Fair Value Measurements at

December 31, 2012 Using

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

As of

Identical

Observable

Unobservable

December 31,

Assets

Inputs

Inputs

Balance Sheet

2012

(Level 1)

(Level 2)

(Level 3)

Classification

Recurring fair value measurements:

Money market funds

$
3,511

$
3,511

$
—

$
—

Cash and cash equivalents

U.S. treasuries and government agency securities

387

387

—

—

Short-term investments

Corporate bonds

11

11

—

—

Short-term investments

ARS

8

—

—

8

Long-term investments

Total recurring fair value measurements

$
3,917

$
3,909

$
—

$
8

The following tables provide a reconciliation of the beginning and ending balances of our financial assets classified as Level 3 by major categories (amounts in millions) at ~~June~~September 30, 2013 and 2012, respectively:

	Level 3				Level 3
			Total				Total
			financial				financial
			assets at				assets at
	ARS		fair		ARS		fair
	(a)		value		(a)		value
Balance at December 31, 2012	$	8	$	8	$	8	$	8
Total unrealized gains included in other comprehensive income	1		1		1		1
Balance at June 30, 2013	$	9	$	9
Balance at September 30, 2013					$	9	$	9

	Level 3				Level 3
			Total				Total
			financial				financial
			assets at				assets at
	ARS		fair		ARS		fair
	(a)		value		(a)		value
Balance at December 31, 2011	$	16	$	16	$	16	$	16
Total unrealized gains included in other comprehensive income	1		1		3		3
Balance at June 30, 2012	$	17	$	17
Balance at September 30, 2012					$	19	$	19

(a) Fair value measurements have been estimated using an income-approach model (specifically, discounted cash-flow analysis). When estimating the fair value, we consider both observable market data and non-observable factors, including credit quality, duration, insurance wraps, collateral composition, maximum rate formulas, comparable trading instruments, and the likelihood of redemption. Significant assumptions used in the analysis include estimates for interest rates, spreads, cash flow timing and amounts, and holding periods of the securities. At ~~June~~September 30, 2013, assets measured at fair value using significant unobservable inputs (Level 3), all of which were ARS, represent less than 1% of our financial assets measured at fair value on a recurring basis.

Foreign Currency Forward Contracts Not Designated as Hedges

We transact business in various currencies other than the U.S. dollar and have significant international sales and expenses denominated in currencies other than the U.S. dollar, subjecting us to currency exchange rate risks. To mitigate our risk from foreign currency fluctuations we periodically enter into currency derivative contracts, principally forward contracts with maturities of twelve months or ~~less,~~less. All foreign currency contracts are backed, in amount and by maturity, by an identified economic underlying item. In recent years, Vivendi has been our principal counterparty for our currency derivative contracts, but in connection with the Purchase Transaction described in Note 1 of the Notes to Condensed Consolidated Financial Statements, we terminated our cash management services agreement with Vivendi as ~~our principal counterparty.~~of October 31, 2013. Further, we have not had any outstanding currency derivative contracts with Vivendi as counterparty since July 3, 2013. If we enter into similar contracts in the future, we expect that the counterparties for any such transactions will be large and reputable commercial or investment banks. We dodid not ~~hold or purchase~~have any foreign currency contracts ~~for trading or speculative purposes and we do not designate these forward~~at September 30, 2013. The gross notional amount of outstanding foreign currency contracts as hedging instruments. Accordingly, we report the fair value of these contracts in our condensed consolidated balance sheet within “Other current assets” or “Other current liabilities” and with changes in fair value recorded in our condensed consolidated statement of operations within “Investment and other income (expense), net” and “General and administrative expense.”was $355 million at December 31, 2012. The fair value of foreign currency contracts is estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the relevant period and was not material as of ~~June 30, 2013 and~~ December 31, 2012.

Table of Contents

We do not hold or purchase any foreign currency contracts for trading or speculative purposes and we do not designate these contracts as hedging instruments. Accordingly, we report the fair value of these contracts within “Other current assets” or “Other current liabilities” in our condensed consolidated balance sheet and the changes in fair value within “General and administrative expense” and “Interest and other investment income (expense), net” in our condensed consolidated statement of operations. For the three and nine months ended September 30, 2013, pre-tax unrealized and realized net gains and losses were not material. For the three and nine months ended September 30, 2012, we recognized pre-tax unrealized net gains of $4 million and $3 million respectively, and a pre-tax realized net loss of $1 million and pre-tax realized net gain of $1 million, respectively.

Fair Value Measurements on a Non-Recurring Basis

We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. For the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012, there were no impairment charges related to assets that are measured on a non-recurring basis.

7.Debt

Unsecured Senior Notes

On September 19, 2013, we issued, at par, $1.5 billion of 5.625% unsecured senior notes due September 2021 (the “2021 Notes”) and $750 million of 6.125% unsecured senior notes due September 2023 (the “2023 Notes” and, together with the 2021 Notes, the “Notes”) in a private offering to qualified institutional buyers made in accordance with Rule 144A under the Securities Act of 1933, as amended. Total net proceeds from the issuance of the Notes were $2,211 million, net of the $39 million of fees we paid in connection with their issuance. As described below, upon issuance, the net proceeds from the Notes were deposited into an escrow account. The proceeds were subsequently released from escrow on October 11, 2013 to fund the Purchase Transaction, as described in Note 1 of the Notes to Condensed Consolidated Financial Statements. For further details regarding the completion of the Purchase Transaction, see Note 16 of the Notes to Condensed Consolidated Financial Statements.

The Notes are general senior obligations of the Company and rank pari passu in right of payment to all of the Company’s existing and future senior indebtedness, including the Credit Facilities described under Note 16, “Subsequent Events” below. The Notes are guaranteed on a senior basis by certain of our U.S. subsidiaries (the “Guarantors”). The Notes and related guarantees are not secured and are effectively subordinated to any of the Company’s existing and future indebtedness that is secured, including the Credit Facilities described under Note 16, “Subsequent Events” below. The Notes contain customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of debt, granting of liens, payment of dividends, sales of assets and mergers and acquisitions. The Company was in compliance with the terms of the Notes as of September 30, 2013.

Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2014. As of September 30, 2013, we had interest payable of $3 million related to the 2021 Notes and $1 million related to the 2023 Notes recorded within “Accrued expenses and other liabilities” in our condensed consolidated balance sheet.

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

For the three and nine months ended September 30, 2013, we recorded $39 million of fees as debt discount, which reduced the carrying value of the Notes. The debt discount will be amortized over the respective terms of the Notes and the amortization expense is recorded within “Interest and other investment income (expense), net” in our condensed consolidated statement of operations.

Table of Contents

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

	September 30, 2013
	Gross Carrying		Unamortized			Net Carrying
	Amount		Discount			Amount
2021 Notes	$	1,500	$	(26	)	$	1,474
2023 Notes	750		(13		)	737
Total long-term debt	$	2,250	$	(39	)	$	2,211

For the three and nine months ended September 30, 2013, interest expense was $4 million and amortization of the debt discount was immaterial.

As of September 30, 2013, the scheduled maturities of our debt for each of the five succeeding years are as follows (amounts in millions):

For the year ending December 31, 2013 (remaining three months)	$	—
2014	—
2015	—
2016	—
2017	—
Thereafter	2,250
Total	$	2,250

As of September 30, 2013, the fair values of our 2021 Notes and 2023 Notes, based on Level 2 inputs, was $1,500 million and $750 million, respectively.

Supplemental Cash Flow Information

Because the consummation of the transactions contemplated by the Stock Purchase Agreement was enjoined, as described in Note 13 of the Notes to Condensed Consolidated Financial Statements, in accordance with the offering memorandum and purchase agreements for the Notes, the proceeds from the issuance of the Notes were required to be deposited into and held in an escrow account until the earlier of (i) the completion of the Purchase Transaction, (ii) the termination of the Stock Purchase Agreement, and (iii) December 18, 2013. The escrow account was required to be funded with the full redemption value of the Notes, along with interest payable through December 18, 2013. At September 30, 2013, none of the events had occurred and accordingly, we have accounted for the net proceeds from the issuance of the Notes of $2,211 million as a non-cash financing activity in our condensed consolidated statement of cash flows. We have accounted for the deposit of $71 million into the interest-bearing escrow account, which consists of interest that would be owed on the Notes through December 18, 2013 and the difference between the redemption value of and the net proceeds received from the Notes, as an investing activity in our condensed consolidated statement of cash flows. At September 30, 2013, we recorded the balance of the escrow account as “Cash in escrow” in our condensed consolidated balance sheet. On October 11, 2013, the funds were released from the escrow account and used to fund the Purchase Transaction.

Deferred Financing Costs

Costs incurred to obtain our long-term debt are amortized over the terms of the respective debt agreements using the interest method. At September 30, 2013, we recorded $7 million of deferred financing costs related to the Notes within “Other assets — non-current” in our condensed consolidated balance sheet. Amortization expense related to the deferred financing costs for each of the three and nine months ended September 30, 2013, was immaterial and is recorded within “Interest and other investment income (expense), net” in our condensed consolidated statement of operations.

Table of Contents

8.Accumulated other comprehensive income (loss)

The components of accumulated other comprehensive income (loss) at September 30, 2013 and 2012, were as follows (amounts in millions):

	For the nine months ended September 30, 2013
	Foreign currency			Unrealized gain
	translation			on available-for-
	adjustments			sale securities		Total
Balance at December 31, 2012	$	(26	)	$	—	$	(26	)
Other comprehensive income (loss) before reclassifications	43			1		44
Amounts reclassified from accumulated other comprehensive income (loss)	—			—		—
Balance at September 30, 2013	$	17		$	1	$	18

	For the nine months ended September 30, 2012
	Foreign currency			Unrealized gain
	translation			on available-for-
	adjustments			sale securities		Total
Balance at December 31, 2011	$	(72	)	$	—	$	(72	)
Other comprehensive income (loss) before reclassifications	(3		)	1		(2		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—		—
Balance at September 30, 2012	$	(75	)	$	1	$	(74	)

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

9. Operating segments and geographic region

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

The CODM reviews segment performance exclusive of the impact of the change in deferred ~~net~~ revenues and related cost of sales with respect to certain of our online-enabled games, stock-based compensation expense, ~~and~~ amortization of intangible assets as a result of purchase price ~~accounting.~~accounting, and expenses related to the Purchase Transaction and related debt financings. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto. Information on the operating segments and reconciliations of total net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 are presented below (amounts in millions):

Three months ended June 30,

2013

2012

2013

2012

Income from operations

Net revenues

before income tax expense

Activision

$
347

$
373

$
60

$
(71
)
Blizzard

224

634

60

371

Distribution

37

47

(1
)
—

Operating segments total

608

1,054

119

300

Reconciliation to consolidated net revenues / consolidated income before income tax expense:

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

442

21

338

(40
)
Stock-based compensation expense

—

—

(24
)
(31
)
Amortization of intangible assets

—

—

(3
)
(2
)
Consolidated net revenues / operating income

$
1,050

$
1,075

430

227

Investment and other income (expense), net

—

2

Consolidated income before income tax expense

$
430

$
229

Table of Contents

	Six months ended June 30,
	2013		2012		2013			2012			Three months ended September 30,
					Income from operations						2013		2012		2013			2012
	Net revenues				before income tax expense						Net revenues				Income (loss) from operations before income tax expense
Activision	$	771	$	645	$	173		$	(70	)	$	319	$	283	$	41		$	(14	)
Blizzard	554		884		194			460			282		414		88			168
Distribution	88		112		(1		)	—			56		54		(1		)	—
Operating segments total	1,413		1,641		366			390			657		751		128			154

Reconciliation to consolidated net revenues / consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales	962		606		707			407			34		90		32			110
Stock-based compensation expense	—		—		(50		)	(52		)	—		—		(25		)	(34		)
Amortization of intangible assets	—		—		(6		)	(5		)	—		—		(3		)	(3		)
Fees and other expenses related to the Purchase Transaction and related debt financings											—		—		(62		)	—

Consolidated net revenues / operating income	$	2,375	$	2,247	$	1,017		$	740		$	691	$	841	70			227
Investment and other income (expense), net					3			3
Interest and other investment income (expense), net															(4		)	1

Consolidated income before income tax expense					$	1,020		$	743						$	66		$	228

	Nine months ended September 30,
	2013		2012		2013			2012
	Net revenues				Income (loss) from operations before income tax expense
Activision	$	1,090	$	928	$	214		$	(84	)
Blizzard	837		1,299		282			629
Distribution	143		166		(1		)	—
Operating segments total	2,070		2,393		495			545

Reconciliation to consolidated net revenues / consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales	995		695		738			514
Stock-based compensation expense	—		—		(76		)	(85		)
Amortization of intangible assets	—		—		(8		)	(7		)
Fees and other expenses related to the Purchase Transaction and related debt financings	—		—		(62		)	—

Consolidated net revenues / operating income	$	3,065	$	3,088	$	1,087		$	967
Interest and other investment income (expense), net					(1		)	4

Consolidated income before income tax expense					$	1,086		$	971

1518

Table of Contents

Geographic information for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 is based on the location of the selling entity. Net revenues from external customers by geographic region were as follows (amounts in millions):

	Three months ended June 30,				Six months ended June 30,				Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012		2013		2012		2013		2012
Net revenues by geographic region:
North America	$	562	$	562	$	1,300	$	1,163	$	344	$	403	$	1,643	$	1,567
Europe	402		403		889		888		290		333		1,180		1,220
Asia Pacific	86		110		186		196		57		105		242		301
Total consolidated net revenues	$	1,050	$	1,075	$	2,375	$	2,247	$	691	$	841	$	3,065	$	3,088

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

	Three months ended June 30,				Six months ended June 30,				Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012		2013		2012		2013		2012
Net revenues by platform:
Console	$	590	$	514	$	1,339	$	1,203	$	296	$	227	$	1,634	$	1,430
Online subscriptions(1)	233		220		508		475		205		226		714		701
Other(2)	90		143		245		259		55		62		300		320
PC	100		151		195		198		79		272		274		471
Total platform net revenues	1,013		1,028		2,287		2,135		635		787		2,922		2,922
Distribution	37		47		88		112		56		54		143		166
Total consolidated net revenues	$	1,050	$	1,075	$	2,375	$	2,247	$	691	$	841	$	3,065	$	3,088

(1) Revenues from online subscriptions consist of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, value-added services, and revenues from Call of Duty Elite® ~~Elite~~ memberships.

(2) Revenues from other include revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders® franchise and other physical merchandise and accessories.

Long-lived assets by geographic region at ~~June~~September 30, 2013 and December 31, 2012 were as follows (amounts in millions):

	At June 30, 2013		At December 31, 2012		At September 30, 2013		At December 31, 2012
Long-lived assets* by geographic region:
North America	$	92	$	90	$	101	$	90
Europe	32		40		31		40
Asia Pacific	8		11		7		11
Total long-lived assets by geographic region	$	132	$	141	$	139	$	141

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

We did not have any single external customer that accounted for 10% or more of consolidated net revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012.

1619

Table of Contents

8.10. ~~Goodwill~~Income taxes

The Company accounts for its provision for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year. The provision for income taxes represents federal, foreign, state and local income taxes. Our effective tax rate differs from the statutory U.S. income tax rate due to the effect of state and local income taxes, tax rates in foreign jurisdictions and certain nondeductible expenses. Our effective tax rate will change from quarter to quarter based on recurring and nonrecurring factors including, but not limited to, the geographical mix of earnings, changes in projected results for various jurisdictions, enacted tax legislation, including certain business tax credits, state and local income taxes, tax audit settlements, and the interaction of various global tax strategies. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.

The income tax expense of $10 million for the three months ended September 30, 2013 reflected an effective tax rate of 15.2%, which is higher than the effective tax rate of 0.8% for the three months ended September 30, 2012. This increase is primarily due to the tax benefit resulting from a federal income tax settlement recorded in the third quarter of 2012 and a decrease in the proportionate amount of earnings in the current year in foreign jurisdictions with relatively lower statutory rates, as compared to domestic earnings with relatively higher statutory rates.

The effective tax rate of 15.2% for the three months ended September 30, 2013 differed from the U.S. statutory rate of 35.0%, primarily due to the increase in the proportionate amount of foreign earnings at relatively lower statutory rates, as compared to domestic earnings at relatively higher statutory rates, the reduction in the projected U.S. pre-tax income attributable to costs associated with the Purchase Transaction and interest expense for the related debt financings, the recognition of federal and California research and development (“R&D”) credits, the federal domestic production deduction and favorable return to provision adjustments, offset by increases to the company’s reserve for uncertain tax positions. The favorable return to provision adjustments included a $9 million correction of an error in our deferred taxes related to prior periods, which is not material to either the forecasted fiscal 2013 results or any of the impacted prior periods.

Our tax expense of $249 million for the nine months ended September 30, 2013 reflected an effective tax rate of 22.9% compared to an effective tax rate of 18.1% for the nine months ended September 30, 2012. This increase is primarily due to the tax benefit resulting from a federal income tax settlement recorded in the third quarter of 2012, an increase in the proportionate amount of domestic earnings in the current year at relatively higher statutory rates, as compared to foreign earnings at relatively lower statutory rates, and increases to the company’s reserve for uncertain tax positions recorded in the third quarter of 2013. However, the impact of these increases was partially offset by favorable return to provision adjustments recorded in the third quarter of 2013 and the recognition of the retroactive reinstatement of the federal R&D tax credit for the tax year ended December 31, 2012, which was enacted in the first quarter of 2013, for which we recorded a benefit of $12 million as a discrete item in the first quarter of 2013.

The overall effective income tax rate for the year could be different from the effective tax rate for the three and nine months ended September 30, 2013 and will be dependent, in part, on our profitability for the remainder of the year. In addition, our effective income tax rates for the remainder of 2013 and future periods will depend on a variety of factors, such as changes in the ~~carrying amount~~mix of ~~goodwill~~income by ~~operating segment for~~tax jurisdiction, applicable accounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audits and other matters, and variations in the ~~six months ended June 30, 2013~~estimated and actual level of annual pre-tax income or loss. Further, the effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected by the extent that income (loss) before income tax expenses (benefit) is lower than anticipated in foreign regions, where taxes are ~~as follows (amounts~~levied at relatively lower statutory rates, and/or higher than anticipated in ~~millions):~~the United States, where taxes are levied at relatively higher statutory rates.

Activision

Blizzard

Total

Balance at December 31, 2012

$
6,928

$
178

$
7,106

Tax benefit credited to goodwill

(3
)
—

(3
)
Foreign exchange

(1
)
—

(1
)

Balance at June 30, 2013

$
6,924

$
178

$
7,102

The Internal Revenue Service is currently examining Activision Blizzard’s federal tax ~~benefit credited to goodwill represents~~returns for the 2008 and 2009 tax ~~deduction resulting from~~years and Vivendi Games’ tax returns for the ~~exercise of stock options that were outstanding and vested at~~2005 through 2008 tax years. While Vivendi Games’ results for the ~~consummation of the Business Combination and~~period January 1, 2008 through July 9, 2008 are included in the ~~purchase price~~consolidated federal and certain foreign, state and local income tax returns filed by Vivendi or its affiliates, Vivendi Games’ results for the period July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by Activision Blizzard. Additionally, the Company has several state and non-U.S. audits pending. Although the final resolution of the ~~Company, to~~Company’s global tax disputes is uncertain, based on current information, in the ~~extent that~~opinion of the Company’s management, the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company’s global tax ~~deduction did not exceed~~disputes could have a material adverse effect on our business and results of operations in the ~~fair value~~period in which the matters are ultimately resolved.

