ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

	Cautionary Statement	3

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at June 30, ~~2016~~2017 and December 31, ~~2015~~2016	4

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, ~~2016~~2017 and June 30, ~~2015~~2016	5

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, ~~2016~~2017 and June 30, ~~2015~~2016	6

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2016~~2017 and June 30, ~~2015~~2016	7

	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, ~~2016~~2017	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3430

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5956

Item 4.	Controls and Procedures	6158

PART II.	OTHER INFORMATION	6258

Item 1.	Legal Proceedings	6258

Item 1A.	Risk Factors	6259

Item 6.	Exhibits	6259

SIGNATURE		6360

EXHIBIT INDEX		6461

CERTIFICATIONS

CAUTIONARY STATEMENT

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

The ~~Company~~company cautions that a number of important factors could cause Activision Blizzard, Inc.’s actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: uncertainties as to whether and when Activision Blizzard, Inc. will be able to realize the anticipated financial results from the acquisition of King Digital Entertainment plc; the integration of King Digital Entertainment plc being more difficult, time-consuming, or costly than expected; the diversion of management time and attention to issues relating to the operations and integration of King Digital Entertainment plc; sales levels of Activision Blizzard, Inc.’s ~~titles; increasing~~titles, products, and services; concentration of revenue among a small number of titles; Activision Blizzard, Inc.’s ability to predict consumer preferences, including interest in specific genres and preferences among ~~hardware~~ platforms; the diversion of management time and attention to issues relating to the operations of our acquired or newly started businesses; the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt; the adoption rate and availability of new hardware (including peripherals) and related software; counterparty risks relating to customers, licensees, licensors, and manufacturers; maintenance of relationships with key personnel, customers, financing providers, licensees, licensors, manufacturers, vendors, and third-party developers, including the ability to attract, retain, and develop key personnel and developers that can create ~~high quality titles;~~high-quality titles, products, and services; risks relating to the expansion into new businesses, including the potential impact on our existing businesses; changing business models within the video game industry, including digital delivery of content and the increased prevalence of free-to-play games; product delays or defects; competition, including from ~~used games and~~ other forms of entertainment; rapid changes in technology and industry standards; possible declines in software pricing; product returns and price protection; the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion; the seasonal and cyclical nature of the interactive entertainment market; the outcome of current or future tax disputes; litigation risks and associated costs; protection of proprietary rights; shifts in consumer spending trends; capital market risks; the impact of applicable regulations; domestic and international economic, financial, and political conditions and policies; tax rates and foreign exchange rates; the impact of the current macroeconomic environment; and the other factors identified in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~ 2016.

The forward-looking statements contained herein are based ~~upon~~on information available to usActivision Blizzard, Inc. as of the date of this ~~Quarterly Report on Form 10-Q~~filing and we assume no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

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

~~Part~~PART I. ~~Financial Information~~FINANCIAL INFORMATION

Item 1. Financial Statements

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions, except share data)

	At June 30, 2016		At December 31, 2015			At June 30, 2017		At December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	2,271	$	1,823		$	3,278	$	3,245
Accounts receivable, net of allowances of $169 and $343, at June 30, 2016 and December 31, 2015, respectively	462		679
Accounts receivable, net of allowances of $147 and $261, at June 30, 2017 and December 31, 2016, respectively						360		732
Inventories, net	94		128			51		49
Software development	287		336			349		412
Other current assets	306		421			314		392
Total current assets	3,420		3,387			4,352		4,830
Cash in escrow	—		3,561
Software development	150		80			104		54
Property and equipment, net	260		189			246		258
Deferred income taxes, net	405		275			398		283
Other assets	320		177			466		401
Intangible assets, net	2,281		482			1,479		1,858
Goodwill	9,771		7,095			9,763		9,768
Total assets	$	16,607	$	15,246		$	16,808	$	17,452

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	176	$	284		$	163	$	222
Deferred revenues	1,238		1,702			940		1,628
Accrued expenses and other liabilities	721		625			662		806
Current portion of long-term debt, net	56		—
Total current liabilities	2,191		2,611			1,765		2,656
Long-term debt, net	4,977		4,074			4,387		4,887
Deferred income taxes, net	50		10			38		44
Other liabilities	835		483			903		746
Total liabilities	8,053		7,178			7,093		8,333
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,169,949,406 and 1,163,179,140 shares issued at June 30, 2016 and December 31, 2015, respectively	—		—
Common stock, $0.000001 par value, 2,400,000,000 shares authorized, 1,183,496,138 and 1,174,163,069 shares issued at June 30, 2017 and December 31, 2016, respectively						—		—
Additional paid-in capital	10,425		10,242			10,606		10,442
Less: Treasury stock, at cost, 428,676,471 shares at June 30, 2016 and December 31, 2015	(5,588)		(5,637		)
Less: Treasury stock, at cost, 428,676,471 shares at June 30, 2017 and December 31, 2016						(5,563)		(5,563)
Retained earnings	4,366		4,096			5,312		4,869
Accumulated other comprehensive loss	(649)		(633		)	(640)		(629)
Total shareholders’ equity	8,554		8,068			9,715		9,119
Total liabilities and shareholders’ equity	$	16,607	$	15,246		$	16,808	$	17,452

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015		For the Three Months Ended June 30,				For the Six Months Ended June 30,
									2017		2016		2017		2016
Net revenues
Product sales	$	501	$	528	$	1,145	$	1,311	$	481	$	501	$	989	$	1,145
Subscription, licensing and other revenues	1,069		516		1,880		1,011
Subscription, licensing, and other revenues									1,150		1,069		2,367		1,880
Total net revenues	1,570		1,044		3,025		2,322		1,631		1,570		3,356		3,025

