,074
625
10
2,611
483
4,074
7,178
10
483
7,178
—
10,242$$(5,637)—
4,096
10,242(633)
8,068(5,637)
15,246
4,096
(633)
8,068
15,246

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in millions, except per share data)(Amounts in millions, except per share data)

For the Years Ended
For December
the Years Ended
31,
December
20162015 31,
2014
2016
2015
2014

Net revenues
Net revenues
Product sales ................................................................................................................................ $ 2,196 $ 2,447
Product
sales ................................................................................................................................
Subscription,
licensing, and other revenues ................................................................................. $ 2,196
4,412 $ 2,447
2,217
Subscription,
licensing,and other revenues .................................................................................
4,412
2,217
Total
net revenues............................................................................................................................
6,608
4,664
Total
netandrevenues............................................................................................................................
6,608
4,664
Costs
expenses
Costs
andofexpenses
Costrevenues—product sales:
CostProductof revenues—productsales:
costs ............................................................................................................................
741
872
Productcosts............................................................................................................................
741
872
Softwareroyalties,
amortization, and intellectual property licenses .......................................
331
370
Softwareroyalties, amortization,licensing,and intellectual
property
licenses .......................................
331
370
Cost
of revenues—subscription,and other
revenues:
CostGameof revenues—subscription,
licensing,other revenues:
operations and distribution
costs and...................................................................................
851
274
Game
operations
andamortization,
distribution costs...................................................................................
851
274
Softwareroyalties,
and intellectual
property licenses .......................................
471
69
Softwareroyalties, amortization,and intellectual property licenses .......................................
471
69
Product
development...................................................................................................................
958
646
Product
development
958
646
Sales andmarketing...................................................................................................................
.....................................................................................................................
1,210
734
Sales
and marketing.....................................................................................................................
1,210
734
Generaland administrative..........................................................................................................
634
380
Generalandadministrative..........................................................................................................
634
380
Total
costs
and
expenses ..................................................................................................................
5,196
3,345
Total
costs andexpenses..................................................................................................................
5,196
3,345
Operatingincome.............................................................................................................................
1,412
1,319
Operatingincome1,412
1,319Interest andother.............................................................................................................................
expense (income), net .........................................................................................
214
198
Interest
andother expenseof(income),net .........................................................................................
214
198
Loss onextinguishment
debt .......................................................................................................
92
—
Loss
on extinguishment.......................................................................................................
92—
Incomebefore income oftaxdebt
expense..................................................................................................
1,106
1,121
Incomebeforeincome..........................................................................................................................
tax expense ..................................................................................................
1,106
1,121
Incometax expense
140
229
Incometax expense.......................................................................................................................... $140
Net income.......................................................................................................................................
966 $ 229
892
Net
income ......................................................................................................................................
966 $
892
$
Earnings
per common share
Earnings
per common share
Basic .............................................................................................................................................
$
1.30 $ 1.21
Basic.............................................................................................................................................
1.21
Diluted......................................................................................................................................... $$ 1.30
1.28 $$ 1.19
Diluted.........................................................................................................................................
$
1.28
$
1.19
Weighted-average number of shares outstanding
Basic.............................................................................................................................................
740
728
Weighted-average number of shares outstanding
Diluted.........................................................................................................................................
754
739
Basic
.............................................................................................................................................
740
728
Dividends
per common share .......................................................................................................... $0.26$ 0.23
Diluted .........................................................................................................................................
754
739
Dividends per common share .......................................................................................................... $0.26 $
0.23
The accompanying notes are an integral part of these Consolidated Financial Statements.
The accompanying notes are an integral part of these Consolidated Financial Statements.

40
39
40

$ 2,786$ 2,786
1,622
1,622
4,408
4,408

$
$
$
$$
$
$
$

981
981
265
265
250
250
29
29
571
571
712
712
417
417
3,225
3,225
1,183
1,183
202
202
—
—
981
981
146
146
835
835
1.14
1.14
1.13
1.13
716
726
716
0.20
726
0.20

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in millions)(Amounts in millions)

For the Years Ended
For December
the Years Ended
31,
December
20162015 31,2014
Net income ....................................................................................................................................... $ 2016966 $ 2015892 $ 2014835

NetOtherincome...........................................................................................................................
$ 966 $
comprehensive income (loss):
OtherForeign
comprehensive(loss):
currency income
translation
adjustments ....................................................................................
(29)
Foreigncurrency(29)
Unrealized
gainstranslation(losses) onadjustments........................................................................
forward contracts designated as hedges, net of tax ........................
33
Unrealized
gains (losses) on
forwardcontracts
designated as hedges, net of tax ..........
334 $
Total
other comprehensive
income(loss)........................................................................................
$
Total
other comprehensive
income (loss)............................................................................
4 $$Comprehensive
income ....................................................................................................................
$$ 970Comprehensive income........................................................................................................
$ 970 $
The accompanying notes are an integral part of these Consolidated Financial Statements.
The accompanying notes are an integral part of these Consolidated Financial Statements.

41
40

41

892
(326)
(326)
(4)
(4)
(330)
(330)
562
562

$

835
(371)
(371)
—
—
$ (371)$$ (371)464$
464

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYACTIVISIONBLIZZARD,
INC.31,AND
SUBSIDIARIESFor
the Years Ended
December
2016,
2015, and 2014
CONSOLIDATEDSTATEMENTSOF
CHANGESINEQUITY(Amounts and shares in millions, except SHAREHOLDERS’per share data)
Accumulated
For the Years Ended December 31, 2016, 2015, and 2014
Additional
Other(Amounts
andsharesinmillions,
except
per
share
data)
Common Stock
Treasury Stock
Retained
Paid-In
Comprehensive
SharesAmountSharesAmountCapitalEarnings

Income(Loss)
Accumulated

Other
Balance at December 31, 2013 ...........
1,132 $—
(429) $ (5,814) $Additional
9,682 $
2,686 $
68
Common Stock
Treasury Stock
Retained
Comprehensive
Paid-In
Components of comprehensive income:
SharesAmountSharesAmountCapitalEarnings
Income(Loss)Net income............................................
—
—
—
—
—
835
—
Balanceat Decemberincome
31, 2013...........
1,132
—
(429)
9,682
2,686
68
Other comprehensive(loss).....
— $—— $ (5,814)
— $
— $
— $
(371)
Componentsofcomprehensive
income:Issuance of common stock pursuant toNetincomestock............................................
—
—
—
—
—
835
—
employee
options ........................
14
—
—
—
172
—
—
Other comprehensive
income(loss)
—
—
—
—
—
—
(371)
Issuanceof common stock
pursuant
to .....
Issuanceofcommonstock
pursuanttorestricted stock rights ............................
7
—
—
—
—
—
—
employeestock
options ........................
14
—
—
—
172
—
—
Restricted
stock
surrendered
for employees’
Issuanceofcommonstock
pursuant
totax liability ............................................
(2)
—
—
—
(66)
—
—
7
—
—
—
—
—
—
stock rights............................
Taxrestricted
benefit associatedwithemployee stock
Restricted
stock surrendered forawards ...................................................
—
—
—
—
30
—
—
(2)
—
—
—
(66)
—
—
ta liability ..........................
Share-based compensation
expense related to
Taxemployee
benefit associatedwithand restricted
stock options
—
—
—
—
30
—
—
awards .........................
stock rights............................................
—
—
—
—
106
—
—
Share-based
compensation
expenseDividends ($0.20
per commonshare) .......
—
—
—
—
—
(147)
—
employeestock
options
Indemnity on tax attributes assumed in
—
—
—
—
106
—
—
stock
rights......................
connection with the Purchase Transaction
Dividends($0.20per common share) .......
—
—
—
—
—
(147)
—
—
—
—
52
—
—
(see Note15).........................................
Indemnity
attributes31,
assumedin
Balanceonattax
December
2014 ...........
1,151 $—
(429) $ (5,762) $9,924 $
3,374 $
(303)
connectionwiththePurchase
Components of comprehensive income:
—
—
—
52
—
—
—
(see Note 15).....................
Net income............................................
—
—
—
—
—
892
—
Balanceat Decemberincome
31, 2014...........
1,151
—
(429)
9,924
3,374
(303)
Other comprehensive(loss).....
— $—— $ (5,762)
— $
— $
— $
(330)
Componentsof comprehensive
income:Issuance of common
stock pursuant
toNet
incomestock............................................
—8
—
—
—
—
892
—
—
—
—
106
—
—
employee
options ........................
Other comprehensive
income(loss)
—
—
—
—
—
—
(330)
Issuanceof common stock
pursuant
to .....
Issuanceof commonstock
pursuant to
restricted
stock rights............................
7
—
—
—
—
—
—
8
—
—
—
106
—
—
employeestock
options ........................
Restricted
stock
surrendered
for employees’
Issuanceof common
stock pursuant to
tax liability............................................
(3)
—
—
—
(83)
—
—
stock rights............................
7
—
—
—
—
—
—
Taxrestricted
benefit associatedwithemployee stock
Restricted
stock surrendered for
—
—
—
—
65
—
—
awards ...................................................
(3)
—
—
—
(83)
—
—
ta liability ..........................
Share-based compensation
expense related to
Taxemployee
benefit associatedwith and restricted
stock options
awards .........................
—
—
—
—
65
—
—
stock rights............................................
—
—
—
—
95
—
—
Share-based
compensation
expenseDividends ($0.23
per commonshare) .......
—
—
—
—
—
(170)
—
stockassumed
options in
Indemnity onemployee
tax attributes
stock.....................
—
—
—
—
95
—
—
connection withtherights
Purchase
Transaction
Dividends($0.23per common share) .......
—
—
—
—
—
(170)
—
(see Note15).........................................
—
—
—
58
—
—
—
Indemnity
onsettlement
tax attributes
assumed inwith the
Shareholder
in connection
connection
with the Purchase
—
—
—
67
135
—
—
Purchase Transaction(see Note 19) .....
— $—— $ (5,637)
58 $
— $
— $
—
(see Note 15)
Balance at December
31,.....................
2015 ...........
1,163
—
(429)
10,242
4,096(633)
Shareholder
in connection
withComponentssettlementof comprehensive
income:
—
—
—
67
135
—
—
Transaction (see Note 19) .....
NetPurchaseincome............................................
—
—
—
—
—
966
—
Balanceat Decemberincome
31, 2015...........
1,163
—
(429)
10,242
4,096(633)4
Other comprehensive(loss).....
— $—— $ (5,637)
— $
— $
— $
Componentsofcomprehensive
income:Issuance of common stock pursuant toNetincomestock............................................
—7
—
—
—
—
966
—
—
—
—
105
—
employee
options ........................
Other comprehensive
income(loss)
—
—
—
—
—
—
4
Issuanceof common stock
pursuant
to .....
Issuanceof commonstock
pursuant to
restricted
stock rights............................
7
—
—
—
—
—
—
employeestock
options ........................
7
—
—
—
105
—
—
Restricted
stock
surrendered
for employees’
Issuanceof common
stock pursuant to
tax liability............................................
(3)
—
—
—
(116)
—
—
restricted stockrights ............................
7
—
—
—
—
—
—
Share-based
compensation
expense related to
Restricted
stock
surrenderedfor
employee stock options and restricted
(3)
—
—
—
(116)
—
—
tax liability .........................
stock rights............................................
—
—
—
—
135
—
Share-based
Share-based compensationcompensation expense
assumed in
employee
options
—
—
—
—
76
—
—
acquisition(see Notestock21) ......................
—
—
—
—
135
—
—
rights......................
Dividends ($0.26stock
per commonshare) .......
—
—
—
—
—
(193)
Share-based
compensation
assumedinIndemnity on tax attributes assumed in
—
—
—
—
76
—
—
acquisition
21) ......................
connection (seewithNotethe PurchaseTransaction
Dividends($0.26per common share)........
—
—
—
—
—
(193)
—
—
—
—
74
—
—
(see Note15).........................................
Indemnity
attributes31,
assumedin
Balanceonattax
December
2016 ...........
1,174 $—
(429) $ (5,563) $10,442 $4,869 $
(629)
connection with the Purchase
—
—
—
—
—
—
(see Note 15).....................
The accompanying1,174
notes
are an integral
partof these74Consolidated
Financial
Statements. (629)
Balance at December 31, 2016 ...........
$—(429) $ (5,563) $10,442 $4,869 $

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

42
41

42

Total
Shareholders’EquityTotal 6,622$
Shareholders’Equity

$

835
6,622
(371)

835
172
(371)
—
172
(66)
—
30
(66)
30
106
(147)

$

$

106
(147)
52
7,233

52
892
7,233
(330)
892
106
(330)
—
106
(83)
—
65
(83)
65
95
(170)
95
(170)
58

$

$

202
58
8,068

202
966
8,0684
966
105
4
—
105
(116)
—
(116)
135
76
135
(193)

$

$

76
(193)
74
9,119

74
9,119

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESACTIVISION BLIZZARD, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in millions)(Amounts in millions)

Cash flows from operating activities:
Cash
from
operating activities:
Netflows
income............................................................................................................................................................
Net
income ............................................................................................................................................................
Adjustments
to reconcile net income to net cash provided by operating activities:
Adjustments
to reconcile
income to net cash provided by operating activities:
Deferred income
taxesnet......................................................................................................................................
Deferredtaxes......................................................................................................................................
Provisionincome
for inventories..................................................................................................................................
Provision
for andinventories..................................................................................................................................
Depreciationamortization.........................................................................................................................
Depreciationamortization.........................................................................................................................
Amortization andof capitalized
softwaredevelopment costs and intellectual property licenses(1) ......................
Amortizationofcapitalized
softwaredevelopment
property licenses(1) ......................
Premium payment for early redemptionof note (seecosts
Noteand11)intellectual........................................................................
Premium
paymentfor
early
redemption
note and(seenon-cash
Note 11) ........................................................................
Amortization of debt discount, financingofcosts,
write-off due to extinguishment of debts .......
Amortizationof debt discount,financingcosts, and non-cash write-off due to extinguishment of debts .......
Share-based compensation
expense(2)............................................................................................................
Share-based
compensation expense(2) ............................................................................................................
Other .................................................................................................................................................................
Other .................................................................................................................................................................
Changesin operating assets and liabilities, net of effect from business acquisitions:
Changesin operating
assetsand liabilities, net of effect from business acquisitions:
Accounts
receivable,
net ..................................................................................................................................
Accounts
net ..................................................................................................................................
Inventoriesreceivable,........................................................................................................................................................
Inventories........................................................................................................................................................
Software development
and intellectual property licenses ................................................................................
Softwaredevelopment
and intellectual property licenses ................................................................................
Other assets......................................................................................................................................................
Other
assets......................................................................................................................................................
Deferred revenues ............................................................................................................................................
Deferred............................................................................................................................................
Accounts revenues
payable .............................................................................................................................................
Accounts
payable .............................................................................................................................................
Accrued expenses
and other liabilities .............................................................................................................
expensesother liabilities.............................................................................................................
NetAccrued
cash provided
by andoperatingactivities .............................................................................................................
Net
cash
providedbyoperatingactivities.............................................................................................................
Cash flows from investing activities:
Cashflows from
Proceeds
frominvesting
maturitiesactivities:
of available-for-sale investments .................................................................................
Proceeds
maturities of available-for-saleinvestments .................................................................................
Purchasesfromof available-for-saleinvestments .........................................................................................................
Purchasesofavailable-for-saleinvestments
Acquisition of business, net of cash
acquired.........................................................................................................
(see Note 21).................................................................................
Acquisitionof business,of cash ......................................................................................................................
acquired (see Note 21).................................................................................
Release (deposit)of cashnet
in escrow
Release(deposit) of cashin escrow ......................................................................................................................
Capital expenditures..............................................................................................................................................
Capitalexpenditures..............................................................................................................................................
Other investing
activities.......................................................................................................................................
Other
investing
Net cashused inactivities
investing.......................................................................................................................................
activities .....................................................................................................................
Netflows
cashfrom
used financing
in investing
activities .....................................................................................................................
Cashactivities:
Cashflows from
activities:
Proceeds
fromfinancing
issuance ofcommon stock to employees ......................................................................................
Proceeds
fromrelated
issuanceof common
stock to employees......................................................................................
Tax payment
to netshare settlementson restricted
stock rights ...............................................................
Tax
payment
relatedto net share settlements on restricted stock rights ...............................................................
Dividends
paid......................................................................................................................................................
Dividends
paiddebt......................................................................................................................................................
Proceeds fromissuances, net of discounts ....................................................................................................
Proceeds
fromdebt issuances,
net of discounts ....................................................................................................
Repaymentof long-term
debt................................................................................................................................
Repaymentof long-term
debtto................................................................................................................................
Debt financing
costs related
debt issuances ......................................................................................................
Debt
financingcosts
to debt issuances......................................................................................................
Premium
payment
forrelated
early redemptionof note(see Note 11) .............................................................................
Premium
payment fromfor early
redemptionof note (see(see Note
Note 19)11) .............................................................................
Proceeds received
shareholder
settlement.............................................................................
Proceeds
received fromshareholder
settlement(see..............................................................................................
Note 19) .............................................................................
Net cash providedby (usedin) financing
activities
Netof
cash
providedby (usedfinancing
activities..............................................................................................
Effectforeignexchange
ratein)changes
on cashand cashequivalents .....................................................................
Effectofforeignexchangeratechanges
on
cash
and
cash
equivalents .....................................................................
Net increase (decrease) in cash and cash equivalents ................................................................................................
Net(decrease)in cashand cashofequivalents................................................................................................
Cashincrease
and cashequivalents
at beginning
period .....................................................................................................
Cashof period.....................................................................................................
Cash andand cashcash equivalents
equivalents at
at beginningend of period...............................................................................................................
Cash and cash equivalents at end of period ...............................................................................................................
(1)(1)

Excludes deferral and amortization of share-based compensation expense.
Excludes deferral and amortization of share-based compensation expense.

(2)
(2)

Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense.
Includes the net effects of capitalization, deferral, and amortization of share-based compensation expense.

$
$

$
$

For the Years Ended
ForDecember
the Years 31,
Ended
December
20162015 31,
2014
2016
2015
2014
966 $
892 $
835
966 $
892 $
835
(9)
(27)
(44)
(9)
(27)
(44)
42
43
39
42
43
39
829
95
90
829
95
90
321
399
256
321
399
256
63
—
—
63
—
—
50
7
7
50
7
147
92
1047
1474
92
104
—
1
4
—
1
84
(40)
(177)
84
(40)
(177)
32
(54)
(2)
32
(54)
(2)
(362)
(350)
(349)
(362)
(350)
(349)
(10)
21
18
(10)
21
18
(35)
(27)
475
(35)
(27)
475
(50)
(25)
(12)
(50)
(25)
(12)
83
233
90
83
233
90
2,155
1,259
1,331
2,155
1,259
1,331
—
145
21
—
145
21
—
(145)
—
—
(145)
—
(4,588)(46)—(4,588)
(46)
—
3,561
(3,561)—
3,561(3,561)
—
(136)
(111)
(107)
(136)
(111)
(107)
(14)
2
2
(14)
2
2
(1,177)(3,716)(84)(1,177)(3,716)
(84)
106
106
175
106
106
175
(115)
(83)
(66)
(115)
(83)
(66)
(195)
(170)
(147)
(195)
(170)
(147)
6,878
—
—
6,878
—
—
(6,104)(250)(375)(6,104)
(250)
(375)
(7)
(7)
—
(7)
(7)
—
(63)
—
—
(63)
—
—
—
202
—
—
202
—
500
(202)
(413)
500
(202)
(413)
(56)
(366)
(396)
(56)
(366)
(396)
1,422
(3,025)438
1,422(3,025)
438
1,823
4,848
4,410
1,823
4,848
4,410
3,245 $
1,823 $
4,848
3,245 $
1,823 $
4,848

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

43
42
43

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements

1. Description of Business
1. Description of Business
Activision Blizzard, Inc. is a leading global developer and publisher of interactive entertainment content and services. We develop andActivision
Blizzard,
is a leading
developer
and publisher
of interactive
entertainment
contentpersonaland services.
We develop
distribute content
andInc.
services
acrossglobal
all of the
major gaming
platforms
including video
game consoles,
computers(“PC”),and
and mobilecontent
devices.
terms across“Activision
the “Company,”“us,”video
and “our”
used topersonalrefer collectively
distributeandTheservicesall of Blizzard,”
the major gaming
platforms“we,”includinggameareconsoles,computersto(“PC”),
andmobileBlizzard,
devices. The
Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to
Activision
Inc. terms
and its“Activisionsubsidiaries.
Activision Blizzard, Inc. and its subsidiaries.
The Company was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. We are theresultCompanyof the 2008
combination(thebyreincorporated
and among theinCompany
known as1992.
Activision,The
wasbusinessoriginallyincorporated
in“Business
CaliforniaCombination”)
in 1979 and was
Delaware(thenin December
We areInc.),
theresult of S.A.
the 2008
business andcombination(the “Business
Combination”)
byan
andamongwholly-owned
the Company subsidiary(then known
as Activision,
Vivendi(“Vivendi”),
Vivendi Games,
Inc. (“VivendiGames”),
indirectof Vivendi.
In Inc.),VivendiS.A.
(“Vivendi”),
and VivendiGames,
Inc.Combination,(“Vivendi Games”),
an indirect
wholly-owned
subsidiaryof Vivendi.
connection
withthe consummationof theBusiness
Activision,Inc., wasrenamed Activision
Blizzard,
Inc. In
connection with the consummation of the Business Combination, Activision, Inc., was renamed Activision Blizzard, Inc.
The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under the ticker symbol “ATVI.”The common stock of Activision Blizzard is traded on The NASDAQ Stock Market under the ticker symbol “ATVI.”The King Acquisition
The King Acquisition
On February 23, 2016 (the “King Closing Date”), we acquired King Digital Entertainment, a leading interactive mobile entertainment
company(“King”),
by (thepurchasing
all of itsDate”),
outstanding
shares (theAcquisition”),
as further
described
in Note21.entertainment
Our
On
February23, 2016“King Closing
we acquired
King“King
DigitalEntertainment,a leadinginteractive
mobilecompany(“King”),
by statementspurchasinginclude
all of itsthe
outstanding(the“King Acquisition”),
asClosingfurther describedin Note 21. Ourconsolidated
financial
operationssharesof Kingcommencing
on the King
Date.
consolidated financial statements include the operations of King commencing on the King Closing Date.
Our Reportable Segments
Our Reportable Segments
Based on our organizational structure, we conduct our business through three reportable operating segments as follows:
Based on our organizational structure, we conduct our business through three reportable operating segments as follows:(i) Activision Publishing, Inc.
(i) Activision Publishing, Inc.
Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher of interactive software products andentertainment
content, particularly
in console
Activision
primarily
throughsoftware
retail channels
or anddigitalActivision
Publishing,Inc. (“Activision”)
is a gaming.
leading global
developerand delivers
publishercontent
of interactive
products
entertainment
content,full-gameparticularly
in console
gaming.
Activision
primarily
delivers
content throughretail channels
or digital
downloads, including
sales
and in-game
purchases,
as wellas licensesof softwareto third-partyor related-party
companies
downloads,
includingfull-gamesales
and in-game
purchases,
as wellas licenses
of which
softwarethird-partybasedor related-party
companiesthat
distribute
Activision
products.
Activisiondevelops,
marketsand sells
products
aretoprincipallyon ourinternally-developed
intellectual
properties,
asdevelops,
well as somelicensedproperties.
Additionally,
we have establisheda long-term
that
distribute Activision
products.
Activisionmarketsand sells
products
which are principally
based on ourinternally-developed
as wellDestiny.
as some licensed properties. Additionally, we have established a long-term
alliance with Bungie intellectual
to publish itsproperties,
game universe,
alliance with Bungie to publish its game universe, Destiny.
Activision’s key product franchises include: Call of Duty®, a first-person shooter for the console and PC platforms; Destiny, an online®
universe of first-person
gameplay(whichfortheconsoleplatforms;
and Skylanders, a ankid’s
Activision’s
key productaction
franchises
include:Callweof callDutya®“shared-world, a first-person shooter”)
shooter forconsoleand PC platforms;
Destiny,
onlineuniverseof first-person
actiongameplay(whichwe call ina “shared-world
shooter”)
for console
platforms; and Skylanders®, a kid’s
game
franchisethat brings
physicaltoys tolife digitally
the game primarily
for console
platforms.
game franchise that brings physical toys to life digitally in the game primarily for console platforms.
(ii) Blizzard Entertainment, Inc.
(ii) Blizzard Entertainment, Inc.
Blizzard Entertainment, Inc. (“Blizzard”) is a leading global developer and publisher of interactive software products andBlizzard Entertainment,
Inc. (“Blizzard”)
is a leading
globalprimarily
developer
and publisher
interactive
entertainment
content, particularly
in PC gaming.
Blizzard
delivers
content ofthroughretail software
channelsproducts
or digitaland
downloads,
entertainment
content, particularly
in PC andgaming.
Blizzard
primarily
delivers
contentofthroughretailchannels or
including
subscriptions,full-game sales,
in-gamepurchases,
as wellas licenses
softwareto third-party
ordigital
relateddownloads,
party
companiesthat distributefull-gameBlizzard products.
maintains
a proprietary
gamingtoservice
whichorfacilitates
digitalincluding subscriptions,sales, and Blizzard
in-game alsopurchases,
as wellas licensesonlineof software
third-party
related party
companies that
distributecontent,
Blizzard
products.
also maintains
proprietary
onlineservicewhich facilitatescontent
digitalfor
distributionof Blizzard
onlinesocialBlizzard
connectivity
across all aBlizzard
games,
andgaming
the creationof user-generated
distributiongames.
of Blizzard content, online social connectivity across all Blizzard games, and the creation of user-generated content for
Blizzard’s
Blizzard’s games.
Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-playing game® ®
®
Blizzard’s
productof Warcraft, a ,subscription-based
massivemulti-player
onlinerole-playing
gamefor the PC;key
StarCraft, afranchises
real-time include:
strategy World
PC franchise;
Diabloan action role-playing
franchisefor PC andconsoleplatforms;
®
®
®
for
the PC; StarCraft, a collectible
real-time strategy
PC franchise;an actionrole-playing
franchisefor PC
console platforms;
Hearthstone, an online
card franchisefor the Diablo
PC and®,mobile
platforms;
Heroesof the Storm, anda free-to-playteam brawler®
®
for the PC; and, a team-based
first person
shooter
formobilethe PCplatforms;
and console
platforms.
Hearthstone, anOverwatch
online collectible
card franchisefor thePC andHeroesof the Storm®, a free-to-play team brawler
for the PC; and Overwatch®, a team-based first person shooter for the PC and console platforms.
(iii) King Digital Entertainment(iii) King Digital Entertainment
King Digital Entertainment (“King”) is a leading global developer and publisher of interactive entertainment content and services,
particularly
mobile platforms,
suchisasa leading
Androidglobal
and iOS.
King also
its interactive
content andentertainment
services on onlinesocialplatforms,
King
Digitalon
Entertainment(“King”)
developer
anddistributes
publisher ofcontent
and services,
particularly
on mobileplatforms,
such
as Android
andgames
iOS. King
also distributes
its content
andservicesonline social
suchas Facebook
and theking.comwebsites.
King’sare free-to-play,however
playerscanacquireonin-gamevirtualplatforms,
items, either
such virtualas Facebook
andthetheplayers
king.comwebsites.
King’s games
are free-to-play,withcurrency
purchase,or directly
using realcurrency. however players can acquire in-game virtual items, eitherwith virtual currency the players purchase, or directly using real currency.
44
43
44

King’s key product franchises, all of which are for the PC and mobile platforms, include: Candy Crush™, which features “match
three” games; Farm Heroes™, which also features “match three” games; Pet Rescue™, which is a “clicker” game; and Bubble
Witch™, which features “bubble shooter” games.
(iv) OtherWe also engage in other businesses that do not represent reportable segments, including:•

The Major League Gaming (“MLG”) business (which we formerly referred to as Activision Blizzard Media Networks orMedia Networks), which is devoted to esports and builds on our competitive gaming efforts by creating ways to deliver a
best-in-class fan experience across games, platforms, and geographies with a long-term strategy of monetization throughadvertising, sponsorships, tournaments, and premium content.