Table of ~~those options. Conversely, to the extent that the tax deduction did exceed the fair value of those options, the tax benefit is credited to additional paid-in capital.~~Contents

9.11. Computation of basic/diluted earnings per common share

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

Three Months Ended June 30,

Six months ended June 30,

2013

2012

2013

2012

Numerator:

Consolidated net income

$
324

$
185

$
780

$
569

Less: Distributed earnings to unvested stock-based awards that participate in earnings

—

—

(4
)
(4
)
Less: Undistributed earnings allocated to unvested stock-based awards that participate in earnings

(6
)
(4
)
(12
)
(7
)
Numerator for basic and diluted earnings per common share - net income available to common shareholders

318

181

764

558

Denominator:

Denominator for basic earnings per common share - weighted-average common shares outstanding

1,118

1,109

1,116

1,115

Effect of potential dilutive common shares under the treasury stock method:

Employee stock options

9

6

8

6

Denominator for diluted earnings per common share - weighted-average common shares outstanding plus dilutive effect of employee stock options

1,127

1,115

1,124

1,121

Basic earnings per common share

$
0.28

$
0.16

$
0.68

$
0.50

Diluted earnings per common share

$
0.28

$
0.16

$
0.68

$
0.50

~~Table of Contents~~

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012

Numerator:
Consolidated net income	$	56		$	226		$	837		$	795
Less: Distributed earnings to unvested stock-based awards that participate in earnings	—			—			(4		)	(4		)
Less: Undistributed earnings allocated to unvested stock-based awards that participate in earnings	(1		)	(5		)	(14		)	(12		)
Numerator for basic and diluted earnings per common share - net income available to common shareholders	55			221			819			779

Denominator:
Denominator for basic earnings per common share - weighted-average common shares outstanding	1,122			1,109			1,118			1,113

Effect of potential dilutive common shares under the treasury stock method: Employee stock options	12			5			9			5
Denominator for diluted earnings per common share - weighted-average common shares outstanding plus dilutive effect of employee stock options	1,134			1,114			1,127			1,118

Basic earnings per common share	$	0.05		$	0.20		$	0.73		$	0.70

Diluted earnings per common share	$	0.05		$	0.20		$	0.73		$	0.70

Our unvested restricted stock rights, which consist of restricted stock units, restricted stock awards, and performance shares, are considered participating securities, as ~~these securities~~they generally have non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award. ~~Since the unvested restricted stock rights are considered participating securities,~~As such, we are required to use the two-class method in our computation of basic and diluted earnings per common share. For the three and ~~six~~nine months ended ~~June~~September 30, 2013, we had outstanding unvested restricted stock rights with respect to 24 million and 25 million shares of common stock on a weighted-average basis, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2012, we had outstanding unvested restricted stock rights with respect to 2427 million and 2223 million shares of common stock on a weighted-average basis, respectively.

Potential common shares are not included in the denominator of the diluted earnings per common share calculation when inclusion of such shares would be anti-dilutive. Therefore, options to acquire 82 million and 98 million shares of common stock were not included in the calculation of diluted earnings per common share for the three and ~~six~~nine months ended ~~June~~September 30, 2013, respectively, and options to acquire 24 million and 20 million shares of common stock were not included in the calculation of diluted earnings per common share for ~~both~~ the three and ~~six~~nine months ended ~~June~~September 30, ~~2012.~~2012, respectively.

Refer to Notes 12 and 16 of the Notes to Condensed Consolidated Financial Statements for information on our issued and outstanding common stock after the completion of the Purchase Transaction.

Table of Contents

~~10.~~~~Accumulated other comprehensive income (loss)~~

~~The components of accumulated other comprehensive income (loss) at June 30, 2013 and 2012, were as follows (amounts in millions):~~

For the six months ended June 30, 2013

Foreign currency

Unrealized gain

translation

on available-for-

adjustments

sale securities

Total

Balance at January 1, 2013

$
(26
)
$
—

$
(26
)
Other comprehensive income (loss) before reclassifications

(37
)
1

(36
)
Amounts reclassified from accumulated other comprehensive income (loss)

—

—

—

Balance at June 30, 2013

$
(63
)
$
1

$
(62
)

For the six months ended June 30, 2012

Foreign currency

Unrealized gain

translation

on available-for-

adjustments

sale securities

Total

Balance at January 1, 2012

$
(72
)
$
—

$
(72
)
Other comprehensive income (loss) before reclassifications

(53
)
1

(52
)
Amounts reclassified from accumulated other comprehensive income (loss)

—

—

—

Balance at June 30, 2012

$
(125
)
$
1

$
(124
)

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

~~11.~~12. Capital transactions

Stock Purchase Agreement

As described in Note 1 of the Notes to Condensed Consolidated Financial Statements, on October 11, 2013, we completed the Purchase Transaction, repurchasing 429 million shares of our common stock for a cash payment of $5.83 billion, pursuant to the terms of the Stock Purchase Agreement (refer to Note 16 of the Notes to Condensed Consolidated Financial Statements for details of the Purchase Transaction).

Repurchase Program

On February 2, 2012, our Board of Directors authorized a stock repurchase program under which we were authorized to repurchase up to $1 billion of our common stock, on terms and conditions to be determined by the Company, during the period between April 1, 2012 and March 31, 2013. There were no repurchases pursuant to this stock repurchase program during the ~~six~~nine months ended ~~June~~September 30, 2013. For the ~~six~~nine months ended ~~June~~September 30, 2012, we repurchased 4 million shares of our common stock for an aggregate purchase price of $54 million pursuant to this stock repurchase program.

On February 3, 2011, our Board of Directors authorized a stock repurchase program under which we were authorized to repurchase up to $1.5 billion of our common stock, on terms and conditions to be determined by the Company, until March 31, 2012. For the ~~six~~nine months ended ~~June~~September 30, 2012, we repurchased 22 million shares of our common stock for an aggregate purchase price of $261 million pursuant to this stock repurchase program.

~~Table of Contents~~

Dividend

On February 7, 2013, our Board of Directors declared a cash dividend of $0.19 per common share payable on May 15, 2013 to shareholders of record at the close of business on March 20, 2013. On May 15, 2013, we made an aggregate cash dividend payment of $212 million to such shareholders, and on May 31, 2013, we made related dividend equivalent payments of $4 million to the holders of restricted stock rights.

On February 9, 2012, our Board of Directors declared a cash dividend of $0.18 per common share to be paid on May 16, 2012 to shareholders of record at the close of business on March 21, 2012. On May 16, 2012, we made an aggregate cash dividend payment of $201 million to such shareholders, and on June 1, 2012, we made related dividend equivalent payments of $3 million to the holders of restricted stock rights.

~~12.~~13. Commitments and contingencies

At ~~June~~September 30, 2013, except as disclosed below and in Note 7 of the Notes to Condensed Consolidated Financial Statements, we did not have any significant changes to our commitments since December 31, 2012. See Note 17 of the Notes to Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2012, as amended, for more information regarding our commitments.

Legal Proceedings

~~The Company is~~We are subject to various legal proceedings and claims. FASB ~~Accounting Standards Codification (“ASC”)~~ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect toof litigation and other claims. ~~The Company records~~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, ~~the Company provides~~we provide additional disclosure related to litigation and other claims when it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on ~~the Company.~~us.

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

Table of Contents

On August 1, 2013, a purported shareholder of the Company filed a shareholder derivative action in the Superior Court of the State of California, County of Los Angeles, captioned Miller v. Kotick, et al., No. BC517086. The complaint names our Board of Directors and Vivendi as defendants, and the Company as a nominal defendant. The complaint alleges that our Board of Directors committed breaches of fiduciary duties, waste of corporate assets and unjust enrichment in connection with Vivendi’s sale of its stake in the Company and that Vivendi also breached its fiduciary duties. The plaintiff further alleges that demand by it on our Board of Directors to institute action would be futile because a majority of our Board of Directors is not independent and a majority of the individual defendants face a substantial likelihood of liability for approving the transactions contemplated by the Stock Purchase Agreement. The complaint seeks, among other things, damages sustained by the Company, rescission of the transactions contemplated by the Stock Purchase Agreement, an order restricting our Chief Executive Officer and our Chairman from purchasing additional shares of our common stock and an order directing us to take necessary actions to improve and reform our corporate governance and internal procedures to comply with applicable law, including ordering a shareholder vote on certain amendments to our by-laws or charter that would require half of our Board of Directors to be independent of Messrs. Kotick and Kelly and Vivendi and a proposal to appoint a new independent Chairman of the Board of Directors. The Company’s response to the Miller complaint is due on November 18, 2013.

In addition, on August 14, 2013, we received a letter dated August 9, 2013 from a shareholder seeking, pursuant to Section 220 of the Delaware General Corporation Law, to inspect the books and records of the Company to ascertain whether the Stock Purchase Transaction and Private Sale were in the best interests of the Company. In response to that request, we provided the stockholder with certain materials under a confidentiality agreement. On September 11, 2013, a complaint was filed under seal by the same stockholder in the Court of Chancery of the State of Delaware in an action captioned Pacchia v. Kotick et al., C.A. No. 8884-VCL. A public version of that complaint was filed on September 16, 2013. The allegations in the complaint were substantially similar to the allegations in the above referenced matter filed on August 1, 2013. On October 25, 2013, Pacchia filed an amended complaint under seal. The amended complaint added claims on behalf of an alleged class of Activision stockholders other than the Company’s Chief Executive Officer and Chairman, Vivendi, ASAC, investors in ASAC and other stockholders affiliated with the investors of ASAC. The added class claims are for breach of fiduciary duty against the Company’s Chief Executive Officer and Chairman, the Vivendi affiliated directors, the members of the special committee of the Board formed in connection with the Company’s consideration of the transactions with Vivendi and ASAC, and Vivendi, as well as aiding and abetting a breach of fiduciary duty against ASAC. The amended complaint removed the derivative claims for waste of corporate assets and disgorgement but continued to allege derivative claims for breach of fiduciary duties. The amended complaint seeks, among other things, certification of a class, damages, reformation of the Private Sale, and disgorgement of any alleged profits received by the Company’s Chief Executive Officer, Chairman and ASAC. On October 29, 2013, Pacchia filed a motion to consolidate the Pacchia case with the Hayes case described below. On November 2, 2013, the Court of Chancery consolidated the Pacchia and Hayes cases and ordered the plaintiffs to file supplemental papers related to determining lead plaintiff and lead counsel no later than November 8, 2013.

Also, on September 11, 2013, another stockholder of the Company filed a putative class action and stockholder derivative action in the Court of Chancery of the State of Delaware, captioned Hayes v. Activision Blizzard, Inc., et al., No. 8885-VCL. The complaint names our Board of Directors, Vivendi, New VH, ASAC, the General Partner of ASAC, Davis Selected Advisers, L.P. (“Davis”) and Fidelity Management & Research Co. (“FMR”) as defendants, and the Company as a nominal defendant. The complaint alleges that the defendants violated certain provisions of our Amended and Restated Certificate of Incorporation by failing to submit the matters contemplated by the Stock Purchase Agreement for approval by a majority of our stockholders (other than Vivendi and its controlled affiliates); that our Board of Directors committed breaches of their fiduciary duties in approving the Stock Purchase Agreement; that Vivendi violated fiduciary duties owed to other stockholders of the Company in entering into the Stock Purchase Agreement; that our Chief Executive Officer and our Chairman usurped a corporate opportunity from the Company; that our Board of Directors and Vivendi have engaged in actions to entrench our Board of Directors and officers in their offices; that the ASAC Entities, Davis and FMR aided and abetted breaches of fiduciary duties by the Board of Directors and Vivendi; and that our Chief Executive Officer and our Chairman, the ASAC Entities, Davis and FMR will be unjustly enriched through the Private Sale. The complaint seeks, among other things, the rescission of the Private Sale; an order requiring the transfer to the Company of all or part of the shares that are the subject of the Private Sale; an order implementing measures to eliminate or mitigate the alleged entrenching effects of the Private Sale; an order requiring our Chief Executive Officer and our Chairman, the ASAC Entities, Davis and FMR to disgorge to the Company the amounts by which they have allegedly been unjustly enriched; and alleged damages sustained by the class and the Company. In addition, the stockholder sought a temporary restraining order preventing the defendants from consummating the transactions contemplated by the Stock Purchase Agreement without stockholder approval. Following a hearing on the motion for a temporary restraining order, on September 18, 2013, the Court of Chancery issued a preliminary injunction order, enjoining the consummation of the transactions contemplated by the Stock Purchase Agreement pending (a) the issuance of a final decision after a trial on the merits; (b) receipt of a favorable Activision Blizzard stockholder vote on the transactions contemplated by the Stock Purchase Agreement under Section 9.1(b) of our Amended and Restated Certificate of Incorporation or (c) modification of such preliminary injunction order by the Court of Chancery or the Delaware Supreme Court. On September 20, 2013, the Court of Chancery certified its order issuing the preliminary injunction for interlocutory appeal to the Delaware Supreme Court. The defendants moved the Delaware Supreme

Table of Contents

Court to accept and hear the appeal on an expedited basis. On September 23, 2013, the Delaware Supreme Court accepted the appeal of the Court of Chancery’s decision and granted the defendant’s motion to hear the appeal on an expedited basis. Following a hearing on October 10, 2013, the Delaware Supreme Court reversed the Court of Chancery’s order issuing a preliminary injunction, and determined that the Stock Purchase Agreement was not a merger, business combination or similar transaction that would require a vote of Activision’s unaffiliated stockholders under the charter.

On October 29, 2013, an amended complaint was filed. It added factual allegations but no new claims or relief. Also on October 29, 2013, Hayes filed a motion to consolidate the Hayes case with the Pacchia case. As noted above, on November 2, 2013, the Court of Chancery consolidated the Pacchia and Hayes cases and ordered the plaintiffs to file supplemental papers related to determining lead plaintiff and lead counsel no later than November 8, 2013.

Further, on September 18, 2013, the Company received a letter from another purported stockholder of the Company seeking, pursuant to Section 220 of the Delaware General Corporation Law, to inspect the books and records of the Company to investigate potential wrongdoing or mismanagement in connection with the approval of the Stock Purchase Agreement.

We believe that the defendants have meritorious defenses and intend to defend each of these lawsuits vigorously. However, these lawsuits and any other lawsuits are subject to inherent uncertainties and the actual outcome and costs will depend upon many unknown factors. The outcome of litigation is necessarily uncertain, and the Company could be forced to expend significant resources in the defense of these lawsuits and may not prevail.

The Company also may be subject to additional claims in connection with the Stock Purchase Transaction and Private Sale. Monitoring and defending against legal actions is time consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, the Company may incur substantial legal fees and costs in connection with litigation and, although coverage may be available under relevant insurance policies, coverage could be denied or prove to be insufficient. Under our Amended and Restated Certificate of Incorporation and the indemnification agreements that the Company has entered into with our officers and directors, the Company may be required in certain circumstances to indemnify and advance expenses to them in connection with their participation in proceedings arising out of their service to us. There can be no assurance that any of these payments will not be material.

The Company is not currently able to estimate the possible cost to us from these lawsuits and related indemnification obligations, as they are in the early stages and it cannot be determined how long it may take to resolve these matters or the possible amount of any damages that the Company may be required to pay. Moreover, the Company cannot be certain what the impact on our operations or financial position will be if any of the purported stockholder plaintiffs are successful in having the Stock Purchase Transaction and Private Sale rescinded. The Company has not established any reserves for any potential liability relating to these lawsuits. It is possible that the Company could, in the future, establish reserves, incur judgments or enter into settlements of claims for monetary damages. A decision adverse to the Company on these actions could result in the rescission of the Stock Purchase Transaction and Private Sale or the payment of substantial damages and could have a material adverse effect on our business, reputation, financial condition, results of operations, profitability, cash flows or liquidity.

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

~~13.~~14. Related party transactions

~~Treasury~~

Our foreign currency risk management program seeks to reduce risks arising from foreign currency fluctuations. We use derivative financial instruments, primarily forward contracts, with Vivendi as our principal counterparty. The gross notional amountAs part of outstanding foreign exchange forward contracts was $26 million and $355 million at June 30, 2013 and December 31, 2012, respectively. The associated gains and losses from changes in fair value are reported in “General and administrative expense” and “Investment and other income (expense), net” in the condensed consolidated statements of operations. Pre-tax unrealized and realized net gains and losses were not material for the three and six months ended June 30, 2013. We recognized a pre-tax unrealized net loss of $1 million for the three and six months ended June 30, 2012 and a pre-tax realized net gain of $3 million and $2 million for the three and six months ended June 30, 2012, respectively.

~~Table of Contents~~

~~Other~~

~~Activision Blizzard has~~Business Combination, 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 the consummation of the Purchase Transaction, we terminated the cash management arrangements with Vivendi and amended our investor agreement with Vivendi. We are also party to music royalty ~~agreements,~~ and music distribution agreements with ~~Vivendi and its~~ subsidiaries and other ~~affiliates.~~affiliates of Vivendi, none of which were impacted by the Purchase Transaction. None of these services, transactions and agreements with Vivendi and its affiliates ~~are~~were material, either individually or in the aggregate, to the condensed consolidated financial statements as a whole.

Table of Contents

~~14.~~15. Recently issued accounting pronouncements

Indefinite-lived intangible assets impairment

In July 2012, the FASB issued an update to the authoritative guidance related to testing indefinite-lived intangible assets for impairment. This update gives an entity the option to first consider certain qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. This update is effective for the indefinite-lived intangible asset impairment test performed for fiscal years beginning after September 15, 2012. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

Balance sheet offsetting disclosures

In December 2011, the FASB issued authoritative guidance on the disclosure of financial instruments and derivative instruments that are either offset or subject to an enforceable master netting arrangement or similar agreement and should be applied retrospectively for all comparative periods presented for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

Reclassification of accumulated other comprehensive loss

In February 2013, the FASB issued an accounting standards update requiring new disclosures about reclassifications from accumulated other comprehensive loss to net income. These disclosures may be presented on the face of the statements or in the notes to the consolidated financial statements. This update is effective for fiscal years beginning after December 15, 2012. We adopted this guidance and provided the required disclosures in Note 108 of the Notes to Condensed Consolidated Financial Statements.

Accounting for cumulative translation adjustments

In February 2013, the FASB issued an update to the authoritative guidance related to the release of cumulative translation adjustments into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a foreign entity. This update will be effective for fiscal years beginning after December 15, 2013. We are currently evaluating the impact on our condensed consolidated financial statements from the adoption of this guidance.

Presentation of unrecognized tax benefits

In July 2013, the FASB issued an update to the authoritative guidance related to the presentation of an unrecognized tax benefit in the financial statements. The update will require entities to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss or other tax credit carryforwards when settlement in this manner is available under the tax laws. This update is effective for fiscal years beginning after December 15, 2013. We are currently evaluating the impact on our condensed consolidated financial statements from the adoption of this guidance.