Costs and expenses
Cost of revenues - product sales:
Cost of revenues—product sales:
Product costs	149		147		318		349		130		149		273		318
Software royalties, amortization, and intellectual property licenses	80		70		208		211		75		80		163		208
Cost of revenues - subscription, licensing, and other revenues:
Cost of revenues—subscription, licensing, and other revenues:
Game operations and distribution costs	241		61		383		120		236		241		468		383
Software royalties, amortization, and intellectual property licenses	128		19		180		30		120		128		242		180
Product development	249		149		424		294		252		249		478		424
Sales and marketing	322		164		490		256		308		322		554		490
General and administrative	169		102		329		188		171		169		347		329
Total costs and expenses	1,338		712		2,332		1,448		1,292		1,338		2,525		2,332

Operating income	232		332		693		874		339		232		831		693

Interest and other expense (income), net	65		50		117		100		46		65		85		117

Income before income tax expense	167		282		576		774		293		167		746		576

Income tax expense	40		70		113		168		50		16		77		62

Net income	$	127	$	212	$	463	$	606	$	243	$	151	$	669	$	514

Earnings per common share
Basic	$	0.17	$	0.29	$	0.62	$	0.82	$	0.32	$	0.20	$	0.89	$	0.69
Diluted	$	0.17	$	0.29	$	0.61	$	0.81	$	0.32	$	0.20	$	0.88	$	0.68

Weighted-average number of shares outstanding
Basic	739		727		737		725		754		739		752		737
Diluted	750		735		748		734		764		753		763		751

Dividends per common share	$	—	$	—	$	0.26	$	0.23	$	—	$	—	$	0.30	$	0.26

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in millions)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Net income	$	127	$	212	$	463	$	606	$	243	$	151	$	669	$	514

Other comprehensive income (loss):
Foreign currency translation adjustment	(16)		85		(20)		(245)		8		(16)		27		(20)
Unrealized gains (losses) on forward contracts designated as hedges, net of tax	9		(8)		4		6		(22)		9		(37)		4
Unrealized losses on investments, net of tax	—		(3)		—		(3)
Total other comprehensive income (loss)	$	(7)	$	74	$	(16)	$	(242)

Realized gain on investments, net of tax									(1)		—		(1)		—
Total other comprehensive loss									$	(15)	$	(7)	$	(11)	$	(16)
Comprehensive income	$	120	$	286	$	447	$	364	$	228	$	144	$	658	$	498

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

		For the Six Months Ended June 30,				For the Six Months Ended June 30,
		2016		2015		2017		2016
Cash flows from operating activities:
Net income		$	463	$	606	$	669	$	514
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		(115)		20		(103)		(115)
Provision for inventories		19		12		7		19
Depreciation and amortization		341		40		450		341
Amortization of capitalized software development costs and intellectual property licenses(1)	Amortization of capitalized software development costs and intellectual property licenses(1)	265		225		168		200
Amortization of debt discount and debt financing costs		12		4
Stock-based compensation expense(2)		75		43
Excess tax benefits from stock awards		(52)		(23)
Amortization of debt discount, financing costs, and non-cash write-off due to extinguishment of debt						20		12
Share-based compensation expense(2)						71		75
Other						16		—
Changes in operating assets and liabilities, net of effect from business acquisitions:
Accounts receivable, net		377		445		385		377
Inventories		13		(9)		(6)		13
Software development and intellectual property licenses		(272)		(171)		(154)		(207)
Other assets		129		166		(19)		129
Deferred revenues		(468)		(903)		(733)		(468)
Accounts payable		(112)		(122)		(68)		(112)
Accrued expenses and other liabilities		113		11		(27)		62
Net cash provided by operating activities		788		344		676		840

Cash flows from investing activities:
Purchases of available-for-sale investments		—		(100)
Acquisition of business, net of cash acquired		(4,588)		—
Acquisition of King, net of cash acquired (see Note 14)						—		(4,588)
Release of cash in escrow		3,561		—		—		3,561
Capital expenditures		(71)		(49)		(52)		(71)
Payment to acquire equity method investment		(5)		—
Decrease (increase) in restricted cash		(10)		5
Other investing activities						11		(15)
Net cash used in investing activities		(1,113)		(144)		(41)		(1,113)

Cash flows from financing activities:
Proceeds from issuance of common stock to employees		60		61		130		60
Tax payment related to net share settlements on restricted stock rights		(69)		(24)
Excess tax benefits from stock awards		52		23
Tax payment related to net share settlements on restricted stock units						(36)		(69)
Dividends paid		(195)		(170)		(226)		(195)
Proceeds from debt financing		2,550		—
Proceeds from debt issuances, net of discounts						3,741		2,520
Repayment of long-term debt		(1,566)		(250)		(4,251)		(1,566)
Payment of debt discount and financing costs		(34)		—
Net cash provided by (used in) financing activities		798		(360)

Debt financing costs related to debt issuances						(10)		(4)
Net cash (used in) provided by financing activities						(652)		746
Effect of foreign exchange rate changes on cash and cash equivalents		(25)		(272)		50		(25)

Net increase (decrease) in cash and cash equivalents		448		(432)

Net increase in cash and cash equivalents						33		448
Cash and cash equivalents at beginning of period		1,823		4,848		3,245		1,823

Cash and cash equivalents at end of period		$	2,271	$	4,416	$	3,278	$	2,271

(1) Excludes deferral and amortization of ~~stock-based~~share-based compensation expense.

(2) Includes the net effects of capitalization, deferral, and amortization of ~~stock-based~~share-based compensation expense.