•

The Activision Blizzard Studios (“Studios”) business, which is devoted to creating original film and television content
based on our library of globally recognized intellectual properties, and, in October 2016, released the first season of theanimated TV series Skylanders™ Academy on Netflix.

•

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

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,
to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.
Cost of revenues presentation
In periods prior to the second quarter of 2016, we presented cost of revenues in our consolidated statements of operations in four
financial statement captions: “Cost of sales—product costs,” “Cost of sales—online,” “Cost of sales—software royalties andamortization,” and “Cost of sales—intellectual property licenses.” Since the second quarter of 2016, we have revised the presentationin our consolidated statements of operations to more clearly align our costs of revenues with the associated revenue captions asfollows:
Cost of revenues—product sales:(i)“Product costs”—includes the manufacturing costs of goods produced and sold. These generally include productcosts, manufacturing royalties, net of volume discounts, personnel-related costs, warehousing, and distribution costs.
We generally recognize volume discounts when they are earned (typically in connection with the achievement ofunit-based milestones).

(ii)“Software royalties, amortization, and intellectual property licenses”—includes the amortization of capitalized
software costs and royalties attributable to product sales revenues. These are costs capitalized on the balance sheet
until the respective games are released, at which time the capitalized costs are amortized. Also included isamortization of intangible assets recognized in purchase accounting attributable to product sales revenues.

Cost of revenues—subscription, licensing, and other revenues:(i)“Game operations and distribution costs”—includes costs to operate our games, such as customer service, internet
bandwidth and server costs, platform provider fee, and payment provider fees.

(ii)“Software royalties, amortization, and intellectual property licenses”—includes the amortization of capitalized
software costs and royalties attributable to subscription, licensing and other revenues. These are costs capitalized on
the balance sheet until the respective games are released, at which time the capitalized costs are amortized. Also
included is amortization of intangible assets recognized in purchase accounting attributable to subscription, licensing
and other revenues.
45
44

Prior periods have been reclassified to conform to the current presentation.
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“Other current assets.” In addition, investments with maturities beyond one year may be classified within “Other current assets” ifthey 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 expense (income), 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 consolidatedbalance sheet.
Financial Instruments
The carrying amounts of “Cash and cash equivalents,” “Accounts receivable, net of allowances,” “Accounts payable,” and “Accrued
expenses and other liabilities” approximate fair value due to the short-term nature of these accounts. Our investments in the UnitedStates of America (“U.S.”) treasuries, government agency securities, and corporate bonds, if any, are carried at fair value, which isbased 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,” or“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 arerecorded 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 loss” and subsequently reclassifies the related amount of accumulated other comprehensive loss toearnings within “General and administrative” or “Net revenues” when the hedged item impacts earnings, consistent with the natureand timing of the underlying transactions. 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, ifany, 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.
46
45

Concentration of Credit Risk
Our
concentrationof creditrisk relates to depositors holding the Company’s cash and cash equivalents and customers with significant
Concentrationof Credit
Risk
accounts receivable balances.
Our concentration of credit risk relates to depositors holding the Company’s cash and cash equivalents and customers with significant
Ourcash receivableand cash equivalents
accountsbalances. 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 cash and cash equivalents are invested primarily in money market funds consisting of short-term, high-quality debt instruments
Ourcustomerbase includes
retailers and distributors,
includingmass-market
consumerelectronics customer
stores, discountissuedby governments
and governmentalorganizations,financial
institutionsretailers,and industrial
companies.Our
base includes
warehouses,
game specialty
storesin the U.S.retailers,and othercountrieselectronics
worldwide.
We perform
creditandevaluationsof our storesretailers and anddistributors,
includingmass-market
consumerstores,discountongoing
warehouses,
game specialty
customers
allowances
for potential
credit losses.
Wecredit
generally
do not ofrequirecollateral andor othersecurity
from ourfor
in the U.S.and
andmaintainother countries
worldwide.
We performongoing
evaluations
our customers
maintainallowances
customers.
potential credit losses. We generally do not require collateral or other security from our customers.
For the year ended December 31, 2016, we had two customers, Sony Interactive Entertainment Inc. (“Sony”), and Apple, Inc., whoeach accounted for 13% of net revenues. For the year ended December 31, 2015, we had two customers, Sony and Microsoft
Corporation (“Microsoft”), who accounted for 12% and 10%, respectively, of net revenues. We did not have any single customer that
accounted for 10% or more of net revenues for the year ended December 31, 2014.
We hadhad three
threecustomers—Sony,customers—Sony,Microsoft,
Microsoft,andandWal-Mart
Wal-Mart
Stores,Inc.—who
accounted
for 17%,and 10%,respectively,ofStores,Inc.—who
accounted
for 17%,
10%,10%,and 10%,respectively,ofconsolidated gross
gross receivables
receivablesatatDecember
December31,
31,2016,
2016,and
and
18%,
13%,
11%,
respectively,of consolidated
receivables
at
18%,
13%,
andand11%,
respectively,of consolidated
grossgrossreceivables
atDecember 31, 2015.
Software Development Costs and Intellectual Property Licenses
Software development costs include payments made to independent software developers under development
development agreements,
agreements, as
as wellwell asasdirect 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 requires both
both technicaldesign documentation and game design documentation, or the completed and tested product design and a working
working model.
model. Significant
Significant
management judgments and estimates areare utilized
utilized inin thethe assessment
assessment ofof whenwhen technological
technologicalfeasibility
feasibilityisisestablishedestablishedandandthetheevaluation
evaluation
is on
performed
on a product-by-productbasis. Forwhere
products
whereproven technology
this mayin theis performeda product-by-productbasis. For products
proventechnology
exists, this exists,
may occur
earlyoccur
in theearly
development
cycle. Softwaredevelopment
costs related tohostedservicerevenuearrangements
are capitalizedareafter
the preliminary
phase isdevelopment
cycle.
Software development
costs
relatedto hosted
servicerevenue arrangements
capitalized
after theproject
preliminary
projectphasecompleteit theis probablethat bethecompleted
project will
bethe
completed
will be used
to performthe function
complete
and isit isprobableandthat
project will
andsoftwareand
willthebe software
used to performthe function
intended.
Prior to aintended.
to aifproduct’s
if andwhen we costs
believecosts arerecoverable,
we expense
amounts
product’s Prior
release,and whenrelease,
we believe
capitalized
arecapitalized
not recoverable,
we notexpensethe amounts
as part theof “Costof as part ofrevenues—software
royalties,royalties,
amortization,and intellectual
property property
licenses.”licenses.”Capitalized
costs for costs
products
that are canceled“Costof revenues—softwareamortization,and intellectual
Capitalized
for productsthat are or are
expected or
to be
to “Productdevelopment”
the period of incancellation.
Amounts
relatedAmounts
to software
canceled
areabandoned
expected toarebecharged
abandoned
are charged
to “Productindevelopment”
the period ofcancellation.
related tosoftwaredevelopment
are not capitalized
areimmediately
charged immediately
to “Productdevelopment.”
development
which arewhich
not capitalized
are charged
to “Productdevelopment.”
Commencing upon a product’s release, capitalized software development costs are amortized to “Cost of revenues—software
royalties, amortization, and intellectual property licenses” based on the ratio of current revenues to total projected revenues for the
specific product, generally resulting in an amortization period of six months to approximately 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
rights holder,holder, we
we maymay obtainobtain thethe right
right toto useusethetheintellectual
intellectualproperty
property inin multiple
multiple products
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 revenues—software royalties, amortization, and intellectual property
licenses.” Capitalized intellectual property costs
costs forfor products
products thatthat areare canceled
canceled oror areare expected
expectedto
tobebeabandoned
abandonedarearecharged
chargedtoto“Product development” in the period of cancellation.
Commencing upon a product’s release, capitalized intellectual property license costs are amortized to “Cost of revenues—software
royalties, amortization, and 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
property licenselicense contracts
contracts may
may
extend for multiple years and can be used in multiple products to be released over a period beyond one year, the amortization ofcapitalized intellectual property license costs relating to such contracts
contracts may
may extend
extend beyond
beyond one
one year.
year.
We evaluate the future
future recoverability
recoverabilityof
ofcapitalized
capitalizedsoftware
softwaredevelopment
developmentcosts
costsandandintellectual
intellectualproperty
propertylicenses
licensesa quarterly
onon
a quarterly
basis.
basis.
For products
thatbeen
havereleased
been released
prior periods,
the primaryevaluation
criterionis the actual
performanceof theto
For productsthat havein priorinperiods,
the primaryevaluation
criterionis the actual
performanceof the title
to title
which
which
therelate.
costs relate.
For products
are scheduled
to be releasedin future
periods,
recoverability
is evaluatedthethe costs
For productsthat arethat
scheduled
to be releasedin future
periods,
recoverability
is evaluatedbased basedon the on
expected
expected
performanceof theproducts
specific toproducts
to whichthe costs
relateor thein whichthetrademark
licensed trademark
or copyrightis toCriteria
be used.
performanceof the specificwhich thecosts relate
or in
which
licensedor copyrightis to be used.
Criteria
used to evaluate
product performance
performanceof comparable
developed
withused to evaluate
expectedexpected
product performance
include: include:
historicalhistoricalperformanceof comparable
productsproducts
developedwith comparable
comparable
market performanceof titles;
comparable
for prior
the productprior togeneral
its release;generalmarketand, fortechnology; technology;
market performanceof comparable
orderstitles;
for theorders
product
to its release;marketconditions;conditions;and, for any
sequelperformance
product, estimatedperformancebased ofon thethe productperformanceof thewhich Further,
the sequel
based.
any sequel product,
estimatedbased onthe performanceon whichtheproductsequel on
is based.
as ismanyof
Further,
as manyof our capitalized
property
licenses products
extend for
multipleproducts
multiple
we also assess
our capitalized
intellectual
propertyintellectual
licenses extend
for multipleovermultipleyears, over
we alsoassessyears,
the recoverabilityof therecoverabilityof capitalized
intellectual
property
licensecosts qualitative
based on certain
qualitative
factors,such
as theproducts
success ofothercapitalized intellectual
property
license costs
based
on certain
factors,
such as the
successof other
and/orproducts
and/orvehicles
entertainment
utilizingproperty,
the intellectual
property,
thereplanned
are anytheatricalfuture planned
theatricalreleasesorentertainment
utilizingvehicles
the intellectual
whether
there arewhether
any future
releasesor televisionseriesseriesbased onproperty,
the intellectualand thecontinued
rights holder’scontinued
promotion andexploitation
the intellectual
television
based on theintellectualand theproperty,
rights holder’spromotionand exploitationof theintellectualofproperty.
property.
Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating the
Significant
management
judgments
andassessment
estimates are
utilized inassessing
the recoverabilityof capitalized
In evaluating
the ofrecoverabilityof capitalized
costs, theof expected
product
performanceutilizes forecasted
salescosts.
amountsand estimatesrecoverability
costs,
the assessmentof or
expected
productsales
performanceutilizes
sales amounts
and estimatesof
additional costsoftocapitalized
be incurred.
If revised
forecasted
actual productare less than
the forecasted
originally forecasted
amounts
utilized inadditionalcosts to be incurred.
If revised
forecastedvalue
or actual
sales
less thanestimatedthe originallyamounts
utilized
the initial recoverability
analysis,the net realizablemayproductbe lower
thanareoriginallyin anyforecasted
given quarter,
which
couldinthe initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could
47
46
47

our capitalized intellectual property licenses extend for multiple products over multiple years, we also assess the recoverability ofcapitalized intellectual property license costs based on certain qualitative factors, such as the success of other products and/or
entertainment vehicles utilizing the intellectual property, whether there are any future planned theatrical releases or television series
based on the intellectual property, and the 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 matters resolve
in a manner that is inconsistent with management’s expectations.
Inventories

47

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 31.
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, 2016 and 2015, 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, 2016, 2015 and 2014 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, 2016, 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.
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.
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.
We evaluate 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 a potential
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 did not record an impairment charge toour definite-lived intangible assets as of December 31, 2016, 2015, and 2014.
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.

47

Revenue Arrangements with Multiple Deliverables
Certain of our revenue arrangements have multiple deliverables, which we account for in accordance with ASC Topic 605. Theserevenue arrangements include product sales consisting of both software, service (such as ongoing hosting arrangements), andhardware deliverables (such as peripherals or other ancillary collectors’ items sold together with physical “boxed” software).
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 a deliverable is based on its vendor-specificobjective evidence (“VSOE”) if it is available, third-party evidence (“TPE”) if VSOE is not available, or best estimated selling price(“BESP”) if neither VSOE nor TPE is available. In multiple element arrangements where more-than-incidental software deliverables
are included, revenue is allocated to each separate unit of accounting for each of the non-software deliverables and to the softwaredeliverables as a group using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned
selling price hierarchy. Further, if the arrangement contains more than one software deliverable, the arrangement consideration
allocated to the software deliverables as a group is then allocated to each software deliverable using the guidance 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 required using BESP for the years ended December 31, 2016, 2015, and 2014. The inputs we use to determine theselling price of our significant deliverables include the actual price charged by the Company for deliverables that the Company sells
separately (which represents VSOE) and the wholesale prices of the same or similar products for deliverables not sold separately(which represents TPE).
Product Sales
Product sales consist of sales of our games, including physical products and digital full-game downloads. We recognize revenues fromthe sale of our products after both (1) title and risk of loss have been transferred to our customers and (2) all performance obligations
have been completed. With respect to digital full-game downloads, this is when the product is available for download or is activatedfor gameplay. Revenues from product sales are recognized after deducting the estimated allowance for returns and price protection.
Sales incentives and other consideration given by us to our customers, such as rebates and product placement fees, are consideredadjustments of the selling price of our products and are reflected as reductions to revenues. Sales incentives and other considerationthat represent costs incurred by us for assets or services received, such as the appearance of our products in a customer’s national
circular ad, are reflected as sales and marketing expenses when the benefit from the sales incentive is separable from sales to the same
customer and we can reasonably estimate the fair value of the benefit.
Products with Online Functionality or Hosted Service Arrangements
For our software products with online functionality or that are part of a hosted service agreement, we evaluate whether that online
functionality 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 downloadable content), when it is released. Determining whether
the online functionality for a particular product 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. In addition, VSOE of fair value does not exist for the
online functionality of some products, as we do not separately charge for this component. As a result, we initially defer all of thesoftware-related revenues from the sale of any such title (including downloadable content) and recognize the revenues ratably over theestimated service period of the title. In addition, we initially defer the cost of revenues for the title and recognize the costs of sales as
the related revenues are recognized. The cost of revenues that are initially deferred 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 the49
48

subscription 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
In certain countries, we utilize third-party licensees to distribute and host our games in accordance with license agreements, for which
the licensees pay the Company a royalty. We recognize these royalties as revenues based on usage by the end user and over theestimated service period when we have continuing service obligations. We recognize any upfront licensing fees received over the termof the agreements.
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 if all other performance obligations have been completed or over theestimated service period when we have continuing service obligations. Per copy royalties on sales that exceed the guarantee arerecognized 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 and currencies to our players to enhance their gameplay
experience. Proceeds from the sales of virtual goods and currencies are initially recorded in deferred revenues. Proceeds from the salesof virtual currencies are recognized as revenues when a player uses the virtual goods purchased with the virtual currency. Proceedsfrom the sales of virtual goods directly are also recognized as revenues when a player uses the virtual goods. We categorize our virtual
goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action;accordingly, we recognize revenues from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods
represent goods that are accessible to the player over an extended period of time; accordingly, we recognize revenues from the sale ofdurable virtual goods ratably over the period of time the goods are available to the player, which is 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.
Estimated Service Period
We determine the estimated service period for players of 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 daysin 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, the service periods of our previously released games, and the service periods of ourcompetitors’ games that are similar in nature to ours, to the extent they are publicly available. Determining the estimated service
period is subjective and requires management’s judgment. Future usage patterns may differ from historical usage patterns andtherefore the estimated service period may change in the future. The estimated service periods for players of our current games are
generally less than 12 months.
Allowances for Returns, Price Protection, and Doubtful Accounts
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 receive priceprotection credits include, among other things, compliance with applicable trading and payment terms and consistent return of
inventory and delivery of sell-through reports to us. We may also consider other factors, including achievement of sell-throughperformance targets in certain instances, the facilitation of slow-moving inventory, and other market factors.
Significant management judgments and estimates with respect to potential future product returns and price protection related tocurrent period product revenues must be made and used when establishing the allowance for returns and price protection in any
accounting period. 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;50
49

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 the performance of competing titles. The relative importanceof these factors varies among titles depending upon, among other things, 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. There may be material differences in the amount and timing of our revenues for any period if factors ormarket conditions change or if matters resolve in a manner that is inconsistent with management’s assumptions utilized 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.
Allowance for Inventory Obsolescence
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.
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 revenues—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, 2016, 2015,
and 2014 were $641 million, $523 million, and $495 million, respectively, and are included in “Sales and marketing” 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 who have a functional currency other than U.S. dollars 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 are reflected as a component of “Accumulated other comprehensive loss” inshareholders’ equity.
Earnings Per Common Share“Basic earnings 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.
51
50

When we determine whether instruments granted in share-based payment transactions are participating securities, unvested
share-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.
Share-Based Payments
We account for share-based payments in accordance with ASC Subtopic 718-10 and ASC Subtopic 505-50. Share-based
compensation expense for a given grant is recognized over the requisite service period (that is, the period for which the employee isbeing compensated) and is based on the value of share-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 generally estimate the value of stock options using a binomial-lattice model. This estimate is affected by our stock price, as well asassumptions regarding a number of highly complex and subjective variables, including our expected stock price volatility over theterm of the awards, and actual and projected employee stock option exercise behaviors.
We generally determine the fair value of restricted stock rights based on the closing market price of the Company’s common stock on
the date of grant, reduced by the present value of the estimated future dividends during the vesting period in which the restricted stockrights holder will not participate. Certain restricted stock rights granted to our employees and senior management vest based on theachievement of pre-established performance or market conditions. For performance-based restricted stock rights, 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, adjusting for estimated forfeitures for each separately
vesting tranche of the award. For market-based restricted stock rights, we estimate the fair value at the date of grant using a Monte
Carlo valuation methodology and amortize those fair values over the requisite service period, adjusting for estimated forfeitures foreach 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 the market 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 share-based compensation grants that are liability classified, we update our grant date valuation at each reporting period andrecognize a cumulative catch-up adjustment for changes in the value related to the requisite service already rendered.
Loss Contingencies
ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims.
We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably
estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss
is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, even if an
accrual is not required, we provide additional disclosure related to litigation and other claims when it is reasonably possible (i.e., morethan remote) that the outcomes of such litigation and other claims include potential material adverse impacts on us.
3. Cash and Cash Equivalents
The following table summarizes the components of our cash and cash equivalents (amounts in millions):
At December 31,
2016
2015

Cash ..................................................................................................................................
$
286 $Foreign government treasury bills .................................................................................... 38
Money market funds .........................................................................................................2,921
Cash and cash equivalents ...................................................................................... $ 3,245 $

176
34
1,613
1,823

4. Inventories, Net
Our inventories, net consist of the following (amounts in millions):At
December 31,
2016
2015

Finished goods ...........................................................................................................................
$
40 $Purchased parts and components ...............................................................................................
9Inventories, net ..........................................................................................................................
$
49 $

101
27
128

At December 31, 2016 and 2015, inventory reserves were $45 million and $54 million, respectively.
5. Software Development and Intellectual Property Licenses

52
51

The following table summarizes the components of our capitalized software development costs and intellectual property licenses

Inventories, net ..........................................................................................................................
$
49 $

128

At December 31, 2016 and 2015, inventory reserves were $45 million and $54 million, 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,
2016
2015

Internally-developed software costs ..........................................................................................
$
277 $Payments made to third-party software developers ..................................................................
189
Total software development costs .............................................................................................
$
466 $Intellectual property licenses.....................................................................................................
$
2 $

266
150
416
30

Intellectual property licenses are classified within “Other current assets” and “Other assets” in our consolidated balance sheets.
Amortization of capitalized software development costs and intellectual property was the following (amounts in millions):

Amortization of capitalized software development costs and intellectual property licenses......

For the Years Ended
December 31,
2016
2015
2014

$ 335 $ 410 $ 272

Write-offs and impairments of capitalized software development costs and intellectual property licenses were not material for theyears ended December 31, 2016, 2015, and 2014.
6. Property and Equipment, Net
Property and equipment, net was comprised of the following (amounts in millions):
At December 31,
2016
2015

Land ..................................................................................................................................
$
1 $Buildings ...........................................................................................................................
4
Leasehold improvements .................................................................................................. 162
Computer equipment ........................................................................................................ 560
Office furniture and other equipment ............................................................................... 78
Total cost of property and equipment ........................................................................... 805
Less accumulated depreciation .........................................................................................(547)Property and equipment, net .........................................................................................
$
258 $

1
4
109
431
52
597
(408)
189

Depreciation expense for the years ended December 31, 2016, 2015, and 2014 was $121 million, $82 million, and $76 million,
respectively.
Rental expense was $65 million, $39 million and $38 million for the years ended December 31, 2016, 2015, and 2014, respectively.
7. Intangible Assets, Net
Intangible assets, net consist of the following (amounts in millions):
At December 31, 20165352

respectively.
Rental expense was $65 million, $39 million and $38 million for the years ended December 31, 2016, 2015, and 2014, respectively.
7. Intangible Assets, Net
Intangible assets, net consist of the following (amounts in millions):

Acquired definite-lived intangible assets:
Internally-developed franchises .............................................
Developed software ................................................................
Customer base ........................................................................
Trade names ...........................................................................
Other .......................................................................................
Total definite-lived intangible assets .........................................
Acquired indefinite-lived intangible assets:
Activision trademark ..............................................................
Acquired trade names .............................................................
Total indefinite-lived intangible assets ......................................
Total intangible assets, net .........................................................

At December 31, 2016
Gross
carrying
Accumulated
amountamortization

Estimated
usefullives

53

3 - 11 years
3 - 5 years
2 years
7 - 10 years
1 - 8 years

$

$

1,154
595
617
54
18
2,438

$

$

Net
carrying
amount(583) $
(145)
(266)
(8)
(11)
(1,013) $

571
450
351
46
7
1,425

$
$

386
47
433
1,858

Indefinite
Indefinite

At December 31, 2015
Gross
carrying
Accumulated
amountamortization

Estimated
usefullives

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

1 - 10 years
11 years
5 years

$

116
309
15
440

$

$
$

Net
carrying
amount

(93)
(298)
—
(391)

Indefinite
Indefinite

$
$

23
11
15
49

$
$

386
47
433
482

The balances of intangible assets presented in the table above at December 31, 2016, does not include license agreement intangible
assets that were fully amortized at December 31, 2015, and hence have been removed from the December 31, 2016 balances, aspresented. Amortization expense of intangible assets was $708 million, $13 million, and $13 million for the years ended December 31,
2016, 2015, and 2014, respectively.
At December 31, 2016, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):2017 ....................................................................................................................................................
$
756
2018 ....................................................................................................................................................
361
2019 ....................................................................................................................................................
216
2020 ....................................................................................................................................................722021 ....................................................................................................................................................11
Thereafter ........................................................................................................................................... 9
Total .................................................................................................................................. $We did not record any impairment charges against our intangible assets for the years ended December 31, 2016, 2015, and 2014.
8. Goodwill
The changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2016 and 2015, are as
follows (amounts in millions):
Balance at December 31, 2014 .........................................................
Additions through acquisition .......................................................
Other .............................................................................................
Balance at December 31, 2015 .........................................................
Additions through acquisition .......................................................
Other .............................................................................................
Balance at December 31, 2016 .........................................................
53

$
$
$

Activision

6,908
—
(3)
6,905
—
(2)
6,903

$
$
$

Blizzard

178 $
—
—
178 $
—
—
178 $

King

Other

— $
—
—
— $
2,675
—
2,675 $

— $
12
—
12 $
—
—
12 $

Total

7,086
12
(3)
7,095
2,675
(2)
9,768

We did not record any impairment charges against our intangible assets for the years ended December 31, 2016, 2015, and 2014.
8. Goodwill
The changes in the carrying amount of goodwill by operating segment for the years ended December 31, 2016 and 2015, are as
follows (amounts in millions):
Balance at December 31, 2014 .........................................................
Additions through acquisition .......................................................
Other .............................................................................................
Balance at December 31, 2015 .........................................................
Additions through acquisition .......................................................
Other .............................................................................................
Balance at December 31, 2016 .........................................................

$$$

Activision

6,908
—
(3)
6,905
—
(2)
6,903

$
$
$

Blizzard

178 $
—
—
178 $
—
—
178 $

King

— $
—
—
— $
2,675
—
2,675 $

Other

— $
12
—
12 $
—
—
12 $

Total

7,086
12
(3)
7,095
2,675
(2)
9,768

For 2015, the addition to goodwill through acquisition is attributed to the acquisition of the business of MLG. For 2016, the addition
to goodwill through acquisition is attributed to the King Acquisition (see Note 21). At December 31, 2016 and 2015, there were no
accumulated impairment losses.
54
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 revenues of $186 million and $216 million at
December 31, 2016 and 2015, respectively.
Included in “Accrued expenses and other liabilities” of our consolidated balance sheets are accrued payroll-related costs of$393 million and $246 million at December 31, 2016 and 2015, respectively.
10. Fair Value Measurements
FASB literature regarding fair value measurements for certain assets and liabilities establishes a three-level fair value hierarchy thatprioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of “observable inputs” andminimize the use of “unobservable inputs.” The three levels of inputs used to measure fair value are as follows:•

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

Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or
liabilities in active markets or other inputs that are observable or can be corroborated by observable market data; and•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair valueof the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniquesthat use significant unobservable inputs.

Fair Value Measurements on a Recurring Basis
The table below segregates all of our financial assets and liabilities that are measured at fair value on a recurring basis into the mostappropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date,generally including money market funds, treasury bills, available-for-sale and derivative financial instruments, and other investments(amounts in millions):54

At December
value of these contracts was $4 million of net unrealized losses as of December 31, 2015.
At Decemberof these contracts was $22 million of net unrealized gains with remaining maturities of 12
December 31, 2016, we had $7 million of net realized but unrecognized gains recorded within
income (loss)”the associated hedged revenues. Such amounts will be reclassified into earnings within the

Fair Value Measurements at
December 31, 2016 Using
QuotedPrices in
Significant
ActiveOther
Markets for
Significant
Observable
Identical
Unobservable
InputsAssets
Inputs(Level 1)(Level 2)(Level 3)

As ofDecember 31,
2016

Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)

Financial Assets:
Recurring fair value measurements:
Money market funds .....................................
Foreign government treasury bills ................
Foreign currency forward contracts
designated as hedges .................................
Auction rate securities (“ARS”) ....................
Total recurring fair value measurements ......

For the years ended December 31, 2016, 2015, and 2014, pre“General and administrative expenses” and were not material.
$

2,921
38

$

2,921
38

$

December 31, 2015, and recorded in “Other current assets” in our consolidated balance sheet.
22
9
2,990

—
—
2,959

At December 31, 2015, the gross notional amount of outstanding
approximately $489 million. During the year ended December 31, 2015, we reclassified $8“Accumulated other comprehensive income (loss)” and into earnings due to dedesignating $250$$$

Balance SheetClassification— $—— Cash and cash equivalents— Cash and cash equivalents

22
—
22 $

— Other current assets
9 Other assets
9

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

At December

Foreign Currency Forward Contracts Not Designated as Hedges
Foreign Currency Forward Contracts

Financial Assets:
Recurring fair value measurements:
Money market funds .....................................
Foreign government treasury bills ................
Foreign currency forward contracts
not designated as hedges ...........................
ARS ...............................................................
Total recurring fair value measurements.......