~~Table of Contents~~

~~15.~~16. Subsequent events

Purchase Transaction and Private Sale

On ~~July 25,~~October 11, 2013, we ~~entered into a stock purchase agreement (the “Stock~~completed the Purchase ~~Agreement”) with Vivendi and ASAC II LP (“ASAC”), an exempted limited partnership established under the laws~~Transaction described in Note 1 of the ~~Cayman Islands, and acting by its general partner, ASAC II LLC. The Stock Purchase Agreement provides for us~~Notes to ~~upon~~Condensed Consolidated Financial Statements, resulting in the ~~terms and subject to the conditions thereof, acquire all~~repurchase of the capital stock of Amber Holding Subsidiary Co., a Delaware corporation and wholly-owned subsidiary of Vivendi (“New VH”), which, at the time of purchase, will be the direct owner of approximately 429 million shares of our common stock for a cash payment of ~~approximately~~ $5.83 billion, or $13.60 per share, ~~for the shares of our common stock being acquired by us,~~ before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the ~~transaction (collectively, the “Purchase Transaction”).~~transaction. The Stock Purchase Agreement further provides for ASAC to, upon the terms and subject to the conditions thereof, purchase from Vivendi approximately 172 million shares of our common stock, in conjunction with the Purchase Transaction ~~for an aggregate~~was funded with a combination of $1.2 billion cash ~~payment of approximately $2.34~~on hand, $2.5 billion ~~or $13.60 per share (the “Private Sale”), provided that such amounts may~~from the bank financing described below, and $2.25 billion from the Notes. The repurchased shares will be ~~reduced under certain circumstances. Robert A. Kotick,~~recorded as “Treasury Stock” in our ~~chief executive officer, and Brian G. Kelly, co-chairman of our board of directors, are affiliates of ASAC II LLC, and will contribute $100 million combined~~condensed consolidated balance sheet.

Pursuant to ~~the Private Sale. The transactions contemplated by~~ the Stock Purchase Agreement, ~~are expected to close by the end of September 2013, subject to certain closing conditions.~~

We plan to fund the Purchase Transaction with a combination of approximately $1.2 billion of cash on hand and $4.75 billion of debt accessed through the capital markets and bank financing. We have obtained a commitment letter for bank financing that, subject to customary conditions, would include a senior secured term loan facility, as well as an incremental $250 million senior secured revolving credit facility for liquidity purposes. In addition, we expect to issue debt that we currently expect to be comprised of secured notes and unsecured notes. If we have not issued some or all of the new secured or unsecured notes by the time of completion of the Purchase Transaction, we would also have, subject to the terms and conditions of the commitment letter, the ability under our commitment letter to draw on bridge loan facilities.

After giving effect to the Purchase Transaction, our new outstanding share count is expected to be reduced by approximately 429 million shares of our stock, which would accordingly increase earnings per common share. The Purchase Transaction will be accounted for as a shares repurchase with the reduction recorded in “Additional Paid In Capital” in the consolidated balance sheet. We expect thatimmediately following the completion of the Purchase Transaction, ASAC completed the Private Sale, purchasing 172 million shares of the Company’s common stock from Vivendi for a cash payment of $2.34 billion. Robert A. Kotick, our ~~cash on hand will be reduced by approximately $1.2 billion,~~Chief Executive Officer, and Brian G. Kelly, the Chairman of our ~~new capital structure is expected to include approximately $4.75 billion~~Board of ~~debt and $1.4 billion~~Directors, are affiliates of ~~net debt, where net debt is calculated by subtracting the debt and fees to be incurred from cash and short-term investments at June 30, 2013.~~

ASAC II LLC. Concurrently with the signing of the Stock Purchase Agreement, Mr. Kotick and Mr. Kelly each entered into waiver and acknowledgement letters with us, which provide, among other things, for the waiver by Mr. Kotick and Mr. Kelly of their rights to any change in control payments or benefits under their employment agreements with us, our 2008 Incentive Plan, or any award agreements in respect to awards granted thereunder, ~~and~~or any other benefit plans and arrangements, in each case in connection with or as a consequence of the transactions contemplated by the Stock Purchase Agreement.

2125

Table of Contents

As a result of the Purchase Transaction and the Private Sale, (i) we have 695 million shares of common stock issued and outstanding as of October 11, 2013, approximately 63% of which is held by the public, (ii) Vivendi holds 83 million shares, or approximately 12% of the outstanding shares of our common stock, and (iii) ASAC holds 172 million shares, or approximately 24.7% of the outstanding shares of our common stock.

In connection with the Purchase Transaction, we assumed certain tax attributes of New VH, which generally consist of New VH’s net operating loss (“NOL”) carryforwards of approximately $676 million, which represent a potential future tax benefit of approximately $245 million. The Company also obtained indemnification from Vivendi against losses attributable to the potential nonexistence or 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 it is not more-likely-than-not that the tax position is realizable.

Financing Credit Facilities

On October 11, 2013, in connection and simultaneously with the Purchase Transaction, we entered into a credit agreement (the “Credit Agreement”) for a $2.5 billion secured term loan facility (the “Term Loan”), maturing in October 2020, and a $250 million secured revolving credit facility (the “Revolver” and, together with the Term Loan, the “Credit Facilities”), maturing in October 2018. A portion of the Revolver can be used to issue letters of credit of up to $50 million, subject to the availability of the Revolver. The proceeds of the Term Loan were used to fund the Purchase Transaction and related fees and expenses, and we did not draw on the Revolver.

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

In addition to paying interest on outstanding principal balances under the Credit Facilities, we are required to pay the lenders a commitment fee on unused commitments under the Revolver. We are also required to pay customary letter of credit fees and agency fees.

Commencing on December 31, 2013, we are required to make quarterly principal repayments of 0.25% of the Term Loan’s original principal amount, with the balance due on the maturity date. Amounts borrowed under the Term Loan and repaid may not be re-borrowed.

The Credit Facilities are guaranteed by certain of the Company’s U.S. subsidiaries. The Company and the Guarantors also granted a security interest in substantially all of their U.S. assets, as security for the obligations under the Credit Agreement. The Credit Agreement contains customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of debt, granting of liens, payment of dividends, sales of assets and mergers and acquisitions. If our obligations under the Revolver exceed 15% of the total facility amount as of the end of any fiscal quarter (subject to certain exclusions for letters of credit), we are also subject to certain financial covenants. A violation of any of these covenants could result in an event of default under the Credit Agreement. Upon the occurrence of such event of default or certain other customary events of default, payment of any outstanding amounts under the Credit Agreement may be accelerated, and the lenders’ commitments to extend credit under the Credit Agreement may be terminated. In addition, an event of default under the Credit Agreement could, under certain circumstances, permit the holders of other outstanding unsecured debt (including the Notes described in Note 7 of the Notes to Condensed Consolidated Financial Statements) to accelerate the repayment of such obligations.

Table of Contents

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

Recently Completed Transactions

On October 11, 2013, we repurchased 429 million shares of our common stock, pursuant to the stock purchase agreement (the “Stock Purchase Agreement”) we entered into on July 25, 2013 with Vivendi S.A. (“Vivendi”) and ASAC II LP (“ASAC”), an exempted limited partnership established under the laws of the Cayman Islands, acting by its general partner, ASAC II LLC. Pursuant to the terms of the Stock Purchase Agreement, we acquired all of the capital stock of Amber Holding Subsidiary Co., a Delaware corporation and wholly-owned subsidiary of Vivendi (“New VH”), which was the direct owner of 429 million shares of our common stock, for a cash payment of $5.83 billion, or $13.60 per share, before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the transaction (collectively, the “Purchase Transaction”). The repurchased shares will be recorded as “Treasury Stock” in our condensed consolidated balance sheet.

Immediately following the completion of the Purchase Transaction, ASAC purchased from Vivendi 172 million shares of the Company’s common stock, pursuant to the Stock Purchase Agreement, for a cash payment of $2.34 billion, or $13.60 per share (the “Private Sale”). Robert A. Kotick, our Chief Executive Officer, and Brian G. Kelly, Chairman of our Board of Directors, are affiliates of ASAC II LLC.

For further details, refer to “Other Liquidity and Capital Resources” below, and Note 16 of the Notes to Condensed Consolidated Financial Statements.

Business Overview

Activision Blizzard, Inc. is a ~~worldwide online, personal computer (“PC”), video game console, handheld,~~leading global developer and ~~mobile game publisher.~~publisher of interactive entertainment. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries. We publish online, personal computer (“PC”), video game console, handheld, mobile and tablet games. Based upon our ~~current~~ organizational structure, we conduct our business through three operating segments as follows:

Activision Publishing, Inc.

Activision Publishing, Inc. (“Activision”) is a leading international developer and publisher of interactive software products and ~~content.~~content, including games from the Call of Duty® and Skylanders® franchises. Activision develops games primarily based on ~~both~~ internally-developed ~~and~~properties, as well as some licensed intellectual ~~property. Activision markets and sells games we develop and, through our affiliate label program, games developed by certain third-party publishers.~~properties. We sell games through both ~~through~~ retail channels and by digital ~~download.~~downloads. Activision currently offers games that operate on the Sony Computer Entertainment, Inc. (“Sony”) PlayStation 3 (“PS3”), Nintendo Co. Ltd. (“Nintendo”) Wii (“Wii”) and Nintendo Wii U (“Wii U”), and Microsoft Corporation (“Microsoft”) Xbox 360 (“Xbox 360”) console systems; the Nintendo Dual Screen (“DS”) and Nintendo 3DS (“3DS”) handheld game systems; the PC; and other handheld and mobile devices. We are investing in, developing, and planning to release games for Sony’s and Microsoft’s next-generation console systems, the PlayStation 4 (“PS4”) and Xbox One (“Xbox One”), respectively.

Blizzard Entertainment, Inc.

Blizzard Entertainment, Inc. (“Blizzard”) is a leader in the subscription-based massively multi-player online role-playing game (“MMORPG”) category in terms of both subscriber base and revenues generated through ~~its~~the World of Warcraft® franchise, which it develops, hosts and supports. Blizzard also develops, markets and sells role-playing action and strategy ~~PC-based computer~~ games for the PC and iPad, including games in the multiple-award winning Diablo® and StarCraft® franchises. Blizzard has adapted Diablo III for certain current- and next-generation console platforms and released Diablo III for the PS3 and Xbox 360 in September 2013. In addition, Blizzard maintains a proprietary online-game related service, Battle.net®. Blizzard distributes its products and generates revenues worldwide through various means, including: subscriptions; sales of prepaid subscription cards; ~~revenue from~~ value-added services such as realm transfers, faction changes, and other character customizations within World of Warcraft gameplay; retail sales of physical “boxed” products; online download sales of PC products; and licensing of software to third-party or related party companies that distribute World of Warcraft, Diablo III and StarCraft II products.

Table of Contents

Activision Blizzard Distribution

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

Business Highlights

For the three months ended ~~June~~September 30, 2013, ~~and June 30, 2012,~~ Activision Blizzard had net revenues of ~~$1.1 billion.~~$691 million, as compared to net revenues of $841 million in the same period in 2012. For the three months ended ~~June~~September 30, 2013, Activision Blizzard’s earnings per diluted share were ~~$0.28,~~$0.05, as compared to earnings per diluted share of ~~$0.16~~$0.20 for the same period in 2012.

For each of the nine months ended September 30, 2013 and 2012, Activision Blizzard had net revenues of $3.1 billion. Earnings per diluted share for the nine months ended September 30, 2013 were $0.73, as compared to earnings per diluted share of $0.70 for the same period in 2012.

For the ~~six~~nine months ended June 30, 2013, Activision Blizzard had net revenues of $2.4 billion, as compared to net revenues of $2.2 billion for the same period in 2012, and earnings per diluted share of $0.68, as compared to earnings per diluted share of $0.50 for the same period in 2012.

~~For the six months ended June~~September 30, 2013, according to The NPD Group, for U.S. data, ~~Gfk~~GfK Chart-Track, for European data, and internal estimates, and including sales of toys and accessories:

· ~~Activision Blizzard was the #1 third-party publisher in~~In both North America and Europe, ~~combined;~~

·Activision ~~Blizzard~~ had the ~~top-two~~two of the top-five best-selling games ~~in North America and Europe combined,~~ with ~~Activision Publishing’s~~ Skylanders Giants™® ~~Giants™~~ and Call of ~~Duty®:~~Duty: Black Ops II; and

· In both North America and Europe, ~~Activision Publishing’s~~Activision’s Skylanders Giants was the #1 best-selling kids console and hand-held game overall in ~~dollars.~~dollars; and

22·

~~Table~~In North America, Blizzard’s StarCraft II: Heart of ~~Contents~~the Swarm® was the #1 PC game.

During the ~~six~~nine months ended ~~June~~September 30, 2013, Activision Publishing released, among other titles, ~~the first and second~~four downloadable map packs for Call of Duty: Black Ops II — Call of Duty: Black Ops II Revolution (“, ~~Revolution~~Call of Duty: Black Ops II Uprising”), Call of Duty: Black Ops II Vengeance, and Call of Duty: Black Ops II ~~Uprising~~Apocalypse; (“and also ~~Uprising~~The Walking Dead: Survival Instinct.~~”). On July 2, 2013, Activision released the third downloadable map pack for~~ ~~Call of Duty: Black Ops II~~, ~~Call of Duty: Black Ops II Vengeance~~ ~~for the Xbox 360.~~

~~On March 12,~~During the nine months ended September 30, 2013, Blizzard released StarCraft II: Heart of the ~~Swarm®~~Swarm, the first expansion to Blizzard’s real-time strategy PC game StarCraft II: Wings of Liberty®., and Diablo III for the PS3 and Xbox 360.

Activision Blizzard Upcoming Product Releases

We have ~~announced and~~released, or expect to release, the following ~~titles and~~ games, among ~~others:~~others, in the fourth quarter of 2013:

·The newest installment in Activision’s Skylanders franchise, Skylanders SWAP Force™, on October 13, 2013;

·Activision’s new Call of Duty game, Call of Duty: Ghosts, on November 5, 2013; and

· Blizzard’s Hearthstone™: Heroes of Warcraft™, a new cross-platform free-to-play game for the PC and mobile ~~devices;~~

·~~Blizzard’s~~ ~~Diablo III~~ ~~for the PS3 and Xbox 360 on September 3, 2013;~~

·~~The newest installment in Activision’s popular Skylanders franchise,~~ ~~Skylanders SWAP Force™~~ ~~on October 13, 2013; and~~

·~~Activision’s new Call of Duty game,~~ ~~Call of Duty: Ghosts~~~~, on November 5, 2013.~~devices.

Management’s Overview of Business Trends

Online Content and Digital Downloads

We provide our products through both retail channels and digital online delivery methods. Many of our video games that are available through retailers as physical “boxed” software products, such as DVDs, are also available by direct digital download over the Internet (both from websites that we own and from others owned by third parties). In addition, we offer players downloadable content as add-ons to our products (e.g., new multi-player map packs), generally for a one-time ~~fee.~~fee, which are released throughout the year. We also offer subscription-based services for World of Warcraft, which are digitally delivered and hosted by Blizzard’s proprietary online-game related service, Battle.net. Digital revenues continue to be an important part of our business, and we continue to focus on and develop products that can be delivered via digital online channels.

Net revenues from digital online channels represented ~~37%~~59% of our total consolidated net revenues for the three months ended ~~June~~September 30, 2013, as compared to ~~32%~~51% for the same period in 2012. On a non-GAAP basis, which excludes the impact of the change in deferred ~~net~~ revenues, net revenues from digital online channels represented ~~63%~~61% of our total consolidated net revenues for the three months ended ~~June~~September 30, 2013, as compared to ~~47%~~57% for the same period in 2012.

Table of Contents

Net revenues from digital online channels represented ~~32%~~38% of our total consolidated net revenues for the ~~six~~nine months ended ~~June~~September 30, 2013, as compared to ~~29%~~35% for the same period in 2012. On a non-GAAP basis, net revenues from digital online channels represented ~~57%~~59% of our total consolidated net revenues for the ~~six~~nine months ended ~~June~~September 30, 2013, as compared to ~~49%~~51% for the same period in 2012.

The increase in our ~~relative mix of retail and~~revenues from digital online ~~channel~~channels, relative to revenues from retail channels, for the three and ~~six~~nine month periods ended ~~June~~September 30, 2013 was primarily due to stronger digital online revenues from Call of Duty: Black Ops II ~~Revolution~~ and its related digital downloadable content~~Uprising,~~, as compared to Call of Duty: Modern Warfare® 3 ~~Call of Duty: Modern Warfare 3 Content Collection #1~~and ~~Call of Duty: Modern Warfare 3 Content Collection #2~~,its related downloadable content packs, and the release of StarCraft II: Heart of the Swarm in March 2013. Partially offsetting the increase ~~was~~were the ~~release~~releases of Diablo III for the PC in May 2012, ~~without a~~with no comparable release in the current ~~period. The increase~~periods, and World of Warcraft: Mists of Pandaria® in September 2012, with no comparable expansion pack for World of Warcraft in the ~~mix of GAAP digital online revenues for the three and six months ended June 30, 2013 was less significant due to revenues deferred from the strong performance of the~~ ~~Call of Duty: Black Ops II~~ ~~digital content.~~

~~Table of Contents~~current periods.

Please refer to the reconciliation between GAAP and non-GAAP financial measures later in this document for further discussions of retail and digital online channels.

Conditions in the ~~retail channels of the video games industry continued to be challenging during the first six months of 2013.~~ Retail Distribution Channel

In the U.S. and Europe combined, retail sales of video games ~~experienced a combined decrease of~~increased approximately ~~13%~~2% for the first ~~six~~nine months of 2013, as compared to the same period in 2012, benefitting from the release of a top title in the third quarter of 2013, according to The NPD Group and ~~Gfk~~GfK Chart-Track. ~~The~~Excluding the impact of that title, overall ~~decline for the six months ended June 30, 2013 is primarily attributable to the continued decline in~~ retail sales ~~of video games for standard-definition, handheld and PC platforms, which were down~~would have decreased by approximately ~~30% year-over-year, while retail sales~~12% in the third quarter of ~~video games for high-definition platforms were relatively flat for the same period. However,~~2013, according to The NPD Group and GfK Chart-Track.

According to our internal estimates, overall sales of video games (including digital sales) for the first ~~six~~nine months of 2013 were ~~only slightly lower, down 1%~~higher by approximately 8% as compared to the same period in 2012. ~~Our strong performance~~While retail sales of video games for high-definition platforms were higher by 22% (including the benefit from ~~digital online revenues resulted~~the release of a top title in ~~a positive impact~~the third quarter of 2013), retail sales for standard-definition, handheld and PC platforms continued to ~~our results during~~decline as compared to the ~~six months ended June 30, 2013.~~same period in 2012.

~~Despite the challenges in the retail channels, sales~~Sales of the industry’s top five titles (including toys and accessories) continue to represent a large portion of total retail sales in the industry. ~~While retail sales decreased during~~During the ~~six~~nine months ended ~~June~~September 30, 2013, the top five titles ~~grew 7%~~represented 28% of retail sales for the ~~six~~nine months ended ~~June~~September 30, 2013, as compared to ~~same period in~~15% of retail sales for the nine months ended September 30, 2012, according to The NPD Group, ~~Gfk~~GfK Chart-Track and the Company’s internal estimates. The ~~Company’s results have been favorably impacted~~increase in the top five titles is mainly driven by ~~this trend because~~the release of ~~our greater focus on premier~~the top ~~titles and a more focused overall slate~~title in the third quarter of ~~titles.~~ 2013.

~~Including toys and accessories,~~ ~~Skylanders Giants~~ ~~and~~ ~~Call of Duty: Black Ops II~~ ~~were the top two video game titles for the first half of 2013 in the U.S and Europe combined, according to The NPD Group, Gfk Chart-Track and the Company’s internal estimates.~~ We will continue to invest in our established franchises, as well as new titles that we think have the potential to drive our growth over the long-term. However, we expect the competitive landscape to be challenging for the remainder of 2013. Call of Duty: Ghosts ~~will face~~faces a more crowded slate of titles from the same genre in ~~its~~the fourth quarter of ~~launch later~~ this year than it has in the past and our Skylanders franchise ~~will face~~is also facing a more direct and substantial competition than it has before. The competitive landscape could impact revenues and will likely require us to further increase our sales and marketing investment in our key franchises and could impact ~~revenues.~~operating income.