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, ~~2016~~2017

(Unaudited)

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

Common Stock

Treasury Stock

Additional
Paid-In

Retained

Accumulated
Other
Comprehensive

Total
Shareholders’

Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

Equity

Balance at December 31, 2015

1,163

$
—

(429)

$
(5,637)

$
10,242

$
4,096

$
(633)

$
8,068

Components of comprehensive income:

Net income

—

—

—

—

—

463

—

463

Other comprehensive income (loss)

—

—

—

—

—

—

(16
)
(16)

Issuance of common stock pursuant to employee stock options

4

—

—

—

60

—

—

60

Issuance of common stock pursuant to restricted stock rights

5

—

—

—

—

—

—

—

Restricted stock surrendered for employees’ tax liability

(2)

—

—

—

(74)

—

—

(74)

Tax benefit associated with employee stock awards

—

—

—

—

51

—

—

51

Stock-based compensation expense related to employee stock options and restricted stock rights

—

—

—

—

70

—

—

70

Stock-based compensation assumed in acquisition (see Note 14)

—

—

—

—

76

—

—

76

Dividends ($0.26 per common share)

—

—

—

—

—

(193)

—

(193)

Indemnity on tax attributes assumed in connection with the Purchase Transaction (see Note 10)

—

—

—

49

—

—

—

49

Balance at June 30, 2016

1,170

$
—

(429)

$
(5,588)

$
10,425

$
4,366

$
(649)

$
8,554

											Accumulated
							Additional				Other		Total
	Common Stock			Treasury Stock			Paid-In		Retained		Comprehensive		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Income (Loss)		Equity
Balance at December 31, 2016	1,174	$	—	(429)	$	(5,563)	$	10,442	$	4,869	$	(629)	$	9,119
Components of comprehensive income:
Net income	—	—		—	—		—		669		—		669
Other comprehensive loss	—	—		—	—		—		—		(11)		(11)
Issuance of common stock pursuant to employee stock options	8	—		—	—		130		—		—		130
Issuance of common stock pursuant to restricted stock units	2	—		—	—		—		—		—		—
Restricted stock surrendered for employees’ tax liability	(1)	—		—	—		(37)		—		—		(37)
Share-based compensation expense related to employee stock options and restricted stock rights	—	—		—	—		71		—		—		71
Dividends ($0.30 per common share)	—	—		—	—		—		(226)		—		(226)
Balance at June 30, 2017	1,183	$	—	(429)	$	(5,563)	$	10,606	$	5,312	$	(640)	$	9,715

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

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business and Basis of Consolidation and Presentation

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

~~Activision Blizzard is~~The Company was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. We are the result of the 2008 business combination ~~(“Business~~(the “Business Combination”) by and among the Company (then known as Activision, Inc.), ~~Sego Merger Corporation, a wholly-owned subsidiary of Activision, Inc.,~~ Vivendi S.A. (“Vivendi”), ~~VGAC LLC, a wholly-owned subsidiary of Vivendi,~~ and Vivendi Games, Inc. (“Vivendi Games”), aan indirect wholly-owned subsidiary of ~~VGAC LLC. As a result of~~Vivendi. In connection with the consummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc.

As of December 31, 2015, ASAC II LP (“ASAC”), an exempted limited partnership established under the laws of the Cayman Islands, held 172 million shares, or approximately 23% of the outstanding shares of our common stock at that time. On June 8, 2016, ASAC II LLC, the general partner of ASAC, distributed approximately 141 million shares allocable to the limited partners of ASAC in accordance with its limited partnership agreement to allow them to control the voting and ownership of such shares. We did not receive any proceeds from the distribution of the shares. Robert A. Kotick, our Chief Executive Officer, and Brian G. Kelly, Chairman of our Board of Directors, are affiliates of ASAC II LLC.

As of June 30, 2016, we had approximately 741 million shares of common stock issued and outstanding. At that date (i) ASAC held 31 million shares, or approximately 4% of the outstanding shares of our common stock, and (ii) our other stockholders held approximately 96% of the outstanding shares of our common stock.

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

The King Acquisition

On ~~November 2, 2015,~~February 23, 2016 (the “King Closing Date”), we ~~and~~acquired King Digital Entertainment, ~~plc (“King”),~~ a leading interactive mobile entertainment company ~~entered into a transaction agreement (the “Transaction Agreement”~~(“King”) ~~under the terms~~, by purchasing all of ~~which we would acquire King~~its outstanding shares (the “King Acquisition”) ~~and King would become a wholly-owned subsidiary of the Company. On February 23, 2016, we completed the King Acquisition,~~, as further described in Note ~~14 of the Notes to the Condensed Consolidated Financial Statements.~~14. Our condensed consolidated financial statements include the operations of King commencing on ~~February 23, 2016.~~the King Closing Date.

~~Reportable~~Our Segments

As part of the continued implementation of our esports strategy, we instituted changes to our internal organization and reporting structure such that the Major League Gaming (“MLG”) business now operates as a division of Blizzard Entertainment, Inc. (“Blizzard”). As such, commencing with the second quarter of 2017, MLG, which was previously a separate operating segment, is now a component of the Blizzard operating segment. MLG will be responsible for the operations of the Overwatch LeagueTM, along with other esports events, and will also continue to serve as a multi-platform network for Activision Blizzard esports content.

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

(i) Activision Publishing, Inc.

Activision Publishing, Inc. (“Activision”) is a leading global developer and publisher of interactive software products and ~~content.~~entertainment content, particularly in console gaming. Activision primarily delivers content through retail channels or digital downloads, including full-game sales and in-game purchases, as well as licenses of software to ~~a broad range of gamers, ranging from children to adults, and from core gamers to mass-market consumers, in a variety of geographies.~~third-party or related-party companies that distribute Activision products. Activision develops, markets, and sells products ~~through retail channels or digital downloads,~~ which are principally based on our internally-developed intellectual properties, ~~including games in the Call of Duty® and Skylanders® franchises,~~ as well as some licensed properties. ~~Additionally, we~~We have also established a long-term alliance with Bungie to publish its game universe, Destiny. ~~Activision~~

Activision’s key product franchises include: Call of Duty®, a first-person shooter for the console and PC platforms; Destiny, an online universe of first-person action gameplay (which we call a “shared-world shooter”) currently ~~offers games~~for console platforms; and Skylanders®, a franchise geared towards children that ~~operate on~~brings physical toys to life digitally in the Microsoft Corporation (“Microsoft”) Xbox One (“Xbox One”) and Xbox 360 (“Xbox 360”), Nintendo Co. Ltd. (“Nintendo”) Wii U (“Wii U”) and Wii (“Wii”), and Sony Computer Entertainment, Inc. (“Sony”) PlayStation 4 (“PS4”) and PlayStation 3 (“PS3”)game, primarily for console ~~systems; the PC; the Nintendo 3DS, Nintendo Dual Screen, and Sony PlayStation Vita handheld game systems; and mobile and tablet devices.~~platforms.