As ofDecember 31,
2015

ARS represented the only levelyears ended December 31, 2016, 2015, and 2014.
$

1,613
34

$

1,613
34

$

Financial Liabilities:
Foreign currency forward contracts
designated as hedges .................................
$

11
9
1,667

$

(4)

— $
—

— Cash and cash equivalents— Cash and cash equivalents— Other current assets
9 Other assets
9
Accrued expenses and other— liabilities

$

—
—
1,647

$

11
—
11 $

$

—

$

(4) $

Financial Assets:
Recurring fair value measurements:
Money market funds .....................................
Foreign government treasury bills ................
Foreign currency forward contracts
not designated as hedges ...........................
ARS ...............................................................
Total recurring fair value measurements.......

$

$

(4)

11
9
1,667

$

$

—

—
—
1,647

$

$

Financial Liabilities:
Foreign currency forward contracts
designated as hedges .................................

Balance SheetClassification

$

1,613
34

$

1,613
34

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, 2016, 2015, and 2014.
As ofDecember 31,
2015

(4)
11
—
11
—

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

Foreign Currency Forward Contracts

Foreign Currency Forward Contracts Not Designated as Hedges
At December 31, 2016, we did not have any outstanding 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 fair value of these foreign currency forward contracts was $11 million as ofDecember 31, 2015, and recorded in “Other current assets” in our consolidated balance sheet.
Financial Assets:
Recurring fair value measurements:
Money market funds .....................................
Foreign government treasury bills ................
Foreign currency forward contracts
designated as hedges .................................
Auction rate securities (“ARS”) ....................
Total recurring fair value measurements ......

$

$

22
9
2,990
2,921
38

$

$

—
—
2,959

$

2,921
38

For the years ended December 31, 2016, 2015, and 2014, pre-tax net gains associated with these forward contracts were recorded in“General and administrative expenses” and were not material.
As of
December 31,
2016

22
—
22
—

Fair Val
December 31, 2016 Using
QuotedPrices in
ActiveSignificant
Markets for
Other
Identical
Observable
Assets
Inputs(Level 1)(Level 2)

Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)

At December 31, 2016, the gross notional amount of outstanding Cash Flow Hedges was approximately $346 million. The fair valueof these contracts was $22 million of net unrealized gains with remaining maturities of 12 months or less. Additionally, at
December 31, 2016, we had $7 million of net realized but unrecognized gains recorded within “Accumulated other comprehensive
income (loss)” associated with contracts that settled during the year but were deferred and will be amortized into earnings along withthe associated hedged revenues. Such amounts will be reclassified into earnings within the next twelve months.

At December 31, 2015, the gross notional amount of all outstanding Cash Flow Hedges was approximately $381 million. The fairvalue of these contracts was $4 million of net unrealized losses as of December 31, 2015.
56

55

For the years ended December 31, 2016, 2015, and 2014, 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 (“Cash Flow Hedges”)
At December 31, 2016, the gross notional amount of outstanding Cash Flow Hedges was approximately $346 million. The fair valueof these contracts was $22 million of net unrealized gains with remaining maturities of 12 months or less. Additionally, at
December 31, 2016, we had $7 million of net realized but unrecognized gains recorded within “Accumulated other comprehensive
income (loss)” associated with contracts that settled during the year but were deferred and will be amortized into earnings along withthe associated hedged revenues. Such amounts will be reclassified into earnings within the next twelve months.
At December 31, 2015, the gross notional amount of all outstanding Cash Flow Hedges was approximately $381 million. The fairvalue of these contracts was $4 million of net unrealized losses as of December 31, 2015.
During the years ended December 31, 2016 and 2015, there was no ineffectiveness relating to our Cash Flow Hedges. During theyears ended December 31, 2016 and 2015, the amount of pre-tax net realized gains associated with these contracts that were56 and into earnings was not material.
reclassified out of “Accumulated other comprehensive income (loss)”
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, 2016, 2015, and 2014, there were no impairment charges related to assets that are measured on a
non-recurring basis.
11. Debt
Credit Facilities
On October 11, 2013, we entered into a credit agreement (the “Credit Agreement”) for a $2.5 billion secured term loan facility
maturing in October 2020 (the “Original Term Loan”), and a $250 million secured revolving credit facility (the “Original Revolver”).
As of December 31, 2015, as a result of repayments and prepayments during the prior periods, we had $1.9 billion outstanding under
the Original Term Loan.
In conjunction with the King Acquisition, we entered into three amendments to the Credit Agreement (the “Amendments”). The
Amendments, among other things, provided for an incremental tranche of term loans “A” in an aggregate principal amount ofapproximately $2.3 billion. The proceeds were provided on February 23, 2016 and were used to fund the King Acquisition. On
March 31, 2016, we entered into a fourth amendment to the Credit Agreement which provided for an incremental tranche of termloans “A” in the aggregate principal amount of $250 million (together with the $2.3 billion tranche of term loans “A”, the “OriginalTLA”); the proceeds from the incremental borrowing were used to make a voluntary prepayment on our Original Term Loan on
March 31, 2016. In addition to this prepayment, we made voluntary prepayments on our Original Term Loan of $500 million and$800 million on February 25 and May 26, 2016, respectively.
On August 23, 2016 we entered into a fifth amendment to the Credit Agreement (the “Fifth Amendment”) that provided for a new
tranche of term loans “A” of approximately $2.9 billion (the “2016 TLA”) and an amended revolving credit facility of $250 million(the “Revolver” and together with the 2016 TLA, the “Credit Facilities”). The proceeds from the 2016 TLA were primarily used to
pay off the remaining outstanding principal balance on the Original Term Loan of $319 million and the Original TLA of $2.5 billion.
As a result of the payments to extinguish the Original Term Loan and Original TLA, we wrote-off unamortized discount and deferredfinancing costs of $10 million, which is included in “Loss on extinguishment of debt” in the consolidated statements of operations.
The remaining unamortized discount and deferred financing costs were deferred, along with new fees paid to the 2016 TLA lenders,
and will continue to be amortized over the maturity of the 2016 TLA. As a result of the Fifth Amendment, both the 2016 TLA and the
Revolver became unsecured loans. As described below, the 2016 TLA was fully prepaid in February 2017. The Revolver is scheduled
to nature on August 23, 2021. Debt discounts and deferred financing costs incurred in relation to the Fifth Amendment were notmaterial.
Borrowings under the Revolver may be borrowed, repaid, and re-borrowed by the Company, and are available for working capital andother general corporate purposes. Up to $50 million of the Revolver may be used for letters of credit. To date, we have not drawn on
the Revolver. Borrowings under the 2016 TLA and the Revolver will bear interest, at the Company’s option, at either (a) a base rateequal 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 London Interbank Offered Rate (“LIBOR”) for an interest period of one month beginning on such day plus 1.00%, or(b) LIBOR, in each case, plus an applicable interest margin. LIBOR will be subject to a floor of 0% and the base rate will be subject toan effective floor of 1.00%. The applicable interest margin for borrowings under the 2016 TLA and Revolver will range from 1.125%
to 2.00% for LIBOR borrowings and from 0.125% to 1.00% for base rate borrowings and will be determined by reference to a pricing
grid based on the Company’s credit ratings. At December 31, 2016, the 2016 TLA bore interest at 2.02%.
The Credit Agreement requires quarterly principal payments of 0.625% of the stated principal amount of the 2016 TLA commencing
on September 30, 2016, with increases to 1.250% starting on September 30, 2019 and 3.125% starting on September 30, 2020, withthe remaining balance payable on the 2016 TLA’s scheduled maturity date of August 23, 2021. On September 30, 2016, in addition to
the required quarterly repayment of $18 million, we made a voluntary prepayment on our 2016 TLA of $167 million. These payments
satisfied the required quarterly principal repayments through December 31, 2018.
The Company is subject to a financial covenant requiring the Company’s Consolidated Total Net Debt Ratio (as defined in the Credit
56
Agreement) not to exceed (i) 4.00:1.00 on or prior to March 31, 2017, and (ii) thereafter, 3.50:1.00. The Fifth Amendment contains
other covenants that are customary for issuers with similar credit ratings. A violation of any of these covenants could result in an event

on September 30, 2016, with increases to 1.250% starting on September 30, 2019 and 3.125% starting on September 30, 2020, withthe remaining balance payable on the 2016 TLA’s scheduled maturity date of August 23, 2021. On September 30, 2016, in addition to
the required quarterly repayment of $18 million, we made a voluntary prepayment on our 2016 TLA of $167 million. These payments
satisfied the required quarterly principal repayments through December 31, 2018.
The Company is subject to a financial covenant requiring the Company’s Consolidated Total Net Debt Ratio (as defined in the Credit
Agreement) not to exceed (i) 4.00:1.00 on or prior to March 31, 2017, and (ii) thereafter, 3.50:1.00. The Fifth Amendment contains
other covenants that are customary for issuers with similar credit ratings. A violation of any of these covenants could result in an eventof default under the Credit Agreement. Upon the occurrence of an event of default, payment of any outstanding amounts under theCredit Agreement may be accelerated, and the lenders’ commitments to extend credit under the Credit Agreement may be terminated.
In addition, an event of default under the Credit Agreement could, under certain circumstances, permit the holders of other outstanding
unsecured debt, including the debt holders described below, to accelerate the repayment of such obligations. The Company was incompliance with the terms of the Credit Facilities as of December 31, 2016.
As of December 31, 2016, the Credit Facilities were guaranteed by certain of our U.S. subsidiaries, whose assets represented
approximately 67% of our consolidated assets.
57 Agreement. The amendment (i) provided for a new tranche of
On February 3, 2017, we entered into a sixth amendment to our Credit
term loans “A” in an aggregate principal amount of $2.55 billion (the “2017 TLA”) and (ii) released each of our subsidiary guarantors
from their respective guarantee provided under the Credit Agreement. All proceeds of the 2017 TLA, together with additional cash
funds on hand, were used to fully prepay the 2016 TLA outstanding under the Credit Agreement immediately prior to theeffectiveness of the sixth amendment, together with all accrued and unpaid interest thereon. The terms of the 2017 TLA, other than theabsence of guarantees, are generally the same as the terms of the 2016 TLA.
On February 2, 2017, our Board of Directors authorized repayments of up to $500 million of the company’s outstanding debt during2017. During February 2017, we made voluntary prepayments on our term loans of $500 million, inclusive of $139 million used to
fully prepay the 2016 TLA as discussed above. The voluntary prepayment satisfied the remaining required quarterly principal
repayments for the entire term of the Credit Agreement.
Unsecured Senior Notes
On September 19, 2013, we issued, at par, $1.5 billion of 5.625% unsecured senior notes due September 2021 (the “Original 2021
Notes”) and $750 million of 6.125% unsecured senior notes due September 2023 (the “2023 Notes” and, together with the Original
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 “Securities Act”).
The Original 2021 Notes became eligible for redemption on September 15, 2016 (and, as described below, were redeemed on
October 19, 2016). We may redeem the 2023 Notes on or after September 15, 2018, in whole or in part on any one or more occasions,at specified redemption prices, plus accrued and unpaid interest. In addition, we may redeem some or all of the 2023 Notes prior to
September 15, 2018, at a price equal to 100% of the aggregate principal amount thereof plus a “make-whole premium” and accrued
and unpaid interest. Further, upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of theaggregate principal amount of the 2023 Notes outstanding with the net cash proceeds from such offerings.
On September 19, 2016, we issued $650 million of 2.3% unsecured senior notes due September 2021 (the “New 2021 Notes”) and$850 million of 3.4% unsecured senior notes due September 2026 (the “2026 Notes” and, together with the New 2021 Notes, the“New Notes”) in a private offering made in accordance with Rule 144A and Regulation S under the Securities Act.
In connection with the issuance of the New Notes, we entered into a registration rights agreement (the “Registration Rights
Agreement”), among the Company, the subsidiary guarantors, and the representatives of the initial purchasers of the New Notes.
Under the Registration Rights Agreement, we are required to use commercially reasonable efforts to within one year of the issue dateof the New Notes, among other things, (1) file a registration statement with respect to an offer to exchange each series of the New
Notes for new notes that are substantially identical in all material respects, (except for the provisions relating to the transfer
restrictions and payment of additional interest) and (2) cause the registration statement to be declared effective by the SEC under the
Securities Act.
We may redeem some or all of the New 2021 Notes prior to August 15, 2021 and some or all of the 2026 Notes prior to June 15, 2026,
in each case at a price equal to 100% of the aggregate principal amount thereof plus a “make-whole” premium and accrued and unpaid
interest. In addition, we may redeem the New 2021 Notes on or after August 15, 2021, and the 2026 Notes on or after June 15, 2026,
in each case in whole or in part on any one or more occasions and at a price equal to 100% of the aggregate principal amount thereof
plus accrued and unpaid interest.
Upon the occurrence of certain change of control events, we will be required to offer to repurchase the 2023 Notes and New Notes at apurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. These repurchase requirements are
considered clearly and closely related to the 2023 Notes and New Notes and are not accounted for separately upon issuance.
The 2023 Notes and New Notes are general senior obligations of the Company and rank pari passu in right of payment to all of theCompany’s existing and future senior indebtedness, including the Credit Facilities described above. As of December 31, 2016, the2023 Notes and New Notes were guaranteed on a senior basis by certain of our U.S. subsidiaries. Pursuant to the terms of theindentures underlying the 2023 Notes and New Notes, the guarantees by certain subsidiaries were automatically released when the2017 TLA guarantees were removed in connection with the sixth amendment to the Credit Agreement. The 2023 Notes and New
Notes are not secured and are effectively subordinated to any of the Company’s existing and future indebtedness that is secured.
On October 19, 2016, we redeemed the Original 2021 Notes in full for $1.6 billion, which resulted in a loss on extinguishment ofapproximately $82 million, comprised of a premium payment of $63 million and write off of unamortized discount and financing costsof $19 million. This loss is included in “Loss on extinguishment of debt” in the consolidated statements of operations.
57
The 2023 Notes contain customary covenants that place restrictions in certain circumstances on, among other things, the incurrence ofdebt, granting of liens, payment of dividends, sales of assets, and certain merger and consolidation transactions. The New Notes

2023 Notes and New Notes were guaranteed on a senior basis by certain of our U.S. subsidiaries. Pursuant to the terms of theindentures underlying the 2023 Notes and New Notes, the guarantees by certain subsidiaries were automatically released when the2017 TLA guarantees were removed in connection with the sixth amendment to the Credit Agreement. The 2023 Notes and New
Notes are not secured and are effectively subordinated to any of the Company’s existing and future indebtedness that is secured.
On October 19, 2016, we redeemed the Original 2021 Notes in full for $1.6 billion, which resulted in a loss on extinguishment ofapproximately $82 million, comprised of a premium payment of $63 million and write off of unamortized discount and financing costsof $19 million. This loss is included in “Loss on extinguishment of debt” in the consolidated statements of operations.
The 2023 Notes contain customary covenants that place restrictions in certain circumstances on, among other things, the incurrence ofdebt, granting of liens, payment of dividends, sales of assets, and certain merger and consolidation transactions. The New Notes
contain customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of secured debt,
entry into sale or leaseback transactions, and certain merger or consolidation transactions. The Company was in compliance with theterms of the 2023 Notes and the New Notes as of December 31, 2016.
Interest on the 2023 Notes and New Notes is payable semi-annually in arrears on March 15 and September 15 of each year, and isrecorded within “Accrued expenses and other liabilities” in our consolidatedbalance sheets. As of December 31, 2016, we had interest
58
payable of $13 million and $12 million, related to the 2023 Notes and New Notes, respectively. As of December 31, 2015, we hadinterest payable of $38 million related to the Notes.
Interest expense and financing costs
Fees and discounts associated with the closing of our debt instruments are recorded as debt discount, which reduces their respective
carrying values, and is amortized over their respective terms. Amortization expense is recorded within “Interest and other expense(income), net” in our consolidated statements of operations.
In connection with the debt financing for the Original TLA and New Notes offering, we incurred $38 million and $17 million of
discounts and financing costs, respectively, that were capitalized and recorded within “Long-term debt, net” in our consolidatedbalance sheet. New lender fees and deferred financing costs related to the 2016 TLA were not material.
For the years ended December 31, 2016, 2015, and 2014: interest expense was $197 million, $193 million, and $201 million,
respectively; amortization of the debt discount and deferred financing costs was $20 million, $7 million, and $7 million, respectively;
and commitment fees for the Revolver were not material.
A summary of our debt is as follows (amounts in millions):

2016 TLA ....................................................$New 2021 Notes..........................................
2023 Notes ..................................................
2026 Notes ..................................................
Total long-term debt ...................................$

Original Term Loan ....................................$
Original 2021 Notes ....................................
2023 Notes ..................................................
Total long-term debt ...................................$

Gross Carrying
Amount

2,690
650
750
850
4,940

Gross Carrying
Amount

1,869
1,500
750
4,119

December 31, 2016
Unamortized
Discount andDeferredFinancing Costs$$(27) $
(5)
(11)
(10)
(53) $

December 31, 2015
Unamortized
Discount andDeferredFinancing Costs$$(11) $(22)(12)(45) $Net Carrying
Amount

2,663
645
739
840
4,887

Net Carrying
Amount

1,858
1,478
738
4,074

As of December 31, 2016, without consideration to the voluntary prepayments made in February 2017, as discussed above, thescheduled maturities and contractual principal repayments of our debt for each of the five succeeding years are as follows (amounts inmillions):
For the year ending December 31,
2017 ................................................................................................................................................
$—
2018 ................................................................................................................................................—
2019 ................................................................................................................................................
103
2020 ................................................................................................................................................
252
2021 ................................................................................................................................................
2,985
Thereafter .......................................................................................................................................
1,600
Total ...........................................................................................................................................
$
4,940
As of December 31, 2016 and 2015, the carrying values of the 2016 TLA and the Original Term Loan approximate their fair value,
based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest
period and is similar to current rates at which we can borrow funds. Based on Level 2 inputs, the fair values of the 2023 Notes, New
2021 Notes, and 2026 Notes were $818 million, $635 million, and 58$808 million, respectively, as of December 31, 2016. Based on
Level 2 inputs, the fair values of the Original 2021 Notes and 2023 Notes were $1,571 million and $795 million, respectively, as ofDecember 31, 2015.

....................................
Original 2021 Notes ....................................
2023 Notes ..................................................
Total long-term debt ...................................$

1,500
750
4,119

$

(22)
(12)
(45) $

1,478
738
4,074

As of December 31, 2016, without consideration to the voluntary prepayments made in February 2017, as discussed above, thescheduled maturities and contractual principal repayments of our debt for each of the five succeeding years are as follows (amounts inmillions):
For the year ending December 31,
2017 ................................................................................................................................................
$—
2018 ................................................................................................................................................—
2019 ................................................................................................................................................
103
2020 ................................................................................................................................................
252
2021 ................................................................................................................................................
2,985
Thereafter .......................................................................................................................................
1,600
Total ...........................................................................................................................................
$
4,940
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For the Year Ended
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as of December
December31,31,
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with ourinternalinformation.
organization
structure,
theway weoperatingassess operating
performancetax expense andwith
purchase
priceaccounting;
and
fees
and
other
expenses(including
legal
fees,
expensesandaccruals)
relatedacquisitions,associatedpurchase
priceaccounting;
and
fees
and
expenses(including
legal
fees,
expensesandaccruals)
to toacquisitions,associatedrespect
to...................................................................................
certainof ourgames;
share-based
compensation
expense;amortization
ofrelatedintangible
assetsa result
Our
operatingsegments
areonline-enabledalso
consistentwith
ourinternalorganization
structure,thewayassessoperatingperformanceandallocateresources,andtheavailability
ofother
separatefinancialinformation.
We
do
not
aggregate
operating
Activision$ information
2,220$ regarding
2,700
$we
2,686
$segments.
788$ as868$andof762
integration
activities,
andfinancings.
The
CODM
does
reviewany
information
regardingtotal
assetsanoperatingsegment
integration
activities,
andfinancings.
The
CODM
does
notnotreviewany
total
assetsonon
anoperatingsegment
Our
operatingsegmentsarealso
consistent
withexpenses
ourinternalorganization
structure,
the
way
we
assessoperatingperformancepurchase
priceaccounting;
and
fees
and
other
(including
legal
fees,
expensesandaccruals)
relatedtoacquisitions,associatedallocateresources,andtheavailabilityofseparatefinancialinformation.
We
do
not
aggregate
operatingsegments.
Blizzard......................................................................................
2,428
1,720
1,013
561 toto 756
Information
Information
on
on
the
theoperating
operatingsegments
segments
andreconciliations
reconciliations
ofof
total
totalsegment
segment
net
net
revenues
andandtotal
total
segment
segment
operatingoperatingincomeincomebasis,
andaccordingly,nodisclosure
is
made
with
respect
thereto.
basis,
andaccordingly,nodisclosure
is andmadewithrespect
thereto.
allocateresources,andtheavailabilityofseparatefinancialinformation.
We
dorevenues
not1,565
aggregate
operatingsegments.
integration
activities,
andfinancings.
The
CODM
does
not
review
any 1,586
information
regardingtotal
on
an operatingKing............................................................................................
—andtax—assets
537—segment—
Informationontheoperatingsegments
andreconciliations
ofthereto.
total segmentnet
revenues
total
segment
toconsolidated
consolidatednet
netrevenues
revenues
fromfromexternal
externalcustomers
customersandandconsolidated
consolidated
incomeincomebeforebeforeincomeincometax
expenseexpenseforforoperating
the
the
years
yearsincome
ended
ended
basis,
andaccordingly,nodisclosure
is
made
with
respect
Informationontheoperatingsegments
andreconciliationsof total segmentnet
revenues
andtaxtotal
segment
operatingto 1,518
December
December
31,
31,
2016,
2016,
2015
2015
and
and
2014
2014arearepresented
presented
below
below
(amounts(amounts
ininincome
millions):
millions):
consolidatednet
revenues
fromexternalcustomersandconsolidated
beforeincomeexpensefor2,338
the years income
ended
Reportablesegments
total......................................................
6,234
4,265
4,406
1,429
Our
operatingsegmentsarealso
consistentwith
ourinternalorganization
structure,way
weassessoperatingperformance
Our
operatingsegments
also
consistentwith
ourinternalorganization
structure,
thetheway
wetotalassessoperatingperformance
Informationontheoperatingsegments
andreconciliationsoftotal
net revenues
andsegment
operatingincomeandtoand
consolidated
revenues
fromexternalcustomersandconsolidated
incomebeforeincometax
expense
for
the
years
ended
December
31,net2016,
2015areand2014
presented
below(amounts
insegment
millions):
Reconciliation
toconsolidated
net arerevenues/ consolidated
allocateresources,andavailabilityofseparatefinancialinformation.
We
doaggregate
operatingsegments.
allocateresources,
andthetheavailability
ofpresented
separatefinancialinformation.
We
donotnotaggregate
operatingsegments.
consolidatednet
revenues
fromexternalcustomersandconsolidated
incomebeforeincometax
expense
for
the
years
ended
Our
operatingsegmentsarealso
consistentwith
ourinternalorganization
structure,
the
way
we
assessoperatingperformanceandDecember
31,
2016,
2015
and
2014
are
below
(amounts
inmillions):
Years
Ended
December
31,
Years
Ended
December31,
income before income tax expense:
Years
Ended
December
31,
December31, 2016,and
2015
2014 are ofpresented(amounts
in millions):
allocateresources,
theandavailability
separatebelow
financialinformation.
We
do
not
aggregate
operatingsegments.
2016
2015
2014
2016
2015
20149
2016
2015
2014
2016
2015
2014
Years
Ended
December
31,
Other segments(1)..................................................................
365
356
407
(4)
37
Ended December
2016
2015 Years 20142016 31,2015
2014
Informationon
operatingsegments
andreconciliations
total
revenues
andtotal
segment
operatingincomeInformation
thetheoperatingsegments
andreconciliations
total
segment
netnetrevenues
total
segment
operatingincometo to2014
OperatingincomeOperatingincome59segment
Years
Ended
December
31,
Operatingincome2016
2015and
2014
2016
2015
2014
Net effecton
fromrecognition(deferral)ofdeferred
net of of
2016
2015
2014
2016
2015
Years
Ended
December31,
andincomebeforeincomeandincomebeforeincomeconsolidatednet
revenues
fromexternalcustomersandconsolidated
incomebeforeincomeexpense
for
the
years
ended
consolidated
revenues
fromexternalcustomersandconsolidated
incometaxtaxexpense
for
the
years
ended
Informationnet
ontheoperatingsegments
andreconciliationsof total income
segment
revenues
andtotal
segment
operatingincometo2014andincomebeforeincomeOperatingincome2016 before
2015
2014
2016
2015
Operatingincomeandrelatedcostofrevenues................................
9net
43
(405)
(10)
(39)
(215)
tax
expenseNet
revenuestax
Net
taxexpense
expenseNetrevenues
revenues
2016— before
2015
2014
2016
2015
2014
December
2016,
2015
and
2014
are
presented
below(amounts
millions):
December
31,31,
2016,
2015
and
2014
are.......................................
presented
below
in in
millions):
andincomebeforeincomeconsolidatednet
revenues
fromexternalcustomersand(amounts
consolidated
incomeincometax
expense
for
the
years
ended
and
incomebeforeincomeOperatingincomeShare-based
compensation
expense
—
—
(159)
(92)
(104)

Our operating segments are also consistent with our internal organization structure, the way we assess operating performance andallocate resources, and the availability of separate financial information. We do not aggregate operating segments.
Information on the operating segments and reconciliations of total segment net revenues and total segment operating income toconsolidated net revenues from external customers and consolidated income before income tax expense for the years ended
December 31, 2016, 2015 and 2014 are presented below (amounts in millions):
2016

Years Ended December 31,
2014
2016
2015
2014
Operating income
and income before income
tax expense
Net revenues
2015

Activision ...................................................................................
$ 2,220 $ 2,700 $ 2,686 $
788 $
868 $
762
Blizzard ......................................................................................
2,428
1,565
1,720
1,013
561
756
King ............................................................................................
1,586
—
—
537
—
—
Reportable segments total ......................................................
6,234
4,265
4,406
2,338
1,429
1,518
Reconciliation to consolidated net revenues / consolidated
income before income tax expense:
Other segments(1) ..................................................................
365
356
407
(4)
37
9
Net effect from recognition (deferral) of deferred net
Consolidated
incomeincometax ................................
expense ..................
981
andrelatedbefore
cost ofrevenues
943(405) $ 1,106(10) $ 1,121(39) $ (215)
Share-based compensation expense .......................................
—
—
—
(159)
(92)
(104)
of intangible
assets...........................................
—— the(706)
(11)
(12)
(1)Amortization
Other segments
includeotherincome and expenses from operating —segments managed
outsidereportable segments,
Fees andother expenses
relatedto acquisitions
and theincludingour MLG,
Studios,and Distribution
businesses. Other segments also include unallocated corporate income and
—
—
—
(47)
(5)
(13)
Transaction(2) ....................................................
expenses.
Consolidated net revenues / operating income.......................
$ 6,608 $ 4,664 $ 4,408 $ 1,412 $ 1,319 $ 1,183(2)InterestReflects
theexpense
fees and(income),
other expenses,
such as legal, banking, and professional service fees, related to214(a) the Octoberand othernet................................
198 11, 2013202
of approximately
429 million shares of our common stock (the “Purchase Transaction”, pursuant
to a—
stock
Loss onrepurchaseextinguishmentof debt .............................................
92—
purchaseagreement
us taxwith
Vivendiand ASAC II LP (“ASAC LP”), an exempted limited
partnershipestablished
Consolidated
incomebeforeamongincomeexpense..................
$ 1,106$ 1,121$981
under the laws of the Cayman Islands, acting by its general partner, ASAC II LLC (“ASAC GP”), (b) the King Acquisition,and (c) other business acquisitions and associated integration activities, in each case, inclusive of any related debt financings.
(1)
Other segments include other income and expenses from 60
operating segments managed outside the reportable segments,
including our MLG, Studios, and Distribution businesses. Other segments also include unallocated corporate income andexpenses.

(2)

Reflects the fees and other expenses, such as legal, banking, and professional service fees, related to (a) the October 11, 2013
repurchase of approximately 429 million shares of our common stock (the “Purchase Transaction”, pursuant to a stock
purchase agreement among us with Vivendi and ASAC II LP (“ASAC LP”), an exempted limited partnership establishedunder the laws of the Cayman Islands, acting by its general partner, ASAC II LLC (“ASAC GP”), (b) the King Acquisition,and (c) other business acquisitions and associated integration activities, in each case, inclusive of any related debt financings.