~~In 2013,~~ Current- and Next-Generation of Game Consoles

Sony and Microsoft have announced that ~~later this year~~ they will launch their next-generation consoles, the PS4 and Xbox One, ~~respectively.~~respectively, beginning in November 2013. We have announced our participation in Sony’s, Microsoft’s, and certain retailers’ programs to provide various options to our gamers who purchase Call of Duty: Ghosts for the PS3 and Xbox 360 to upgrade their gameplay to Call of Duty: Ghosts for the PS4 and Xbox One, respectively, subject to the terms and conditions of each respective program. While new console platforms provide opportunities for our future releases, the uncertainty around the adoption rate of new consoles and the short-term impact on consumer purchases of our products can be disruptive to our business in the short term. We are continually monitoring console hardware sales, as well as the development of next-generation consoles. We are managing our product delivery for each current and future platform in a manner we believe to be most effective to maximize our revenue opportunities and achieve the desired return on our investments in product development. As noted above, we are investing in, developing, and planning to release games for each of these next-generation console systems.

~~Pending Transactions~~

As discussed in more detail below under “Other Liquidity and Capital Resources,” on July 25, 2013, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Vivendi and ASAC II LP (“ASAC”), an exempted limited partnership established under the laws of the Cayman Islands, and acting by its general partner, ASAC II LLC. Under the Stock Purchase Agreement, we have agreed, upon the terms and subject to the conditions thereof, to acquire, via the acquisition of a wholly-owned subsidiary of Vivendi (“New VH”), approximately 429 million shares of our common stock, in exchange for approximately $5.83 billion in cash, before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the transaction (collectively, the “Purchase Transaction”). The Stock Purchase Agreement further provides for ASAC, an investment vehicle led by Robert A. Kotick, our chief executive officer, and Brian G. Kelly, co-chairman of our board of directors, to, upon the terms and subject to the conditions thereof, purchase from Vivendi approximately 172 million shares of our common stock for approximately $2.34 billion in cash (the “Private Sale”), provided that such amounts may be reduced under certain circumstances. We plan to fund the Purchase Transaction with a combination of approximately $1.2 billion cash on hand and $4.75 billion of debt accessed through the capital markets and bank financings. The Purchase Transaction and Private Sales (the “Transactions”) contemplated by the Stock Purchase Agreement are expected to close by the end of September 2013, subject to certain closing conditions.

2429

Table of Contents

Consolidated Statements of Operations Data

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

	Three months ended June 30,								Six months ended June 30,								Three months ended September 30,									Nine months ended September 30,
	2013				2012				2013				2012				2013					2012				2013					2012

Net revenues:
Product sales	$	727	69	%	$	798	74	%	$	1,717	72	%	$	1,672	74	%	$	332		48	%	$	536	64	%	$	2,049		67	%	$	2,208	72	%
Subscription, licensing, and other revenues	323		31		277		26		658		28		575		26		359			52		305		36		1,016			33		880		28
Total net revenues	1,050		100		1,075		100		2,375		100		2,247		100		691			100		841		100		3,065			100		3,088		100

Costs and expenses:
Cost of sales — product costs	179		17		229		21		440		19		486		22		111			16		146		17		551			18		633		21
Cost of sales — online subscriptions	54		5		71		7		111		5		140		6		43			6		62		8		154			5		201		7
Cost of sales — software royalties and amortization	38		4		57		5		99		4		88		4		16			2		19		2		116			4		107		4
Cost of sales — intellectual property licenses	14		1		20		2		52		2		27		1		5			1		10		1		56			2		37		1
Product development	123		12		145		13		247		10		259		11		140			20		125		15		387			13		384		12
Sales and marketing	116		11		136		13		223		9		216		10		144			21		131		16		367			12		346		11
General and administrative	96		9		190		18		186		8		291		13		162			24		121		14		347			11		413		13

Total costs and expenses	620		59		848		79		1,358		57		1,507		67		621			90		614		73		1,978			65		2,121		69

Operating income	430		41		227		21		1,017		43		740		33		70			10		227		27		1,087			35		967		31

Investment and other income (expense), net	—		—		2		—		3		—		3		—
Interest and other investment income (expense), net																	(4		)	(1	)	1		—		(1		)	—		4		—

Income before income tax expense	430		41		229		21		1,020		43		743		33		66			9		228		27		1,086			35		971		31

Income tax expense	106		10		44		4		240		10		174		8		10			1		2		—		249			8		176		5

Net income	$	324	31	%	$	185	17	%	$	780	33	%	$	569	25	%	$	56		8	%	$	226	27	%	$	837		27	%	$	795	26	%

Operating Segment Results

~~Table of Contents~~

The CODM reviews segment performance exclusive of the impact of the change in deferred ~~net~~ revenues and related cost of sales with respect to certain of our online-enabled games, stock-based compensation expense, ~~and~~ amortization of intangible assets as a result of purchase price ~~accounting.~~accounting, and fees and other expenses related to the Purchase Transaction and related debt financings. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto. Information on the operating segments and reconciliations of total net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 are presented in the table below (amounts in millions):

Three months ended June 30,

Six months ended June 30,

Increase

Increase

2013

2012

(Decrease)

2013

2012

(Decrease)

Segment net revenues:

Activision

$
347

$
373

$
(26
)
$
771

$
645

$
126

Blizzard

224

634

(410
)
554

884

(330
)
Distribution

37

47

(10
)
88

112

(24
)

Operating segment net revenue total

608

1,054

(446
)
1,413

1,641

(228
)

Reconciliation to consolidated net revenues:

Net effect from deferral of net revenues

442

21

962

606

Consolidated net revenues

$
1,050

$
1,075

$
2,375

$
2,247

Segment income from operations:

Activision

$
60

$
(71
)
$
131

$
173

$
(70
)
$
243

Blizzard

60

371

(311
)
194

460

(266
)
Distribution

(1
)
—

(1
)
(1
)
—

(1
)
Operating segment income from operations total

119

300

(181
)
366

390

(24
)

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

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

338

(40
)

707

407

Stock-based compensation expense

(24
)
(31
)

(50
)
(52
)

Amortization of intangible assets

(3
)
(2
)

(6
)
(5
)

Consolidated operating income

430

227

1,017

740

Investment and other income (expense), net

—

2

3

3

Consolidated income before income tax expense

$
430

$
229

$
1,020

$
743

Table of Contents

	Three months ended September 30,									Nine months ended September 30,
							Increase									Increase
	2013			2012			(Decrease)			2013			2012			(Decrease)

Segment net revenues:
Activision	$	319		$	283		$	36		$	1,090		$	928		$	162
Blizzard	282			414			(132		)	837			1,299			(462		)
Distribution	56			54			2			143			166			(23		)
Operating segment net revenues total	657			751			(94		)	2,070			2,393			(323		)

Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues	34			90						995			695
Consolidated net revenues	$	691		$	841					$	3,065		$	3,088

Segment income from operations:
Activision	$	41		$	(14	)	$	55		$	214		$	(84	)	$	298
Blizzard	88			168			(80		)	282			629			(347		)
Distribution	(1		)	—			(1		)	(1		)	—			(1		)
Operating segment income from operations total	128			154			(26		)	495			545			(50		)

Reconciliation to consolidated operating income and consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales	32			110						738			514
Stock-based compensation expense	(25		)	(34		)				(76		)	(85		)
Amortization of intangible assets	(3		)	(3		)				(8		)	(7		)
Fees and other expenses related to the Purchase Transaction and related debt financings	(62		)	—						(62		)	—

Consolidated operating income	70			227						1,087			967
Interest and other investment income (expense), net	(4		)	1						(1		)	4

Consolidated income before income tax expense	$	66		$	228					$	1,086		$	971

Segment Net Revenues

Activision

Activision’s net revenues ~~decreased~~increased for the three and nine months ended ~~June~~September 30, 2013, as compared to the same ~~period~~periods in 2012, primarily due to ~~our relatively more focused slate of releases from our value business and lower~~higher revenues from our Skylanders franchise. Sales of the Skylanders franchise were partially impacted by seasonality, as Easter occurred in the first quarter of 2013 as compared to the second quarter of 2012. The decreases were partially offset by a stronger performance from our Call of Duty franchise, including the stronger performancesales of Call of Duty: Black Ops II and its related digital downloadable content, as compared to Call of Duty: Modern Warfare 3 and its downloadable content inpacks for the same ~~period~~periods in the prior year.

~~Activision’s net revenues increased for the six months ended June 30, 2013, as compared to the same period in 2012, primarily due to a stronger performance from the Call of Duty franchise,~~ The increases were partially offset by ~~lower revenues from our value business, with our relatively~~a more focused slate of releases from our value business and lower revenues from our Skylanders franchise in the most recent three and nine month periods. While life-to-date revenues for Skylanders ~~franchise.~~

~~Table~~Giants (released in October 2012), are significantly up versus the previous title, Skylanders Spyro’s Adventure (released in October 2011), significantly more revenues were achieved upfront, in the launch quarter for Skylanders Giants, resulting in somewhat lower revenues in the following quarters. Additionally, the life to date sell-through trends of ~~Contents~~retail purchases by consumers of Skylanders Giants has remained significantly above Skylanders Spyro’s Adventure.

Blizzard

Blizzard’s net revenues decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same ~~period~~periods in 2012, primarily due to the ~~release~~releases of Diablo III for the PC in May 2012 and World of Warcraft: Mists of Pandaria in September 2012, without a comparable ~~release~~releases in the ~~three~~corresponding periods of the current year, and ~~six months ended June 30, 2013. For the six months ended June 30, 2013, the decrease in net revenues was also due to~~ lower World of Warcraft subscription revenues and value-added services revenues resulting from a lower number of subscribers. The ~~decrease was~~decreases were partially offset by revenues from the releases of Diablo III for the PS3 and Xbox 360 in September 2013 and StarCraft II: Heart of the Swarm~~, which was released~~ in March ~~2013, and~~ ~~World~~2013.

Table of ~~Warcraft: Mists of Pandaria®~~~~, which was released in September 2012.~~Contents

At ~~June~~September 30, 2013, the worldwide subscriber* base for World of Warcraftwas ~~7.7~~approximately 7.6 million, compared to ~~a subscriber base of 8.3 million at March 31, 2013, and 9.1~~approximately 7.7 million at June 30, 2013, and was down from more than 10 million at September 30, 2012. For the ~~3-month~~12-month period, subscribership has declined since the ~~subscriber~~September 2012 release of the latest expansion pack, World of Warcraft: Mists of Pandaria, with a decline ~~was approximately evenly split between~~in both the East and the West, and with the East representing a larger portion of the overall decrease (where the “East” includes China, Taiwan, and South Korea, and the “West” includes North America, Europe, Australia, New Zealand, and Latin America). For the 12-month period, the subscriber decline was primarily attributable to the East, with a smaller relative decrease in the West. Overall, subscribership has declined since the September 2012 release of the latest expansion pack, ~~World of Warcraft: Mists of Pandaria®~~~~, with casual players in the East playing less.~~ In general, the average revenue per subscriber is lower in the East than in the West. Our objective remains to continue to deliver new game content for World of Warcraftin all regions to further appeal to the gaming community.

Distribution

Distribution’s net revenues for the three months ended September 30, 2013 were comparable to net revenues for the same period in 2012. Distribution’s net revenues decreased for the ~~three and six~~nine months ended ~~June~~September 30, 2013, as compared to the same ~~periods~~period in 2012, largely due to the continued weakness in video games retail ~~sales.~~sales in the United Kingdom.

Segment Income from Operations

Activision

For the three months ended ~~June~~September 30, 2013, Activision’s operating income increased, as compared to the same period in 2012, driven by the relatively higher-margin digital online sales from the Call of Duty franchise ~~along with stronger Call of Duty catalog sales,~~and a more profitable slate of releases from our value business, partially offset by higher sales and ~~lower general and administrative~~marketing expenses ~~mainly legal-related expenses.~~for our upcoming fourth quarter releases.

For the ~~six~~nine months ended ~~June~~September 30, 2013, Activision’s operating income increased, as compared to the same period in 2012, driven by the factors described ~~above. The increase was partially offset by higher sales~~above, as well as lower general and ~~marketing~~administrative expenses, ~~primarily in connection with the Skylanders and Destiny franchises.~~mainly legal-related expenses.

Blizzard

Blizzard’s operating income decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same periods in 2012, primarily as a result of the decrease in net revenues previously described. The decrease in operating income from lower net revenues for the three and ~~six~~nine month periods was partially offset by lower cost of sales, as a result of lower revenues, lower sales and marketing expenses, ~~due to the lack of a release comparable to~~ ~~Diablo III~~ ~~in the current period,~~ and lower general and administrative expenses due to lower bonus expenses reflective of the lower revenues and associated operating income.

Non-GAAP Financial Measures

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

The following table provides a reconciliation between GAAP and non-GAAP net revenues by distribution channel for the three and nine months ended September 30, 2013 and 2012 (amounts in millions):

* World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to play World of Warcraft, those who have purchased the game and are within their free month of access, and Internet Game Room players who have accessed the game over the last thirty days. The above definition excludes all players under free promotional subscriptions, expired or cancelled subscriptions, and those who have expired prepaid cards. Subscribers in licensees’ territories are defined along the same rules.

2732

Table of Contents

	Three months ended September 30,						Increase			Nine months ended September 30,						Increase
	2013			2012			(Decrease)			2013			2012			(Decrease)
GAAP net revenues by distribution channel
Retail channels	$	226		$	357		$	(131	)	$	1,748		$	1,837		$	(89	)
Digital online channels(1)	409			430			(21		)	1,174			1,085			89
Total Activision and Blizzard	635			787			(152		)	2,922			2,922			—

Distribution	56			54			2			143			166			(23		)
Total consolidated GAAP net revenues	691			841			(150		)	3,065			3,088			(23		)

Change in deferred revenues(2)
Retail channels	(24		)	(87		)				(1,033		)	(832		)
Digital online channels(1)	(10		)	(3		)				38			137
Total changes in deferred revenues	(34		)	(90		)				(995		)	(695		)

Non-GAAP net revenues by distribution channel
Retail channels	202			270			(68		)	715			1,005			(290		)
Digital online channels(1)	399			427			(28		)	1,212			1,222			(10		)
Total Activision and Blizzard	601			697			(96		)	1,927			2,227			(300		)

Distribution	56			54			2			143			166			(23		)
Total non-GAAP net revenues (3)	$	657		$	751		$	(94	)	$	2,070		$	2,393		$	(323	)

~~The following~~

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

(2)We have determined that some of our games’ online functionality represents an essential component of gameplay and as a result, represents a more-than-inconsequential separate deliverable. As such, we recognize revenues attributed to these game titles over the estimated service periods, which may range from a minimum of five months to a maximum of less than a year. In the table ~~provides~~above, we present the amount of net revenues for each period as a ~~reconciliation between GAAP and~~result of this accounting treatment.

(3)Total non-GAAP net revenues ~~by distribution channel for the three and six months ended June 30, 2013 and 2012 (amounts in millions):~~presented also represents our total operating segment net revenues.

Three months ended June 30,

Increase

Six months ended June 30,

Increase

2013

2012

(Decrease)

2013

2012

(Decrease)

GAAP net revenues by distribution channel

Retail channels

$
626

$
685

$
(59
)
$
1,522

$
1,479

$
43

Digital online channels(1)

387

343

44

765

656

109

Total Activision and Blizzard

1,013

1,028

(15
)
2,287

2,135

152

Distribution

37

47

(10
)
88

112

(24
)
Total consolidated GAAP net revenues

1,050

1,075

(25
)
2,375

2,247

128

Change in deferred net revenues(2)

Retail channels

(438
)
(175
)

(1,009
)
(746
)

Digital online channels(1)

(4
)
154

47

140

Total changes in deferred net revenues

(442
)
(21
)

(962
)
(606
)

Non-GAAP net revenues by distribution channel

Retail channels

188

510

(322
)
513

733

(220
)
Digital online channels(1)

383

497

(114
)
812

796

16

Total Activision and Blizzard

571

1,007

(436
)
1,325

1,529

(204
)

Distribution

37

47

(10
)
88

112

(24
)
Total non-GAAP net revenues (3)

$
608

$
1,054

$
(446
)
$
1,413

$
1,641

$
(228
)

~~(1)~~	~~We define revenues from digital online channels as revenues from subscriptions and memberships, licensing royalties, value-added services, downloadable content, and digitally distributed products.~~
~~(2)~~	We have determined that some of our games’ online functionality represents an essential component of gameplay and as a result, represents a more-than-inconsequential separate deliverable. As such, we are required to recognize the revenues of these game titles over the estimated service periods, which may range from a minimum of five months to a maximum of less than a year. In the table above, we present the amount of net revenues for each period as a result of this accounting treatment.
~~(3)~~	~~Total non-GAAP net revenues presented also represents our total operating segment net revenues.~~

The decrease in GAAP net revenues from retail channels for the three months ended ~~June~~September 30, 2013, as compared to the same period in 2012, was primarily due to lower revenues from Diablo III for the PC, which was released in May 2012, lower revenues from our value business due to its more focused slate of titles and to a lesser extent, lower revenues from our Skylanders franchise in the most recent period. The decreases were partially offset by the recognition of previously deferred revenues from StarCraft II: Heart of the Swarm, which was released in March 2013, and World of Warcraft: Mists of Pandaria, which was released in September 2012, and revenues from the release of Diablo III for the PS3 and Xbox 360 in September 2013.

The decrease in GAAP net revenues from retail channels for the nine months ended September 30, 2013, as compared to the same period in 2012, was primarily due to lower revenues from Diablo III for the PC, which was released in May 2012, lower revenues from our value business with its more focused slate of titles, lower revenues from our Skylanders franchise, ~~partly due to the occurrence of Easter in second quarter of 2012 as compared to the first quarter of 2013,~~ and lower revenues from ~~Diablo III~~~~, which was released in May 2012.~~our Call of Duty catalog titles. The decreases were partially offset by ~~stronger sales and recognition~~higher revenues of ~~previously deferred revenues from~~ Call of Duty: Black Ops II, as compared to Call of Duty: Modern Warfare 3, the release of StarCraft II: Heart of the Swarm in March 2013 and the recognition of previously deferred revenues fromWorld of Warcraft: Mists of Pandaria.

The decrease in non-GAAP net revenues from retail channels for the three and nine months ended September 30, 2013, as compared to the same periods in 2012, was primarily due to lower revenues from Diablo III for the PC, which was released in May 2012, lower revenues from our value business due to its more focused slate of titles, lower sales from World of Warcraft: Mists of Pandaria, which was released in September 2012, lower revenues from our Skylanders franchise, and lower revenues from our Call of Duty catalog titles. The decreases were partially offset by sales from Diablo III for the PS3 and Xbox360, which was released in September 2013, and stronger sales of Call of Duty: Black Ops II as compared to sales of Call of Duty: Modern Warfare 3 in the comparable periods of the prior year, as well as the sales from StarCraft II: Heart of the Swarm, which was released in March 2013.