(ii) Blizzard Entertainment, Inc.

Blizzard ~~Entertainment, Inc. (“Blizzard”)~~ is a ~~leader in online PC gaming, including the subscription-based massively multi-player online role-playing game category, in terms~~leading global developer and publisher of both subscriber base and revenues generated through its World of Warcraft® franchise. Blizzard also develops, markets, and sells role-playing action and strategy games for the PC, console, mobile and tablet platforms, including games in the multiple-award winning Diablo®, StarCraft®, Hearthstone®: Heroes of Warcraft™, and Heroes of the Storm® franchises. On May 24, 2016, Blizzard added a new franchise, Overwatch®, a team-based first-person shooter available on the PC and console platforms. In addition, Blizzard maintains a proprietary online gaming service, Battle.net®, which facilitates digital distribution and online social connectivity across all Blizzard games. Blizzard distributes itsinteractive software products and ~~generates revenues worldwide~~entertainment content, particularly in PC gaming. Blizzard primarily delivers content through ~~various means, including: subscriptions;~~retail channels or digital downloads, including subscriptions, full-game sales, ~~of prepaid subscription cards;~~and in-game purchases, ~~and services; retail sales of physical “boxed” products; online download sales of PC products; purchases and downloads via third-party console, mobile, and tablet platforms; and licensing~~as well as licenses of software to third-party or related party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service which facilitates digital distribution of Blizzard content, online social connectivity across all Blizzard games, and the creation of user-generated content for Blizzard’s games. Commencing with the second quarter of 2017, Blizzard also includes the activities of our MLG business, which is devoted to esports.

Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-playing game for the PC; StarCraft®, a real-time strategy PC franchise; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®, an online collectible card franchise for the PC and mobile platforms; Heroes of the Storm®, a free-to-play team brawler for the PC; and Overwatch®, a team-based first-person shooter for the PC and console platforms.

(iii) King Digital Entertainment

King ~~Digital Entertainment~~ is a leading global developer and publisher of interactive ~~mobile~~ entertainment ~~company that develops~~content and ~~distributes games~~services, particularly on mobile platforms, such as Android and ~~iOS,~~iOS. King also distributes its content and services on online ~~and~~ social platforms, such as Facebook and the king.com websites. ~~King has four established~~King’s games are free-to-play, ~~franchises:~~however, players can acquire in-game virtual items, either with virtual currency the players purchase or directly using real currency.

King’s key product franchises, all of which are for the PC and mobile platforms, include: Candy Crush™, which features “match three” games; Farm Heroes™, which also features “match three” games; Pet Rescue™, which is a “clicker” game; and Bubble Witch™, ~~and Pet Rescue™, where monetization occurs through players purchasing in-game virtual currency~~ which ~~can be used in-game to buy virtual items.~~features “bubble shooter” games.

~~(iv)~~ Other

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

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

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

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

Basis of Consolidation and Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been condensed or omitted if they substantially duplicate the disclosures contained in ~~the~~our annual audited consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. ~~The~~Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

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

The accompanying condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior year amounts to conform to the current period presentation.

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

~~Cost of revenues presentation~~

In periods prior to the three months ended June 30, 2016, we presented cost of revenues in our consolidated statements of operations in four financial statement captions: “Cost of sales — product costs,” “ Cost of sales — online,” “Cost of sales — software royalties and amortization,” and “Cost of sales — intellectual property licenses.” In our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016, we revised the presentation to more clearly align our costs of revenues with the associated revenue captions as follows:

~~Cost of revenues - product sales:~~

~~(i)~~ “Product costs” - includes the manufacturing costs of goods produced and sold during the reporting period. These generally include product costs, manufacturing royalties, net of volume discounts, personnel-related costs, warehousing, and distribution costs. We generally recognize volume discounts when they are earned (typically in connection with the achievement of unit-based milestones).

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

~~Cost of revenues - subscription, licensing, and other revenues:~~

~~(i)~~ ~~“Game operations and distribution costs” - includes costs to operate our games, such as customer service, internet bandwidth and server costs, platform provider fee, and payment provider fees.~~

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

~~Prior periods have been reclassified to conform to the current presentation.~~

~~Summary of Significant Accounting Policies~~

During the six months ended June 30, 2016, there were no significant changes to our accounting policies but we did expand the accounting policy disclosure for revenue recognition to include virtual currency as noted below. Refer to Note 2 contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for our full summary of significant accounting policies.

~~Microtransaction Revenues~~

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

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

For the six months ended June 30, 2016, we had non-cash purchase price consideration of $89 million related to vested and unvested stock options and awards that were assumed and replaced with Activision Blizzard equity or deferred cash awards in the King Acquisition. Refer to Note 14 for further discussion.

2. Inventories, Net

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

	At June 30, 2016		At December 31, 2015		At June 30, 2017		At December 31, 2016
Finished goods	$	69	$	101	$	42	$	40
Purchased parts and components	25		27		9		9
Inventories, net	$	94	$	128	$	51	$	49

At June 30, ~~2016,~~2017, and December 31, ~~2015,~~2016, inventory reserves were ~~$59~~$32 million and ~~$54~~$45 million, respectively.