Geographic information presented below for the years ended December 31, 2016, 2015, and 2014 is based on the location of theselling entity. Net revenues from external customers by geographic region were as follows (amounts in millions):
2016

Years ended
December 31,
2015

2014

Net revenues by geographic region:
Americas ....................................................................................................
$
3,423 $
2,409 $
2,190
EMEA(1) ....................................................................................................
2,221
1,741
1,824
Geographic information
presented
below for the years ended December 31, 2016, 2015, and2014 is based
Asia Pacific................................................................................................
964
514 on the location
394 of theselling entity. Net
revenues
fromexternalcustomersbygeographic
regionwere
asfollows(amounts
inmillions):
Total consolidated net revenues .....................................................................
$
6,608 $
4,664 $
4,408
(1)

Years ended

EMEA consists of the Europe, Middle East, and Africa geographic regions.
December 31,
2016

2015

2014

The Company’sNet
net revenues
revenues byin theU.S. were45%, 48%, and 48% of consolidated net revenues for the years ended December 31,
geographic
region:Americas....................................................................................................
$
3,423$ were2,409
2,190
2016, 2015, and 2014,
respectively.
The Company’s net revenues in the United Kingdom(“U.K.”)
11%,$ 14%,and 16% ofconsolidated net revenues
for....................................................................................................
the years ended December 31, 2016, 2015, and 2014, respectively.
Company’s 1,824
net revenues in
EMEA(1)2,221 The 1,741
France was 14% ofAsia
consolidated
net revenues for the year ended December 31, 2014. No othernet revenues
Pacific ................................................................................................
964 country’s
514
394exceeded 10%of consolidated Total
net revenues
for thenet
years
ended.....................................................................
December 31, 2016, 2015, or 2014.$
consolidated
revenues
6,608 $
4,664 $
4,408
Net revenues by(1)platformEMEA
were asconsists
followsof(amounts
in millions):
the Europe,
Middle East, and Africa geographic regions.
Years Ended
The Company’s net revenues in the U.S. were 45%, 48%, and 48% of consolidated net revenues
for the 31,
years ended December 31,
December
2016, 2015, and 2014, respectively. The Company’s net revenues in the United Kingdom(“U.K.”)
were 11%, 14%,
2016
2015
2014 and 16% ofconsolidated netNet
revenues
for
the
years
ended
December
31,
2016,
2015,
and
2014,
respectively.
The
Company’s
net revenues inrevenues by platform:
France was 14% ofConsole
consolidatednet
revenues
for
the
year
ended
December
31,
2014.
No
other
country’s
netrevenues........................................................................................................
$
2,453 $
2,391 $
2,150exceeded 10%of consolidated netPC(1)revenues
for
the
years
ended
December
31,
2016,
2015,
or
2014.
...........................................................................................................
2,124
1,499
1,418
Mobile and ancillary(2) ...............................................................................
1,674
418
433
Net revenues by platform
as follows (amounts in millions):
Other(3)were.......................................................................................................
357
356
407
Total consolidated net revenues ......................................................................
$
6,608 $
4,664 $
4,408
Years Ended
December 31,
Net revenues from PC includes revenues that were historicallyshown as Online.
2016
2015

(1)
2014
60
Net revenues by platform:(2)ConsoleNet
revenues from mobile and ancillary includes revenues$ fromhandheld,devices, as well........................................................................................................
2,453$ mobile
2,391 and$ tablet2,150
as non-platform specific game-related revenues, such as standalone
toys and accessories...........................................................................................................
2,124sales of 1,499
1,418 from our2016, 2015, and 2014, respectively. The Company’s net revenues in the United Kingdom (“U.K.”) were 11%, 14%, and 16% ofconsolidated net revenues for the years ended December 31, 2016, 2015, and 2014, respectively. The Company’s net revenues inFrance was 14% of consolidated net revenues for the year ended December 31, 2014. No other country’s net revenues exceeded 10%of consolidated net revenues for the years ended December 31, 2016, 2015, or 2014.
Net revenues by platform were as follows (amounts in millions):2016

Net revenues by platform:
Console........................................................................................................
$
2,453
PC(1) ...........................................................................................................
2,124
Mobile and ancillary(2) ...............................................................................
1,674
Other(3) .......................................................................................................
357
Total consolidated net revenues ......................................................................
$
6,608

Years Ended
December 31,
2015

$

$

2,391 $
1,499
418
356
4,664 $

2014

2,150
1,418
433
407
4,408

(1)

Net revenues from PC includes revenues that were historically shown as Online.

(2)

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

(3)

Net revenues from Other include revenues from our MLG, Studios, and Distribution businesses.

Long-lived assets by geographic region at December 31, 2016, 2015, and 2014 were as follows (amounts in millions):
2016

Years Ended
December 31,
2015

Long-lived assets* by geographic region:
Americas ..................................................................................................................
$
154 $
138 $
EMEA ......................................................................................................................
87
42
Asia Pacific ..............................................................................................................
17
9
Total long-lived assets by geographic region ..............................................................
$
258 $
189 $
61
*

2014

122
29
6
157

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.
14. Share-Based Payments
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 share-based
compensation in the form of stock options, share appreciation rights, restricted stock, restricted stock units, performance shares, andother performance- or value-based awards structured by the Compensation Committee within parameters set forth in the 2014 Plan.
While the Compensation Committee has broad discretion to create equity incentives, our share-based compensation program for themost part currently utilizes a combination of options and restricted stock units. The majority of our options have time-based vestingschedules, generally vesting annually over a period of three to five years, and 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 vest
annually over a period of three to five years, or vest only if certain performance measures are met. In addition, under the terms of the2014 Plan, the exercise price for the options must be equal to or greater than the closing price per share of our common stock on thedate the award is granted, as reported on NASDAQ.
Upon the effective date of the 2014 Plan, we ceased making awards under our prior equity incentive plans (collectively, the “Prior
Plans”), although such plans will remain in effect and continue to govern outstanding awards. Additionally, in connection with theKing Acquisition, a majority of the outstanding options and awards with respect to King shares that were unvested as of the King
Closing Date were converted into equivalent options and awards with respect to shares of the Company’s common stock (see Note 21
for further discussion). As part of the conversion, we assumed King’s equity incentive plan (the “King Plan”) and amended the King
Plan to convert it to a plan with respect to shares of the Company’s common stock for the King shares assumed. No future shares canbe granted from King 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
Plans is, or the tax withholding requirements with respect to any award outstanding under any Prior Plans 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, 2016, we had approximately 34 million shares of our
61 issued in connection with awards made under the 2014 Plan
common stock reserved for future issuance under the 2014 Plan. Sharesare generally issued as new stock issuances.

Closing Date were converted into equivalent options and awards with respect to shares of the Company’s common stock (see Note 21
for further discussion). As part of the conversion, we assumed King’s equity incentive plan (the “King Plan”) and amended the King
Plan to convert it to a plan with respect to shares of the Company’s common stock for the King shares assumed. No future shares canbe granted from King 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
Plans is, or the tax withholding requirements with respect to any award outstanding under any Prior Plans 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, 2016, we had approximately 34 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.
Fair Value Valuation Assumptions
Valuation of Stock Options
We use a binomial-lattice model to value our stock options. We estimate expected future changes in model inputs during an option’scontractual term. The inputs required by our binomial-lattice model include expected volatility, risk-free interest rate, dividend yield,
contractual term, and vesting schedule, as well as measures of employees’ cancellations, exercise, and post-vesting termination
behavior. Statistical methods were used to estimate employee rank-specific termination rates. These termination rates, in turn, wereused to model the number of options that are expected to vest and post-vesting termination behavior. Employee rank-specificestimates of expected time-to-exercise (“ETTE”) were used to reflect employee exercise behavior. ETTE was estimated by using
statistical procedures to first estimate the probability of exercise occurring during each time period, conditional on the option
surviving to that time period, and then using those probabilities to determine the 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 ofthese measures that were estimated from historical data.
The following tables present the weighted-average assumptions, the weighted-average fair value at grant date using thebinomial-lattice model, and the range of expected stock price volatilities:
Employee andDirector Options
For the Years
Ended December 31,
2015

2016
62
Expected life (in years) ......................................................................
6. 6
Risk free interest rate ......................................................................................
1.56%
Volatility .........................................................................................................
35.31%
Dividend yield ................................................................................................
0.67%.
Weighted-average fair value at grant date ......................................... $Stock price volatility range:
Low .............................................................................................................
29.20%High ............................................................................................................
36.00%

$

2014

6.26
1.90%
36.13%
0.72%
9.87

5.97
1.82%
37.09%
0.98%$ 5.8726.96%
37.00%

29.72%
38.00%

Expected life
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 multiple, of which the multiple is based on historicalemployee exercise behaviors.
Risk-free interest rate
As is the case for volatility, the risk-free interest rate is assumed to change during the option’s contractual term. Consistent with thecalculation required by a binomial-lattice model, the risk-free interest 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”).
Volatility
To estimate volatility for the binomial-lattice model, we use methods that consider the implied volatility based upon the volatilities forexchange-traded options on our stock to estimate short-term volatility, the historical volatility of our common shares during theoption’s contractual term to estimate long-term volatility, and a statistical model to estimate the transition or “mean reversion” fromshort-term volatility to long-term volatility.
Dividend yield
The expected dividend yield assumption for options granted during the year ended December 31, 2016 is based on our historical andexpected future amount of dividend payouts.
62
As share-based compensation expense recognized in the consolidated statement of operations for the years ended December 31, 2016,2015, and 2014 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimatedTo estimate volatility for the binomial-lattice model, we use methods that consider the implied volatility based upon the volatilities forexchange-traded options on our stock to estimate short-term volatility, the historical volatility of our common shares during theoption’s contractual term to estimate long-term volatility, and a statistical model to estimate the transition or “mean reversion” fromshort-term volatility to long-term volatility.
Dividend yield
The expected dividend yield assumption for options granted during the year ended December 31, 2016 is based on our historical andexpected future amount of dividend payouts.
As share-based compensation expense recognized in the consolidated statement of operations for the years ended December 31, 2016,2015, and 2014 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimatedat the time of grant based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ fromthose estimates.
Valuation of Restricted Stock Units (“RSUs”)
The fair value of the Company’s RSU awards granted is based upon the closing price of the Company’s stock price on the date of
grant reduced by the present value of dividends expected to be paid on our common stock prior to vesting.
Accuracy of Fair Value Estimates
We developed the assumptions used in the models above, including model inputs and measures of employees’ exercise andpost-vesting termination behavior. Our ability to accurately estimate the fair value of share-based payment awards at the grant datedepends upon the accuracy of the model and our ability to accurately forecast model inputs as long as 10 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 othershare-based instruments.
Stock Option Activity
Stock option activity for the year ended December 31, 2016 is as follows (amounts in millions, except number of shares, which are in63
thousands, and per share amounts):

Outstanding stock options at December 31, 2015 ........
Granted .........................................................................
Assumed in King Acquisition ......................................
Exercised ......................................................................
Forfeited .......................................................................
Expired .........................................................................
Outstanding stock options at December 31, 2016 ........
Vested and expected to vest at December 31, 2016 .....
Exercisable at December 31, 2016 ...............................

Number of
Shares24,3295,695
9,575(7,131)(972)(11)
31,48527,84912,991$$$$

Weighted-average
exercise price

17.90
39.41
32.73
14.75
25.52
10.54
26.79
24.91
15.79

Weighted-averageremaining
contractual term

6.31 $
6.11 $
3.91 $

Aggregate
intrinsic value

388
372
264

For options assumed in the King Acquisition, 0.7 million of the options are based on performance conditions which do not have an
accounting grant date as of December 31, 2016, as there is not a mutual understanding between the Company and the employee of theperformance terms.
The aggregate intrinsic values 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 closing stock
price is greater than the exercise price) that would have been received by the option holders had all option holders exercised theiroptions on that date. This amount changes based on the market value of our stock. The total intrinsic value of options actually
exercised was $161 million, $125 million, and $117 million for the years ended December 31, 2016, 2015, and 2014, respectively.
The total grant date fair value of options vested was $40 million, $19 million, and $19 million for the years ended December 31, 2016,2015, and 2014, respectively.
At December 31, 2016, $88 million of total unrecognized compensation cost related to stock options is expected to be recognized overa weighted-average period of 1.73 years.
RSU Activity
We grant RSUs, which represent the right to receive shares of our common stock. Vesting for RSUs 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-based RSUs include a range of shares that may be released at vesting which are above or below thetargeted number of RSUs based on actual performance relative to the grant date performance measure. If the vesting conditions are notmet, unvested RSUs will be forfeited. Upon vesting of the RSUs, we may withhold shares otherwise deliverable to satisfy tax
withholding requirements.
The following table summarizes our RSU activity for the year ended December 31, 2016, with performance-based RSUs presented at
the maximum potential shares that could be earned and issued at vesting(amounts in thousands except per share amounts):
63
Weighted-2015, and 2014, respectively.
At December 31, 2016, $88 million of total unrecognized compensation cost related to stock options is expected to be recognized overa weighted-average period of 1.73 years.
RSU Activity
We grant RSUs, which represent the right to receive shares of our common stock. Vesting for RSUs 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-based RSUs include a range of shares that may be released at vesting which are above or below thetargeted number of RSUs based on actual performance relative to the grant date performance measure. If the vesting conditions are notmet, unvested RSUs will be forfeited. Upon vesting of the RSUs, we may withhold shares otherwise deliverable to satisfy tax
withholding requirements.
The following table summarizes our RSU activity for the year ended December 31, 2016, with performance-based RSUs presented at
the maximum potential shares that could be earned and issued at vesting (amounts in thousands except per share amounts):
Number ofsharesUnvested RSUs at December 31, 2015 ............................................................. 11,930 $Granted.............................................................................................................. 5,320
Assumed in King Acquisition ........................................................................... 3,349
Vested ............................................................................................................... (7,109)
Forfeited ............................................................................................................ (1,513)
Unvested RSUs at December 31, 2016 ............................................................. 11,977 $WeightedAverage
Grant Date
Fair Value

12.74
36.92
30.18
18.34
20.84
17.44

Certain of our performance-based RSUs did not have an accounting grant date as of December 31, 2016, as there is not a mutual
understanding between the Company and the employee of the performance terms. Generally, these performance terms relate torevenue and operating income performance for future years where the performance goals have not yet been set. As of December 31,
2016, there were 5.1 million performance-based RSUs outstanding for which the accounting grant date has not been set, of which
3.6 million were 2016 grants. Accordingly, no grant date fair value was established and the weighted average grant date fair value
calculated above for 2016 grants excludes these RSUs.
At December 31, 2016, approximately $89 million of total unrecognized compensation cost was related to RSUs and is expected to berecognized over a weighted-average period of 1.65 years. Of the total unrecognized compensation cost, $56 million was related toperformance-based RSUs, which is expected to be recognized over a weighted-average period of 1.85 years. The total grant date fair
value
value
of vestedof vested
RSUs
RSUs
waswas$123$123
million,million,$93$93
millionmillionandand
$92$92
millionmillionfor forthethe
years
years
ended
ended
December
December
31,31,
2016,
2016,
2015
2015
andand2014,
2014,
respectively.
respectively.
incomebenefitfromstock
optionexercises
RSUs$134
million,$109
million,millionyears
ended
TheTheincometaxtax
benefitfromstock
optionexercises
andandRSUs
waswas$134
million,$109
million,andand
$89$89millionfor forthethe
years
ended
64
December
2016,
2015,
2014,
respectively.
December
31,31,
2016,
2015,
andand2014,
respectively.
Share-Based
Compensation
ExpenseShare-Based
Compensation
Expensefollowing
table
forth
total
share-based
compensation
expenseincludedin ourconsolidated
statementsof operations
TheThefollowingtable
setssets
forth
thethetotal
share-based
compensation
expenseincludedin ourconsolidated
statementsof operations
for for
years
ended
December
2016,
2015,
2014
(amounts
in millions):
thetheyears
ended
December
31,31,
2016,
2015,
andand2014(amounts
in millions):
ForForthe the
Years
Years
Ended
Ended
December
December31, 31,
20162016
20152015
20142014

Cost
Costof revenues—productof revenues—productsales:
sales:
Software
Softwareroyalties,
royalties,
amortization,amortization,
andand intellectual property
licenses ................................................................................................................................................
licenses ........................................................................................................... $ $ 20 20$ $ 12 12$ $ 15 15
Cost
Cost
of revenues—subscription,of revenues—subscription,
licensing,
licensing,
andandother
otherrevenues:
revenues:
Game
Gameperations
perationsandandistribution
istribution
ostsosts.............................................................................................................................
...............................................................................................................................
2 2
——
1 1
Cost
Cost
of revenues—subscription,of revenues—subscription,
licensing,
licensing,
andandother
otherrevenues:
revenues:
Software
Softwareroyalties,
royalties, amortization,
2 2
3 3
2 2
and intellectual
and intellectual
property licenses
property........................................................................................................
licenses ..............................................................................
Product
Product
development............................................................................................................................
development .............................................................................................................................. 47 47
25 25
22 22
Sales
Sales
andandmarketing..............................................................................................................................
marketing ................................................................................................................................ 15 15
9 9
8 8GeneralGeneralandandadministrative...................................................................................................................
administrative ..................................................................................................................... 73 73
43 43
56 56
Share-based
Share-based
compensationcompensation
expenseexpensebeforebeforeincomeincometaxes
taxes.......................................................................
....................................................................... 159159
92 92
104104
IncomeIncometaxtax
benefitbenefit...................................................................................................................................
...................................................................................................................................(42)(42)(27)(27) (38)(38)
Total
Total
share-based
share-based
compensationcompensation
expense,expense,netnetof incomeof incometaxtax
benefitbenefit.....................................................
.....................................................
$ $ 117117$ $ 65 65$ $ 66 66
TheThefollowing
following
table
table
summarizes
summarizes
share-based
share-based
compensationcompensation
includedincludedin ourin ourconsolidated
consolidatedbalancebalancesheetssheetsas aascomponent
a componentof “Softwareof “Softwaredevelopment”
development”(amounts(amounts
in millions):in millions):
Balance
Balanceat December
at December
31,31,
20132013............................................................................................................................
............................................................................................................................
Share-based
Share-based
compensationcompensation
expenseexpensecapitalized
capitalized
andanddeferreddeferred
duringduringperiodperiod......................................................
......................................................
Amortization
Amortizationof capitalizedof capitalized
andanddeferreddeferredshare-based
share-based
compensationcompensation
expenseexpense...................................................
...................................................
Balance
Balanceat December
at December
31,31,
20142014............................................................................................................................
............................................................................................................................
Share-based
Share-based
compensationcompensation
expenseexpensecapitalized
capitalized
andanddeferreddeferred
duringduringperiodperiod......................................................
......................................................
64expense
Amortization
Amortizationof capitalizedof capitalized
andanddeferreddeferredshare-based
share-based
compensationcompensation
expense...................................................
...................................................
Balance
Balanceat December
at December
31,31,
20152015............................................................................................................................
............................................................................................................................
Share-based
Share-based
compensationcompensation
expenseexpensecapitalized
capitalized
andanddeferreddeferred
duringduringperiodperiod......................................................
......................................................

Software
SoftwareDevelopment
Development

$ $
$ $
$ $

22 22
27 27
(23)(23)
26 26
36 36
(34)(34)
28 28
25 25

.....................................................................................................................
Development
Development
Development
Share-based compensation expense before income taxes ....................................................................... 159
92Development
104
Balance
BalanceatBalance
Balance
DecemberatDecemberat
at
December
December
31,
2013
31,
2013
31,
............................................................................................................................
31,
2013
2013
............................................................................................................................
............................................................................................................................
............................................................................................................................
$
$
$
$
22
22
Income tax benefit................................................................................................................................... (42)(27)
(38) 22 22
Share-based
Share-based
Share-based
Share-based
compensationcompensationcompensationcompensation
expenseexpensecapitalized
expenseexpensecapitalized
capitalized
capitalized
and deferred
and anddeferredanddeferredduringdeferred
duringperiodduringduringperiod......................................................
periodperiod......................................................
......................................................
......................................................
27 27 27
27
Total share-based compensation expense, net of income tax benefit .....................................................
$
117 $
65 $
66
Amortization
Amortization
Amortization
Amortizationof capitalizedof capitalizedofofcapitalized
capitalized
and deferred
and anddeferredanddeferredshare-baseddeferredshare-based
share-based
share-based
compensationcompensationcompensationcompensation
expenseexpense...................................................
expenseexpense...................................................
...................................................
...................................................
(23) (23)(23)(23)
Balance
BalanceatBalance
Balance
Decemberat December
atatDecember
December31, 2014
31, 2014
31,............................................................................................................................
31,20142014............................................................................................................................
............................................................................................................................
............................................................................................................................ $ $ $$ 26 26 26
26
The Share-based
followingtablesummarizes
share-based
includedin......................................................
ourconsolidatedbalance sheets as a component of “Software
Share-based
Share-based
Share-based
compensationcompensationcompensationcompensation
expenseexpensecapitalized
expenseexpensecapitalized
capitalized
capitalized
andcompensation
deferredand anddeferredanddeferredduringdeferred
duringperiodduringduringperiodperiodperiod......................................................
......................................................
......................................................
36 36 36
36
development”(amounts
in millions):
Amortization
Amortization
Amortization
Amortizationof capitalizedof
capitalizedofofcapitalized
capitalizedanddeferredand anddeferredanddeferredshare-baseddeferredshare-based
share-based
share-based
compensationcompensationcompensationcompensation
expenseexpense...................................................
expenseexpense...................................................
...................................................
...................................................
(34) (34)(34)(34)
Balance
BalanceatBalance
Balance
Decemberat December
atatDecember
December31, 2015
31, 2015
31,............................................................................................................................
31,20152015............................................................................................................................
............................................................................................................................
............................................................................................................................ $ $ $$ 28 28 28
28
SoftwareShare-based
Share-based
Share-based
Share-based
compensationcompensationcompensationcompensation
expenseexpensecapitalized
expenseexpensecapitalized
capitalized
capitalized
and deferred
and anddeferredanddeferredduringdeferred
duringperiodduringduringperiod......................................................
periodperiod......................................................
......................................................
......................................................
25 25 25
25
Development
Amortization
Amortization
Amortization
Amortizationof capitalizedof capitalizedofofcapitalized
capitalized
and deferred
and anddeferredanddeferredshare-baseddeferredshare-based
share-based
share-based
compensationcompensationcompensationcompensation
expenseexpense...................................................
expenseexpense...................................................
...................................................
...................................................
(37) (37)(37)(37)
Balance at December 31, 2013......................................................................................................................................
$
22
Balance
BalanceatBalance
Balance
Decemberat December
atatDecember
December31, 2016
31, 2016
31,............................................................................................................................
31,20162016............................................................................................................................
............................................................................................................................
............................................................................................................................ $ $ $$ 16 16 16
16
Share-based compensation expense capitalized and deferred during period ................................................................
27
Amortization of capitalized and deferred share-based compensation expense .............................................................
(23)
Balance at December 31, 2014......................................................................................................................................
$
26
Share-based compensation expense capitalized and deferred during period ................................................................
36
Amortization of capitalized and deferred share-based compensation expense .............................................................
(34)
Balance at December 31, 2015......................................................................................................................................
$
28
Share-based compensation expense capitalized and deferred during period ................................................................
25
Amortization of capitalized and deferred share-based compensation expense .............................................................
(37)
Balance at December 31, 2016......................................................................................................................................
$
16
15. Income
15. Income
15.
15.Taxes
IncomeIncome
Taxes
Taxes
Taxes
Domestic
Domestic
Domestic
and foreign
andincomeforeign
foreign(loss)
incomeincomebefore(loss)(loss)
incomebeforebeforetaxes
incomeincomeandtaxes
taxes
detailsandofdetails
detailstheofincomeofofincomethethetaxincomeincomeexpensetax
tax(benefit)
expenseexpense(benefit)are(benefit)
asare
followsareareasas(amounts
follows
follows(amounts(amounts
in in inin
Domestic
and andforeignincome(loss)
beforeincometaxes
and anddetailsthetax expense(benefit)asfollows(amounts
millions):
millions):
millions):
millions):$
For the
For
Years
the
For
For
Years
Ended
the
theYears
Years
Ended
Ended
Ended
December
December
December
31,
December31, 31,31,
2016 20162016
2016 2015 20152015
20152014 20142014
2014

IncomeIncomebeforeIncomeIncomebeforeincomebeforebeforeincometax
incomeincomeexpense:tax expense:tax
taxexpense:
expense:
15.Domestic
IncomeTaxes
Domestic
Domestic
Domestic............................................................................................................................................
............................................................................................................................................
............................................................................................................................................
............................................................................................................................................
$ $ 228$$ 228
$ 228
228
$ 355
$$ 355$ 355
355$ 325$$ 325 325
325
Foreign
Foreign...............................................................................................................................................
Foreign
Foreign...............................................................................................................................................
...............................................................................................................................................
...............................................................................................................................................
878 878 878
878 766 766 766
766656 656 656
656
Domestic and foreign income (loss) before income taxes and details of the income tax expense(benefit)areas$$follows(amounts$ $ 1,106$$ 1,106$1,106
1,106$ 1,121
1,121$1,121
1,121$ 981$$ 981in981
981
millions):
IncomeIncometax
IncomeIncomeexpensetax expensetax
tax(benefit):
expenseexpense(benefit):(benefit):(benefit):
Current:
Current:
Current:
Current:
the Years Ended
FederalFederal...........................................................................................................................................
FederalFederal...........................................................................................................................................
...........................................................................................................................................
....................................................................................................................
$ $ (15)$$ (15)$For...........
(15)
15)
$ 169
$$ 169$ 169
169$ 146$$ 146 146
146
December31,
State...............................................................................................................................................
16
31
12
StateState...............................................................................................................................................
State...............................................................................................................................................
16
16
31
31
12
12
...............................................................................................................................................
16
31
12
2016
2015
2014
Foreign...........................................................................................................................................
150
40
38
Foreign...........................................................................................................................................
Foreign...........................................................................................................................................
150
150
40
40
38
38
Foreign...........................................................................................................................................
150
40
38
Income before income tax expense:
65
65
65
65
Total
current..................................................................................................................................
151
240
196
Total
current
Total..................................................................................................................................
current..................................................................................................................................
151
151
240
240
196
196
Total current..................................................................................................................................
151 $
240 $
196
Domestic............................................................................................................................................
$
228
355
325
Deferred:Deferred:Deferred:Deferred:Foreign...............................................................................................................................................
878
766
656
Federal...........................................................................................................................................
Federal...........................................................................................................................................
Federal...........................................................................................................................................
26
Federal...........................................................................................................................................
40 40
1 $11 26 981
26 26$ 401,106$40 11,121
State...............................................................................................................................................
StateState...............................................................................................................................................
State...............................................................................................................................................
(13) (13)(13)(13) (21) (21)(21)(21)(18) (18)(18)(18)...............................................................................................................................................
Incometax
expense(benefit):
Foreign...........................................................................................................................................
Foreign...........................................................................................................................................
Foreign...........................................................................................................................................
(38) (38)(38)(38) 9 9 99(58) (58)(58)(58)
Foreign...........................................................................................................................................
Current:
Total
deferred................................................................................................................................
(11)
(11)
(50)
TotalTotal
deferred
Total................................................................................................................................
deferred................................................................................................................................
(11)
(11)
(11)
(11)
(50)
deferred................................................................................................................................
(11)
(11)
(50)
Federal ...........................................................................................................................................
$(15) $
169 $
146 (50)
Incometax
expense...............................................................................................................................
$$ 140140$$ 229
Incometax
Incomeexpensetax...............................................................................................................................
expense.........................................................................................................
$ $ 140
$ 140
$ 229
229
146
Incometax expense...............................................................................................................................
$ 229$ 146$$ 146 146
65benefits
For
the
ended
December
31,
2016,
2014,
incometax
benefits
attributabletotoequity-based
compensationtransactions
For theForyearended
theyearyear
December
ended
December31, 2016,
31,
2015,
2016,
and2015,
2015,
2014,
and
income2014,
tax
incomebenefits
taxattributablebenefits
attributable
to equity-based
equity-based
compensationcompensationtransactionstransactions
Foryeartheended
December31, 2016,
2015,
and and2014,
incometax
attributable
to equity-based
compensationtransactions
exceededtherecordedonvalue.
Duringtheofweadoptedanexceededexceeded
the amounts
theamounts
recordedamounts
basedrecordedonbased
grant
based
date
ongrant
grant
fair datevalue.
datefair
Duringvalue.
theDuringthird
quarterthethird
thirdofquarter
quarter2016,
weof2016,2016,
early
adoptedweearlyearly
anadoptedaccounting
anaccounting
accounting
exceeded
the amounts
recorded
based
on grant
datefair fairvalue.
Duringthe third
quarterof 2016,
we early
adoptedan accounting
standard
which
simplifies
theforpayments.
among
other
things,requiresallexcesstax
standard
which
standard
simplifies
which
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theaccounting
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for share-based
forshare-based
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Thestandard,
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among
things,otherrequiresthings,allrequiresexcessalltax
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and
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be
an
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ininstatement
theofaaresult,
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berecordedasrecordedanasincome
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antax
incomeexpensetaxor
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Note
As
22).
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be recordedanas
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theof operations(see(seeNote22).a22).
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aAs
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Conversely,
inin2015
millionand$81 million$81wasmillionrecognized
wasrecognizedrecognized
as a reduction
asaareduction
reduction
to incomeincomeexpensetaxin
expense2016.
Conversely,in2016.
2016.
Conversely,in 2015
and
2015
2014,
and
$652014,2014,
million$65andmillion$30
and$30$30million,
million,$81 $81
millionwas wasrecognized
as a asreduction
to incometax expensein 2016.
Conversely,in 2015
and and2014,$65 $65
millionand million,$30
million,respectively,
were
credited
totoshareholders’equity.
respectively,
respectively,
werewerecredited
were
tocredited
shareholders’shareholders’equity.
equity.
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credited
to shareholders’equity.
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accountingforthebetweenincometaxes
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atatU.S.
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income
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and
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The items
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federalincomestatutorytax
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the
are
as
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ininmillions):
tax expensetax(benefit)
expenseat(benefit)
theateffective
theeffectivetax
effective
rate
taxeachrateeachoffortheeach
ofyearstheareyears
years
asare
followsareas(amounts
follows(amounts
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millions):
tax expense(benefit)
thetax forrate
forofyearstheasfollows(amounts
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For
the
Ended
December
For the
Years
For
Ended
theYears
Years
DecemberEnded
31,
December
31,
For
the
Years
Ended
December31, 31,2016 20162016
2016
2015 20152015
2015
2014 20142014
2014