The ~~increase~~decrease in GAAP net revenues from ~~retail~~digital online channels for the ~~six~~three months ended ~~June~~September 30, 2013, as compared to the same period in 2012, was primarily due to ~~stronger sales and recognition of previously deferred~~lower revenues from Diablo III for the PC, which was released in May 2012. The decreases were partially offset by higher revenues from Call of Duty: Black Ops II digital downloadable content, as compared to Call of Duty: Modern Warfare 3~~from~~ ~~World of Warcraft: Mists of Pandaria~~~~, which was released in September 2012,~~ downloadable content packs and ~~from~~ ~~StarCraft II: Heart of the Swarm~~~~, which was released in March 2013. The increase was partially offset by lower~~higher revenues from ~~our Skylanders franchise, lower revenues from our value business with its more focused slate of titles, and lower revenues from our Call of Duty catalog titles.~~

~~The decrease in non-GAAP net revenues from retail channels for the three and six months ended June 30, 2013, as compared to the same periods in 2012, was primarily due to the release of~~ ~~Diablo III~~ ~~in May 2012, lower revenues from our value business with its more focused slate of titles, and lower sales from our Skylanders franchise. The decreases were partially offset by stronger sales of~~ Call of Duty: Black Ops II, as compared to Call of Duty: Modern Warfare 3 ~~and~~. Additionally, in conjunction with the release of ~~StarCraft II: Heart~~Call of Duty: Black Ops II, all of the ~~Swarm~~Call of Duty Elite (“Elite”) service features for that game were made available for free (not including downloadable content packs). Elite was a paid subscription service during 2012, which included the delivery of downloadable content. With the launch of Call of Duty: Black Ops II, the Company offered consumers a season pass program which enabled the purchase of digital content packs as a discounted bundle. The consumer response to the season pass program has been strong, and has resulted in ~~March 2013.~~greater overall participation levels and revenues than the Elite paid subscription service in the prior year.

2833

Table of Contents

The increase in GAAP net revenues from digital online channels for the ~~three and six~~nine months ended ~~June~~September 30, 2013, as compared to the same ~~periods~~period in 2012, was primarily due to ~~stronger~~higher revenues from the current year releases of Call of Duty: Black Ops II digital downloadable content, ~~including~~ ~~Revolution~~ ~~and~~ ~~Uprising~~~~, than from~~as compared to Call of Duty: Modern Warfare 3 ~~Content Collection #1~~ ~~and~~downloadable content packs, stronger revenues from Call of Duty: Black Ops II, as compared to Call of Duty: Modern Warfare 3 ~~Content Collection #2~~, ~~which were released in the first and second quarters of 2012, and~~ recognition of previously deferred revenues from World of Warcraft: Mists of Pandaria, ~~which was released in September 2012,~~ and revenues from StarCraft II: Heart of the Swarm, which was released in March ~~2013.~~ 2013. The ~~increase in GAAP net revenues from digital online channels was~~increases were partially offset by lower revenues from Diablo III,for the PC, which was released in May 2012, lower ~~revenues from~~ ~~Call of Duty Elite~~ ~~(which was a paid~~ subscription ~~service during 2012, but no longer in 2013),~~ and ~~lower~~value-added services revenues from the World of Warcraft franchise due to a lower number of subscribers as compared to same period in 2012, and ~~related value added services.~~ ~~In conjunction with the release of~~ ~~Call of Duty: Black Ops II~~ ~~in November 2012, all of the~~ lower revenues from our Call of Duty ~~Elite~~ service features for that game were made available for free; this free service does not include downloadable map packs, which are sold separately, either a la carte as individual map packs or as part of a discounted season pass bundle.catalog titles.

The decrease in non-GAAP net revenues from digital online channels for the three and nine months ended ~~June~~September 30, 2013, as compared to the same ~~period~~periods in 2012, was primarily due to ~~the release of~~lower revenues from Diablo III for the PC, which was released in May 2012, ~~without a comparable release in the current period, and~~ lower revenues from ~~Call~~World of ~~Duty Elite~~Warcraft: Mists of Pandaria, , which ~~is no longer a paid~~was released in September 2012, and lower subscription ~~service,~~ and ~~lower~~value-added services revenues from the World of Warcraft ~~franchise.~~franchise due to a lower number of subscribers as compared to same periods in 2012. The decreases were partially offset by stronger revenues from the current year releases of Call of Duty: Black Ops II digital downloadable content, ~~including~~ ~~Revolution~~ ~~and~~ ~~Uprising~~~~, than from~~as compared to Call of Duty: Modern Warfare 3 ~~Content Collection #1~~ downloadable content packs, and ~~Call of Duty: Modern Warfare 3 Content Collection #2~~~~, which were released in the first and second quarters of 2012.~~

~~The increase in non-GAAP net revenues from digital online channels for the six months ended June 30, 2013, as compared to the same period in 2012, was primarily due to~~ stronger ~~revenues~~ ~~from the current year releases~~sales of Call of Duty: Black Ops II~~digital downloadable content, including~~ ~~Revolution~~ ~~and~~ ~~Uprising~~, ~~than from~~ ~~Call of Duty: Modern Warfare 3 Content Collection #1~~ ~~and~~ ~~Call of Duty: Modern Warfare 3 Content Collection #2~~~~, which were released in the first and second quarters of 2012, revenues from~~ ~~StarCraft II: Heart of the Swarm~~~~, which was released in March 2013, and stronger revenues from~~ ~~Call of Duty: Black Ops II~~ as compared to ~~revenue from~~ Call of Duty: Modern Warfare 3. ~~The increase was partially offset by lower revenues from~~ ~~Diablo III~~ ~~and lower revenues from value-added services and subscriptions from our World of Warcraft franchise.~~

Consolidated Results

Net Revenues by Geographic Region

The following table details our consolidated net revenues by geographic region for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 (amounts in millions):

	Three months ended June 30,				Increase			Six months ended June 30,				Increase			Three months ended September 30,				Increase			Nine months ended September 30,				Increase
	2013		2012		(Decrease)			2013		2012		(Decrease)			2013		2012		(Decrease)			2013		2012		(Decrease)
Geographic region net revenues:
North America	$	562	$	562	$	—		$	1,300	$	1,163	$	137		$	344	$	403	$	(59	)	$	1,643	$	1,567	$	76
Europe	402		403		(1		)	889		888		1			290		333		(43		)	1,180		1,220		(40		)
Asia Pacific	86		110		(24		)	186		196		(10		)	57		105		(48		)	242		301		(59		)
Consolidated net revenues	$	1,050	$	1,075	$	(25	)	$	2,375	$	2,247	$	128		$	691	$	841	$	(150	)	$	3,065	$	3,088	$	(23	)

The increase / (decrease) in deferred revenues recognized by geographic region for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 was as follows (amounts in millions):

	Three months ended June 30,					Increase /		Six months ended June 30,					Increase		Three months ended September 30,				Increase /			Nine months ended September 30,					Increase
	2013		2012			(Decrease)		2013		2012			(Decrease)		2013		2012		(Decrease)			2013		2012			(Decrease)
Increase/(decrease) in deferred revenues recognized by geographic region:
North America	$	248	$	79		$	169	$	563	$	409		$	154	$	2	$	49	$	(47	)	$	564	$	459		$	105
Europe	161		9			152		330		235			95		24		9		15			355		243			112
Asia Pacific	33		(67		)	100		69		(38		)	107		8		32		(24		)	76		(7		)	83
Total impact on consolidated net revenues	$	442	$	21		$	421	$	962	$	606		$	356	$	34	$	90	$	(56	)	$	995	$	695		$	300

As previously discussed, the decrease in Company’s net revenues for the three months ended ~~June~~September 30, 2013, ~~decreased versus~~as compared to the ~~prior year~~same period in 2012, was mainly due to ~~the release of~~lower revenues from Diablo III for the PC, which was released in May 2012, ~~without a comparable release in the current period, our relatively smaller number of~~and fewer releases from our value business due to its more focused slate of titles. Net revenues in North America and Europe were also impacted by lower revenues from our Skylanders franchise. ~~The~~ in the most recent periods. In all regions, the decreases were partially offset by a stronger performance from Call of Duty: Black Ops II digital downloadable content, ~~including~~ ~~Revolution~~ ~~and~~ ~~Uprising~~, as compared to Call of Duty: Modern Warfare 3 ~~Content Collection #1~~downloadable content packs. The decreases in North America and ~~Call of Duty: Modern Warfare 3 Content Collection #2~~~~, and~~Europe were also partially offset by the recognition of previously deferred revenues from World of Warcraft: Mists of Pandaria and StarCraft II: Heart of the Swarm.~~Additionally,~~

Table of Contents

The deferred revenues recognized for the three months ended September 30, 2013, as compared to the same period in ~~Europe, revenues~~2012, were negatively impacted by the lower recognition of deferred revenues from Diablo III for the PC, which was released in May 2012, and higher overall deferral of revenues, primarily revenues from Diablo III for the PS3 and Xbox 360, which was released in September 2013. These negative impacts were partially offset by the recognition of previously deferred revenues from StarCraft II: Heart of the Swarm and World of Warcraft: Mists of Pandaria. In North America and Asia Pacific, the decrease in deferred revenues recognized was also due to a higher deferral of revenues from the releases of Call of Duty: Black Ops II digital downloadable content, as compared to Call of Duty: Modern Warfare 3 downloadable content packs. In Europe, the increase in deferred revenues recognized was due to higher recognition of previously deferred revenues from Call of Duty: Black Ops II, as compared to Call of Duty: Modern Warfare 3.

The Company’s net revenues for the nine months ended September 30, 2013 decreased, as compared to the same period in 2012, primarily due to lower revenues from Diablo III for the PC, our value business and the Skylanders franchise. These decreases were partially offset by the relatively stronger performance of Call of Duty: Black Ops II digital downloadable content, as compared to Call of Duty: Modern Warfare 3 downloadable content packs, and higher revenues from StarCraft II: Heart of the Swarm, which was released in March 2013, and recognition of previously deferred revenues from World of Warcraft: Mists of Pandaria, which was released in September 2012. In North America, net revenues for the nine months ended September 30, 2013 increased primarily due to the strong performance of Call of Duty: Black Ops II digital downloadable content. In Europe, the decrease in net revenues was further attributable to the year-over-year decrease from our Distribution segment, and in the Asia Pacific region, net revenues were ~~disproportionately~~further impacted by lower World of Warcraft revenues resulting from ~~the~~a lower number of subscribers.

~~Table of Contents~~

In all regions, the increase in deferred revenues recognized for the ~~three~~nine months ended ~~June~~September 30, 2013, as compared to the same period in 2012, was primarily attributed to a higher deferral of revenues in the prior year resulting from the strong May 2012 release of Diablo III~~, and the recognition of previously deferred revenues from~~ ~~Call of Duty; Black Ops II, World of Warcraft: Mists of Pandaria~~ ~~and~~ ~~StarCraft II: Heart of the Swarm~~~~, partially offset by the deferral of revenues from the releases of~~ ~~Call of Duty: Black Ops II~~ ~~downloadable content, including~~ ~~Revolution~~ ~~and~~ ~~Uprising~~.

~~As previously discussed, the Company’s net revenues~~ for the ~~six months ended June 30, 2013 were positively impacted by the relatively stronger performance of~~ ~~Call of Duty: Black Ops II~~ ~~downloadable content and revenues from~~ ~~StarCraft II: Heart of the Swarm~~ ~~and~~ ~~World of Warcraft: Mists of Pandaria~~~~. These positive impacts were partially offset by lower revenues from~~ ~~Diablo III~~ and our value business. Additionally, in Europe, the positive impact was partially offset by the year-over-year decrease from our Distribution segment and from our Skylanders franchise, and in the Asia Pacific region, the positive impact was partially offset by lower ~~World of Warcraft~~ ~~revenues resulting from a lower number of subscribers.~~

In all regions, the increase in deferred revenues recognized for the six months ended June 30, 2013, as compared to the same period in 2012, was primarily attributed to a higher deferral of revenues in the prior year resulting from the strong May 2012 release of ~~Diablo III~~PC and the recognition of previously deferred revenues from Call of ~~Duty;~~Duty: Black Ops II, which was released in November 2012, and World of Warcraft: Mists of Pandaria, which was released in September 2012, partially offset by the deferral of revenues resulting from the ~~releases~~strong performance of Call of Duty: Black Ops II digital downloadable content, ~~including~~ ~~Revolution~~Diablo III for the PS3 and ~~Uprising~~,Xbox 360, which was released in September 2013, and StarCraft II: Heart of the ~~Swarm.~~Swarm, which was released in March 2013.

Foreign Exchange Impact

Changes in foreign exchange rates had a positive impact of $13 million and $16 million on Activision Blizzard’s net revenues for the three and nine months ended September 30, 2013, respectively, as compared to the same periods in 2012. The change is primarily due to the movement of the U.S. dollar relative to the Euro.

Net Revenues by Platform

The following tables detail our net revenues by platform and as a percentage of total consolidated net revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 (amounts in millions):

	Three months		% of total(3)		Three months		% of total(3)					Three months		% of total(3)		Three months		% of total(3)
	ended		consolidated		ended		consolidated		Increase			ended		consolidated		ended		consolidated		Increase
	June 30, 2013		net revenues		June 30, 2012		net revenues		(Decrease)			September 30, 2013		net revenues		September 30, 2012		net revenues		(Decrease)
Platform net revenues:
Online subscriptions(1)	$	233	22	%	$	220	20	%	$	13		$	205	30	%	$	226	27	%	$	(21	)
PC	100		10		151		14		(51		)	79		11		272		32		(193		)

Console
Sony PlayStation 3	265		25		234		22		31			119		17		81		10		38
Microsoft Xbox 360	307		29		248		23		59			160		23		121		14		39
Nintendo Wii and Wii U	18		2		32		3		(14		)	17		2		25		3		(8		)
Total console	590		56		514		48		76			296		43		227		27		69
Other(2)	90		9		143		13		(53		)	55		8		62		7		(7		)
Total platform net revenues	1,013		96		1,028		96		(15		)	635		92		787		94		(152		)
Distribution	37		4		47		4		(10		)	56		8		54		6		2
Total consolidated net revenues	$	1,050	100	%	$	1,075	100	%	$	(25	)	$	691	100	%	$	841	100	%	$	(150	)

3035

Table of Contents

												Nine months		% of total(3)		Nine months		% of total(3)
	Six months		% of total(3)		Six months		% of total(3)					ended		consolidated		ended		consolidated		Increase
	ended		consolidated		ended		consolidated		Increase			September 30, 2013		net revenues		September 30, 2012		net revenues		(Decrease)
	June 30, 2013		net revenues		June 30, 2012		net revenues		(Decrease)
Platform net revenues:
Online subscriptions(1)	$	508	21	%	$	475	21	%	$	33		$	714	23	%	$	701	23	%	$	13
PC	195		8		198		9		(3		)	274		9		471		15		(197		)

Console
Sony PlayStation 3	609		26		536		24		73			727		24		617		20		110
Microsoft Xbox 360	689		29		584		26		105			849		28		705		23		144
Nintendo Wii and Wii U	41		2		83		4		(42		)	58		2		108		3		(50		)
Total console	1,339		56		1,203		54		136			1,634		53		1,430		46		204
Other(2)	245		10		259		12		(14		)	300		10		320		10		(20		)
Total platform net revenues	2,287		96		2,135		95		152			2,922		95		2,922		95		—
Distribution	88		4		112		5		(24		)	143		5		166		5		(23		)
Total consolidated net revenues	$	2,375	100	%	$	2,247	100	%	$	128		$	3,065	100	%	$	3,088	100	%	$	(23	)

The increase / (decrease) in deferred revenues recognized by platform for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 was as follows (amounts in millions):

	Three months ended June 30,					Increase			Six months ended June 30,					Increase			Three months ended September 30,						Increase			Nine months ended September 30,					Increase
	2013		2012			(Decrease)			2013		2012			(Decrease)			2013			2012			(Decrease)			2013		2012			(Decrease)
Increase/(decrease) in deferred revenues recognized by platform:

Online subscriptions(1)	$	39	$	21		$	18		$	85	$	27		$	58		$	24		$	(119	)	$	143		$	110	$	(92	)	$	202
PC	57		(314		)	371			29		(292		)	321			38			165			(127		)	67		(126		)	193

Console
Sony PlayStation 3	166		137			29			416		400			16			(15		)	12			(27		)	400		412			(12		)
Microsoft Xbox 360	175		162			13			421		439			(18		)	(16		)	30			(46		)	405		469			(64		)
Nintendo Wii and Wii U	5		12			(7		)	10		26			(16		)	3			2			1			13		27			(14		)
Total console	346		311			35			847		865			(18		)	(28		)	44			(72		)	818		908			(90		)
Other(2)	—		3			(3		)	1		6			(5		)	—			—			—			—		5			(5		)
Total impact on consolidated net revenues	$	442	$	21		$	421		$	962	$	606		$	356		$	34		$	90		$	(56	)	$	995	$	695		$	300

~~(1)~~	(1)Revenues from online subscriptions consists of revenues from all World of Warcraft products, including subscriptions, boxed products, expansion packs, licensing royalties, and value-added services, and revenues from~~Call of Duty~~ Elite memberships. (2)Revenues from other includes revenues from handheld and mobile devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from our Skylanders franchise and other physical merchandise and accessories. (3)The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. 36 Table of Contents Net revenues from online subscriptions decreased for the three months ended September 30, 2013, as compared to the same period in 2012, primarily due to lower revenues from Elite memberships related to Call of Duty: Modern Warfare 3, and lower subscription and value added services revenues due to a lower number of subscribers from World of Warcraft, partially offset by the recognition of previously deferred revenues from World of Warcraft: Mists of Pandaria, which was released in September 2012.

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

~~(3)~~	~~The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding.~~

Net revenues from online subscriptions increased for the ~~three and six~~nine months ended ~~June~~September 30, 2013, as compared to the same period in 2012, primarily due to the recognition of previously deferred revenues from World of Warcraft: Mists of Pandaria, which was released in September ~~2012. The increase was~~2012, partially offset by lower revenues from ~~Call of Duty~~ Elite memberships related to Call of Duty: Modern Warfare 3, and lower ~~value-added~~subscription and value added services ~~revenues from the World of Warcraft franchise. Increases in online subscription revenues for the six months ended June 30, 2013 were partially offset by lower subscription~~ revenues due to a lower number of subscribers from World of Warcraft.

~~Table of Contents~~

Net revenues from PC decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same ~~period~~periods in 2012, due to lower revenues from Diablo III, for the PC, which was released in May 2012, ~~which was~~ partially offset by revenues from StarCraft II: Heart of the Swarm, which was released in March 2013.

Net revenues from PS3 and Xbox 360 increased for the three and ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same ~~period~~periods in 2012, primarily due to higher revenues from Call of Duty: Black Ops II, and its related digital downloadable content, as compared to Call of Duty: Modern Warfare 3, and its related downloadable content packs, as well as ~~higher~~ revenues from ~~Call of Duty: Black Ops II~~Diablo III ~~downloadable content, including~~ ~~Revolution~~ for the PS3 and ~~Uprising~~Xbox 360, which was released in September 2013. ~~, as compared to digital content for~~ ~~Call of Duty: Modern Warfare 3~~. The increase was partially offset by ~~the higher deferral of revenues from~~ ~~Call of Duty: Black Ops II~~ ~~digital content, as compared to digital content for~~ ~~Call of Duty: Modern Warfare 3~~~~, and~~ lower revenues from our value business, ~~because of~~due to its more focused ~~slate.~~slate of titles, and our Call of Duty catalog titles.