3. Software Development and Intellectual Property Licenses

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

At June 30, 2016

At December 31,
2015

Internally-developed software costs

$
284

$
266

Payments made to third-party software developers

153

150

Total software development costs

$
437

$
416

Intellectual property licenses

$
4

$
30

	At June 30, 2017		At December 31, 2016
Internally-developed software costs	$	232	$	277
Payments made to third-party software developers	221		189
Total software development costs	$	453	$	466

~~Intellectual~~

As of June 30, 2017, and December 31, 2016, intellectual property licenses ~~are classified within “Other current assets” and “Other assets” in~~were not material to our ~~Condensed Consolidated Balance Sheets.~~condensed consolidated balance sheets.

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2016

2015

2016

2015

Amortization of capitalized software development costs and intellectual property licenses

$
115

$
85

$
265

$
232

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
Amortization of capitalized software development costs and intellectual property licenses	$	79	$	81	$	172	$	213

4. Intangible Assets, Net

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

At June 30, 2016

Estimated useful
lives

Gross carrying
amount

Accumulated
amortization

Net carrying
amount

Acquired definite-lived intangible assets:

Internally-developed franchises

3 - 11 years

$
1,154

$
(408)

$
746

Developed software

3 - 5 years

595

(58)

537

Customer base

2 years

617

(111)

506

Trade names

7 - 10 years

54

(3)

51

Other

1 - 8 years

18

(10)

8

Total definite-lived intangible assets

$
2,438

$
(590)

$
1,848

Acquired indefinite-lived intangible assets:

Activision trademark

Indefinite

386

Acquired trade names

Indefinite

47

Total indefinite-lived intangible assets

$
433

Total intangible assets, net

$
2,281

	At December 31, 2015							At June 30, 2017
	Estimated useful lives	Gross carrying amount		Accumulated amortization		Net carrying amount		Estimated useful lives	Gross carrying amount		Accumulated amortization		Net carrying amount
Acquired definite-lived intangible assets:
License agreements and other	1 - 10 years	$	116	$	(93)	$	23
Internally-developed franchises	11 years	309		(298)		11		3 - 11 years	$	1,154	$	(728)	$	426
Developed software	5 years	15		—		15		2 - 5 years	601		(225)		376
Customer base								2 years	617		(421)		196
Trade names								7 - 10 years	54		(12)		42
Other								1 - 8 years	18		(12)		6
Total definite-lived intangible assets		$	440	$	(391)	$	49		$	2,444	$	(1,398)	$	1,046

Acquired indefinite-lived intangible assets:
Activision trademark	Indefinite					386		Indefinite					386
Acquired trade names	Indefinite					47		Indefinite					47
Total indefinite-lived intangible assets						$	433						$	433
Total intangible assets, net						$	482						$	1,479

	At December 31, 2016
	Estimated useful lives	Gross carrying amount		Accumulated amortization		Net carrying amount
Acquired definite-lived intangible assets:
Internally-developed franchises	3 - 11 years	$	1,154	$	(583)	$	571
Developed software	3 - 5 years	595		(145)		450
Customer base	2 years	617		(266)		351
Trade names	7 - 10 years	54		(8)		46
Other	1 - 8 years	18		(11)		7
Total definite-lived intangible assets		$	2,438	$	(1,013)	$	1,425

Acquired indefinite-lived intangible assets:
Activision trademark	Indefinite					386
Acquired trade names	Indefinite					47
Total indefinite-lived intangible assets						$	433
Total intangible assets, net						$	1,858

~~The balances~~Amortization expense of intangible assets ~~net presented in~~was $194 million and $385 million for the ~~table above at~~three and six months ended June 30, ~~2016, does not include license agreement intangible assets that were fully amortized at December 31, 2015, and hence have been removed from the June 30, 2016, balances as presented.~~2017, respectively. Amortization expense of intangible assets was $203 million and $285 million for the three and six months ended June 30, 2016, respectively. ~~Amortization expense of intangible assets was $2 million and $3 million for the three and six months ended June 30, 2015, respectively.~~

At June 30, ~~2016,~~2017, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):

2016 (remaining six months)

$
421

2017

778

2018

361

2019

201

2020

66

Thereafter

21

Total

$
1,848

2017 (remaining six months)	$	374
2018	364
2019	216
2020	72
2021	11
Thereafter	9
Total	$	1,046

5. Goodwill

The changes in the carrying amount of goodwill by ~~operating~~reportable segment for the six months ended June 30, ~~2016,~~2017, are as follows (amounts in millions):

Activision

Blizzard

King

Other

Total

Balance at December 31, 2015

$
6,905

$
178

$
—

$
12

$
7,095

Additions through acquisition

—

—

2,678

—

2,678

Other

(2)

—

—

—

(2)

Balance at June 30, 2016

$
6,903

$
178

$
2,678

$
12

$
9,771

	Activision		Blizzard (1)		King		Total
Balance at December 31, 2016 (1)	$	6,903	$	190	$	2,675	$	9,768
Other	(5)		—		—		(5)
Balance at June 30, 2017	$	6,898	$	190	$	2,675	$	9,763

~~Other includes tax benefits credited to goodwill for tax deductions resulting from the exercise of stock options that were outstanding and vested at the consummation~~(1) As a result of the ~~Business Combination and~~change in our operating segments discussed in Note 1, goodwill of $12 million previously reported within the Other segments is now included in the ~~purchase price of the Company,~~Blizzard reportable segment. The prior period balance has been revised to the extent that the tax deduction did not exceed the fair value of those options. Conversely, to the extent that the tax deduction did exceed the fair value of those options, the tax benefit is credited to additional paid-in capital. Other also includes the impact to goodwill from changes in foreign exchange rates.