Federalincometax
atatstatutory
rate
387
392
343
FederalincomeFederaltax
incomeprovision
taxprovision
provision
at statutoryratestatutory...........................................
rate...........................................
...........................................
$ $387$$38735%
38735%$ 35%
35%39235%$ 35%
35%34335%35%
35%
Federalincometax provision
at statutory
rate................................................
$392$$39235%$343$$34335%
State
net
of
federalbenefit...............................................................
11 5 5 —55— —StateState
taxes,
State
nettaxes,
taxes,
ofnet
federalnetofbenefitfederal...............................................................
benefit............................................................... 9 9 199 1— 5 5— 55— ——taxes,
offederalbenefi....................................................................
Researchcredits(24)
ResearchResearchand development
anddevelopment
development
credits.............................................................
credits.............................................................
............................................................. (36) (36)(36)(36)(3)(3) (3)(3)(26) (26)(26)(26)(2)(2) (2)(2)(24)(24)(2)(24)(2)
Research
and anddevelopment
credits..................................................................
(2) (2)Foreign..............................................................................
(239)
(228)
(245)
Foreignrate
Foreigndifferential
ratedifferential
differential..............................................................................
..............................................................................(239)(239)(239)(22)(22) (22)(22)(228)(228)
(228)
(20)
(20)
(245)
(245)
(25)
(25)
(245)
(20) (20)(25) (25)Foreignrate rate
differential..................................................................................
Changeininreserves....................................................................................
tax
12
128
ChangeinChangetaxinreserves
taxreserves...............................................................................
reserves...............................................................................
............................................................................... 210 210 210
210
19 19 1919
136 136 136
136
1212
12
128 12813
12813 13
13
Changetax
loss
tax
assumedtheTransaction
(10)
(63)
(6)
Net operating
Netoperating
operatingloss tax
lossattributetaxattributeassumedattributefromassumedthe from
Purchasefrom
thePurchase
Purchase
Transaction
Transaction (114) (114)
(114)
(10)
(10)
(63)
(63)
(6)
(6)
(5)
(5)
(52)
(52)
(52) (5)Net Netoperatinglossattributetax
assumedfromthe Purchase
Excesstax
benefit
totoshare-based..................................
—
Excess Transaction..................................................................................................
tax
Excessbenefittax
relatedbenefittorelated
relatedshare-based
share-based
paymentspayments
payments..................................
.................................. (81)(114)(81)(81)(7)(10) (7)(7)— (63) ——(6) ——— (52)——
—
—
(5)
Other
11
(9)
OtherExcess...........................................................................................................
Other...........................................................................................................
4 (81) —44(7) ——13 — 13131—(9)(9) — (1)(1)
tax...........................................................................................................
benefit related to share-based payments.......................................
—(1)
Incometax
expense....................................................................................
$
140
13%
$
229
20%
$
146
15%
Incometax
Incomeexpensetax....................................................................................
expense....................................................................................
$
140
$
13%
140
$
13%
229
$
20%
229
$
20%
146
$
15%
146
15%
—
(9)
( )
Other ...............................................................................................................
4
13
Income tax expense ........................................................................................ $
13% $
229
20% $
15%
140
146
The
rate
affectedtherates
ininthethetherelativeamountof
The Company’s
TheCompany’s
Company’s
tax rate istax
tax
affected
rateisisby
affected
the taxby
byrates
thetaxin
taxtherates
jurisdictions
thejurisdictions
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in which intheinwhichwhich
Company
theCompany
Company
operates,operates,
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the relative
theamountrelativeof
amountincomeofincome
incomebyandwithstatutory
tax
rate
than
the
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rate
of
earnedbyearnedearnedjurisdiction,
byjurisdiction,
jurisdiction,
andtheisjurisdictions
andthethejurisdictions
jurisdictions
withtax
a statutorywithtax
statutory
rate lesstaxthan
rate
the
less
U.S.
than
rate
the
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35%.
rateoperates,
of35%.
35%. the relative amount of income
The
Company’s
tax
rate
affected
by
the
rates
inaathejurisdictions
inlesswhich
theCompany
earned by jurisdiction, and the jurisdictions with a statutory tax rate less than the U.S. rate of 35%.
withTransaction,
wecertaintax
consistingofloss
In 2013, In
in
In2013,connection
2013,ininconnection
connection
with the PurchasewiththethePurchase
Purchase
Transaction,
Transaction,
we assumed
weassumedcertainassumedtax
certainattributes,
taxattributes,
attributes,
generallygenerally
generally
consisting
consistingof net operating
ofnet
netoperating
operatingloss
loss(“NOL”)
carryforwardsof$760
million,which
potential
tax
of
$266
million.
(“NOL”)(“NOL”)
carryforwards
carryforwardsof approximately
ofapproximately
approximately$760Transaction,
million,$760whichmillion,represent
whichrepresent
represent
a potential
tax
potential
benefittax
ofbenefit
benefitapproximately
ofapproximately
approximately$266
million.
$266Themillion.
The
In 2013,in connection
with thePurchase
we assumed
certaintaxaaattributes,
generally
consistingof netoperatingloss TheutilizationofNOL
carryforwards
will
toto
certainannuallimitations
and
will
begin
to
expirein
2021.
The
Companyalsoutilization
utilizationof suchNOL
ofsuchsuch
carryforwards
NOL
carryforwards
will be subject
willbebetosubject
subject
certainannualcertainlimitations
annuallimitations
and
will
begin
and
will
to
expire
begin
in
to
2021.
expireThe
in
2021.
CompanyThe
Companyalso
also(“NOL”)
carryforwardsof approximately$760
million,which
representapotential
tax
benefitofapproximately$266
million.
The
65
obtainedfrom
Vivendiagainstlossesattributabletoto
theclaimedutilizationofobtained
indemnification
obtained
indemnificationfrom
Vivendifromagainst
Vivendiagainstattributable
lossesattributable
to thedisallowancethedisallowance
disallowanceofand
claimedofutilization
claimedutilizationof suchNOL
ofsuchsuch
NOLutilizationof indemnification
such
NOL
carryforwards
willlosses
besubject
to certain
annuallimitations
willofbegin
to expirein 2021.
TheNOL
Company
also
carryforwards
of
toto
$200
ininunrealizedtax
benefits
ininthetheaggregate,
totoyears
taxableyears
onor
carryforwards
carryforwardsof up to $200
ofup
upmillion$200
inmillion
millionunrealized
unrealized
taxlosses
benefits
taxin
benefits
the aggregate,
thedisallowanceaggregate,
limited tolimited
limitedtaxabletaxableendingyears
onending
endingorsuchprior
ontoorpriorpriortoto
obtained
indemnificationfrom
Vivendiagainstattributabletoof claimed
utilizationof
NOL
December
December
December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%.
In 2013, in connection with the Purchase Transaction, we assumed certain tax attributes, generally consisting of net operating loss(“NOL”) carryforwards of approximately $760 million, which represent a potential 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.
As of December 31, 2016, we had utilized approximately $657 million of the original NOL and had recorded an indemnification asset
of $200 million in “Other assets.” Correspondingly, the same amount was recorded as a reduction to the consideration paid for theshares repurchased in “Treasury stock.” In each of the years ended December 31, 2016 and 2015, we utilized $326 million and$180 million of the NOL and recognized a corresponding reserve of $114 million and $63 million in each of those years ended,
respectively.
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):
2016

December 31,
2015

Deferred tax assets:
Allowance for sales returns and price protection .........................................................
$
66
Inventory reserve ..........................................................................................................
9
Accrued expenses .........................................................................................................
26
Deferred revenue ..........................................................................................................
238
Tax credit carryforwards ..............................................................................................
71
Net operating loss carryforwards ..................................................................................
10
Share-based compensation ...........................................................................................
63
Acquired intangibles .....................................................................................................
115
Other .............................................................................................................................
29
Deferred tax assets ............................................................................................................
627
Valuation allowance .........................................................................................................
—
Deferred tax assets, net of valuation allowance ...............................................................
627
Deferred tax liabilities:
Acquired intangibles .....................................................................................................
(226)
66
Prepaid royalties ...........................................................................................................
(62)
Capitalized software development expenses ................................................................
(94)
State taxes .....................................................................................................................
(1)
Other .............................................................................................................................
(5)
Deferred tax liabilities ......................................................................................................
(388)
Net deferred tax assets ......................................................................................................
$
239

$

$

66
11
40
288
58
10
54
—
28
555
—
555

(166)
(30)
(81)
(7)
(6)
(290)
265

As of December 31, 2016, we had gross tax credit carryforwards of $240 million and $137 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. In addition, we had state NOL carryforwards of$9 million which begin to expire in fiscal 2027. Through our foreign operations, we had approximately $6 million in NOL
carryforwards at December 31, 2016, attributed mainly to losses in France which can be 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, 2016 and 2015, there are no valuation allowances on deferred tax assets.
Cumulative undistributed earnings of foreign subsidiaries for which no deferred taxes have been provided approximated$5,127 million at December 31, 2016. 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 notpracticable 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.
Activision Blizzard’s tax years 2009 through 2015 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 2009 through 2011 tax years. During the second
quarter of 2015, the Company transitioned the review of its transfer pricing methodology from the advanced pricing agreement review
process to the IRS examination team. Their review could result in a different allocation of profits and losses under the Company’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. In
addition, as part of purchase price accounting for the King Acquisition, the Company assumed $74 million of uncertain tax positions
negotiations with the relevant jurisdictions and taxing authorities with respect to King’s transfer pricing, which could result in adifferent allocation of profits and losses between the relevant jurisdictions.
66
Vivendi Games’ results for the period from January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain

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. In
addition, as part of purchase price accounting for the King Acquisition, the Company assumed $74 million of uncertain tax positions
primarily related to the transfer pricing on King tax years occurring prior to the King Acquisition. The Company is currently innegotiations with the relevant jurisdictions and taxing authorities with respect to King’s transfer pricing, which could result in adifferent allocation of profits and losses between the relevant jurisdictions.
Vivendi Games’ results for the period from January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain
foreign, state and local income tax returns filed by Vivendi or its affiliates, 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 filedby Activision Blizzard. IRS Appeals proceedings concerning Vivendi Games’ tax return for the 2008 tax year were concluded during
July 2016 but that year remains open to examination by other major taxing authorities. The resolution of the 2008 IRS Appeals
process did not have a material impact on the Company’s consolidated financial statements.
Certain of our subsidiaries are under examination or investigation or may be subject to examination or investigation by tax authorities
in various jurisdictions, including France. These proceedings may lead to adjustments or proposed adjustments to our taxes orprovisions for uncertain tax positions. Such proceedings may have a material adverse effect on the Company’s consolidated financial
position, liquidity or results of operations in the period or periods in which the matters are resolved or in which appropriate tax
provisions are taken into account in our financial statements. If we were to receive a materially adverse assessment from a taxing
jurisdiction, we would plan to vigorously contest it and consider all of our options, including the pursuit of judicial remedies.
We We
recognizeWe
recognize
recognizeinterest
interest
interest
and andpenalties
andpenalties
penalties
relatedrelatedtorelateduncertain
to uncertain
to uncertain
tax positions
tax positions
tax positions
in “Income
in “Income
in “Income
tax expense”.
tax expense”.
tax expense”.
As of
AsDecemberof
AsDecemberof December
31, 2016
31, 2016
31,
and
2016
and
2015,
and
2015,
2015,
As of
31,$71
2016,
we
had
$846
millionunrecognizedtaxandbenefits,
of to
which
$812
millionwould
affectwe hadwe
hadapproximately
weDecember
hadapproximately
approximately$71
million$71
millionmillionand approximately
and$41and$41
million,$41
million,million,respectively,
respectively,
respectively,
ofof
accruedofgross
accruedof accrued
interest
interest
interest
and andpenalties
penalties
penalties
relatedrelatedrelateduncertain
to uncertain
to uncertain
tax positions.
tax positions.
tax positions.
oureffective
taxDecember
rate,
ifDecember
recognized.
A2016,
reconciliationof2014,total
gross
unrecognizedtax
benefits
forandthemillion,
years
December
31,
2016,
For Forthe yearFor
the year
the
ended
year
ended
ended
December31, 2016,
31, 2016,
31,2015,
2015,
and
2015,
and
2014,
and
2014,
we
recorded
we recorded
werecorded$17$17
million,$17
million,million,$10$10
million,$10
million,million,
and
$5
and
$5
million,$5 endedmillion,respectively,
respectively,
respectively,of interestof interestof interest
2015,
and
2014
is as
(amounts
in millions):
expenseexpenseexpenserelatedrelatedtorelateduncertaintouncertain
tofollows
uncertain
tax positions.
tax
positions.
tax positions.
For
the
Years
TheThe
final
The
final
resolution
final
resolution
resolutionof theof Company’s
theof Company’s
the Company’s
globalglobaltax
globaldisputestax disputes
tax disputes
is uncertain.
is uncertain.
is uncertain.
There
There
isTheresignificant
is significant
is significant
judgment
judgment
judgment
required
required
required
inEndedthein analysis
thein analysis
the analysis
of of ofDecember 31,
disputes,
disputes,
disputes,
includingincludingincludingthe probability
the probability
the probability
determination
determination
determination
and andestimation
andestimation
estimationof theof potential
theof potential
the potential
exposure.
exposure.
exposure.
Based
Based
on
Based
current
on current
on information,
current
information,
information,in thein thein the
2016
2015
2014
opinionopinionopinionof theof Company’s
theof Company’s
the Company’s
management,
management,
management,
the ultimate
the ultimate
the ultimate
resolution
resolution
resolutionof theseof theseofmattersthese
matters
matters
is notis notexpectedis expected
not expected
to haveto havetoa material
have
a materiala material
adverseadverseadverseeffecteffectoneffecton on
Unrecognizedtax
benefitsbalanceat January.........................................................
$as noted
552$above.
419 $294
the Company’s
the Company’s
the Company’s
consolidated
consolidated
consolidated
financialfinancialfinancial
position,
position,
position,
liquidityliquidityliquidityor results
or 1results
orofresults
operations,of operations,of operations,
exceptexceptas
exceptnoted
asabove.
noted
above.
Gross increase for tax positions of prior-years ............................................................
89
8
2Gross decrease for tax positions of prior-years ...........................................................
(17)
(11)
—
Gross increase for tax positions of current year ..........................................................
240
136
125
Settlement with taxing authorities ...............................................................................
(18)
—
(2)
Lapse of statute of limitations .....................................................................................
———
Unrecognized tax benefits balance at December 31 ...................................................
$
846 $
552 $
419

We recognize interest and penalties related to uncertain tax positions in “Income tax expense”. As of December 31, 2016 and 2015,
we had approximately $71 million and $41 million, respectively, of
67accrued interest and penalties related to uncertain tax positions.
For the year ended December 31, 2016, 2015, and 2014, we recorded $17 million, $10 million, and $5 million, respectively, of interest
expense related to uncertain tax positions.
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 is not expected to have a material adverse effect on
the Company’s consolidated financial position, liquidity or results of operations, except as noted above.
16. Computation
16. Computation
16. Computationof Basic/Dilutedof Basic/Dilutedof Basic/Diluted
Earnings
Earnings
Earnings
PerPerCommonPer
CommonCommon
Share
Share
Share
following
sets
forth
the computationof basicanddilutedearnings
commonshare(amounts
in millions,
exceptper
share
TheThefollowingThe
followingtabletable
sets
table
forth
sets
theforthcomputation
the computationof basic
of
and
basic
dilutedandearnings
dilutedearnings
per percommonper common
share(amounts
share(amounts
in millions,in millions,
exceptper
exceptshare
per sharedata):data):data):For theForYears
the
ForYears
the
Ended
Years
Ended
Ended
December
December
December31, 31, 31,
201620162016
201520152015
201420142014

Numerator:
Numerator:
Numerator:
Consolidated
Consolidated
Consolidated
net income
net income
net ................................................................................................................
income................................................................................................................
................................................................................................................
$ 966
$ 966
$ $ 966892$ 892$ $ 892
835
$ 835
$ 835
Less:
Less:
Distributed
Less:
Distributed
Distributed
earnings
earnings
earnings
to unvested
to unvested
to unvested
share-based
share-based
share-based
awardsawardsthatawardsthatparticipate
that
participate
participate
in earnings
in earnings
in earnings..........
..........
..........
(2) (2) (2)(4) (4) (4)(4) (4) (4)
Less:
Less:
Undistributed
Less:
Undistributed
Undistributed
earnings
earnings
earnings
allocatedallocatedallocatedto unvested
to unvested
to unvested
share-based
share-based
share-based
awardsawardsawards(7) (7) (7)(14)(14)(14)............................................................................................
............................................................................................
............................................................................................
Numerator
for basic
anddilutedearnings
per percommonshare—
Numerator
for
basic
and
dilutedearnings
per commonshare—
Numerator
for basic
anddilutedearnings
commonshare—$ $ $ $ 881$ 881$ $ 881
commonshareholders........................................................................
commonshareholders........................................................................
commonshareholders........................................................................
817
$ 817
$ 817
Denominator:
Denominator:
Denominator:
Denominator
Denominator
Denominatorfor basic
for basic
forearnings
basic
earnings
earnings
per percommoncommonper commonshare—
share—
share—
16. Computation of Basic/Diluted Earnings
Peroutstanding
CommonShareoutstanding
outstanding.................................................................
.................................................................
.................................................................
.740.740.740
728728 728
716716 716
EffectEffectofEffect
potentialof potentialof potential
dilutive
dilutive
dilutivecommoncommoncommonsharessharesundershares
under
the
under
treasury
the treasury
the treasury
stock
stock
method:stock
method:method:The following
table
sets
forth
the andcomputationof ..............................................................................................
basic and diluted earnings per common share (amounts
in millions,
Employee
Employee
Employee
stock
stock
optionsstock
options
options
andawardsandawards..............................................................................................
awards..............................................................................................
14 141411 11except
1110 per
10 share10data):
Denominator
Denominator
Denominatorfor diluted
for diluted
for earnings
dilutedearnings
earnings
per percommoncommonper commonshare—weighted-average
share—weighted-average
share—weighted-averagecommoncommoncommon739739 739
726726 726.. 754.. 754.. 754
outstanding
outstanding
outstanding
plusplus
dilutiveplus
dilutive
dilutivecommoncommoncommonsharessharesundershares
under
the
under
treasury
the treasury
the treasury
stock
stock
methodstock
methodmethod...............
...............
...............
the Years Ended
Basic
Basic
earnings
Basicearnings
earnings
per percommoncommonper common
share
share
..............................................................................................
share..............................................................................................
..............................................................................................
......
$1.December
1.21$ $31,
1.21
1.14$ 1.14$ 1.21$ 1.14$ 1.......
$ 1.......
$For
Diluted
Diluted
Dilutedearnings
earnings
earnings
per percommoncommonper common
share
share
...........................................................................................
share...........................................................................................
...........................................................................................
$
1.19
$
1.13
...
...
...
$
1.19
$
$
1.19
1.13
$ 1.13
2016
2015
2014
$ 1.$ 1.$ 1.
Numerator:
net
income................................................................................................................
$ shares)966$the met892$ definition
835
Certain
Certain
Certainof ourofConsolidated
ourunvestedof unvested
our unvested
restricted
restricted
restricted
stock
stock
rightsstock
rights(including
rights(including(including
certaincertain
restrictedcertain
restricted
stock
stock
units
stock
units
and
units
and
performanceandperformance
performance
shares)met
shares)met
definition
the definition
theof of of
67restricted
Less:
Distributed
toearnings
unvested
share-based
awardsthat
inorearnings...........
(2)Therefore,(4)
participating
participating
participating
securities
securities
securities
as theyas they
participate
as earnings
they
participate
participate
inin earnings
in earnings
based
based
onbasedtheiron theironrightstheirrightstorightsdividends
toparticipate
dividends
to dividends
or dividend
dividendor dividend
equivalents.
equivalents.
equivalents.
Therefore,
Therefore,
we arewe(4)arewe areLess:earnings
allocated
toof
unvested
share-based
awardsthatperparticipate
required
required
required
to useto usetheto two-classthe
useUndistributed
two-class
the two-classmethodmethodmethodin ourin ourcomputation
incomputation
our computation
basic
of basic
of
and
basic
and
dilutedanddilutedearnings
dilutedearnings
earnings
percommoncommonper commonshare.
share.
For
share.
For
the yearsForthe years
the
ended
years
ended
ended
(2)
(7)
(14)
December
December
December
31 31 in
31earnings ..............................................................................................................................
- - -outstanding plus dilutive common shares under the treasury stock method ..................................754
Basic earnings per common share .............................................................................................. ......
$ 1.
Diluted earnings per common share ........................................................................................... $ ...1.

739
726$ 1.21 $ 1.14
$ 1.19 $ 1.13

Certain of our unvested restricted stock rights (including certain restricted stock units and performance shares) met the definition ofparticipating securities as they participate in earnings based on their rights to dividends or dividend equivalents. Therefore, we are
required to use the two-class method in our computation of basic and diluted earnings per common share. For the years ended
December 31, 2016, 2015, and 2014, on a weighted-average basis, we had outstanding unvested restricted stock rights with respect to3 million, 8 million, and 15 million shares of common stock, respectively, that are participating in earnings.
Certain of our employee-related restricted stock rights and stock options are contingently issuable upon the satisfaction of pre-defined
performance measures. These shares are included in the weighted-average dilutive common shares only if the performance measures
are met as of the end of the reporting period. Approximately 8 million, 3 million, and 4 million shares are not included in thecomputation of diluted earnings per share for the years ended December 31, 2016, 2015, and 2016, respectively, as their respective
performance measures 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 5 million,
1 million, and 2 million shares of common stock were not included in the calculation of diluted earnings per common share for theyears ended December 31, 2016, 2015, and 2014, respectively, as the effect of their inclusion would be anti-dilutive.

17. Capital Transactions

68

Repurchase Programs
On February 2, 2017, our Board of Directors authorized a new stock repurchase program under which we are authorized to repurchase
up to $1 billion of our common stock during the two-year period from February 13, 2017 through February 12, 2019.
On February 3, 2015, our Board of Directors authorized a stock repurchase program under which we were authorized to repurchase up
to $750 million of our common stock during the two-year period from February 9, 2015 through February 8, 2017. There were no
repurchases pursuant to this program.
Dividends
On February 2, 2017, our Board of Directors approved a cash dividend of $0.30 per common share. Such dividend is payable on
May 10, 2017, to shareholders of record at the close of business on March 30, 2017.
On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share. Such dividend was payable on
May 11, 2016, to shareholders of record at the close of business on March 30, 2016. On May 11, 2016, we made an aggregate cash
dividend payment of $192 million to such shareholders, and on May 27, 2016, we made related dividend equivalent payments of$3 million to certain holders of restricted stock rights.
On February 3, 2015, our Board of Directors declared a cash dividend of $0.23 per common share. Such dividend was payable on
May 13, 2015, to shareholders of record at the close of business on March 30, 2015. On May 13, 2015, we made an aggregate cash
dividend payment of $167 million to such shareholders, and on May 29, 2015, we made related dividend equivalent payments of$3 million to certain holders of restricted stock rights.
On February 6, 2014, our Board of Directors declared a cash dividend of $0.20 per common share. Such dividend was payable on
May 14, 2014, to shareholders 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 holders of restricted stock rights.
18. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (amounts in millions):
For the Years Ended
December 31,
2016
2015
2014

Supplemental cash flow information:
Cash paid for income taxes, net of refunds ..............................................................
$ 121
Cash paid for interest ...............................................................................................
209

$ 20
193

$ 34
201

For the year ended December 31, 2016, we had non-cash purchase price consideration of $89 million related to vested and unvested
stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards in the King
Acquisition. Refer to Note 21 for further discussion.
19. Commitments and Contingencies
Letters of Credit
As described in Note 11, a portion of our Revolver can be used to issue letters of credit of up to $50 million, subject to the availabilityof the Revolver. At December 31, 2016, we did not have any letters of credit issued or outstanding under the Revolver.
68
Commitments

For the year ended December 31, 2016, we had non-cash purchase price consideration of $89 million related to vested and unvested
stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards in the King
Acquisition. Refer to Note 21 for further discussion.
19. Commitments and Contingencies
developed or in which the intellectual property will be utilized. Assuming all contractual provisions are met, the total future minimum
Lettersof Credit
commitments
for these and other contractual arrangements in place at December 31, 2016 are scheduled to be paid as follows(amounts in millions):
As described in Note 11, a portion of our Revolver can be used to issue letters of credit of up to $50 million, subject to the availabilityof the Revolver. At December 31, 2016, we did not have any letters of credit issued or outstanding under the Revolver.
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, 2016 are scheduled to be paid as follows(amounts in millions):
69

For the years ending December 31,
2017 .....................................................................
2018 .....................................................................
2019 .....................................................................
2020 .....................................................................
2021 .....................................................................
Thereafter ............................................................
Total ................................................................
(1)

Facility andEquipment
Leases

$

$

65 $
59
52
44
32
92
344 $

Contractual Obligations(1)Developer andLong-TermIntellectual
Debt
Properties
Marketing
Obligations(2)

196 $
160
1
—
—
—
357 $

53 $
15
—
—
—
—
68 $

Total

145 $ 459
145
379
247
300
393
437
3,101
3,133
1,815
1,907
5,846 $ 6,615

We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the timing of thepotential issue resolution of the underlying matters. 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 matters for certain jurisdictions are not currently
under audit. At December 31, 2016, we had $587 million of net unrecognizedtax benefits
included in “Other liabilities” inContractual
Obligations(1)our consolidated balance sheet.
Facility andDeveloper andLong-Term
Equipment

Intellectual

Debt

Properties principal
MarketingTotal(2)Long-term debt obligations represent our obligations Leases
related to the contractual
repayments Obligations(2)and interest payments
For the years
endingDecember31, Notes, and the New Notes as of December 31, 2016. There was no outstanding balance under ourunder
the 2016
TLA, 2023
2017 .....................................................................
$ and the New
65 $Notes are subject
196 to$ fixed interest
53 $ rates and we145
Revolver as of December 31, 2016. The 2023 Notes
have $ 459
2018 .....................................................................
160 The 2016 TLA
15 bears a variable145
calculated the interest obligation based on the applicable rates59and payment dates.
interest 379
2019 .....................................................................
52—
300
rate and interest is payable on a monthly basis. We have calculated
the expected 1interest obligation
based on the 247
outstanding
2020 .....................................................................
— 11 for additional—
437
principal balance and interest rate applicable at December 31,442016. Refer to Note
information 393
on our debt
2021 .....................................................................
32
—
—
3,101
3,133
obligations.
Thereafter ............................................................
92
—
—
1,815
1,907
Total
................................................................
$
344
$
357
$
68
$
5,846
$
6,615
Legal Proceedings(1)
We haveomitteduncertain
tax liabilities
table
due to thearisinginherent
uncertainty
regardingtiming of the
We are party
to routine
claims,suits,income
investigations,
audits,from
andthisotherproceedingsfromthe ordinary
coursetheof business,issuetoresolutionof theunderlying
Specifically,
eitherand(a)employment
the underlying
positionshave notbeen fully
includingpotential
with respect
intellectual
propertyrights,matters.
contractual
claims, labormatters,
regulatory
matters,tax
developed under
audit
to quantify
at this matters,
time or, (b)years relating
toIn
thethematters
forofcertain
jurisdictions
not currently
matters, unclaimed
property
matters,
complianceandthecollection
matters.
opinionmanagement,
after areconsultation
audit.such
At December
31, 2016,
we had are$587
of netandunrecognizedtax benefits
includedin “Otheradverse
liabilities”
in onwith legalundercounsel,routine claims
and lawsuits
notmillion
significant
we do not expect
them tohave a material
effectour consolidatedbalance results
sheet. of operations, or liquidity.
our business,financial condition,(2)
debtMattersobligations represent our obligations related to the contractual principal repayments and interest payments
PurchaseLong-term
Transaction
under the 2016 TLA, 2023 Notes, and the New Notes as of December 31, 2016. There was no outstanding balance under our
Revolverthe
asCompanyof December
31, 2016.
The 2023
Notestoand
New Notes
are subject
to fixed
interestended
rates June
and weIn prior periods,
reportedon litigation
relatedthethePurchase
Transaction.
Duringthe period
30,have
2015, thecalculated
obligation
based on As
thepartapplicablerates and payment
dates.weThe
2016 TLA
bears a variable
cases wereresolvedtheandinterest
dismissedwith prejudice.
of the resolutionof the claims,
received
a settlement
paymentinterestofrate andinterest
payableon a monthly
basis.
calculated
the expectedinterest obligation
based on the equity”
outstanding$202 million
in July
2015isfrom
Vivendi,ASAC LP,
andWe
ourhaveinsurers.
We recorded
the settlement
within “Shareholders’in ourprincipal
balanceinterest
rate applicableconsolidatedbalancesheetand
as ofDecember31, 2015. at December 31, 2016. Refer to Note 11 for additional information on our debt
obligations.