Net revenues from Nintendo Wii and Wii U decreased for the three and nine months ended September 30, 2013, as compared to the same periods in 2012, primarily due to lower sales from our Skylanders franchise and fewer title releases on the Wii and Wii U platforms.

Net revenues from other decreased for the three ~~and six~~ months ended ~~June~~September 30, 2013, as compared to the same period in 2012, primarily due to lower revenues from our value business and handheld platforms. Net revenues from other decreased for the nine months ended September 30, 2013, as compared to the same period in 2012, primarily due to lower sales of toys from our Skylanders franchise in the most recent periods, and lower revenues from our value business and handheld platforms.

The increase in deferred revenues recognized for online subscriptions for the three and nine months ended September 30, 2013, as compared to the same periods in 2012, is due to the recognition of previously deferred revenues from World of Warcraft: Mists of Pandaria, which was released in September 2012, and lower revenues deferred from the World of Warcraft franchise.

~~Net~~The decrease in deferred revenues ~~from Nintendo Wii and Wii~~ ~~U decreased~~recognized for PC for the three ~~and six~~ months ended ~~June~~September 30, 2013, as compared to the same period in 2012, ~~primarily~~is due to lower ~~sales~~recognition of previously deferred revenues for Diablo III for the PC, which was released in May 2012, partially offset by the revenues recognized from ~~our Skylanders franchise, overall weaker catalog sales and fewer comparable releases.~~

StarCraft II: Heart of the Swarm, which was released in March 2013. The increase in deferred revenues recognized for the ~~three and six~~nine months ended ~~June~~September 30, 2013, ~~and~~as compared to the same period in 2012, ~~was~~is due to the ~~factors discussed above, primarily the~~lower deferral of revenues for Diablo III for the PC, which was released in May 2012.

The decrease in the deferred revenues recognized for PS3 and Xbox 360 for the three and nine months ended September 30, 2013, as compared to the same periods in 2012, is due to the higher deferral of revenues from ~~the release~~strong performance of Call of Duty: Black Ops II digital downloadable content, and Diablo ~~III.~~III for the PS3 and the Xbox 360, which was released in September 2013.

The deferred revenues recognized for Wii and WiiU for three months ended September 30, 2013 is comparable to the same period in prior year. The decrease in deferred revenues recognized for the nine months ended September 30, 2013, as compared to the same period in 2012, is due to higher deferral of revenues from Call of Duty: Black Ops II.

Table of Contents

Costs and Expenses

Cost of Sales

The following tables detail the components of cost of sales in dollars and as a percentage of total consolidated net revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 (amounts in millions):

			% of				% of							% of				% of
	Three months ended		consolidated		Three months ended		consolidated		Increase			Three months ended		consolidated		Three months ended		consolidated		Increase
	June 30, 2013		net revenues		June 30, 2012		net revenues		(Decrease)			September 30, 2013		net revenues		September 30, 2012		net revenues		(Decrease)

Product costs	$	179	17	%	$	229	21	%	$	(50	)	$	111	16	%	$	146	17	%	$	(35	)
Online subscriptions	54		5		71		7		(17		)	43		6		62		8		(19		)
Software royalties and amortization	38		4		57		5		(19		)	16		2		19		2		(3		)
Intellectual property licenses	14		1		20		2		(6		)	5		1		10		1		(5		)

	Six months ended		% of		Six months ended		% of		Increase			Nine months ended		% of		Nine months ended		% of		Increase
	June 30, 2013		net revenues		June 30, 2012		net revenues		(Decrease)			September 30, 2013		net revenues		September 30, 2012		net revenues		(Decrease)

Product costs	$	440	19	%	$	486	22	%	$	(46	)	$	551	18	%	$	633	21	%	$	(82	)
Online subscriptions	111		5		140		6		(29		)	154		5		201		7		(47		)
Software royalties and amortization	99		4		88		4		11			116		4		107		4		9
Intellectual property licenses	52		2		27		1		25			56		2		37		1		19

Total cost of sales decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same periods in 2012. Overall, the decreases were attributed to our improved margins as a result of fewer releases from our value business, due to its more focused slate of ~~releases from our value business~~titles, and a higher proportion of relatively higher-margin digital online sales.

Cost of sales — product costs decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same periods in 2012, primarily due to lower retail and physical product ~~sales and lower revenues from our Distribution segment year-over-year.~~sales. The increasing ~~mix~~percentage of revenues generated from our digital online channels year-over-year contributed to our higher margins (or lower product costs as a percentage of consolidated net revenues). Further, lower revenues from our relatively lower margin Distribution segment for the nine months ended September 30, 2013, as compared to the same period in 2012, contributed to the lower cost of sales — product costs.

The decrease in cost of sales — online subscriptions year-over-year was primarily due to lower online subscription revenues and cost reduction efforts in 2012 that benefited the current period.

~~Table of Contents~~

The decrease in cost of sales — software royalties and amortization for the three months ended ~~June~~September 30, 2013, as compared to the same period in 2012, was primarily due to fewer ~~titles being released~~releases from our value business ~~partially offset by~~and the amortization of previously deferred software costs for ~~World of Warcraft: Mist of Pandaria,~~Diablo III for the PC, which was released in ~~September~~May 2012. The increase in cost of sales — software royalties and amortization for the ~~six~~nine months ended ~~June~~September 30, 2013 was due to the amortization of previously deferred software costs for World of Warcraft: ~~Mist~~Mists of ~~Pandaria.~~Pandaria and Call of Duty: Black Ops II digital downloadable content. The increase was partially offset by the lower software amortization costs resulting from ~~the~~ fewer ~~titles released~~releases from our value ~~business.~~business, due to its more focused slate of titles, and the release of Diablo III for the PC in May 2012.

The decrease in cost of sales — intellectual property licenses for the three months ended ~~June~~September 30, 2013, as compared to the same period in 2012, was due to ~~the relatively~~ fewer ~~titles released~~releases from our value ~~business.~~business, due to its more focused slate. Cost of sales — intellectual property licenses increased for the ~~six~~nine months ended ~~June~~September 30, 2013 primarily ~~due to~~as a result of a write-down of capitalized costs.

Table of Contents

Product Development (amounts in millions)

			% of				% of							% of				% of
			consolidated				consolidated		Increase					consolidated				consolidated		Increase
	June 30, 2013		net revenues		June 30, 2012		net revenues		(Decrease)			September 30, 2013		net revenues		September 30, 2012		net revenues		(Decrease)

Three Months Ended	$	123	12	%	$	145	13	%	$	(22	)	$	140	20	%	$	125	15	%	$	15
Six Months Ended	247		10		259		11		(12		)
Nine Months Ended												387		13		384		12		3

Product development costs decreased for the three and six months ended June 30, 2013, as compared to the same periods in 2012, primarily due to the more concentrated slate of titles from our value business and lower bonus accruals, reflective of lower segment revenue during the three and six months ended June 30, 2013.

~~Sales and Marketing (amounts in millions)~~

% of

% of

consolidated

consolidated

Increase

June 30, 2013

net revenues

June 30, 2012

net revenues

(Decrease)

Three Months Ended

$
116

11
%
$
136

13
%
$
(20
)
Six Months Ended

223

9

216

10

7

~~Sales and marketing expenses decreased~~increased for the three months ended ~~June~~September 30, 2013, as compared to the same period in 2012, primarily due to higher ~~spending in the prior year from the release~~bonus accruals as a result of ~~Diablo III~~ ~~in May 2012 and lower media spending in the current period with respect to the reduced slate of titles~~higher revenues from our ~~value business. The decrease was~~digital online channel, partially offset by lower external development costs, as our ~~marketing investments related~~value business released fewer titles due to ~~Destiny~~ ~~and the reveal of~~ ~~Call of Duty: Ghosts.~~its more focused slate.

~~Sales and marketing expenses~~Product development costs increased for the ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same period in 2012, primarily due to ~~increased media~~lower capitalization of software development costs and ~~advertising costs related to the reveal of~~ ~~Destiny~~~~, and continued~~increased investments in our future titles, partially offset by lower external development costs, as our value business released fewer titles due to its more focused slate.

Sales and Marketing (amounts in millions)

			% of				% of
			consolidated				consolidated		Increase
	September 30, 2013		net revenues		September 30, 2012		net revenues		(Decrease)

Three Months Ended	$	144	21	%	$	131	16	%	$	13
Nine Months Ended	367		12		346		11		21

Sales and marketing expenses increased for the three and nine months ended September 30, 2013, as compared to the same periods in 2012, primarily due to higher media spending for our upcoming fourth quarter releases, such as Skylanders ~~franchise. The increase was partially~~ Swap Force and Call of Duty: Ghosts, offset by lower media spending ~~on the release of~~ ~~StarCraft II: Heart of the Swarm~~~~, as compared~~by our value business, due to ~~Diablo III~~ ~~in the prior period, and lower marketing spending with respect to the reduced~~its more focused slate of ~~titles~~titles. For the nine months ended September 30, 2013, the increase in sales and marketing expenses was also due to our marketing investments related to Destiny, a new game from ~~our value business.~~Bungie that we expect to publish and make available for public beta in 2014.

General and Administrative (amounts in millions)

			% of				% of							% of				% of
			consolidated				consolidated		Increase					consolidated				consolidated		Increase
	June 30, 2013		net revenues		June 30, 2012		net revenues		(Decrease)			September 30, 2013		net revenues		September 30, 2012		net revenues		(Decrease)

Three Months Ended	$	96	9	%	$	190	18	%	$	(94	)	$	162	24	%	$	121	14	%	$	41
Six Months Ended	186		8		291		13		(105		)
Nine Months Ended												347		11		413		13		(66		)

General and administrative expenses increased for the three months ended September 30, 2013, as compared to the same period in 2012, primarily due to the incurrence of bankers’ and professional fees related to the Purchase Transaction and related debt financings.

General and administrative expenses decreased for the ~~three and six~~nine months ended ~~June~~September 30, 2013, as compared to the same periods in 2012, primarily due to lower legal expenses (including legal-related accruals, settlements and fees), and a lower bonus accrual, partially offset by the incurrence of bankers’ and professional fees related to the ~~impact from foreign exchange rate movements.~~Purchase Transaction and related debt financings.

3339

Table of Contents

Interest and Other Investment ~~and other income (expense)~~Income (Expense), net (amounts in millions)

			% of				% of								% of				% of
			consolidated				consolidated		Increase						consolidated				consolidated		Increase
	June 30, 2013		net revenues		June 30, 2012		net revenues		(Decrease)			September 30, 2013			net revenues		September 30, 2012		net revenues		(Decrease)

Three Months Ended	$	—	—	%	$	2	—	%	$	(2	)	$	(4	)	(1	)%	$	1	—	%	$	(5	)
Six Months Ended	3		—		3		—		—
Nine Months Ended												(1		)	—		4		—		(5		)

~~Investment~~Interest and other investment income (expense), net ~~did not significantly change~~decreased for the three and ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same periods in ~~2012.~~2012, due to interest expense incurred from the unsecured senior notes issued during the third quarter of 2013 in connection with the Purchase Transaction.

Income Tax Expense (amounts in millions)

			% of				% of						% of				% of
			Pre-tax				Pre-tax		Increase				Pre-tax				Pre-tax		Increase
	June 30, 2013		income		June 30, 2012		income		(Decrease)		September 30, 2013		income		September 30, 2012		income		(Decrease)

Three Months Ended	$	106	24.7	%	$	44	19.2	%	$	62	$	10	15.2	%	$	2	0.8	%	$	8
Six Months Ended	240		23.5		174		23.4		66
Nine Months Ended											249		22.9		176		18.1		73

The income tax expense of ~~$106~~$10 million for the three months ended ~~June~~September 30, 2013 reflected an effective tax rate of ~~24.7%~~15.2%, which is higher than the effective tax rate of ~~19.2%~~0.8% for the three months ended ~~June~~September 30, 2012. This increase is primarily due to the tax benefit resulting from a federal income tax settlement recorded in the third quarter of 2012 and a decrease in the ~~proportional~~proportionate amount of earnings in the current year in foreign jurisdictions with a relatively lower statutory ~~rate (as~~rates, as compared to domestic earnings with a relatively higher statutory ~~rate).~~rates.

The effective tax rate of ~~24.7%~~15.2% for the three months ended ~~June~~September 30, 2013 differed from the U.S. statutory rate of 35.0%, primarily due to increase in the proportionate amount of foreign ~~income taxes levied~~earnings at relatively lower statutory rates, as compared to domestic earnings at relatively higher statutory rates, the ~~geographic mix~~reduction in ~~profitability,~~the projected U.S. pre-tax income attributable to costs associated with the Purchase Transaction and interest expense for the related debt financings, the recognition of federal and California research and development (“R&D”) credits, ~~and~~ the federal domestic production ~~deduction.~~deduction and favorable return to provision adjustments, offset by increases to the company’s reserve for uncertain tax positions. The favorable return to provision adjustments included a $9 million correction of an error in our deferred taxes related to prior periods, which is not material to either the forecasted fiscal 2013 results or any of the impacted prior periods.

Our tax expense of ~~$240~~$249 million for the ~~six~~nine months ended ~~June~~September 30, 2013 reflected an effective tax rate of ~~23.5%~~22.9% compared to an effective tax rate of ~~23.4%~~18.1% for the ~~six~~nine months ended ~~June~~September 30, 2012. ~~For the six months ended June 30, 2013, the geographic mix of earnings, as compared~~This increase is primarily due to the ~~six months ended June 30,~~tax benefit resulting from a federal income tax settlement recorded in the third quarter of 2012, ~~were proportionally lower in foreign jurisdictions with a relatively lower statutory rate, as compared to domestic earnings with a relatively higher statutory rate, resulting in~~ an increase in the ~~effective rate over~~proportionate amount of domestic earnings in the ~~prior period.~~current year at relatively higher statutory rates, as compared to foreign earnings at relatively lower statutory rates, and increases to the company’s reserve for uncertain tax positions recorded in the third quarter of 2013. However, the impact of ~~this increase~~these increases was partially offset by favorable return to provision adjustments recorded in the third quarter of 2013 and the recognition of the retroactive reinstatement of the federal R&D tax credit for the tax year ended December 31, 2012, which was enacted in the first quarter of ~~2013. The Company~~2013, for which we recorded a benefit of $12 million ~~related to the federal R&D tax credit for the tax year ended December 31, 2012~~ as a discrete item in the first quarter of 2013.

Table of Contents

The overall effective income tax rate for the year could be different from the effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and will be dependent, in part, on our profitability for the remainder of the year. In addition, our effective income tax rates for the remainder of 2013 and future periods will depend on a variety of factors, such as changes in the mix of income by tax jurisdiction, applicable accounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audits and other matters, and variations in the estimated and actual level of annual pre-tax income or loss. Further, the effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected by the extent that income (loss) before income tax expenses (benefit) is lower than anticipated in foreign regions, where taxes are levied at relatively lower statutory rates, and/or higher than anticipated in the United States, where taxes are levied at relatively higher statutory rates.

The Internal Revenue Service is currently examining Activision Blizzard’s federal tax returns for the 2008 and 2009 tax years and Vivendi ~~Games’s~~Games’ tax returns for the 2005 through 2008 tax years. While Vivendi ~~Games’s~~Games’ results for the period January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by Vivendi or its affiliates, Vivendi ~~Games’s~~Games’ results for the period July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by Activision Blizzard. Additionally, the Company has several state and non-U.S. audits pending. Although the final resolution of the Company’s global tax disputes is uncertain, based on current information, in the opinion of the Company’s management, the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company’s global tax disputes could have a material adverse effect on our business and results of operations in the period in which the matters are ultimately resolved.

~~Table of Contents~~

Liquidity and Capital Resources

Sources of Liquidity (amounts in millions)

							Increase									Increase
	At June 30, 2013			At December 31, 2012			(Decrease)			At September 30, 2013			At December 31, 2012			(Decrease)
Cash and cash equivalents	$	4,341		$	3,959		$	382		$	4,444		$	3,959		$	485
Short-term investments	205			416			(211		)	95			416			(321		)
	$	4,546		$	4,375		$	171		$	4,539		$	4,375		$	164

Percentage of total assets	34		%	31		%				28		%	31		%

Cash in escrow										$	2,282		—			$	2,282

	Six months ended June 30,						Increase		Nine months ended September 30,						Increase
	2013			2012			(Decrease)		2013			2012			(Decrease)

Cash flows provided by operating activities	$	434		$	245		$	189	$	384		$	369		$	15
Cash flows provided by (used in) investing activities	176			(74		)	250		191			(145		)	336
Cash flows used in financing activities	(176		)	(496		)	320		(129		)	(490		)	361
Effect of foreign exchange rate changes	(52		)	(54		)	2		39			10			29
Net increase (decrease) in cash and cash equivalents	$	382		$	(379	)	$	761	$	485		$	(256	)	$	741

Cash Flows Provided by Operating Activities

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

Cash flows provided by operating activities increased for the ~~six~~nine months ended ~~June~~September 30, 2013 as compared to the same period in 2012. The increase was primarily attributed to higher ~~collections from~~net income for the period and changes in our ~~customers and lower payments made to vendors. The increase was partially offset by higher payments~~working capital accounts.

Table of ~~taxes.~~Contents

Cash Flows Provided by (Used in) Investing Activities

The primary drivers of cash flows provided by (used in) investing activities ~~have~~ typically ~~included capital expenditures and~~include the net effect of purchases and sales/maturities of short-term ~~investments.~~investments, capital expenditures, and changes in restricted cash balances.

Cash flows related to investing activities during the ~~six~~nine months ended ~~June~~September 30, 2013 ~~mainly~~ reflected the receipt of ~~$229~~$355 million in proceeds from the sales/maturities of investments, the majority of which consisted of U.S. treasury and other government-sponsored agency debt securities, capital expenditures of ~~$36~~$58 million for property and equipment, the deposit of $71 million into an interest-bearing escrow account, as described further below, and the purchase of $26 million of short-term investments. Cash flows provided by investing activities for the ~~six~~nine months ended ~~June~~September 30, 2013, when compared to same period in 2012, were higher, primarily due to ~~relatively~~higher proceeds from sales/maturities of short-term investments and fewer purchases of short-term investments.

Cash Flows ~~Used in~~Provided by (Used in) Financing Activities

The primary drivers of cash flows ~~used in~~provided by (used in) financing activities ~~have historically related to~~typically include transactions involving our common stock, ~~including~~such as the issuance of shares of common stock to employees ~~the payment of dividends~~ and the repurchase of our common ~~stock.~~

~~Table~~stock, and the payment of ~~Contents~~

We have not historically used debt financing as a source of cash flows. However, we plan to fund the pending Purchase Transaction (described above) with a combination of approximately $1.2 billion of cash on hand and $4.75 billion of debt accessed through the capital markets and bank financing. We have obtained a commitment letter for bank financing that, subject to customary conditions, would include new senior secured credit facilities in an aggregate principal amount of $2.5 billion, consisting of a $2.25 billion term loan facility and a $250 million revolving credit facility for liquidity purposes. In addition, we expect to issue $2.5 billion of debt in the capital markets, which we expect to be comprised of $1.0 billion of secured notes and $1.5 billion of unsecured notes. If we have not issued some or all of the new secured or unsecured notes by the time of completion of the Purchase Transaction, we would also have, subject to the terms and conditions of the commitment letter, the ability under the commitment letter to draw on bridge loan facilities in an aggregate principal amount of $2.5 billion, consisting of unsecured senior increasing rate bridge loans in an aggregate principal amount of $1.5 billion and senior secured increasing rate bridge loans in an aggregate principal amount of $1.0 billion.dividends.