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

6. Fair Value Measurements

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

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

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

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

Fair Value Measurements on a Recurring Basis

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

Fair Value Measurements at June 30, 2016
Using

As of June
30, 2016

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Balance Sheet Classification

Financial Assets:

Recurring fair value measurements:

Money market funds

$
2,071

$
2,071

$
—

$
—

Cash and cash equivalents

Foreign government treasury bills

34

34

—

—

Cash and cash equivalents

Foreign currency forward contracts not designated as hedges

6

—

6

—

Other current assets

Foreign currency forward contracts designated as hedges

5

—

5

—

Other current assets

Auction rate securities (“ARS”)

9

—

—

9

Other assets

Total recurring fair value measurements

$
2,125

$
2,105

$
11

$
9

Financial liabilities:

Foreign currency forward contracts designated as hedges

(4)

$
—

$
(4)

$
—

Accrued expenses and other liabilities

	Fair Value Measurements at December 31, 2015 Using											Fair Value Measurements at June 30, 2017 Using
	As of December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance Sheet Classification	As of June 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance Sheet Classification
Financial Assets:
Recurring fair value measurements:
Money market funds	$	1,613	$	1,613	$	—	$	—	Cash and cash equivalents	$	2,925	$	2,925	$	—	$	—	Cash and cash equivalents
Foreign government treasury bills	34		34		—		—		Cash and cash equivalents	47		47		—		—		Cash and cash equivalents
Foreign currency forward contracts not designated as hedges	11		—		11		—		Other current assets
ARS	9		—		—		9		Other assets
Total recurring fair value measurements	$	1,667	$	1,647	$	11	$	9		$	2,972	$	2,972	$	—	$	—

Financial liabilities:
Foreign currency forward contracts designated as hedges	$	(4)	$	—	$	(4)	$	—	Accrued expenses and other liabilities	$	(9)	$	—	$	(9)	$	—	Accrued expenses and other liabilities

			Fair Value Measurements at December 31, 2016 Using
	As of December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance Sheet Classification
Financial Assets:
Recurring fair value measurements:
Money market funds	$	2,921	$	2,921	$	—	$	—	Cash and cash equivalents
Foreign government treasury bills	38		38		—		—		Cash and cash equivalents
Foreign currency forward contracts designated as hedges	22		—		22		—		Other current assets
Auction rate securities (“ARS”)	9		—		—		9		Other assets
Total recurring fair value measurements	$	2,990	$	2,959	$	22	$	9

ARS represented the only level 3 investment held by the ~~Company. There were no changes in the fair value~~Company as of ~~these investments for~~December 31, 2016. During the six months ended June 30, ~~2016.~~2017 we sold our ARS investment. The realized gain on the sale of this investment was not material.

Foreign Currency Forward Contracts

Foreign Currency Forward Contracts Not Designated as Hedges

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

At June 30, 2017 and December 31, 2016, ~~the gross notional amount of~~we did not have any outstanding foreign currency forward contracts not designated as hedges was approximately $260 million. The fair value of these foreign currency forward contracts was $6 million as of June 30, 2016, and recorded in “Other current assets” in our Condensed Consolidated Balance Sheet.

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

~~For the three and six months ended June 30, 2016 and 2015, pre-tax net gains associated with these forward contracts were not material.~~hedges.

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

For foreign currency forward contracts entered into to hedge forecasted intercompany cash flows that are subject to foreign currency risk and which we designated as cash flow hedges in accordance with ASC Topic 815, we assessAt June 30, 2017, the ~~effectiveness~~gross notional amount of these cash flow hedges at inception and on an ongoing basis to determine if the hedges are effective at providing offsetting changes in cash flows of the hedged items. We record the effective portion of changes in the estimatedoutstanding Cash Flow Hedges was approximately $356 million. The fair value of these ~~derivatives in “Accumulated other comprehensive income (loss)” and subsequently reclassify the related amount~~contracts, all of accumulated other comprehensive income (loss) to earnings within “General and administrative expense” when the hedged item impacts earnings. Cash flows from these foreign currency forward contracts are classified in the same category as the cash flows associated with the hedged item in the condensed consolidated statements of cash flows. We measure hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be a highly effective hedge, we will discontinue hedge accounting for the derivative.

The gross notional amount of all outstanding foreign currency forward contracts designated as cash flow hedges was approximately $443 million at June 30, 2016, and $381 million at December 31, 2015. These foreign currency forward contractswhich have remaining maturities of 12 months or ~~less. During the three and six months ended June 30, 2016, and 2015, there~~less, was ~~no ineffectiveness relating to these hedges.~~$9 million of net unrealized losses. At June 30, ~~2016,~~2017, we had approximately $1 million of net ~~unrealized~~realized but unrecognized gains ~~or losses related to these~~recorded within “Accumulated other comprehensive income (loss)” associated with contracts ~~are expected to~~that had settled but were deferred and will be amortized into earnings, along with the associated hedged revenues. Such amounts will be reclassified into earnings within the next ~~twelve~~12 months.

At December 31, 2016, the gross notional amount of outstanding Cash Flow Hedges was approximately $346 million. The fair value of these contracts was $22 million of net unrealized gains as of December 31, 2016.

During the three and six months ended June 30, 2017 and 2016, ~~and 2015, the~~there was no ineffectiveness relating to our Cash Flow Hedges. The amount of pre-tax net realized gains associated with these contracts that were reclassified out of “Accumulated other comprehensive income (loss)” ~~due to maturity of these contracts~~and into earnings was not material.

Fair Value Measurements on a Non-Recurring Basis

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

For the three and six months ended June 30, ~~2016,~~2017 and ~~2015,~~2016, there were no impairment charges related to assets that are measured on a non-recurring basis.

7. Debt

Credit Facilities

~~Term Loan.~~ OnAt December 31, 2016, we had outstanding term loans “A” of approximately $2.7 billion (the “2016 TLA”) and $250 million available under a revolving credit facility (the “Revolver”) pursuant to a credit agreement executed on October 11, 2013 (as amended thereafter and from time to time, the “Credit Agreement”).