20. Related Party Transactions
Legal Proceedings

Transactions with Vivendi and Its Affiliates
We are party to routine claims, suits, investigations, audits, and other proceedings arising from the ordinary course of business,
including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax
As part ofthe Business
Combinationin 2008, wematters,
entered andinto collection
various transactions
including cash
management
matters,
unclaimed
property
matters, compliancematters. Inandthe agreements,
opinion of management,
after
consultation
services
agreements,atax
sharingagreementandaninvestoragreement,
withVivendiandits
subsidiaries.
In
connection
witheffectthe onwith legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse
our business, financial condition, results of operations, or liquidity.
69
70
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 LP, and our insurers. We recorded the settlement within “Shareholders’ equity” in ourconsolidated balance sheet as of December 31, 2015.
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
consummation ofof thethe Purchase
Purchase Transaction,
Transaction, we
we terminatedterminated thethe cashcash management
management arrangements
arrangements with
with Vivendi
Vivendi andand amended
amended ourourinvestor
investor agreementagreement with
with Vivendi.
Vivendi. We
We areare also
also party
party toto aa number
number ofof agreements
agreements with
with subsidiaries
subsidiaries andand otherother affiliates
affiliates ofof Vivendi,
Vivendi,includingincluding music
music licensing
licensing andand distribution
distribution arrangements
arrangements andand promotional
promotional arrangements,
arrangements, none
none ofof whichwhich were
were impacted
impacted byby thethe Purchase
Purchase
70
Transaction.
Transaction. None
None ofof these
these services,
services, transactions,transactions, andand agreements
agreements with
with Vivendi
Vivendi andand its
its affiliates
affiliates were
were material,material, either
either individuallyindividually ororinin thethe aggregate,
aggregate, toto thethe consolidated
consolidated financial
financial statements
statements as
as aa whole.
whole.

On
On MayMay 28,28, 2014,
2014, Vivendi
Vivendi sold
sold 41
41 million
million shares,
shares, reducing
reducing its
its ownershipownership interest
interest below
below 10%,
10%, andand waswas nono longerlonger considered
considered aa related
relatedparty
party asas ofof December
December 31,
31, 2015.
2015. Subsequent
Subsequent toto December
December 31,
31, 2015,
2015, Vivendi
Vivendi sold
sold its
its remaining
remaining sharesshares ofof ourour common
common stock.
stock.
Transactions
Transactions with
with ASAC’s
ASAC’s Affiliates
Affiliates
In
In connection
connection with
with thethe Purchase
Purchase Transaction,
Transaction, on
on October
October 11,
11, 2013,
2013, we,
we, ASAC
ASAC LPLP and,and, forfor thethe limited
limited purposes
purposes set
set forth
forth therein,
therein,
Messrs.
Messrs. Kotick
Kotick andand Kelly
Kelly enteredentered into
into aa stockholders
stockholders agreementagreement (the(the “Stockholders“Stockholders Agreement”).
Agreement”). The
The Stockholders
Stockholders Agreement
Agreement
contains
contains various
various agreements
agreements among
among thethe parties
parties regarding
regarding voting
voting rights,
rights, transfer
transfer rights,
rights, andand aa standstill
standstill agreement,
agreement, among
among other
other things.
things.
In
In connection
connection with
with thethe settlement
settlement ofof thethe litigation
litigation related
related toto thethe Purchase
Purchase Transaction,
Transaction, thethe parties
parties toto thethe Stockholders
Stockholders Agreement
Agreement
amendedamended thatthat agreementagreement on
on MayMay 28,28, 2015.
2015.
As
As of
of December
December 31,
31, 2015,
2015, ASAC
ASAC LP,LP, held
held approximately
approximately 172
172 million
million shares,
shares, oror approximately
approximately 23%
23% ofof thethe outstanding
outstanding sharesshares ofof ourourcommontime. Robert
Robert A.
A. Kotick,
Kotick, ourour Chief
Chief Executive
Executive Officer,
Officer, andand Brian
Brian G.
G. Kelly,
Kelly, Chairman
Chairman ofof ourour Board
Board ofof Directors,
Directors,common stock
stock at
at thatthat time.
areare thethe managers
managers ofof ASAC
ASAC IIII GP.
GP. OnOn JuneJune 8,
8, 2016,
2016, ASAC
ASAC GPGP distributed
distributed thethe approximately
approximately 141
141 million
million sharesshares allocable
allocable toto thethelimitedlimited partners
partners ofof ASAC
ASAC LPLP toto thosethose limited
limited partners.
partners. On
On July
July 7,
7, 2016,
2016, ASAC
ASAC LPLP distributed
distributed approximately
approximately 18
18 million
million ofof itsits
remainingremaining approximately
approximately 31
31 million
million sharesshares toto ASAC
ASAC GP.
GP. OnOn AugustAugust 15,
15, 2016,
2016, ASAC
ASAC GPGP sold
sold approximately
approximately 44 million
million sharesshares ofof ourourcommoncommon stock
stock andand distributed
distributed 14
14 million
million sharesshares pro
pro rata
rata toto itsits members,
members, consisting
consisting ofof trusts
trusts forfor thethe benefit
benefit ofof Messrs.
Messrs. Kotick
Kotick andandKelly,
Kelly, which
which sharesshares were
were ultimately
ultimately sold
sold onon thatthat dayday forfor financial
financial andand estate-planningestate-planning purposes.
purposes. On
On AugustAugust 19,
19, 2016,
2016, ASAC
ASAC LPLP
distributed
distributed its
its remaining
remaining sharesshares ofof common
common stock
stock toto ASAC
ASAC GP,GP, leaving
leaving ASAC
ASAC LPLP without
without any
any sharesshares andand ASAC
ASAC GPGP with
withapproximately
approximately 13
13 million
million sharesshares ofof ourour common
common stock,stock, which
which represented
represented approximately
approximately 2%
2% ofof thethe outstanding
outstanding sharesshares ofof ourour common
commonstock
stock asas ofof December
December 31,
31, 2016.
2016. On
On February
February 10,
10, 2017,
2017, ASAC
ASAC GPGP distributed
distributed its
its remaining
remaining shares.
shares. We
We diddid not
not receive
receive any
any proceeds
proceeds
fromfrom any
any ofof thethe distributions
distributions oror salessales ofof thethe shares.
shares.
21.
21. Acquisitions
Acquisitions
King
King Digital
Digital Entertainment
EntertainmentOn
On February
February 23,
23, 2016,
2016, we
we completedcompleted thethe King
King Acquisition,
Acquisition, purchasingpurchasing all
all ofof itsits outstanding
outstanding shares.
shares. As
As aa result,result, KingKing became
became aa
whollywholly owned
owned subsidiarysubsidiary ofof Activision
Activision Blizzard.
Blizzard. KingKing isis aa leading
leading global
global developer
developer andand publisher
publisher ofof interactive
interactive entertainment
entertainment content
content
andand services,
services, particularly
particularly on
on mobilemobile platforms,
platforms, such
such asas Android
Android andand iOS,iOS, andand onon online
online andand socialsocial platforms,
platforms, such
such asas Facebook
Facebook andand thetheking.com
king.com websites.
websites. King’s
King’s results
results ofof operations
operations since
since thethe King
King Closing
Closing Date
Date areare included
included inin ourour consolidated
consolidated financial
financial statements.
statements.
We
We mademade this
this acquisitionacquisition because
because wewe believe
believe thatthat thethe addition
addition ofof King’s
King’s highly-complementary
highly-complementary mobile
mobile businessbusiness positions
positions thethe
Company
Company as
as aa global
global leader
leader in
in interactive
interactive entertainment
entertainment acrossacross console,
console, PC,
PC, andand mobile
mobile platforms,
platforms, as
as wellwell asas positioning
positioning us
us forfor
futurefuture growth.
growth.
The
The aggregate
aggregate purchasepurchase priceprice ofof thethe King
King Acquisition
Acquisition was
was approximately
approximately $5.8
$5.8 billion,
billion, which
which was
was paid
paid onon thethe King
King Closing
Closing Date
Date and
and
fundedfunded primarily
primarily with
with $3.6$3.6 billion
billion ofof existing
existing cash
cash andand $2.2$2.2 billion
billion ofof cashcash fromfrom newnew debt
debt issued
issued byby thethe Company.
Company. The
The total
total aggregate
aggregatepurchasepurchase priceprice forfor King
King waswas comprised
comprised ofof (amounts(amounts inin millions):
millions):
Cash
Cash considerationconsideration forfor outstanding
outstanding KingKing common
common stock
stock andand vested
vestedawards(1).......
awards(1) ..........................................................................................................
..........................................................................................................
....... $$ 5,730
5,730
Fair
98
Fair value
value ofof King’s
King’s existing
existing vested
vested andand unvested
unvested stock
stock options
options andand awards
awards assumed(2)assumed(2) .................
.................
98
Total
Total purchasepurchase priceprice.............................................................................................................................
............................................................................................................................. $$ 5,828
5,828
(1)
(1)

Represents
Represents thethe cashcash considerationconsideration paid
paid based
based on
on $18.00$18.00 per
per shareshare toto common
common stock
stock holders
holders ofof King
King andand thethefair
fair value
value ofof King’s
King’s existing
existing vested
vested options
options andand awards
awards thatthat were
were cash
cash settled
settled at
at thethe King
King Closing
Closing Date
Date forfor thetheportionportion ofof thethe fairfair value
value related
related toto pre-combination
pre-combination services.
services. No
No future
future services
services areare required.
required.

(2)(2)

Represents
Represents thethe fairfair value
value ofof King’s
King’s existing
existing vested
vested andand unvested
unvested stock
stock options
options andand awards
awards thatthat were
were assumed
assumedandand replaced
replaced with
with Activision
Activision Blizzard
Blizzard equity
equity oror deferreddeferred cash
cash awards.
awards. The
The purchasepurchase priceprice includes
includes thethe portion
portionofof fair
fair value
value related
related toto pre-combination
pre-combination services.
services. The
The fairfair value
value ofof thethe options
options andand awards
awards assumed
assumed waswasdetermined
determined using
using binomial-latticebinomial-lattice andand Monte
Monte Carlo
Carlo models
models with
with thethe following
following assumptions:assumptions: (a)(a) volatility
volatility ofof
36%,
36%, (b)(b) time-varying
time-varying risk-freerisk-free interest
interest rates
rates based
based onon thethe U.S.
U.S. Treasury
Treasury yield
yield curves,
curves, (c)(c) anan expected
expected life
life
rangingranging fromfrom approximately
approximately 0.1
0.1 years
years toto 7.6
7.6 years,
years, andand (d)(d) anan expected
expected dividend
dividend yield
yield ofof 0.9%.
0.9%. See
See additional
additional
discussion
discussion under
under Share-Based
Share-Based Compensation
Compensation below.
below.

Weat
We identified
identified andand recorded
recorded assets
assets acquired
acquired andand liabilities
liabilities assumed
assumed70
at theirtheir estimatedestimated fair
fair values
values at
at thethe King
King Closing
Closing Date,
Date, andandallocatedallocated thethe remaining
remaining value
value ofof approximately
approximately $2.7
$2.7 billion
billion toto goodwill.
goodwill. During
During thethe yearyear ended
ended December
December 31,
31, 2016,
2016, we
we recorded
recordedcertaincertain immaterial
immaterial measurement
measurement period
period adjustments
adjustments toto ourour preliminary
preliminary purchasepurchase priceprice allocation
allocation based
based onon additional
additional analysis
analysis ofof facts
facts

determined using binomial-lattice and Monte Carlo models with the following assumptions: (a) volatility of
36%, (b) time-varying risk-free interest rates based on the U.S. Treasury yield curves, (c) an expected life
ranging from approximately 0.1 years to 7.6 years, and (d) an expected dividend yield of 0.9%. See additional
discussion under Share-Based Compensation below.
We identified and recorded assets acquired and liabilities assumed at their estimated fair values at the King Closing Date, andallocated the remaining value of approximately $2.7 billion to goodwill. During the year ended December 31, 2016, we recorded
certain immaterial measurement period adjustments to our preliminary purchase price allocation based on additional analysis of facts
and circumstances that existed as of the King Closing Date.
The final purchase price allocation is as follows (in millions):

71

February 23,
2016

Tangible assets and liabilities assumed:
Cash and cash equivalents .................................................................
$
Accounts receivable ...........................................................................
Other current assets ............................................................................
Property and equipment .....................................................................
Deferred income tax assets, net .........................................................
Other assets ........................................................................................
Accounts payable ...............................................................................
Accrued expense and other liabilities ................................................
Other liabilities ..................................................................................
Deferred income tax liabilities, net ....................................................
Intangible assets
Internally-developed franchises .........................................................
Customer base ....................................................................................
Developed software ...........................................................................
Trade name ........................................................................................
Goodwill ................................................................................................
Total purchase price ...............................................................................
$

1,151
162
72
57
27
47
(9)
(272)
(110)
(52)
845
609
580
46
2,675
5,828

Estimated
useful lives

2 - 7 years

3 - 5 years
2 years3 - 4 years
7 years

During the year ended December 31, 2016, the Company incurred $38 million of expenses related to the King Acquisition, which areincluded within “General and administrative” in the consolidated statements of operations. In connection with the debt financing that
occurred on the King Closing Date, we incurred $38 million of issuance costs that were capitalized and recorded within “Long-term
debt, net” on our consolidated balance sheet. The amortization of these capitalized costs was not material to our consolidated
statement of operations for the year ended December 31, 2016.
Share-Based Compensation
In connection with the King Acquisition, a majority of the outstanding King options and awards that were unvested as of the King
Closing Date were converted into equivalent options and awards with respect to shares of the Company’s common stock, using anequity award exchange ratio calculated in accordance with the transaction agreement. As a result, replacement equity options andawards of 10 million and 3 million, respectively, were issued. The portion of the fair value related to pre-combination services of$76 million was included in the purchase price, while the remaining fair value will be recognized over the remaining service periods.
As of December 31, 2016, the future expense for the converted King options and awards was approximately $40 million, which will
be recognized over a weighted average service period of approximately 1.6 years.
The remaining portion of outstanding unvested awards that were assumed were replaced with deferred cash awards. The cash proceeds
were placed in an escrow-like account with the cash releases to occur based on the awards’ original vesting schedule upon futureservice being rendered. The cash associated with these awards is recorded in “Other current assets” and “Other assets” in ourconsolidated balance sheet. The portion of the fair value related to pre-combination services of $22 million was included in thepurchase price while the remaining fair value of approximately $9 million will be recognized over the remaining service periods. A
portion of the cash proceeds placed in an escrow-like account were released to award holders over the course of 2016, but the amount
was not material.
Identifiable Intangible Assets Acquired and Goodwill
The fair values of the identifiable intangible assets acquired from King were estimated using an income approach, with the exceptionof the customer base, which was estimated using a cost approach. The fair value of the intangibles using the income approach was
determined with the following key assumptions: (a) a weighted average cost of capital of 13%, (b) long-term revenue decay rates
ranging from 0% to 65%, and (c) royalty rates ranging from 0.5% to 8%. The fair value of the intangibles using the cost approach was
based on amounts that would be required to replace the asset (i.e., replacement cost).
The Internally-developed franchises, Customer base, Developed software, and Trade name intangible assets will be amortized to “Costof revenues—subscription, licensing, and other revenues—software royalties, amortization, and intellectual property licenses,” “Sales
and marketing,” “Cost of revenues—subscription, licensing, and other revenues—software royalties, amortization, and intellectual
property licenses,” and “General and administrative,” respectively. The intangible assets will be amortized over their estimated useful
lives in proportion to the economic benefits received.
The $2.7 billion of goodwill recognized is primarily attributable to the benefits the Company expects to derive from accelerated
expansion as an interactive entertainment provider in the mobile sector, future franchises, and technology, as well as the management
team’s proven ability to create future games and franchises. Approximately $620 million of the goodwill is expected to be deductible
for tax purposes in the U.S.
71

of revenues—subscription, licensing, and other revenues—software royalties, amortization, and intellectual property licenses,” “Sales
and marketing,” “Cost of revenues—subscription, licensing, and other revenues—software royalties, amortization, and intellectual
property licenses,” and “General and administrative,” respectively. The intangible assets will be amortized over their estimated useful
lives in proportion to the economic benefits received.
The $2.7 billion of goodwill recognized is primarily attributable to the benefits the Company expects to derive from accelerated
expansion as an interactive entertainment provider in the mobile sector, future franchises, and technology, as well as the management
team’s proven ability to create future games and franchises. Approximately $620 million of the goodwill is expected to be deductible
for tax purposes in the U.S.

Contingent Liabilities Assumed
As a result of the King Acquisition, we assumed contingent liabilities related to contingent consideration associated with King’s
previous acquisitions of Nonstop Games Oy and Z2Live, Inc. The72
remaining contingent consideration for Non Stop Games Oy islinked to amounts generated from games launched by Nonstop Games Oy over a specified period. The range of the potential
undiscounted amount of all future payments that the Company could be required to make under the contingent consideration
arrangement is from $0 to $84 million. The remaining contingent consideration for Z2Live, Inc. is linked to amounts generated from
specific games launched by Z2Live, Inc. within a defined period. The potential range of undiscounted future payments that theCompany could be required to make under the contingent consideration arrangement is from $0 to $75 million. The fair value of thecontingent consideration arrangement at the King Closing date and as of December 31, 2016, for Nonstop Games Oy and Z2Live, Inc.
was immaterial.
King Net Revenue and Earnings
The amount of net revenue and earnings attributable to King in the Company’s consolidated statement of operations during the year
ended December 31, 2016, are included in the table below. The amounts presented represent the net revenues and earnings after
adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferral ofrevenues and related cost of revenues.
(in millions)

Net revenues ...................................................................................................... $Net loss .............................................................................................................. $For the Year
Ended
December 31, 2016

1,523
(230)

Pro Forma Financial Information
The unaudited financial information in the table below summarizes the combined results of operations of the Company and King, on a
pro forma basis, as though the acquisition had occurred on January 1, 2015. The unaudited pro forma financial information presented
includes the effects of adjustments related to amortization charges from acquired intangible assets, employee compensation from
replacement equity awards issued in the King Acquisition and the profit sharing bonus plan established as part of the King
Acquisition, and interest expense from the new debt incurred in connection with the King Acquisition, among other adjustments. We
also adjusted for Activision Blizzard and King non-recurring acquisition-related costs of approximately $74 million incurred for theyear ended December 31, 2016. The unaudited pro forma financial information for the year ended December 31, 2015 were adjusted
to include these charges.
The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicativeof the results of operations that would have been achieved if the King Acquisition, and any borrowings undertaken to finance the King
Acquisition, had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.

(in millions)

For the Year
Ended
December 31,
2016
2015

Net revenues ................................................................................................. $6,888
Net income.................................................................................................... $
1,005
1.35
Basic earnings per common share ................................................................ $Diluted earnings per common share ............................................................. .................
$
1.32

$
$
$
$

6,677
639
0.87
0.85

22. Recently Issued Accounting Pronouncements
Recently adopted accounting pronouncements
Share-based compensation
In June 2014, the FASB issued new guidance related to share-based compensation. The new standard requires that a performancetarget that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such,the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies 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. We
adopted this new standard as of January 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material
impact on our consolidated financial statements.
Consolidations

72
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. We adopted this new standard as of January 1, 2016. The
adoption of this guidance did not have a material impact on our consolidated financial statements.

compensation 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. We
adopted this new standard as of January 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material
impact on our 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. We adopted this new standard as of January 1, 2016. The
adoption of this guidance did not have a material impact on our consolidated financial statements.
Debt Issuance Costs

73

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. We adopted this change in accounting principle asof January 1, 2016, and applied it retrospectively for each period presented. The adoption of this guidance did not have a material
impact on our consolidated financial statements.
Internal-Use Software
In April 2015, the FASB issued new guidance related to internal-use software. The new standard relates to a customer’s accounting 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. We adopted this standard as ofJanuary 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material impact on our consolidated
financial statements.
Business Combinations
In September 2015, the FASB issued new guidance related to business combinations. The new standard requires that the cumulative
impact of a measurement period adjustment, including the impact on prior periods, on provisional amounts recorded at the acquisition
date as a result of the business combination be recognized in the reporting period the adjustment is identified. The standard also
requires separate presentation on the face of the income statement, or disclosure in the notes, of the portion of the amount recorded incurrent period earnings by line item. Prior to the issuance of the standard, such adjustments to provisional amounts were recognized
retrospectively. We adopted this new standard as of January 1, 2016, and applied it prospectively. No measurement period adjustments
impacting earnings occurred as of and for the year ended December 31, 2016.
Share-Based Payments
In March 2016, the FASB issued new guidance to simplify accounting for share-based payments. The new standard, amongst otherthings:•requires that all excess tax benefits and tax deficiencies be recorded as an income tax expense or benefit in the
consolidated statement of operations and that the tax effects of exercised or vested awards be treated as discrete items in
the reporting period in which they occur;•

requires excess tax benefits from share-based payments to be reported as operating activities on the statement of cash
flows; and•permits an accounting policy election to either estimate the number of awards that are expected to vest using an
estimated forfeiture rate, as currently required, or account for forfeitures when they occur.

We elected to early adopt this new standard in the third quarter of 2016, which requires us to reflect any adjustments as of January 1,
2016. As part of the adoption, we made certain elections, including the following:•

to apply the presentation requirements for our consolidated statement of cash flows related to excess tax benefits
retrospectively to all periods presented; and•to continue to estimate the number of awards that are expected to vest using an estimated forfeiture rate.