Cash flows ~~used by~~related to financing activities during the ~~six~~nine months ended ~~June~~September 30, 2013 reflected the ~~payment of an aggregate~~payments of $216 million related to a cash dividend and ~~the payment of $16~~$19 million in taxes related to the vesting of employees’ restricted stock rights, ~~and were~~ partially offset by proceeds of ~~$51~~$92 million from the issuance of shares of our common stock to employees in connection with stock option exercises. Cash flows used by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2013, as compared to the same period in 2012, were lower, primarily due to the lack of share repurchases in the current period.

Supplemental Cash Flow Information

During the nine months ended September 30, 2013, we issued $2.25 billion of unsecured senior notes in connection with the Purchase Transaction. Because the consummation of the transactions contemplated by the Stock Purchase Agreement was enjoined, in accordance with the offering memorandum and purchase agreements for the unsecured senior notes, the proceeds from the issuance of the unsecured senior notes were required to be deposited into and held in an escrow account until the earlier of (i) the completion of the Purchase Transaction, (ii) the termination of the Stock Purchase Agreement, and (iii) December 18, 2013. The escrow account was required to be funded with the full redemption value of the unsecured senior notes, along with interest payable through December 18, 2013. At September 30, 2013, none of the events had occurred and accordingly, we have accounted for the net proceeds from the issuance of the unsecured senior notes of $2,211 million as a non-cash financing activity in our condensed consolidated statement of cash flows.

Other Liquidity and Capital Resources

Our primary sources of liquidity are typically cash and cash equivalents, investments, and cash flows provided by operating activities. With our cash and cash equivalents and short-term investments of $4.5 billion at ~~June~~September 30, 2013 and expected cash flows provided by operating activities, we believe that we have sufficient liquidity to meet daily operations in the foreseeable future. We also believe that we have sufficient working capital ($~~4.4~~6.8 billion at ~~June~~September 30, ~~2013)~~2013, including $2.3 billion in escrow that was subsequently used to fund the Purchase Transaction) to finance our operational requirements for at least the next twelve months, including: purchases of inventory and equipment; the development, production, marketing and sale of new products; ~~the~~ provision of customer service for our subscribers; ~~the~~ acquisition of intellectual property rights for future products from third parties; ~~and the~~ funding of ~~dividends.~~dividends; and payments related to debt obligations.

As of ~~June~~September 30, 2013, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was ~~$2.8~~$2.9 billion, compared with $2.6 billion as of December 31, 2012. If these funds are needed in the future for our operations in the U.S., we would accrue and pay the required U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.

~~Under the Stock Purchase Agreement described above,~~On September 19, 2013, we have agreed, upon the terms and subject to the conditions thereof, to acquire, via the acquisition of New VH, approximately 429 million shares of our common stock, in exchange for approximately $5.83 billion in cash. The Stock Purchase Agreement further provides for ASAC, an investment vehicle led by Robert A. Kotick, our chief executive officer, and Brian G. Kelly, co-chairman of our board of directors, to, upon the terms and subject to the conditions thereof, purchase from Vivendi approximately 172 million shares of our common stock for approximately $2.34 billion in cash, provided that such amounts may be reduced under certain circumstances. The Transactions contemplated by the Stock Purchase Agreement are expected to close by the end of September 2013, subject to certain closing conditions. As described above, we plan to fund the Purchase Transaction with a combination of approximately $1.2issued, at par, $1.5 billion of ~~cash on hand~~5.625% unsecured senior notes due September 2021 (the “2021 Notes”) and ~~$4.75 billion~~$750 million of ~~debt accessed through~~6.125% unsecured senior notes due September 2023 (the “2023 Notes” and, together with the ~~capital markets and bank financing.~~

~~Immediately following~~2021 Notes, the completion of the Purchase Transaction and the Private Sale (without any potential reduction), our new outstanding share count is expected to be reduced by approximately 429 million shares of our stock. Based“Notes”). Interest on the ~~1,119 million shares issued~~Notes is payable semi-annually in arrears on March 15 and ~~outstanding as~~September 15 of June 30, 2013, (i) our outstanding share count would be approximately 690 million, approximately 63% of which would be held by the public, (ii) Vivendi is expected to hold approximately 83 million shares, or approximately 12%, of the outstanding shares of our common stock, and (iii) ASAC is expected to hold approximately 172 million shares, or approximately 24.9%, of the outstanding shares of our common stock. In connection with the Purchase Transaction, we would expect to assume certain tax attributes of the New VH.each year, commencing on March 15, 2014.

3642

Table of Contents

~~As our controlling stockholder, Vivendi provides us~~We may redeem the 2021 Notes on or after September 15, 2016 and the 2023 Notes on or after September 15, 2018, in whole or in part on any one or more occasions, at specified redemption prices, plus accrued and unpaid interest. At any time prior to September 15, 2016, with ~~certain cash management~~respect to the 2021 Notes, and ~~other services, which would cease~~ at any time prior to September 15, 2018, with respect to the 2023 Notes, we may also redeem some or ~~shortly following completion~~all of the ~~transactions, which could result~~Notes by paying a “make-whole premium”, plus accrued and unpaid interest. Upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of the aggregate principal amount of each of the 2021 Notes and 2023 Notes outstanding with the net cash proceeds from such offerings. The Notes are repayable, in ~~increased costs~~whole or in part and at the option of the holders, upon the occurrence of a change in control and a ratings downgrade, at a purchase price equal to ~~us.~~101% of principal, plus accrued and unpaid interest.

On October 11, 2013, we repurchased 429 million shares of our common stock from Vivendi in exchange for $5.83 billion in cash, before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the Purchase Transaction. We ~~expect that,~~funded the Purchase Transaction with a combination of $1.2 billion of cash on hand, $2.5 billion from the term loan facility described below, and $2.25 billion from the Notes. Immediately following the completion of the ~~transaction,~~Purchase Transaction, ASAC purchased from Vivendi 172 million shares of the Company’s common stock for $2.34 billion in cash in the Private Sale.

As a result of the Purchase Transaction and the Private Sale, (i) we have 695 million shares of our ~~cash~~common stock issued and outstanding as of October 11, 2013, approximately 63% of which is held by the public, (ii) Vivendi holds 83 million shares, or approximately 12% of the outstanding shares of our common stock, and (iii) ASAC holds 172 million shares, or approximately 24.7% of the outstanding shares of our common stock. As noted above, in connection with the Purchase Transaction, we assumed certain tax attributes of New VH.

In connection and simultaneously with the Purchase Transaction, we entered into a credit agreement (the “Credit Agreement”) on ~~hand~~October 11, 2013 for a $2.5 billion secured term loan facility (the “Term Loan”), maturing in October 2020, and a $250 million secured revolving credit facility (the “Revolver” and, together with the Term Loan, the “Credit Facilities”), maturing in October 2018. A portion of the Revolver can be used to issue letters of credit of up to $50 million, subject to the availability of the Revolver. The proceeds of the Term Loan were used to fund the Purchase Transaction and related fees and expenses, and we did not draw on the Revolver.

Borrowings under the Term Loan and Revolver bear interest at an annual rate equal to an applicable margin plus, at our option, (A) a base rate determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as its “prime rate,” (b) the federal funds rate plus 0.5% and (c) the London InterBank Offered Rate (“LIBOR”) rate for an interest period of one month plus 1.00%, or (B) LIBOR. LIBOR borrowings under the Term Loan will be ~~reduced by approximately $1.2 billion,~~subject to a LIBOR floor of 0.75%. In certain circumstances our interest rate under the Credit Facilities would increase.

Commencing on December 31, 2013, we are required to ~~include approximately $4.75 billion~~make quarterly principal repayments of ~~debt.~~ 0.25% of the Term Loan’s original principal amount, with the balance due on the maturity date. Amounts borrowed under the Term Loan and repaid may not be re-borrowed.

Based on cash and short-term investments of $4.5 billion asand the deposit of ~~June~~$71 million we made into the escrow account (which was released out of escrow upon the close of the Purchase Transaction) at September 30, 2013, we ~~expect that following the completion of the transaction we will have~~had approximately ~~$3.3~~$3.4 billion of cash and investments ~~on hand, approximately $2.8 billion~~subsequent to the Purchase Transaction, of which is$2.9 billion was permanently invested outside the United States at ~~June~~September 30, 2013. ~~Accordingly, after the completion~~As a result of the Purchase Transaction, our new capital structure included $4.75 billion of debt, and accordingly, the ~~Company would have~~Company’s net debt ofwas $1.4 billion, where net debt is calculated ~~by subtracting~~as the total debt ~~and fees to be~~ incurred ~~from~~in connection with the Purchase Transaction, less cash and short-term investments at ~~June~~September 30, 2013.

Capital Expenditures

For the year ending December 31, 2013, we anticipate total capital expenditures of approximately $85 million, primarily for property and equipment. Capital expenditures are expected to be primarily for computer hardware and software purchases. Through the first ~~six~~nine months of 2013, we made aggregate capital expenditures of ~~$36~~$58 million.

Table of Contents

Off-balance Sheet Arrangements

At ~~June~~September 30, 2013 and December 31, 2012, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties, often referred to as “structured finance” or “special purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operation, liquidity, capital expenditures, or capital resources.

Financial Disclosure

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

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

~~Table of Contents~~

Critical Accounting Policies and Estimates

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

· Revenue Recognition including Revenue Arrangements with Multiple Deliverables

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

· Software Development Costs and Intellectual Property Licenses

· Income Taxes

· Fair Value Estimates (including Assessment of Impairment of Assets)

· Stock-Based Compensation

During the ~~six~~nine months ended ~~June~~September 30, 2013, there were no significant changes to the above critical accounting policies and estimates. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2012, as amended, for a more complete discussion of our critical accounting policies and estimates.

Table of Contents

Recently Issued Accounting Pronouncements

Indefinite-lived intangible assets impairment

Balance sheet offsetting disclosures

Reclassification of accumulated other comprehensive loss

Accounting for cumulative translation adjustments

Presentation of unrecognized tax benefits

~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Foreign Currency Exchange Rate Risk

We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates. Revenues and related expenses generated from our international operations are generally denominated in their respective local currencies. Primary currencies include Euros, British pounds, Australian dollars, South Korean won and Swedish krona. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions results in reduced revenues, operating expenses, and net income from our international operations. Similarly, our revenues, operating expenses and net income will increase for our international operations if the U.S. dollar weakens against foreign currencies. Currency volatility is monitored throughout the year. To mitigate our foreign currency exchange rate exposure resulting from our foreign currency-denominated monetary assets, liabilities and earnings, we periodically enter into currency derivative contracts, principally forward contracts with maturities of twelve months or less. Vivendi is our principal counterparty and the risks of counterparty non-performance associated with these contracts are not considered to be material. We expect to continue to use economic hedge programs in the future to reduce foreign exchange-related volatility if it is determined that such hedging activities are appropriate to reduce risk. We do not hold or purchase any foreign currency contracts for trading or speculative purposes. All foreign currency economic hedging transactions are backed, in amount and by maturity, by an identified economic underlying item. ~~Our~~In recent years, Vivendi has been our principal counterparty for our currency derivative contracts, but in connection with the Purchase Transaction, we terminated our cash management services agreement with Vivendi as of October 31, 2013. Further, we have not had any outstanding currency derivative contracts with Vivendi as counterparty since July 3, 2013. If we enter into similar contracts in the future, we expect that the counterparties for any such transaction will be large and reputable commercial or investment banks. We did not have any foreign currency contracts at September 30, 2013 and the gross notional amount of outstanding foreign exchange forward contracts ~~are~~was $355 million at December 31, 2012.

Table of Contents

We do not ~~designated~~hold or purchase any foreign currency contracts for trading or speculative purposes and we do not designate these contracts as hedging ~~instruments and are accounted for as derivatives whereby~~instruments. Accordingly, we report the fair value of ~~the~~these contracts ~~are reported as~~within “Other current assets” or “Other current liabilities” in our condensed consolidated balance ~~sheets,~~sheet and the ~~associated gains and losses from~~ changes in fair value ~~are reported in~~within “General and administrative expense” and ~~“Investment~~“Interest and other investment income (expense), net” in ~~the~~our condensed consolidated ~~statements~~statement of operations.

~~The gross notional amount of outstanding foreign exchange forward contracts was $26 million~~ For the three and ~~$355 million at June~~nine months ended September 30, 2013, ~~and December 31, 2012, respectively. Pre-tax~~pre-tax unrealized and realized net gains and losses were not ~~material for~~material. For the three and ~~six~~nine months ended ~~June~~September 30, ~~2013. We~~2012, we recognized pre-tax unrealized net gains of $4 million and $3 million, respectively, and a pre-tax ~~unrealized~~realized net loss of $1 million ~~for the three~~ and ~~six months ended June 30, 2012 and a~~ pre-tax realized net gain of $3$1 million, ~~and $2 million for the three and six months ended June 30, 2012,~~ respectively.

In the absence of the hedging activities described above, as of ~~June~~September 30, 2013, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in potential declines of our net income of approximately ~~$53~~$66 million. This sensitivity analysis assumes a parallel adverse shift of all foreign currency exchange rates against the U.S. dollar; however, all foreign currency exchange rates do not always move in such manner and actual results may differ materially.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment ~~portfolio.~~ portfolio and variable rate debt entered into subsequent to quarter end. As of September 30, 2013, a hypothetical 10% change in interest rates would not have a material effect on the future results of operations or cash flows.

We do not use derivative financial instruments to manage interest rate risk in our investment portfolio. Our investment portfolio consists primarily of debt instruments with high credit quality and relatively short average maturities and money market funds that invest in securities issued by governments with highly rated sovereign debt. Because short-term securities mature relatively quickly and must be reinvested at the then-current market rates, interest income on a portfolio consisting of cash, cash equivalents or short-term securities is more subject to market fluctuations than a portfolio of longer term securities. Conversely, the fair value of such a portfolio is less sensitive to market fluctuations than a portfolio of longer-term securities. At ~~June~~September 30, 2013, our ~~$4.34~~$4.44 billion of cash and cash equivalents were comprised primarily of money market funds. At ~~June~~September 30, 2013, our ~~$205~~$95 million of short-term investments included ~~$195~~$68 million of U.S. treasury and government-sponsored agency debt securities and ~~$10~~$27 million of restricted cash. We also had $9 million in auction rate securities at fair value classified as long-term investments at ~~June~~September 30, 2013. The Company has determined that, based on the composition of our investment portfolio as of ~~June~~September 30, 2013, there was no material interest rate risk exposure to the Company’s consolidated financial condition, results of operations or liquidity as of that date.

Item 4. Controls and Procedures

Definition and Limitations of Disclosure Controls and Procedures.

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

~~Table of Contents~~

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures at ~~June~~September 30, 2013, the end of the period covered by this report. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at ~~June~~September 30, 2013, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported on a timely basis, and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Table of Contents

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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Legal Proceedings

~~The Company is~~We are subject to various legal proceedings and claims. FASB ~~Accounting Standards Codification (“ASC”)~~ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. ~~The Company records~~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, ~~the Company provides~~we provide additional disclosure related to litigation and other claims when it is reasonably possible (i.e., more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on ~~the Company.~~us.

On August 1, 2013, a purported shareholder of the Company filed a shareholder derivative action in the Superior Court of the State of California, County of Los Angeles, captioned Miller v. Kotick, et al., No. BC517086. The complaint names our Board of Directors and Vivendi as defendants, and the Company as a nominal defendant. The complaint alleges that our Board of Directors committed breaches of fiduciary duties, waste of corporate assets and unjust enrichment in connection with Vivendi’s sale of its stake in the Company and that Vivendi also breached its fiduciary duties. The plaintiff further alleges that demand by it on our Board of Directors to institute action would be futile because a majority of our Board of Directors is not independent and a majority of the individual defendants face a substantial likelihood of liability for approving the transactions contemplated by the Stock Purchase Agreement. The complaint seeks, among other things, damages sustained by the Company, rescission of the transactions contemplated by the Stock Purchase Agreement, an order restricting our Chief Executive Officer, and our Chairman, from purchasing additional shares of our common stock and an order directing us to take necessary actions to improve and reform our corporate governance and internal procedures to comply with applicable law, including ordering a shareholder vote on certain amendments to our by-laws or charter that would require half of our Board of Directors to be independent of Messrs. Kotick and Kelly and Vivendi and a proposal to appoint a new independent Chairman of the Board of Directors. The Company’s response to the Miller complaint is due on November 18, 2013.

Table of Contents

Item 1A. Risk Factors

~~The reader should carefully consider, in connection~~Various risks associated with ~~the other information in this report, the factors discussed~~our business are described in Part I, ~~“Item 1A: Risk Factors”~~Item 1A, “Risk Factors,” of ~~the Company’s 2012~~our Annual Report on Form 10-K ~~as amended. These risk factors~~for the year ended December 31, 2012. In addition, the Company wishes to caution the reader that the following additional important risks could cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere. WeThese risks are ~~updating those risk factors to include the following additional risks associated with the pending Purchase Transaction and the financing for that transaction.~~

~~Table~~not presented in order of ~~Contents~~importance or probability of occurrence.

We ~~may incur significant costs and suffer disruption in our business in connection with, but not be able to complete, the Purchase Transaction.~~

On July 25, 2013, we entered into the Stock Purchase Agreement. The Purchase Transaction contemplated by the Stock Purchase Agreement is subject to a number of conditions and is expected to be completed by the end of September 2013. See Note 15 of the Notes to the Condensed Consolidated Financial Statements.

There are significant risks and uncertainties associated with the pending Purchase Transaction pursuant to the Stock Purchase Agreement. The occurrence of certain events, changes or any other circumstances could give rise to the termination of the Stock Purchase Agreement and cause the Purchase Transaction not to be completed. For instance, the Stock Purchase Agreement may be terminated by mutual written consent of the Company, ASAC and Vivendi, by any of the parties if the closing shall not have occurred by October 15, 2013, subject to certain exceptions, and by any party in the event of certain legal restraints prohibiting the consummation of the transactions, subject to certain conditions. In addition, successful completion of the Purchase Transaction depends on a number of factors that are not entirely within our control, including our ability, and the ability of ASAC, to obtain the necessary financing on satisfactory terms and within the timeframe that would permit the transaction to proceed. We may incur significant costs arising from efforts to engage in the Purchase Transaction, and these expenditures may not result in the successful completion of the transaction. In addition, the proposed transaction may disrupt our current plans and operations, divert our management’s attention from our core business, all of which could have a materially adverse effect on our operating results and business. In addition, even if the Purchase Transaction is consummated, achieving the anticipated benefits of the transaction is subject to a number of uncertainties. Failure to achieve anticipated benefits could result in increased costs and diversion of management’s time and energy and could materially adversely affect our business, financial condition and results of operations.

~~We expect to incur~~incurred substantial leverage in connection with the ~~Purchase Transaction,~~issuance of the Notes and the entry into the Term Loan, which could adversely affect our business, cash ~~flow~~flows, financial condition or ~~our ability to operate our business.~~results of operations.