On February 3, 2017, we entered into a ~~credit agreement~~sixth amendment (the ~~“Credit Agreement”~~“Sixth Amendment”) to the Credit Agreement. The Sixth Amendment: (i) provided for a ~~$2.5~~new tranche of term loans “A” in an aggregate principal amount of $2.55 billion ~~secured term loan facility maturing in October 2020~~ (the ~~“Term Loan”),~~“2017 TLA” and, ~~a $250 million secured revolving credit facility (the “Original Revolver”~~together with the Revolver, the “Credit Facilities”)~~. A portion~~ and (ii) released each of our subsidiary guarantors from their respective guarantees provided under the Credit Agreement. All proceeds of the ~~Original Revolver could be~~2017 TLA, together with additional cash on hand of $139 million, were used to ~~issue letters of credit of up to $50 million, subject to~~fully retire the ~~availability~~2016 TLA, including all accrued and unpaid interest thereon. The terms of the ~~Original~~2017 TLA, other than the absence of the subsidiary guarantees, are generally the same as the terms of the 2016 TLA. The fees incurred as a result of the Sixth Amendment were not material. At June 30, 2017, the 2017 TLA bore interest at 2.48%. The 2017 TLA will mature on August 23, 2021. We were in compliance with the terms of the Credit Facilities as of June 30, 2017. To date, we have not drawn on the Revolver.

~~Borrowings under~~During the Term Loan bear interest, payable on a quarterly basis, at an annual rate equal to an applicable margin plus, at our option, (A) a base rate determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as its “prime rate,” (b) the federal funds rate plus 0.5%, and (c) the London InterBank Offered Rate (“LIBOR”) for an interest period of one month plus 1.00%, or (B) LIBOR. LIBOR borrowings under the Term Loan are subject to a LIBOR floor of 0.75%. Atsix months ended June 30, 2017, we reduced our total outstanding term loan balances by $1.7 billion. This included $139 million of cash used to retire the 2016 TLA, as discussed above, along with prepayments on the ~~Term Loan bore interest at 3.25%. In certain circumstances, our applicable interest rate under the Term Loan will increase.~~

~~In addition to paying interest~~2017 TLA of $361 million made on ~~outstanding principal balances under the Term Loan,~~February 15, 2017 and $1.2 billion made on May 26, 2017. The May prepayment was made using proceeds from a concurrent issuance of $1.2 billion in notes, as discussed further below. As part of that refinancing, we ~~were required to pay the lenders a commitment fee on unused commitments under the Original Revolver. Commitment fees are recorded within~~wrote-off unamortized discount and deferred financing costs of $12 million, which is included in “Interest and other expense (income), net” in ~~our Condensed Consolidated Statement~~the condensed consolidated statement of ~~Operations. We are also required to pay customary letter of credit fees, if any, and agency fees.~~operations.

The ~~terms of the Credit Agreement require quarterly principal repayments of 0.25% of the Term Loan’s original principal amount, with the balance due on the maturity date. On February 11, 2014, we~~prepayments made ~~a voluntary repayment of $375 million~~ on our ~~Term Loan. This repayment~~2017 TLA have satisfied the remaining required quarterly principal repayments for the entire term of the Credit Agreement. ~~On February~~

Refer to Note 11 ~~2015, we~~contained in our Annual Report on Form 10-K for the year ended December 31, 2016 for further details regarding our Credit Agreement, key terms, and amendments made ~~an additional voluntary repayment of $250 million on~~to our ~~Term Loan. On February 25, March~~Credit Agreement.

Unsecured Senior Notes

At December 31, ~~and May 26,~~ 2016, we had the following unsecured senior notes outstanding:

· $750 million of 6.125% unsecured senior notes due September 2023 that we issued on September 19, 2013 (the “2023 Notes”), in a private offering made ~~additional voluntary repayments~~in accordance with Rule 144A under the Securities Act of ~~$500~~1933, as amended (the “Securities Act”); and

· $650 million ~~$250~~of 2.3% unsecured senior notes due September 2021 (the “Unregistered 2021 Notes”) and $850 million of 3.4% unsecured senior notes due September 2026 (the “Unregistered 2026 Notes”) that we issued on September 19, 2016, in a private offering made in accordance with Rule 144A and ~~$800 million, respectively, on our Term Loan.~~Regulation S under the Securities Act.

~~Tranche A Term Loans.~~

In ~~conjunction~~connection with the King Acquisition, the Company entered into three Amendments to the Credit Agreement (the “Amendments”). The Amendments, among other things, provided for incremental term loans in the form of Tranche A Term Loans in an aggregate principal amount of approximately $2.3 billion. The proceeds were issued and provided on February 23, 2016, upon successful closingissuance of the ~~King Acquisition,~~Unregistered 2021 Notes and ~~were used to fund~~ the ~~King Acquisition. On March 31, 2016,~~Unregistered 2026 Notes, we entered into a ~~fourth amendment~~registration rights agreement (the “Registration Rights Agreement”), among the Company, and the representatives of the initial purchasers of the Unregistered 2021 Notes and the Unregistered 2026 Notes. Under the Registration Rights Agreement, we were required to use commercially reasonable efforts to, within one year of the issue date of the Unregistered 2021 Notes and the Unregistered 2026 Notes, among other things, (1) file a registration statement with respect to an offer to exchange each series of the Unregistered 2021 Notes and the Unregistered 2026 Notes for new notes that were substantially identical in all material respects (except for the provisions relating to the ~~Credit Agreement~~transfer restrictions and payment of additional interest) (the “Exchange Offer”), and (2) cause that registration statement (the “Exchange Offer Registration Statement”) to be declared effective by the SEC under the Securities Act. The Exchange Offer Registration Statement was declared effective by the SEC on April 28, 2017 and we completed the Exchange Offer on June 1, 2017, such that all the Unregistered 2021 Notes and Unregistered 2026 Notes were exchanged for registered 2021 notes (the “2021 Notes”) and registered 2026 notes (the “2026 Notes”).