As a result of the adoption, we recognized excess tax benefits of $81 million as a reduction to income tax expense in our consolidated
statement of operations for the year ended December 31, 2016. Further, given our retrospective application of the presentation
requirements for our consolidated statement of cash flows related to excess tax benefits, our net cash provided by operating activities
and net cash used in financing activities increased by $67 million and $39 million for the years ended December 31, 2015, andDecember 31, 2014, respectively. The other provisions of the standard did not have a material impact on our consolidated financial
statements.
Statement of Cash Flows
In August 2016, the FASB issued new guidance related to the classification of certain cash items in the statement of cash flows. The
new standard requires, among other things, that cash payments for debt prepayment or debt extinguishment costs should be classified
as cash outflows for financing activities, as opposed to operating activities
as is required under existing guidance. We elected to early73
adopt this standard in the third quarter of 2016 and applied it retrospectively. As a result of the adoption of this standard, our cash
flows from financing activities for the year ended December 31, 2016 included the $63 million premium payment from therequirements for our consolidated statement of cash flows related to excess tax benefits, our net cash provided by operating activities
and net cash used in financing activities increased by $67 million and $39 million for the years ended December 31, 2015, andDecember 31, 2014, respectively. The other provisions of the standard did not have a material impact on our consolidated financial
statements.
Statement of Cash Flows
In August 2016, the FASB issued new guidance related to the classification of certain cash items in the statement of cash flows. The
new standard requires, among other things, that cash payments for debt prepayment or debt extinguishment costs should be classified
as cash outflows for financing activities, as opposed to operating activities as is required under existing guidance. We elected to early
adopt this standard in the third quarter of 2016 and applied it retrospectively. As a result of the adoption of this standard, our cash
flows from financing activities for the year ended December 31, 2016 included the $63 million premium payment from theOctober 19, 2016 redemption of our Original 2021 Notes. The adoption of this standard did not have a material impact on ourconsolidated statements of cash flows upon adoption for the years ended December 31, 2015 and 2014.
Recent accounting pronouncements not yet adopted

74

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, providing a unified model to determine when and how
revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services
to customers in an amount that reflects the consideration the company expects to be entitled to in exchange for those goods orservices. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017,and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We
are evaluating the adoption method as well as the impact of this new accounting guidance on our financial statements and related
disclosures. As previously disclosed, we believe the adoption of the new revenue recognition standard may have a significant impact
on the accounting for our sales of our games with significant online functionality for which we do not have VSOE for unspecified
future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements isrequired. This requirement will be eliminated under the new standard. Accordingly, we may be required to recognize as revenue a
portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales priceratably over an estimated offering period. This potential difference may have a material impact on our consolidated financial
statements upon adoption of this new guidance. As accounting implementation guidance and clarifications regarding this matter is still
evolving, we continue to evaluate the impact this guidance will have on our consolidated financial statements and related disclosures.
LeasesIn February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current
U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or
financing lease and lessees will need to recognize a lease liability and a right-of-use asset for their leases. The liability will be equal tothe present value of lease payments. The asset will be based on the liability, subject to adjustment for initial direct costs, lease
incentives received and any prepaid lease payments. Operating leases will result in straight-line expense, while finance leases will
result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current leaseaccounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will requireapplication of the new guidance at the beginning of the earliest comparative period presented. We are evaluating the impact of thisnew accounting guidance on our consolidated financial statements.
Inventory
In July 2015, the FASB issued new guidance related to the measurement of inventory which requires inventory within the scope of 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. The
impact this new standard is not expected to have a material impact on our consolidated financial statements.
Financial Instruments
In January 2016, the FASB issued new guidance related to the recognition and measurement of financial assets and financial
liabilities. The new standard, amongst other things, generally requires companies to measure investments in other entities, except
those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new standard
also simplifies the impairment assessment of equity investments without readily determinable fair values. The new standard iseffective for fiscal years beginning after December 15, 2017, and the guidance should be applied by means of a cumulative-effectadjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity investments
without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments thatexist as of the date of adoption. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial
statements.
Statement of Cash Flows—Restricted Cash
In November 2016, the FASB issued new guidance related to the classification of restricted cash in the statement of cash flows. The
new standard requires that a statement of cash flows explain any change during the period in total cash, cash equivalents, andrestricted cash. Therefore, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years beginning after
December 15, 2018 and should be applied retrospectively. Early adoption is permitted.
74
We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements. We expect there would bea significant impact to the consolidated statements of cash flows for the years ended December 31, 2015 and 2016, as those years

adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity investments
without
readily
determinable
fairKing
values(including
disclosure
requirements)
shouldbeappliedto withequityinvestments
December
December
December31,
2015
31,31,
2015
to2015facilitate
to facilitate
to facilitate
the
the
the
King
Acquisition
King
Acquisition
Acquisition
andandtheandsubsequent
thethesubsequent
subsequent
releasereleasereleaseof thatof that
of
cash
that
cash
incash2016
in prospectively
2016
inin2016
connection
in connection
in connection
with
the
with
King
thetheKing
Kingthat
exist
as
of
the
date
of
adoption.
We
areevaluatingtheimpact,if
any,of
adopting
thisnewaccounting
guidanceon
ourfinancial
Acquisition.
Acquisition.
Acquisition.
Under
Under
Under
this this
new
this
new
standard,
newstandard,
standard,
the restricted
thetherestricted
restrictedcashcashbalancecashbalancebalance
would
would
would
be included
be included
be includedin thein beginningthein thebeginning
beginning
and andendingandendingendingtotaltotal
cash,
total
cash,
cash
cash,
cash
cash
statements.
equivalents,
equivalents,
equivalents,
and andrestrictedandrestricted
restrictedcashcashbalances
cashbalancesbalancesand and
hence
and
hence
would
hence
would
would
not not
be notincludedbe included
be included
as anasinvestinganas investing
an investing
activity
activity
activityin thein statement
thein thestatement
statementof cashof cashofflows.
cash
flows.
flows.
Statementof Cash Flows—Restricted Cash
Goodwill
Goodwill
Goodwill
In January
November
2016,
FASB
issuednew
guidance
relatedto theclassificationof therestrictedcash
in thestatement
of
cash
The
In January
In
In January
2017,
2017,
the
2017,
FASB
thethe
the
FASB
FASB
issuedissuedissuednewnew
guidance
new
guidance
guidance
which
which
eliminates
which
eliminates
eliminates
Step
Step
2 Stepfrom
2 from2thefromgoodwillthegoodwill
goodwill
impairment
impairment
impairment
test.
test.
Instead,test.
Instead,Instead,if anyif anyentityifflows.
any
entityentitynewstandard
requiresthatastatement
of
cash
flows
explainanychangeduringtheperiod
in
total
cash,
cash
equivalents,andforgoesforgoesforgoesa Stepa Stepa0 Step
test,
0 test,an
0 test,entityan entity
an willentitywill
bewillrequired
be required
be required
to perform
to perform
to perform
its annual
its annual
its annual
or interim
or interim
or interim
goodwill
goodwill
goodwill
impairment
impairment
impairment
test test
by testcomparing
by bycomparingcomparing
the fairthethe
fair
value
fair
value
value
restricted
cash.
Therefore,
restrictedcash
beincluded
withimpairment
cash
and
cash
equivalents
whenreconcilingthebeginning-of-periodof aofreportingaofreportinga reporting
unit,unit,
as
unit,
determined
as determined
as determinedin Step
in Step
in1 Step
from
1will
from
1the
from
goodwillthethe
goodwill
goodwill
impairment
impairment
test,
test,
with
test,
with
itswithcarrying
its carrying
its carrying
amountamountamountand andrecognize
andrecognize
recognize
an impairment
an impairment
an impairment
andcharge,
end-of-period
totalamountsonthestatementofcashflows.
newunit’sstandard
is fair
effective
years
beginningafter
charge,charge,ifany,
if any,if
forany,thefor foramountthetheamountamountby whichby shown
by
which
the
which
carrying
thethecarrying
carrying
amountamountamountexceeds
exceeds
exceeds
the reporting
theThethereportingreportingunit’sfair
unit’sfairvalue,
value,
notvalue,
nottofor
exceednottofiscalexceedto exceedthetotal
thethetotal
amounttotal
amountamountofof ofDecember
15,
2018
be applied
retrospectively.
Early
adoptionis years
permitted.
goodwill
goodwill
goodwill
allocatedallocatedallocatedto thetoand
reportingtheto shouldthereportingreporting
unit.
unit.
The
unit.
The
new
The
new
standard
newstandard
standard
is effectiveiseffective
is effective
for fiscal
for forfiscalfiscalyears
beginning
years
beginning
beginning
afterafter
Decemberafter
December
December15, 2019
15,15,
2019
and
2019
and
shouldandshouldshouldbe applied
be applied
be applied
prospectively.
prospectively.
prospectively.
Early
Early
adoptionEarly
adoption
adoptionis permitted.
is permitted.
is permitted.
We We
areWe
evaluating
areareevaluating
evaluating
the impact,
thetheimpact,impact,if any,if any,ifofany,
adoptingof adoptingof adopting
this this
new
this
new
accounting
newaccounting
accounting
guidance
guidance
guidance
Weon
areourevaluatingtheimpact,if statements.
any, of adopting this new accounting guidance on our financial statements. We expect there would beon ouron
ourconsolidated
consolidated
consolidated
financialfinancialfinancialstatements.
statements.
a significant impact to the consolidated statements of cash flows for the years ended December 31, 2015 and 2016, as those years
include, as an investing activity, the $3.6 billion movement in restricted cash as a result of transferring cash into escrow at
December 31, 2015 to facilitate the King Acquisition and the subsequent release of that cash in 2016 in connection with the King
Acquisition. Under this new standard, the restricted cash balance would be included in the beginning and ending total cash, cash
equivalents, and restricted cash balances and hence would not be included
as an investing activity in the statement of cash flows.
75
Goodwill
In January 2017, the FASB issued new guidance which eliminates Step 2 from the goodwill impairment test. Instead, if any entity
forgoes a Step 0 test, an entity will be required to perform its annual or interim goodwill impairment test by comparing the fair valueof a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying amount and recognize an impairment
charge, if any, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of
goodwill allocated to the reporting unit. The new standard is effective for fiscal years beginning after December 15, 2019 and should
be applied prospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidanceon our consolidated financial statements.
23. Quarterly
23.23.
Quarterly
Quarterly
Financial
Financial
Financial
Information
Information
Information(Unaudited)(Unaudited)(Unaudited)
For theForForQuarters
the theQuarters
Quarters
Ended
Ended
Ended
December
December
December31, 31, 31,September
September
September
30, 30, 30,JuneJune
30,June30, 30,
March
March
31,
March
31, 31,
201620162016
201620162016
201620162016 201620162016(Amounts(Amounts(Amounts
in millions,in millions,in millions,
exceptexceptper
exceptshare
per per
share
data)
share
data)
data)

Net NetrevenuesNet
revenues
revenues.........................................
.........................................
.........................................
$ $ $ 2,014
2,014
2,014
$ $ $
CostCostofCostrevenuesof revenuesof revenues....................................
....................................
....................................
776776776
OperatingOperatingOperatingincomeincomeincome..................................
..................................
..................................
425425425
Net Netincome(1)Netincome(1)income(1).......................................
.......................................
.......................................
254254254
Basic
Basic
earnings
Basicearnings
earnings
per pershare(1)pershare(1)share(1)...................
...................
...................
0.340.34
0.34
Diluted
Diluted
Dilutedearnings
earnings
earnings
per pershare(1)pershare(1)share(1)................
................
................
0.330.33
0.33

1,568
1,568
1,568
$ $1,570$ 1,5701,570$ $ 1,455$ 1,455
1,455
529529529 598598598
491491491
294294294 232232232
461461461
199199199 151151151
363363363
0.270.27
0.27 0.200.20
0.20 0.490.49
0.49
0.260.26
0.26 0.200.20
0.20 0.480.48
0.48(1) (1) (1)During
DuringDuringthe third
thethethird
quarterthirdquarterquarterof 2016,of 2016,
of we
2016,
early
we we
early
adoptedearly
adoptedadoptedan accounting
an accounting
an accounting
standard
standard
standard
which
which
simplifies
which
simplifies
simplifies
the accounting
thetheaccounting
accounting
for share-based
for forshare-based
share-based
payments.
payments.
payments.
TheThestandard,
The
standard,
standard,
among
among
among
other
other
things,otherthings,things,requiresrequiresrequiresall excess
all all
excessexcesstax benefits
taxtax
benefits
benefits
and andtaxandtaxtaxdeficiencies
deficiencies
deficiencies
to betorecordedbeto recorded
be recorded
as anasincomeanas incomean incometax expense
taxtaxexpenseexpenseor benefit
or benefit
or benefit
in thein consolidated
thein theconsolidated
consolidated
statement
statement
statementof operationsof operationsof operations
23. Quarterly Financial
Information(Unaudited)(see(see
Note
(see
Note
22).
Note
22).
The
22).
The
adoptionThe
adoption
adoptionof theof standard
theof thestandard
standard
impacted
impacted
impacted
our our
previously
ourpreviously
previously
reportedreportedreported
results
results
results
for thefor forquarters
thethequarters
quarters
ended
ended
ended
JuneJune
30,
June
2016
30,30,
2016
and
2016
and
March
and
March
March
31, 2016.
31,31,
2016.
As
2016.
aAs
resultAsa result
aof
resulttheof adoption
the
ofFor
the
adoption
adoptionof thisof thisof
thisstandard,
standard,
income,netnetincome,income,
basic
basic
basic
standard,
our ournetourthe Quarters Endedearnings
earnings
earnings
per pershare,
pershare,
andshare,
anddilutedanddiluteddilutedearnings
earnings
earnings
per per
share
per
share
increased
share
increased
increasedby $24by by$24
million,$24
million,million,$0.03,$0.03,$0.03,
andMarch
and$0.03,
and$0.03,$0.03,
respectively,
respectively,
respectively,
December 31,
September 30,
June 30,
31,
for thefor forquarterthethequarterquarter
ended
ended
June
ended
June
30,
June
2016,
30,30,
2016,
and
2016,
and
$27and$27
million,$27
million,million,$0.04,$0.04,$0.04,
and andand$0.03,$0.03,
respectively,
respectively,
respectively,
for thefor forquarterthethequarterquarter
ended
ended
ended
$0.03,
2016
2016
2016
2016
March
March
March
31, 2016.
31,31,
2016.
2016.
(Amounts in millions, except per share data)
Net revenues .........................................$
2,014 $
1,568 $
1,570 $
1,455
ForForQuarters
the theQuarters
Quarters
Ended
Ended
Ended 598
Cost of revenues....................................
776 For the529
491
December
December
December31, 31,
31,September
September
September
30, 30,294
30,JuneJune
30,June
30,
30,
March
March
31,
March
31,
31,
Operating income ..................................
425
232
461
20152015
2015 199 20152015
2015
Net income(1) ....................................... 201520152015254
151 201520152015
363(Amounts(Amounts(Amounts
in millions,in millions,in millions,
exceptexceptper
exceptshare
per per
share
data)
share
data)
data)
Basic earnings per share(1) ...................
0.34
0.27
0.20
0.49
Net NetrevenuesNet
revenues
revenues.........................................
.........................................
.........................................
$ $ $ 1,353
1,353
1,353
$ $ $
9900.26
990$990$1,044$ 1,0441,044$ $ 1,278$ 1,278
1,278
Dilutedearnings
per share(1) ................
0.33
0.20
0.48
CostCostofCostrevenuesof revenuesof revenues....................................
....................................
....................................
538538538
337337337 297297297
413413413
OperatingOperatingOperatingincomeincomeincome..................................
..................................
250adopted
250250 an accounting
196196196
332which
332332simplifies
542542the542accounting(1)
Duringthe..................................
third
quarter of 2016, we earlystandard
Net NetincomeNet
incomeincome............................................
............................................
............................................
159
159
159
127
127
127
212
212
212
394
394
for share-based payments. The standard, among other things, requires all excess tax benefits394
and tax
Basic
Basicearnings
Basicearnings
earnings
per per
share
per
share
share
.......................
0.22
0.22
0.22
0.170.17
0.17
0.290.29
0.29 statement
0.540.54
0.54
deficiencies
to.......................
be.......................
recordedas an income
tax
expenseor benefit
inthe consolidatedof operations
Diluted
Diluted
Dilutedearnings
earnings
earnings
per per
share
per
share
....................
share....................
....................
0.210.21
0.21
0.17
0.17 reported
0.290.29
0.29
(see
Note
22).
The
adoptionof the standard
impacted
our 0.17
previously
results 0.53
for 0.53
the0.53
quarters ended
June 30, 2016 and March 31, 2016. As a result of the adoption of this standard, our net income, basic
earnings per share, and diluted earnings per share increased by $24 million, $0.03, and $0.03, respectively,
for the quarter ended June 30, 2016, and $27 million, $0.04, and $0.03, respectively, for the quarter ended
March 31, 2016.

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

For the Quarters Ended
December 31,
September 30,
June 30,
March 31,
2015
2015
2015
2015
(Amounts in millions, except per share data)

1,353 $
76 76538
76
250
159
0.22
0.21
75

990 $
337
196
127
0.17
0.17

1,044 $
297
332
212
0.29
0.29

1,278
413
542
394
0.54
0.53

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIESMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIESMarket Information and Holders
MarketInformation
Holders
Our common
stock isandquotedon the NASDAQ National Market under the symbol “ATVI.” The following table sets forth, for theperiods indicated, the high and low reported sale prices for our common stock. At February 23, 2017, there were 1,678 holders ofrecordof our common
stock. on the NASDAQ National Market under the symbol “ATVI.” The following table sets forth, for the
Our common
stock is quoted
periods indicated, the high and low reported sale prices for our common stock. At February 23, 2017, there were 1,678 holders ofrecord of our common stock.
High
Low
2015
First Quarter Ended March 31, 2015.............................................................................................................
$ High
23.69 $ Low
18.43
Second26.09
22.28
2015 Quarter Ended June 30, 2015 ...........................................................................................................
Third
QuarterEnded
EndedMarch
September
30, .............................................................................................................
2015 ....................................................................................................
32.50 $ 18.43
24.04
First Quarter
31, 2015$ 23.69
Fourth31, 2015...................................................................................................
39.93
30.25
SecondQuarter
QuarterEnded
EndedDecember
June 30, 2015...........................................................................................................
26.09
22.28
Third Quarter Ended September 30, 2015 ....................................................................................................
32.50
24.04
High
Low
Fourth Quarter Ended December 31, 2015 ...................................................................................................
39.93
30.25
2016
First Quarter Ended March 31, 2016.............................................................................................................
$ High38.09 $ Low
26.49
Second39.99
33.03
2016 Quarter Ended June 30, 2016 ...........................................................................................................
Third
QuarterEnded
EndedMarch
September
30, .............................................................................................................
2016 ....................................................................................................
45.12 $ 26.49
39.28
First Quarter
31, 2016$ 38.09
Fourth31, 2016...................................................................................................
45.55
35.12
SecondQuarter
QuarterEnded
EndedDecember
June 30, 2016...........................................................................................................
39.99
33.03
Third Quarter Ended September 30, 2016 ....................................................................................................
45.12
39.28
Fourth Quarter Ended December 31, 2016 ...................................................................................................
45.55
35.12

77
76
77

Stock Performance Graph
Stock Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to theThis 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. underliabilities 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 Exchange Act or the Securities Act of 1933.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNCOMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
among Activision Blizzard, Inc., the NASDAQ Composite Index, the S&P 500 Index,
among Activision Blizzard, Inc., the NASDAQ Composite Index, the S&P 500 Index,
and the RDG Technology Composite Index
and the RDG Technology Composite Index

The following graph and table compare the cumulative total stockholder return on our common stock, the NASDAQ Composite Index,
The following graph and table compare the cumulative total stockholder return on our common stock, the NASDAQ Composite Index,
the S&P 500 Index, and the RDG Technology Composite Index. The graph and table assume that $100 was invested on December 31,
the S&P 500 Index, and the RDG Technology Composite Index. The graph and table assume that $100 was invested on December 31,
2011
andthat dividends
were reinvested daily. The stock price performance on the following graph and table is not necessarily
Stock
Performance
Graph
2011
and
that
dividends
daily. The stock price performance on the following graph and table is not necessarily
indicativeof futurestockwerepricereinvested
performance.
indicative of future stock price performance.
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.
$350

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$300

The following graph and table compare the cumulative total stockholder return on our common stock, the NASDAQ Composite Index,
the S&P 500 Index, and the RDG Technology Composite Index. The graph and table assume that $100 was invested on December 31,
2011 and that dividends were reinvested daily. The stock price performance on the following graph and table is not necessarily$250
indicativeof future stock price performance.
$200
$150
$100
Fiscal year ending December 31:
Fiscal year ending December 31:

Activision
Inc...............................................
$50Blizzard,
Activision
Blizzard, Inc.
..............................................
NASDAQ Composite...................................................
NASDAQ Composite ...................................................
S&P 500 ........................................................................
S&P 500 ........................................................................
RDG Technology
Composite ......................................
$0
RDG Technology
Composite ......................................
12/11
Cash Dividends
Cash Dividends

12/12

$
$

12/11
12/11

100.00 $100.00100.00 $100.00100.00100.00100.00100.00

12/13

12/12
12/12

87.44 $
87.44 $
116.41116.41116.00116.00114.61114.61
12/14

12/13
12/13

148.75 $148.75165.47 $165.47153.58153.58152.95152.95

12/14
12/14

169.68 $169.68188.69 $188.69174.60174.60178.50178.50

12/15
12/15

329.31 $329.31200.32 $200.32177.01177.01183.08183.08

12/15

12/16
12/16

309.68309.68216.54216.54
198.18198.18206.81206.81

12/16

We have paid a dividend annually since 2010. Below is a summary of cash dividends paid over the past three fiscal years, along withWe have paid aActivision
dividend annuallyInc.
since 2010. Below is a summaryof cash dividends
paid
three Technology
fiscal years,Composite
along with
S&P
500over the past RDG
the most recent dividendBlizzard,
declared by the Board ofNASDAQ
DirectorsCompositethat will be paid in 2017:
the most recent dividend declared by the Board of Directors that will be paid in 2017:
FiscalYear year ending December 31:
Year

12/11

12/12

Per Share
Share 12/14
12/13Per
AmountAmountRecordRecordDate12/15
Date

Dividend
Dividend
Payment
Payment
12/16
Date
Date

Activision
Blizzard, Inc...............................................
$ 100.00 $87.44 $ 148.75$0.30
169.683/30/2017$ 329.31 $5/10/2017
309.682017 ......................................................................................................................................
$
2017
$
0.30
NASDAQ
Composite ...................................................
100.00116.41
165.47188.693/30/2017
200.32 5/10/2017
216.542016 ......................................................................................................................................
......................................................................................................................................
$
0.26
3/30/2016
5/11/20162016 ......................................................................................................................................
$
0.26
S&P
500 ........................................................................
100.00116.00153.58174.603/30/2016
177.01 5/11/2016
198.182015 ......................................................................................................................................
$
0.23
3/30/2015
5/13/2015
2015 ......................................................................................................................................
$
0.23
RDG
Technology Composite ......................................
100.00114.61152.95178.503/30/2015
183.08 5/13/2015
206.812014 ......................................................................................................................................
$
0.20
3/19/2014
5/14/20142014 ...................................................................................................................................... $0.20
3/19/2014
5/14/2014

Cashdividends
Dividendswill depend upon our earnings, financial condition, cash requirements, anticipated future prospects, and other factors
FutureFuture dividends will depend upon our earnings, financial condition, cash requirements, anticipated future prospects, and other factors
deemed relevant by our Board of Directors. Further, agreements governing certain of our indebtedness, as described in Note 11 of thedeemed relevant by our Board of Directors. Further, agreements governing certain of our indebtedness, as described in Note 11 of thenoteshaveto consolidated
financialstatements
includedin is
thisAnnual Report,
under paid
certaincircumstances,ability
to payWe
paid a dividend
annually
since 2010.
Below
a summaryof cashmay,
dividends
over
the past threelimit
fiscalour
years,
along
with
notes
to consolidated
financialstatements
includedin thisReport,may,under incertaincircumstances,
limit
our
ability
to paydistributions
or dividends.
There
can
be
no
assurances
thatAnnual
dividends
willpaidbedeclared
the future.
the
mostrecentdividend
declared
by
the
Board
of
Directors
that
will
be
in
2017:
distributions or dividends. There can be no assurances that dividends will be declared in the future.
10b5-1 Stock Trading Plans
10b5-1 Stock Trading Plans
Year

Per Share
AmountRecordDate

Dividend
Payment
Date

The
directors and employees may, at a time they are not aware of material non-public
information,enter into plans
to2017Company’s......................................................................................................................................
$
0.30
3/30/2017
5/10/2017
The
Company’s
directors
and common
employees
may,
at satisfy
a time they
are not awareofofExchangematerial non-public
information,
enter
into
plans
to
purchaseor sell sharesof ourstock
that
the requirements
Act $Rule 10b5-1(“Rule10b5-1
Plans”).
2016......................................................................................................................................
0.26
3/30/2016
5/11/2016
purchase or sell shares of our common stock that satisfy the requirements of Exchange Act Rule 10b5-1 (“Rule 10b5-1 Plans”).
Rule10b5-1 Plans permit persons whose ability to purchase or sell our common stock may$otherwise
be substantiallyrestricted(by2015 ......................................................................................................................................
0.23
3/30/2015
5/13/2015
Rule10b5-1 Plans permit persons whose ability to purchase or sell our common stock may otherwise
be substantiallyrestricted(byquarterlyand special stock-trading blackouts and by their possession from time to time of material
nonpublic
information) to5/14/2014
trade on2014......................................................................................................................................
$
0.20
3/19/2014
quarterlyandspecialstock-trading
blackouts
and
by
their
possession
from
time
to
time
of
material
nonpublic
information)
to
trade
on
a pre-arranged, “automatic-pilot” basis.
a pre-arranged, “automatic-pilot” basis.
Future dividends will depend upon our earnings, financial condition, cash requirements, anticipated future prospects, and other factors
deemed relevant by our Board of Directors. Further, agreements governing certain of our indebtedness, as described in Note 11 of the78
notes to consolidated financial statements included in this Annual 77
Report, may, under certain circumstances, limit our ability to pay
78
distributions or dividends. There can be no assurances that dividends will be declared in the future.

Activision
Activision
Blizzard,
Blizzard,
Inc.
Inc.
..............................................
..............................................
NASDAQ
NASDAQ
Composite
Composite...................................................
...................................................
S&P
S&P
500500........................................................................
........................................................................
RDG
RDG
Technology
Technology
Composite
Composite......................................
......................................

$ $100.00
100.00$ $ 87.44
87.44$ $148.75
148.75$ $169.68
169.68$ $329.31
329.31$ $309.68
309.68100.00100.00 116.41
116.41 165.47
165.47 188.69
188.69 200.32
200.32 216.54
216.54100.00100.00 116.00
116.00 153.58
153.58 174.60
174.60 177.01
177.01 198.18
198.18100.00100.00 114.61
114.61 152.95
152.95 178.50
178.50 183.08
183.08 206.81
206.81Cash
Cash
Dividends
Dividends
have
paid
a dividend
annually
since
2010.
Below
a summary
cash
dividends
paid
over
past
three
fiscalyears,
along
with
WeWe
have
paid
a dividend
annually
since
2010.
Below
is aissummary
of of
cash
dividends
paid
over
thethepast
threefiscalyears,
along
with
most
recentdividend
declared
Board
Directors
that
will
paid
2017:
thethemost
recentdividend
declared
byby
thetheBoardof of
Directors
that
will
be be
paid
in in
2017:
PerPerShare
Share
AmountAmount

Year
Year

2017
2017
......................................................................................................................................
......................................................................................................................................$ $
2016
2016
......................................................................................................................................
......................................................................................................................................$ $
2015
2015
......................................................................................................................................
......................................................................................................................................$ $
2014
2014
......................................................................................................................................
......................................................................................................................................$ $

0.30
0.30
0.26
0.26
0.23
0.23
0.20
0.20

RecordRecordDate
Date

3/30/2017
3/30/2017
3/30/2016
3/30/2016
3/30/2015
3/30/2015
3/19/2014
3/19/2014

Dividend
Dividend
Payment
Payment
Date
Date

5/10/2017
5/10/2017
5/11/2016
5/11/2016
5/13/2015
5/13/2015
5/14/2014
5/14/2014

FutureFuturedividends
dividends
will
will
dependdependupon
upon
ourourearnings,
earnings,
financialfinancialcondition,
condition,
cash
cash
requirements,
requirements,
anticipatedanticipatedfuturefutureprospects,
prospects,
andandother
otherfactors
factors
deemeddeemedrelevant
relevant
byby
ourour
Board
Board
of of
Directors.
Directors.
Further,
Further,
agreements
agreements
governinggoverningcertaincertainof ofourourindebtedness,indebtedness,
as as
described
described
in in
Note
Note
1111
of of
thethe
notes
notes
to to
consolidated
consolidated
financialfinancialstatements
statements
includedincluded
in inthisthisAnnualAnnualReport,Report,
may,
may,
under
under
certaincertaincircumstances,
circumstances,
limit
limit
ourourabilityability
to to
paypaydistributions
distributions
or or
dividends.
dividends.
There
There
cancanbe benono
assurances
assurances
that
that
dividends
dividends
will
will
be be
declareddeclared
in in
thethefuture.
future.
10b5-1
10b5-1
Stock
Stock
Trading
Trading
Plans
Plans
The
The
Company’s
Company’s
directors
directors
andandemployees
employeesmay,
may,
at aattime
a timethey
they
arearenotnot
aware
aware
of of
materialmaterial
non-public
non-public
information,
information,
enter
enter
into
into
plans
plans
to to
purchasepurchaseor orsellsellsharessharesof ofourourcommoncommon
stock
stock
that
that
satisfysatisfythetherequirements
requirements
of ofExchange
Exchange
ActActRule
Rule10b5-1
10b5-1(“Rule(“Rule10b5-1
10b5-1
Plans”).
Plans”).
Rule
Rule
10b5-1
10b5-1
Plans
Plans
permitpermitpersons
persons
whose
whose
abilityability
to topurchasepurchaseor orsellsell
ourourcommoncommon
stock
stock
may
may
otherwiseotherwise
be besubstantiallysubstantiallyrestricted
restricted(by(byquarterly
quarterly
andandspecialspecialstock-trading
stock-trading
blackouts
blackouts
andand
byby
their
their
possession
possession
from
from
time
time
to to
time
time
of of
materialmaterial
nonpublic
nonpublic
information)
information)
to to
trade
trade
onon
a pre-arranged,a pre-arranged,“automatic-pilot”“automatic-pilot”
basis.
basis.
Trading under Rule 10b5-1 Plans is subject to certain conditions, including that the person for whom the plan is created (or anyone
7878 behalf) not exercise any subsequent influence regarding theelse aware of material non-public information acting on such person’s
amount, price and dates of transactions under the plan. In addition, the Company requires Rule 10b5-1 Plans to be established andmaintained in accordance with the Company’s “Policy on Establishing and Maintaining 10b5-1 Trading Plans.”
Trades under a Rule 10b5-1 Plan by our directors and employees are not necessarily indicative of their respective opinions of ourcurrent 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 accordance with applicable laws,
rules, and regulations.
Issuer Purchase of Equity Securities
On February 2, 2017, our Board of Directors authorized a new stock repurchase program under which we are authorized to repurchase
up to $1 billion of our common stock during the two-year period from February 13, 2017 through February 12, 2019.
On February 3, 2015, our Board of Directors authorized a stock repurchase program pursuant under which we were 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. There were no repurchases pursuant to this program.