~~If we complete~~After giving effect to the ~~Purchase Transaction, we will incur significant debt, including secured indebtedness. As a result~~offering of the ~~anticipated financings for~~Notes, as described in Note 7 of the ~~Purchase Transaction,~~Notes to Condensed Consolidated Financial Statements, the use of proceeds thereof and our ~~total debt is expected~~entry into the Term Loan facility, as described in Note 16 of the Notes to ~~increase by approximately~~Condensed Consolidated Financial Statements, we had consolidated indebtedness of $4.75 billion ~~at the closing~~as of ~~the transaction.~~October 11, 2013. A high degree of leverage could have important consequences, including: increasing our vulnerability to general adverse economic and industry conditions; limiting our flexibility in planning for, or reacting to, changes in our business and our industry; requiring the dedication of a substantial portion of any cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our operations, growth strategy, working capital, capital expenditures, future business opportunities and other general corporate purposes; exposing us to the risk of increased interest rates with respect to ~~the extent~~ any borrowings that are at variable rates of interest; restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; limiting our ability to obtain additional financing for working capital, capital expenditures, research and development, debt service requirements, acquisitions and general corporate or other purposes; limiting our ability to adjust to changing market conditions; and placing us at a competitive disadvantage relative to our competitors who are less highly leveraged. The realization of any of the foregoing risks may materially adversely affect our business, cash flows, financial condition or results of ~~operations~~operations.

The agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to operate our business.

Agreements governing our indebtedness, including the indenture governing the Notes and credit agreement governing the Credit Facilities, as described in Note 16 of the Notes to Condensed Consolidated Financial Statements, impose operating and financial restrictions on our activities. These restrictions require us to comply with or maintain certain financial tests and ratios. In addition, the indenture and credit agreement limit or prohibit our ability to, among other things:

·incur additional debt and guarantees;

·pay distributions or dividends and repurchase stock;

·make other restricted payments, including without limitation, certain restricted investments;

·create liens;

·enter into agreements that restrict dividends from subsidiaries;

·engage in transactions with affiliates; and

·enter into mergers, consolidations or sales of substantially all of our assets.

Table of Contents

In addition, if, in the future, we borrow under the Revolver, as described in Note 16 of the Notes to Condensed Consolidated Financial Statements, we may be required, during certain periods where outstanding revolving loans exceed a certain threshold, to maintain a maximum senior secured net leverage ratio calculated pursuant to a financial maintenance covenant under the credit agreement governing the Credit Facilities.

These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities.

Further, various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. Such a default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under the indenture governing the Notes or the ~~market price~~credit agreement governing the Credit Facilities. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all.

We may not be able to borrow funds under our five-year revolving credit facility if we are not able to meet the conditions to borrowing under that facility.

We view our Revolver as a source of available liquidity. This facility contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds. We have not borrowed under the Revolver to date, but if we wish to do so, there can be no assurance that we will be in compliance with these conditions, covenants and representations.

We are no longer a “controlled company” within the meaning of NASDAQ rules, but may continue to rely on exemptions from certain corporate governance requirements,

In connection with the consummation of the Purchase Transaction and the Private Sale, the ownership by Vivendi and its subsidiaries of our issued and outstanding common stock was reduced from approximately 61% to approximately 12%. Because there is no longer any entity or group that owns more than 50% of the total voting power of our common ~~stock.~~shares, we are no longer a “controlled company” within the meaning of NASDAQ rules. As a result, we no longer qualify for exemptions from the requirements that would otherwise require a majority of the members of our Board of Directors to be independent and require that we either establish a compensation committee and a nominating and governance committee, each composed of independent directors, or otherwise ensure that the compensation of our executive officers and nominees for directors be determined or recommended to our Board of Directors by the independent members of the Board of Directors. However, NASDAQ rules permit companies ceasing to be controlled to “phase in” to compliance with these rules, and we may opt to do so. Accordingly, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the NASDAQ corporate governance requirements.

Legal proceedings relating to the Stock Purchase Transaction and Private Sale may result in adverse outcomes.

The Company is currently subject to various claims in connection with the Stock Purchase Transaction and Private Sale, and in the future may be subject to additional claims related thereto. Such proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, monitoring and defending against legal actions is time consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, the Company may incur substantial legal fees and costs in connection with litigation and, although coverage may be available under relevant insurance policies, coverage could be denied or prove to be insufficient. Under our Amended and Restated Certificate of Incorporation and the indemnification agreements that the Company has entered into with our officers and directors, the Company may be required in certain circumstances to indemnify and advance expenses to them in connection with their participation in proceedings arising out of their service to us. There can be no assurance that any of these payments will not be material.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchase of Equity Securities

We did not purchase any shares during the quarter ended September 30, 2013.

On October 11, 2013, we completed the Purchase Transaction as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, resulting in the repurchase of 429 million shares of our common stock for a cash payment of $5.83 billion.

Item 6. Exhibits

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

4150

Table of Contents

SIGNATURE

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

Date: ~~August 1,~~November 6, 2013

ACTIVISION BLIZZARD, INC.

/s/ DENNIS DURKIN		/s/ STEPHEN WEREB
Dennis Durkin		Stephen Wereb
Chief Financial Officer and		Chief Accounting Officer and
Principal Financial Officer of		Principal Accounting Officer of
Activision Blizzard, Inc.		Activision Blizzard, Inc.

4251

Table of Contents

EXHIBIT INDEX

Exhibit Number		Exhibit

3	.1	Amended and Restated Certificate of Incorporation of Activision Blizzard, Inc., dated July 9, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed July 15, 2008).

3	.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Activision Blizzard, Inc., dated August 15, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed August 15, 2008).

3	.3	Second Amended and Restated Bylaws of the Company, adopted as of October 11, 2013 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed October 18, 2013).

4	.1	Indenture, dated as of September 19, 2013, among Activision Blizzard, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed September 19, 2013).

10	.1	Credit Agreement, dated as of October 11, 2013, among Activision Blizzard, Inc., as borrower, certain subsidiaries of the Company, as guarantors, a group of lenders, Bank of America, N.A., as administrative agent and collateral agent for the lenders, J.P. Morgan Securities LLC, as syndication agent, Bank of America Merrill Lynch and J.P. Morgan Securities LLC, as joint lead arrangers and joint bookrunners, and Goldman Sachs & Co., HSBC Securities (USA) Inc., Mistubishi UFJ Securities (USA), Inc., Mizuho Securities USA Inc., RBC Capital Markets, SunTrust Bank and U.S. Bank National Association, as co-documentation agents (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed October 18, 2013).

10	.2	Security Agreement, dated as of October 11, 2013, among Activision Blizzard, Inc., as borrower, the other grantors identified therein and Bank of America, N.A., as collateral agent for the secured parties (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed October 18, 2013).

10	.3	Amended and Restated Investor Agreement, dated as of October 11, 2013, among the Company, the Seller, VGAC and Activision Entertainment Holdings, Inc. (f/k/a Vivendi Games, Inc.) (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K, filed October 18, 2013).

10	.4	ASAC Stockholders Agreement, dated as of October 11, 2013, among ASAC and, for the limited purposes set forth in the ASAC Stockholders Agreement, Mr. Kotick and Mr. Kelly (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K, filed October 18, 2013).

10	.5	Cash Management Services Termination Agreement, dated as of October 11, 2013, among the Company, the Seller and Coöperatie Activision Blizzard International U.A. (incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K, filed October 18, 2013).

31	.1	Certification of Robert A. Kotick pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31	.2	Certification of Dennis Durkin pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	.1	Certification of Robert A. Kotick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32	.2	Certification of Dennis Durkin pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	.INS	XBRL Instance Document.

101	.SCH	XBRL Taxonomy Extension Schema Document.

101	.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.

101	.LAB	XBRL Taxonomy Extension Labels Linkbase Document.

Table of Contents

~~Exhibit Number~~101		~~Exhibit~~
~~2.1~~		Stock Purchase Agreement, entered into as of July 25, 2013, by and among Activision Blizzard, Inc., ASAC II LP and Vivendi S.A. (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K, filed July 26, 2013).

~~3.1~~		~~Amended and Restated Certificate of Incorporation of Activision Blizzard, Inc., dated July 9, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed July 15, 2008).~~

~~3.2~~		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Activision Blizzard, Inc., dated August 15, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed August 15, 2008).

~~3.3~~		~~Amended and Restated By-Laws of Activision Blizzard, Inc., as amended and restated as of February 2, 2010 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, filed February 5, 2010).~~

~~10.1~~		~~Waiver and Acknowledgment Letter, dated July 25, 2013, by and between Robert A. Kotick and Activision Blizzard, Inc.~~ ~~(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed July 26, 2013).~~

~~10.2~~		~~Waiver and Acknowledgment Letter, dated July 25, 2013, by and between Brian G. Kelly and Activision Blizzard, Inc.~~ ~~(incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K, filed July 26, 2013).~~

~~10.3~~		Commitment Letter, dated July 25, 2013, by and among Activision Blizzard, Inc., Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC ~~(incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K, filed July 26, 2013).~~

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

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

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

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

~~101.INS~~		~~XBRL Instance Document.~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document.~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document.~~

~~101.LAB~~		~~XBRL Taxonomy Extension Labels Linkbase Document.~~

~~101.PRE~~.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

~~101.DEF~~101	.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

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

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at ~~June~~September 30, 2013 and December 31, 2012, (ii) Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and ~~June~~September 30, 2012, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and ~~June~~September 30, 2012, (iv) Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2013 and ~~June~~September 30, 2012; (v) Condensed Consolidated Statement of Changes in Shareholders’ Equity for the ~~six~~nine months ended ~~June~~September 30, 2013; and (vi) Notes to Condensed Consolidated Financial Statements.

4353

Delaware		95-4803544
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

3100 Ocean Park Boulevard, Santa Monica, CA		90405
(Address of principal executive offices)		(Zip Code)

Large Accelerated Filer x		Accelerated Filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

	At June 30,			At December 31,			At September 30,		At December 31,
	2013			2012			2013		2012
Assets
Current assets:
Cash and cash equivalents	$	4,341		$	3,959		$	4,444	$	3,959
Cash in escrow							2,282		—
Short-term investments	205			416			95		416
Accounts receivable, net of allowances of $211 and $332 at June 30, 2013 and December 31, 2012, respectively	117			707
Accounts receivable, net of allowances of $193 and $332 at September 30, 2013 and December 31, 2012, respectively							205		707
Inventories, net	131			209			313		209
Software development	304			164			347		164
Intellectual property licenses	11			11			12		11
Deferred income taxes, net	335			487			341		487
Other current assets	185			321			212		321
Total current assets	5,629			6,274			8,251		6,274

Long-term investments	9			8			9		8
Software development	35			129			54		129
Intellectual property licenses	—			30			—		30
Property and equipment, net	132			141			139		141
Other assets	10			11			18		11
Intangible assets, net	61			68			58		68
Trademark and trade names	433			433			433		433
Goodwill	7,102			7,106			7,098		7,106
Total assets	$	13,411		$	14,200		$	16,060	$	14,200

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	139		$	343		$	286	$	343
Deferred revenues	665			1,657			641		1,657
Accrued expenses and other liabilities	389			652			506		652
Total current liabilities	1,193			2,652			1,433		2,652
Long-term debt, net							2,211		—
Deferred income taxes, net	77			25			71		25
Other liabilities	206			206			206		206
Total liabilities	1,476			2,883			3,921		2,883

Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)

Shareholders’ equity:
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,119,015,481 and 1,111,606,087 shares issued at June 30, 2013 and December 31, 2012, respectively	—			—
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,123,569,395 and 1,111,606,087 shares issued at September 30, 2013 and December 31, 2012, respectively							—		—
Additional paid-in capital	9,541			9,450			9,608		9,450
Retained earnings	2,456			1,893			2,513		1,893
Accumulated other comprehensive income (loss)	(62		)	(26		)	18		(26		)
Total shareholders’ equity	11,935			11,317			12,139		11,317
Total liabilities and shareholders’ equity	$	13,411		$	14,200		$	16,060	$	14,200

	At June 30, 2013
	Estimated	Gross
	useful	carrying		Accumulated			Net carrying
	lives	amount		amortization			amount
Acquired definite-lived intangible assets:
License agreements and other	3 - 10 years	$	98	$	(89	)	$	9
Internally-developed franchises	11 - 12 years	309		(257		)	52
Total definite-lived intangible assets		$	407	$	(346	)	$	61

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

	At December 31, 2012
	Estimated	Gross
	useful	carrying		Accumulated			Net carrying
	lives	amount		amortization			amount

Acquired definite-lived intangible assets:
License agreements and other	3 - 10 years	$	98	$	(88	)	$	10
Internally-developed franchises	11 - 12 years	309		(251		)	58
Total definite-lived intangible assets		$	407	$	(339	)	$	68

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

	Cautionary Statement	3

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at ~~June~~September 30, 2013 and December 31, 2012	4

	Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and ~~June~~September 30, 2012	5

	Condensed Consolidated Statements of Comprehensive Income for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and ~~June~~September 30, 2012	6

	Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2013 and ~~June~~September 30, 2012	7

	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the ~~six~~nine months ended ~~June~~September 30, 2013	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2227

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3945

Item 4.	Controls and Procedures	3946

PART II.	OTHER INFORMATION	4047

Item 1.	Legal Proceedings	4047

Item 1A.	Risk Factors	4049

Item 6.	Exhibits	4150

SIGNATURE		4251

EXHIBIT INDEX			4352

CERTIFICATIONS

									For the Three Months Ended					For the Nine Months Ended
	For the Three Months Ended				For the Six Months Ended				September 30,					September 30,
	June 30,				June 30,				2013			2012		2013			2012
	2013		2012		2013		2012
Net revenues
Product sales	$	727	$	798	$	1,717	$	1,672	$	332		$	536	$	2,049		$	2,208
Subscription, licensing, and other revenues	323		277		658		575		359			305		1,016			880
Total net revenues	1,050		1,075		2,375		2,247		691			841		3,065			3,088

Costs and expenses
Cost of sales — product costs	179		229		440		486		111			146		551			633
Cost of sales — online subscriptions	54		71		111		140		43			62		154			201
Cost of sales — software royalties and amortization	38		57		99		88		16			19		116			107
Cost of sales — intellectual property licenses	14		20		52		27		5			10		56			37
Product development	123		145		247		259		140			125		387			384
Sales and marketing	116		136		223		216		144			131		367			346
General and administrative	96		190		186		291		162			121		347			413
Total costs and expenses	620		848		1,358		1,507		621			614		1,978			2,121

Operating income	430		227		1,017		740		70			227		1,087			967

Investment and other income (expense), net	—		2		3		3
Interest and other investment income (expense), net									(4		)	1		(1		)	4

Income before income tax expense	430		229		1,020		743		66			228		1,086			971

Income tax expense	106		44		240		174		10			2		249			176

Net income	$	324	$	185	$	780	$	569	$	56		$	226	$	837		$	795

Earnings per common share
Basic	$	0.28	$	0.16	$	0.68	$	0.50	$	0.05		$	0.20	$	0.73		$	0.70
Diluted	$	0.28	$	0.16	$	0.68	$	0.50	$	0.05		$	0.20	$	0.73		$	0.70

Weighted-average number of shares outstanding
Basic	1,118		1,109		1,116		1,115		1,122			1,109		1,118			1,113
Diluted	1,127		1,115		1,124		1,121		1,134			1,114		1,127			1,118

Dividends per common share	$	—	$	—	$	0.19	$	0.18	$	—		$	—	$	0.19		$	0.18

																											Accumulated
											Accumulated										Additional						Other			Total
					Additional						Other			Total			Common Stock				Paid-In			Retained			Comprehensive			Shareholders’
	Common Stock				Paid-In			Retained			Comprehensive			Shareholders’			Shares		Amount		Capital			Earnings			Income (Loss)			Equity
	Shares		Amount		Capital			Earnings			Income (Loss)			Equity
Balance at December 31, 2012	1,112		$	—	$	9,450		$	1,893		$	(26	)	$	11,317		1,112		$	—	$	9,450		$	1,893		$	(26	)	$	11,317

Components of comprehensive income (loss):
Net income	—		—		—			780			—			780			—		—		—			837			—			837
Other comprehensive income (loss)	—		—		—			—			(36		)	(36		)	—		—		—			—			44			44
Issuance of common stock pursuant to employee stock options	5		—		51			—			—			51			9		—		92			—			—			92
Issuance of common stock pursuant to restricted stock rights	3		—		—			—			—			—			4		—		—			—			—			—
Restricted stock surrendered for employees’ tax liability	(1	)	—		(16		)	—			—			(16		)	(1	)	—		(19		)	—			—			(19		)
Tax benefit associated with employee stock options	—		—		3			—			—			3
Tax benefit associated with employee stock awards																	—		—		3			—			—			3
Stock-based compensation expense related to employee stock options and restricted stock rights	—		—		53			—			—			53			—		—		82			—			—			82
Dividends ($0.19 per common share) (See Note 11)	—		—		—			(217		)	—			(217		)
Dividends ($0.19 per common share) (See Note 12)																	—		—		��			(217		)	—			(217		)

Balance at June 30, 2013	1,119		$	—	$	9,541		$	2,456		$	(62	)	$	11,935
Balance at September 30, 2013																	1,124		$	—	$	9,608		$	2,513		$	18		$	12,139

2013 (remaining six months)	$	20
2014	18
2015	10
2016	6
2017	3
Thereafter	4

Total	$	61

	At		At
	June 30,		December 31,
	2013		2012
Internally developed software costs	$	167	$	159
Payments made to third-party software developers	172		134
Total software development costs	$	339	$	293

Intellectual property licenses	$	11	$	41

2013 (remaining three months)	$	18
2014	18
2015	10
2016	5
2017	3
Thereafter	4
Total	$	58

	Activision			Blizzard		Total

Balance at December 31, 2012	$	6,928		$	178	$	7,106
Tax benefit credited to goodwill	(8		)	—		(8		)

Balance at September 30, 2013	$	6,920		$	178	$	7,098

			Fair Value Measurements at									Fair Value Measurements at
			June 30, 2013 Using									September 30, 2013 Using
			Quoted									Quoted
			Prices in									Prices in
			Active		Significant							Active		Significant
			Markets for		Other		Significant					Markets for		Other		Significant
	As of		Identical		Observable		Unobservable			As of		Identical		Observable		Unobservable
	June 30,		Assets		Inputs		Inputs		Balance Sheet	September 30,		Assets		Inputs		Inputs		Balance Sheet
	2013		(Level 1)		(Level 2)		(Level 3)		Classification	2013		(Level 1)		(Level 2)		(Level 3)		Classification
Recurring fair value measurements:
Money market funds	$	4,173	$	4,173	$	—	$	—	Cash and cash equivalents	$	4,174	$	4,174	$	—	$	—	Cash and cash equivalents
Foreign government treasury bills	33		33		—		—		Cash and cash equivalents	32		32		—		—		Cash and cash equivalents
U.S. treasuries and government agency securities	195		195		—		—		Short-term investments	68		68		—		—		Short-term investments
Auction rate securities (“ARS”)	9		—		—		9		Long-term investments	9		—		—		9		Long-term investments
Total recurring fair value measurements	$	4,410	$	4,401	$	—	$	9		$	4,283	$	4,274	$	—	$	9

			Fair Value Measurements at
			December 31, 2012 Using
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
	As of		Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs		Balance Sheet
	2012		(Level 1)		(Level 2)		(Level 3)		Classification
Recurring fair value measurements:
Money market funds	$	3,511	$	3,511	$	—	$	—	Cash and cash equivalents
U.S. treasuries and government agency securities	387		387		—		—		Short-term investments
Corporate bonds	11		11		—		—		Short-term investments
ARS	8		—		—		8		Long-term investments
Total recurring fair value measurements	$	3,917	$	3,909	$	—	$	8