78

CAUTIONARY STATEMENTCAUTIONARY 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. Suchby
statements
any statement otherthan a withinrecitation
historical
facts
and
This
AnnualReport contains,
or incorporates
reference,consist
certainofforward-looking
statements
the ofmeaningof thePrivateinclude, but
are not limited
revenues,consist
expenses,
incomeor loss,
earnings
loss per share,
cash flow
other
Securities
Litigation
Reformto:
Act(1)ofprojections
1995. Suchof
statementsof anystatement
otherthan aorrecitationof historicalfactsorand
financialbut
items;
plans andofobjectives,
including thoserelating
releasesorof loss
productsor services;(3) orstatements
include,are (2)not statements
limited to: of(1)ourprojections
revenues, expenses,
incomeor loss,toearnings
per share,
cash flow
otherof future financial
operatingofperformance;and(4) statementsof assumptions
underlying
suchBlizzard,Inc.
financial
items; (2)orstatements
our plans andobjectives,
includingthose relating
to releasesof statements.
products orActivision
services; (3)statements
generallyuses words
such as “outlook,”“forecast,”“could,”“should,”underlying“would,” “to“plan,” “plans,”offuture financial
or operating
performance;and (4)“will,”
statementsof assumptions
suchbe,”statements.
Activision“believes,”
Blizzard, Inc.
“may,”“might,”“expects,”
as,”“will,”“anticipates,”“future,” “to“positioned,”“potential,”“project,”generallyuses words
such as “intends,”“outlook,”“intends“forecast,”“could,”“estimate,”“should,” “would,”be,” “plan,”“plans,” “believes,”“remain,”“scheduled,”“set“intends,”
to,” “subject
to,” “upcoming”
and othersimilar expressions
help identify“potential,”
forward-looking“may,” “might,”“expects,”“intends
as,” “anticipates,”“estimate,”“future,” to“positioned,”“project,”statements.
Forward-looking
areto,”
subject
to businesseconomicreflect management’s
expectations,“remain,” “scheduled,”“set statements
to,” “subject“upcoming”
andandothersimilarrisks,
expressions
to help identify current
forward-looking
estimates andprojections about
our business,
and areuncertain
andrisks,
difficultto predict.
Our actual
results
could differ
statements.
Forward-looking
statements
are subject
to inherently
business andeconomicreflectmanagement’s
current
expectations,materiallyand
fromexpectations
statedforward-looking
statements.
Some of andthe riskfactorsthat could
ouractualcould
results
to differestimates
projections
about
ourin
business,
and are inherently
uncertaindifficultto predict.
Ourcause
actualresults
differfrom those fromstatedexpectations
in forward-looking
can be statements.
found in “Risk
Factors”
included
Partcould
I, Item
1A ofAnnualReportonmateriallystated instatements
forward-looking
Someof the risk
factorsinthat
cause
ourouractualresults
to differForm
10-K stated
for theinyear
ended December
31, 2016.
forward-looking
statements
containedherein
are1A
based
upon
informationfrom thoseforward-looking
statements
canThebe foundin “Risk Factors”
includedin PartI, Itemof ourAnnualReport on
available
us as
the ended
date ofDecember
our Annual
10-K and westatements
assume nocontained
obligationherein
to update
any suchforward-looking
Form
10-Ktofor
theofyear
31,Report
2016. onTheForm
forward-looking
are based
upon
information
statements.
these
forward-looking
statements
are believed
to we
be assume
true when
they tomay
ultimately
prove
to be incorrect.
available
toAlthough
us as of thedateof our Annual Reporton Form
10-K andno made,obligation
updateany suchforward-looking
Thesestatements
are not
guaranteesof our future
performanceand aresubject
to risks,
uncertainties
and otherprovefactors,someof whichstatements.
Althoughthese
forward-looking
statements
are believed
to betrue when
made,they may ultimately
to beincorrect.
are beyond
our control
may cause
results
to differ materiallyfrom current
expectations.
Thesestatements
are notand
guaranteesof actual
our future
performanceand are subject
to risks,
uncertainties and other factors, some of which
are beyond our control and may cause actual results to differ materially from current expectations.
Activision Blizzard Inc.’s names, abbreviations thereof, logos, and product and service designators are all either the registered or
unregisteredtrademarks
trade abbreviations
names of Activision
Blizzard.
All productother productor service
names aretheir respective
Activision
Blizzard
Inc.’s ornames,
thereof,logos, andand service
designators
aretheall property
either theofregisteredorowners.
unregisteredtrademarks or trade names of Activision Blizzard. All other product or service names are the property of their respective
owners.

80
79
80

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATIONFor
the Year Ended
December
31,AND
2016SUBSIDIARIES
and 2015
ACTIVISIONBLIZZARD,
INC.
(Amounts
in millions)
FINANCIALINFORMATION
For the Year Ended December 31, 2016 and 2015
(Amounts in millions)
Net Revenues by Platform
ConsoleNet
by Platform
2
PCRevenues
ConsoleMobile and ancillary3
PC2 4
Other
Mobile and ancillary3
Total consolidated net revenues
Other4
5
Changedeferred revenues
Total inconsolidated
net revenues
ConsoleChangein deferred revenues5
PC2
ConsoleMobile and ancillary3
PC2 4
Other
Mobile and ancillary3
Total changes in deferred revenues
Other4
1
2
3
1
2
4
3
5
4
5

Year Ended

December 31, 2016
December 31, 2015
$ Increase
Year Ended(Decrease)
Amount% of Total1
Amount% of Total1
December 31, 2016
December 31, 2015
$ Increase
1
1(Decrease)
Amount%of
Total
Amount
%
of
Total
$
2,453
37 % $
2,391
51 % $
62
$
$
$
$
$
$

2,124
2,453
1,674
2,124
357
1,674
6,608
357

6,608
(184)
135
(184)
32
135
8
32
(9)
8

32
37 % $
2532
5
25
100 % $
5
100 % $
$
$
$

1,499
2,391
418
1,499
356
418
4,664
356

4,664
(22)
(56)
(22)
35
(56)
—
35
(43)
—

32
51 % $
932
8
9100 % $
8
100 % $The percentages
are presented
as calculated. Therefore, the sum$of these percentages,
to theTotalchangesofintotaldeferred
revenues(9) as presented, may$ differ due (43) impact of rounding.

625
62
1,256
625
1
1,256
1,944
1
1,944

% Increase(Decrease)% Increase(Decrease)
3 %
42
3 %
NM
42
—
NM
42
—
42

Net revenues from PC include revenues that were historically shown as Online.
Net 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
The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
toys and accessories from the Skylanders franchise and other physical merchandise and accessories.
Net revenues from PC include revenues that were historically shown as Online.
Net revenues from Other include revenues from our Major League Gaming, studios, and distribution businesses.
Net 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 ofReflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.
toys and accessories from the Skylanders franchise and other physical merchandise and accessories.
Net revenues from Other include revenues from our Major League Gaming, studios, and distribution businesses.
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

81
80
81

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL INFORMATION
For the Year Ended December 31, 2016 and 2015
(Amounts in millions)

Net Revenues by Distribution Channel
Digital online channels2
Retail channels
Other3
Total consolidated net revenues

Change in deferred revenues4
Digital online channels2
Retail channels
Other3

Total changes in deferred revenues

1
2
3
4

Year Ended

December 31, 2016
Amount% of Total1
$

$
$

$

4,865
1,386
357

December 31, 2015
Amount% of Total1

6,608

74 % $
21
5

100 % $

2,502
1,806
356

351
(368)
8

$

126
(169)
—

(9)

$

4,664

54 % $
398

100 % $

$ Increase(Decrease)% Increase(Decrease)

2,363
(420)
1

94 %
(23 )
—

1,944

42

(43)

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, microtransactions, and products.
Net revenues from Other include revenues from our Major League Gaming, studios, and distribution businesses.
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

82
81

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFINANCIAL
ACTIVISIONINFORMATIONBLIZZARD, INC. AND SUBSIDIARIESFor
the Year Ended
December 31, 2016 and 2015
FINANCIALINFORMATION(Amounts
in millions)
For the Year
Ended December 31, 2016 and 2015
(Amounts in millions)

Net Revenues by Geographic Region
Net
Revenues by Geographic Region
Americas2
Americas
EMEA
2
EMEA
Asia Pacific
Asia
Pacific
Total
consolidated GAAP net revenues
Total consolidated GAAP net revenues
Change in deferred revenues3
Changein deferred revenues3
Americas2
Americas
EMEA
2
EMEA
Asia Pacific
Asia
Pacific
Totalchanges in net revenues
Total changes in net revenues

1
21
32
3

$
$
$
$
$
$
$
$

Year EndedYear Ended
December31, 2015

December 31, 2016
December %31,of2016
AmountTotal1
Amount% of Total1
3,423
3,423
2,221
2,221
964
964
6,608

52 % $
52 % $
34
34
15
15 % $
100

(32)
(32)
(13
(13
36)
36
(9)

$
$

6,608

100 % $

(9)$$

December %31,of2015
AmountTotal1
Amount% of Total1
2,409
2,409
1,741
1,741
514
514
4,664
4,664

52 % $
52 % $
37
37
11
11 % $
100
100 % $

$ Increase(Decrease)$ Increase(Decrease)% Increase(Decrease)%
Increase(Decrease)

1,944

42

1,014
1,014
480
480
450
450
1,944

(55)
(55)
(20
(20
32)
32)
(43
(43)

The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
EMEA
consists ofEurope,Middle as
East,
and Africa
geographic
regions.
The percentages
ofthe
total
are presented
calculated.
Therefore,
the sumof these percentages, as presented, may differ due to the impact of rounding.
Reflects
the net effectdeferralof East,revenues(recognition)deferred revenues on certain of our online enabled products.
EMEA consistsof the from
Europe,Middleand andAfricageographicofregions.
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products.

83
82
83

42 %
42 %
28
28
88
88
42

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESACTIVISIONBLIZZARD, INC. AND SUBSIDIARIESSEGMENTINFORMATIONSEGMENTFor
the YearINFORMATION
Ended December 31, 2016 and 2015
For the Year
Ended December 31, 2016 and 2015
(Amounts
in millions)(Amounts in millions)Year EndedYear Ended
December 31, 2015
December
31,%2015
Amountof Total1

December 31, 2016
December 31,%2016
Amountof Total1
Segment net revenues:
Segment
net2 revenues:
Activision
2
Activision
Blizzard3
3
Blizzard
King4

Amount
$
$

2,428
1,586
1,586
6,234
6,234

King4
Reportable segments total
Reportable tosegments
total net revenues:
Reconciliation
consolidated
Reconciliation
to5consolidated net revenues:
Other segments
5
Othersegments
Net effect from deferral of net revenues6
Net effect from deferral of net revenues6
Consolidated net revenues
Consolidated net revenues
Segment income from operations:
Segment
incomefrom operations:
2
Activision
2
Activision
Blizzard3
3
Blizzard
4
King

$
$
$
$

5
Other
segments
Net effectfrom certain revenues deferrals accounting treatment6
Net effect fromcertain revenues
deferrals accounting treatment6
Stock-based
compensation
expenseStock-based
expenseAmortizationcompensationof intangible assets
Amortizationof
intangible
assetsFees and other expenses related to acquisitions7

1

32
34
45
5
6
76
7

39
25
25
100 %
100 %

9
6,608
6,608
788
788
1,013
1,013
537

$
$

2,700
2,700
1,565

1,565
—
—
4,265
4,265

63 % $
63
37 % $

37
—
—
100 %
100 %

% Increase(Decrease)%
Increase(Decrease)

(480)
(480
863)

(18 )%
(18
55 )%

863
1,586
1,586
1,969
1,969

55
NM
NM
46
46

$
$

43
4,664
4,664

$
$

1,944
1,944

42 %
42 %

$
$

868
868
561

$
$

(80)
(80)
452
452
537

(9 )%
(9 )%
81
81
NM

93
93

7
7

(15)
(15)

(1 )%
(1 )%

537
2,338
2,338

561
—
—
1,429
1,429

(4)
(4))
(10
(10))
(159

37
37)
(39
(39))
(92

(47)
1,412
1,412
214

(5)
1,319
1,319
198

214
92
92
1,106
1,106
37.5 %
37.5 %% of Total$ Increase(Decrease)$ Increase(Decrease)

1

356
356
43

(159
(706))(706(47))

Fees and other expenses related to acquisitions7
Consolidated operating income
Consolidated
operatingincomeInterest
and other
expense(income), net

21

Amount36 % $
36
39 % $

365
3659

King4
Reportable segments total
Reportable tosegments
total operating income and consolidated income
Reconciliation
consolidated
before income tax
expenseReconciliation
to consolidated
operating income and consolidated income
beforetax5 expense
Otherincome
segments

Interest
other expense
net
Loss on andextinguishmentof (income),debt
Loss on extinguishment of debt
Consolidated income before income tax expense
Consolidated income before income tax expense
Operating margin from total reportable segments
Operating margin from total reportable segments% of Total

2,220
2,220
2,428

1

537
909
909

NM
64
64

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

$
$

198
—
—
1,121
1,121
33.5 %
33.5 %$$The percentages of total are presented as calculated. Therefore, the sum of these percentages, as presented, may differ due to the impact of rounding.
The percentagesof totalare presented—aspublishes
calculated.
Therefore,
the sum of thesepercentages,
as presented, may differ due to the impact of rounding.
Activision
Publishing(“Activision”)
interactive
entertainment
products
and content.
Activision
Publishing (“Activision”)— publishesinteractive
entertainment
products
and content.
Blizzard
Entertainment,
Inc. (“Blizzard”)— publishesinteractive
entertainment
products
and online subscription-based games.
Blizzard
Entertainment,
Inc.plc(“Blizzard”)—publishes
publishesinteractive
interactivemobile
entertainment
products
and online subscription-based games.
King
DigitalEntertainment(“King”) —entertainment
products.
KingEntertainment
publishesinteractive
mobileentertainment
products.
OtherDigital
includesother incomeplc
and(“King”)
expenses—fromoperatingsegments
managedoutside thereportable segments, including our Major League Gaming, studios, and distribution businesses.
Other includes
otherunallocatedincome andcorporate
expensesincome
from operating
segments managed outside the reportable segments, including our Major League Gaming, studios, and distribution businesses.
also includes
and expenses.
Other also
unallocatedcorporateincomeandand(recognition)
expenses. of deferred revenues, along with related cost of revenues, on certain of our online enabled products.
Reflects
theincludes
net effectfrom deferralof revenues
the netdeferralof revenues
and Acquisition,(recognition)inclusiveof deferred
revenues,
with related
cost of revenues,
Reflects fees
andeffectotherfromexpensesrelatedto the Kingof related
debtalong
financingsand integration
costs. on certain of our online enabled products.
Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.

84
83
84

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES(Amounts in millions, except earnings per share data)

Year Ended December 31, 2016

Net Revenues
Cost of Revenues - Product Sales:
Product Costs
Cost of Revenues - Product Sales:
Software Royalties and Amortization
Cost of Revenues - Subs/Lic/Other:Game Operations and Distribution Costs
Cost of Revenues - Subs/Lic/Other:
Software Royalties and Amortization
Product Development
Sales and Marketing
General and Administrative
Total Costs and Expenses

Year Ended December 31, 2016

Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per Share

Amortization
Stock-based of intangible
GAAP
assets2
Measurement compensation 1$ 6,608

$

—

$

—

Net effectof deferred
Non-GAAP revenues andrelated cost(redefined)
Measurement of revenues4

Fees andother expenses
related to
Acquisitions3$—$ 6,608

$ (9)

741

—

—

—

741

(39)

331

(20)

(8)

—

303

3

851

(2)

—

—

849

12

471
958
1,210
634
$ 5,196

(2)
(47)
(15)
(73)
$ (159)

(424)
—
(266)
(8)
$ (706)———(47)$ (47)

45
911
929
506
$ 4,284

5———$ (19)

Amortization
Stock-based of intangible
GAAP
assets2
Measurement compensation 1$ 1,412966
1.30$ 1.28

$ 159
159
0.21
$ 0.21

$ 706
706
0.95
$ 0.93Net effectFees andof deferred
Income tax
other expenses
Loss onimpacts from Non-GAAP revenues andrelated torelated cost
Extinguishment adjusting (redefined)
Acquisitions3of debt5
items6 Measurement of revenues4

$

47
54
0.07
$ 0.07

$

—
92
0.12
$ 0.12$—(327)(0.44)$ (0.43)$ 2,3241,650
2.22$ 2.18

$

10
20
0.03
$ 0.02

Includes expenses related to stock-based compensation.
Reflects amortization of intangible assets from purchase price accounting.
3
Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.
4
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled
products, including the effects of taxes.
5
Reflects the loss on extinguishment of debt.
6
Reflects the income tax impact associated with the adjusting items. Tax impact on non-GAAP (redefined) pre-tax income is calculated under the same accounting
principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
1
2

The GAAP and non-GAAP (redefined) earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to theimpact of rounding.
The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. For the year ended December 31, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate nonGAAP (redefined) earnings per common share, assuming dilution, was $1,643 million, as compared to total net income of $1,650 million, for the same period.
For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 740 million, participating securities of approximately 3 million, and dilutive shares of 14 million during the year ended December 31, 2016.

84

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES(Amounts in millions, except earnings per share data)

Year Ended December 31, 2015

Net Revenues
Cost of Revenues - Product Sales:
Product Costs
Cost of Revenues - Product Sales:
Software Royalties and Amortization
Cost of Revenues - Subs/Lic/Other:Game Operations and Distribution Costs
Cost of Revenues - Subs/Lic/Other:
Software Royalties and Amortization
Product Development
Sales and Marketing
General and Administrative
Total Costs and Expenses

Year Ended December 31, 2015

Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per ShareGAAP
Measurement$ 4,664

Stock-based
compensation 1$—

Amortizationof intangible
assets2$—

Fees andother expenses
related to
Acquisitions3$

Non-GAAP(redefined)
Measurement—$ 4,664

Net effectof deferred
revenues andrelated costof revenues4$ (43)

872

—

—

—

872

(51)

370

(12)

(11)

—

347

(50)

274

—

—

—

274

17

69
646
734
380
$ 3,345

(3)
(25)
(9)
(43)
(92)

—
—
—
—
(11)

—
—
—
(5)
(5)

66
621
725
332
$ 3,237

2———$ (82)GAAP
Measurement$ 1,319892
1.21$ 1.19$Stock-based
compensation 1

$

$

92
92
0.13
0.12

$

Amortizationof intangible
assets2

$

$

11
11
0.02
0.02

$

Fees andother expenses
related to
Acquisitions3

$

$

5
5
0.01
0.01

Income tax
impacts from Non-GAAP
adjusting(redefined)
items5
Measurement

$

—
(30)
(0.05)$ (0.04)$ 1,427970
1.32$ 1.30Net effectof deferred
revenues andrelated costof revenues4

$

39
19
0.02
$ 0.02

Includes expenses related to stock-based compensation.
Reflects amortization of intangible assets from purchase price accounting.
3
Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.
4
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled
products, including the effects of taxes.
5
Reflects the income tax impact associated with the adjusting items. Tax impact on non-GAAP (redefined) pre-tax income is calculated under the same accounting
principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
1
2

The GAAP and non-GAAP (redefined) earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to theimpact of rounding.
The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. For the year ended December 31, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate nonGAAP (redefined) earnings per common share, assuming dilution, was $958 million, as compared to total net income of $970 million, for the same period.
For purposes of calculating 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.

85

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES(Amounts in millions, except earnings per share data)

Year Ended December 31, 2014

Net Revenues
Cost of Revenues - Product Sales:
Product Costs
Cost of Revenues - Product Sales:
Software Royalties and Amortization
Cost of Revenues - Subs/Lic/Other:Game Operations and Distribution Costs
Cost of Revenues - Subs/Lic/Other:
Software Royalties and Amortization
Product Development
Sales and Marketing
General and Administrative
Total Costs and Expenses

Year Ended December 31, 2014

Operating Income
Net Income
Basic Earnings per Share
Diluted Earnings per ShareGAAP
Measurement$ 4,408

Amortizationof intangible
assets2

Stock-based
compensation 1

$

—

$

—

Fees and otherexpenses related
to the PurchaseTransaction3$

Non-GAAP(redefined)
Measurement—$ 4,408

Net effectof deferred
revenues andrelated costof revenues4

$ 405

981

—

—

—

981

24

265

(15)

(12)

—

238

157

250

(1)

—

—

249

5

29
571
712
417
$ 3,225

(2)
(22)
(8)
(56)
$ (104)

—
—
—
—
(12)

—
—
—
(13)
(13)

27
549
704
348
$ 3,096

4
—
—
—
$ 190

GAAP
Measurement$ 1,183835
1.14$ 1.13

Stock-based
compensation 1

$

$

104
104
0.14
0.14

$

Amortizationof intangible
assets2

$

$

12
12
0.02
0.02

$

Fees and other
Income tax
expenses related impacts from Non-GAAPto the Purchaseadjusting(redefined)
Transaction3
items5
Measurement

$

$

13
13
0.02
0.02

$

—
(43)
(0.07)$ (0.07)$ 1,312921
1.25$ 1.24Net effectof deferred
revenues andrelated costof revenues4

$ 215
136
0.19
$ 0.18

Includes expenses related to stock-based compensation.
Reflects amortization of intangible assets from purchase price accounting.
3
Reflects fees and other expenses related to the Purchase Transaction, inclusive of related debt financings.
4
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled
products, including the effects of taxes.
5
Reflects the income tax impact associated with the adjusting items. Tax impact on non-GAAP (redefined) pre-tax income is calculated under the same accounting
principles applied to the GAAP pre-tax income under ASC 740, which employs an annual effective tax rate method to the results.
1
2

The GAAP and non-GAAP (redefined) earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to theimpact of rounding.
The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders andparticipating security holders. For the year ended December 31, 2014, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate
non-GAAP (redefined) earnings per common share, assuming dilution, was $901 million, as compared to total net income of $921 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.

86

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

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

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,
2014

March 31,
2015

233
21
202

Three Months Ended
June 30,2015$ 1,205
17
1,188

$

1,331
107
$ 1,224

1,401
91$ 1,3101,433
94$ 1,339

March 31,2016

June 30,
2016

$

$

337
27
310

1,373
117
$ 1,256

$

144
28
116

September 30,
2015

$

$

(171)
46
(217)
1,401
112
1,289

Three Months Ended

$

503
44
459
1,732
133
1,599

September 30,
2016

$

$

456
28
428
2,359
115
2,244

December 31,
2015

$

$

1,063
16
1,047

(12)%
(6)
(12)

1,259
111
1,148

(5)
4
(6)%

December 31,
2016

$

$

Year over Year
% Increase(Decrease)

Year over Year
% Increase(Decrease)

859
37
822

(19)%
131
(21)

2,155
136
2,019

71
23
76%

1

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

2

TTM represents trailing twelve months. Operating Cash Flow for the three months ended March 31, 2014, three months ended June 30, 2014, and three months
ended September 30, 2014 was $153 million, $112 million, and $(139) million, respectively. Capital Expenditures for the three months ended March 31, 2014,
three months ended June 30, 2014, and three months ended September 30, 2014, was $37 million, $25 million, and $28 million, respectively.

87

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIESFor the Trailing Twelve Months Ending December 31, 2016
EBITDA and Adjusted EBITDA(Amounts in millions)

GAAP Net Income1
Interest and other expense (income), net
Loss on extinguishment of debt
Provision for income taxes1
Depreciation and amortization
EBITDA
Stock-based compensation expense2
Fees and other expenses related to acquisitions3
Adjusted EBITDA (redefined)
Change in deferred net revenues and related cost of revenues4$$$

March 31,
2016

363
52
—
46
107
568
44
34
646
(369)

$

$
$

June 30,
2016

151
66
—
16
233
466
41
4
511
108

September 30,
2016

$

$
$

199
53
10
32
243
537
33
4
574
33

December 31,
2016

Trailing Twelve
Months Ending
December 31,
2016

$
$

$
$

$

254
43
82
46
246
671
40
4
715
238

$

We recognized $27 million, $24 million, $12 million, and $18 million of excess tax benefits from share-based payments as an income tax benefit in theprovision for income taxes for the three months ended March 31, June 30, September 30, and December 31, 2016, respectively.
2
Includes expenses related to stock-based compensation.
3
Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings and integration costs.
4
Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online
enabled products.
1

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

88

966
214
92
140
829
2,241
159
47
2,447
10

2016

CORPORATE INFORMATION

RECORDREVENUES
UP 42% YEAR-OVER-YEAR▼…
A RECORD YEAR

RECORD
IN-GAME REVENUES
54% OF TOTAL REVENUES, UP 126% YEAR-OVER-YEAR▼

74% OF TOTAL REVENUES, UP 94% YEAR-OVER-YEAR▼

RECORD
DIGITAL REVENUESRECORD
NON-GAAP (REDEFINED )OPERATING MARGIN
▼

1

$6.6
$4.9

BILLIONBILLION$3.6

BILLION

BOARD OF DIRECTORSOFFICERSSPECIAL ADVISORSANNUAL MEETING

Robert Corti
Retired CFO,
Avon Products Foundation

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 1, 2017, 9:00 am PDT
Equity Office3200 Ocean Park BoulevardSanta Monica, California 90405

Hendrik Hartong III
Chairman and Chief
Executive Officer,
Brynwood Partners
Brian G. Kelly
Chairman of the Board,
Activision Blizzard

Dennis Durkin
Chief Financial Officer,
Activision Blizzard

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

Eric Hirshberg
President and Chief
Executive Officer,
Activision Publishing

Barry Meyer
Retired Chairman and CEO,
Warner Bros. Entertainment

Mike Morhaime
President and Chief
Executive Officer,
Blizzard Entertainment

Robert Morgado
Retired Chairman and CEO,
Warner Music Group
Peter Nolan
Senior Advisor,
Leonard Green & Partners

35%

Casey Wasserman
Chairman and Chief
Executive Officer,
Wasserman

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

AUDITOR
PricewaterhouseCoopers LLP
Los Angeles, California

CORPORATEHEADQUARTERS

Brian Stolz
Chief People Officer,
Activision Blizzard

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

Chris Walther
Chief Legal Officer,
Activision Blizzard

WORLD WIDE WEB SITE

Riccardo Zacconi
Chief Executive Officer,
King Digital Entertainment

E-MAILwww.activisionblizzard.com

IR@activisionblizzard.com

ANNUAL REPORTON FORM 10-K
Activision Blizzard’s Annual
Report on Form 10-K for theyear ended December 31, 2016
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 2016
Form 10-K, as filed with the SEC,
are included within this Annual
Report. Other than these
portions of the Form 10-K, allother portions of this Annual
Report are not “filed” with the
SEC and shall not be deemed so.

▼

$2.18

▼

Elaine Wynn
Co-founder, Wynn Resorts$2.2RECORD
NON-GAAP (REDEFINED )EARNINGS PER SHARE
1

UP 68% YEAR-OVER-YEAR

RECORDOPERATING CASH FLOW
UP 71% YEAR-OVER-YEAR

BILLION

COVER: IT TAKES HEROES TO MAKE HEROES.
ACTIVISION BLIZZARD HAS THE MOSTINTERNATIONAL 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

TALENTED, PASSIONATE AND DEDICATEDTEAM IN ENTERTAINMENT.
1

For full reconciliation, please see tables at the endof the annual report.

Annual Report Design:Andra Design LLC / andradesignllc.com
Printer: Phoenix Lithographing, USA© Copyright 2017 Activision Blizzard, Inc.

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2016 ANNUAL REPORTACTIVISIONBLIZZARD.COM®

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2016 ANNUAL REPORT