In addition, on May 26, 2017, in a public underwritten offering, we issued $400 million of 2.6% unsecured senior notes due June 2022 (the “2022 Notes”), $400 million of 3.4% unsecured senior notes due June 2027 (the “2027 Notes”), and $400 million of 4.5% unsecured senior notes due June 2047 (the “2047 Notes”, and together with the 2021 Notes, the 2022 Notes, the 2023 Notes, the 2026 Notes, and the 2027 Notes, the “Notes”), which ~~provided for an incremental Tranche A Term Loan~~were outstanding at June 30, 2017.

We may redeem some or all of the 2022 Notes, the 2027 Notes and the 2047 Notes, in whole or in part, at any time on or after May 15, 2022, March 15, 2027 and December 15, 2046, respectively, and in each case at 100% of the aggregate principal amount thereof plus accrued and unpaid interest. In addition, we may redeem some or all of ~~$250 million,~~the 2022 Notes, the 2027 Notes, and the ~~total proceeds from~~2047 Notes prior to May 15, 2022, March 15, 2027 and December 15, 2046, respectively, and in each case at a price equal to 100% of the ~~incremental borrowing~~aggregate principal amount thereof plus a “make-whole” premium and accrued and unpaid interest.

Upon the occurrence of certain change of control events, we will be required to offer to repurchase the 2022 Notes, the 2027 Notes, and the 2047 Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest. These repurchase requirements are considered clearly and closely related to the 2022 Notes, the 2027 Notes, and the 2047 Notes and were ~~used to make the March 31, 2016 voluntary prepayment on our Term Loan as discussed above.~~not accounted for separately upon issuance.

The ~~Tranche A Term Loans are scheduled to mature on October 11, 2020, and bear interest, at~~2022 Notes, the Company’s option, at either (a) a base rate equal to the highest of (i) the federal funds rate, plus 0.5%, (ii) the prime commercial lending rate of Bank of America, N.A. and (iii) the LIBOR for an interest period of one month beginning on such day plus 1.00%, or (b) LIBOR, in each case, plus an applicable interest margin. LIBOR is subject to a floor of 0%2027 Notes, and the base rate is subject to an effective floor of 1.00%. The applicable interest margin for Tranche A Term Loans ranges from 1.50% to 2.25% for LIBOR borrowings and from 0.50% to 1.25% for base rate borrowings and is determined by reference to a pricing grid based on the Company’s Consolidated Total Net Debt Ratio (as defined in the Credit Agreement).

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

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

The Tranche A Term Loans are secured by the same collateral and guaranteed by the same guarantors that secure and guarantee the Term Loan. The other terms of the Tranche A Term Loans are also generally the same as the terms of the Term Loan. At June 30, 2016, the Tranche A Term Loans bore interest at 2.46%. In certain circumstances, our applicable interest rate under the Tranche A Term Loans will increase.

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

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

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

The Credit Facilities are guaranteed by certain of the Company’s U.S. subsidiaries, whose assets represent approximately 66% of our consolidated total assets. The Credit Agreement contains customary2047 Notes contain covenants that place restrictions in certain circumstances on, among other things, the incurrence of secured debt, ~~granting of liens, payment of dividends, sales of assets,~~entry into sale or leaseback transactions, and ~~mergers and acquisitions. A violation of any of these covenants could result in an event of default under the Credit Agreement. Upon the occurrence of such event of default~~certain merger or certain other customary events of default, payment of any outstanding amounts under the Credit Agreement may be accelerated, and the lenders’ commitments to extend credit under the Credit Agreement may be terminated. In addition, an event of default under the Credit Agreement could, under certain circumstances, permit the holders of other outstanding unsecured debt, including the debt holders described below, to accelerate the repayment of such obligations. The Company was in compliance with the terms of the Credit Facilities as of June 30, 2016.

~~Unsecured Senior Notes~~

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

The Notes are general senior obligations of the Company and rank pari passu in right of payment to all of the Company’s existing and future senior indebtedness, including the Credit Facilities described above. The Notes are ~~guaranteed on a senior basis by certain of our U.S. subsidiaries. The Notes and related guarantees are~~ not secured and are effectively subordinated to any of the Company’s existing and future indebtedness that is secured, including the Credit Facilities. The Notes contain customary covenants that place restrictions in certain circumstances on, among other things, the incurrence of debt, granting of liens, payment of dividends, sales of assets, and mergers and acquisitions.secured. The Company was in compliance with the terms of each of the Notes as of June 30, ~~2016.~~2017.

Interest ~~on the Notes~~ is payable semi-annually in arrears on March 15 and September 15 of each ~~year. As of~~year for the 2021 Notes, the 2023 Notes, and 2026 Notes, and payable semi-annually in arrears on June ~~30, 2016,~~15 and December ~~31, 2015, we had~~15 of each year for the 2022 Notes, the 2027 Notes, and 2047 Notes. Accrued interest payable ~~of $38 million related to the Notes,~~is recorded within “Accrued expenses and other liabilities” in our ~~Condensed Consolidated Balance Sheet.~~condensed consolidated balance sheets. As of June 30, 2017 and December 31, 2016, we had accrued interest payable of $30 million and $25 million, respectively, related to the Notes.

~~We may redeem~~Refer to Note 11 contained in our Annual Report on Form 10-K for the year ended December 31, 2016 for further details regarding our key terms under our indentures that govern the 2021 Notes, ~~on or after September 15, 2016, and~~ the 2023 Notes, ~~on or after September 15, 2018, in whole or in part on any one or more occasions, at specified redemption prices, plus accrued~~ and ~~unpaid interest. At any time prior to September 15, 2016, with respect to~~ the 2021 Notes, and at any time prior to September 15, 2018, with respect to the 2023 Notes, we may also redeem some or all of the Notes by paying a “make-whole premium,” plus accrued and unpaid interest. Further, upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of the aggregate principal amount of each of the 2021 Notes and 2023 Notes outstanding with the net cash proceeds from such offerings. The Notes are repayable, in whole or in part and at the option of the holders, upon the occurrence of a change in control and a ratings downgrade, at a purchase price equal to 101% of principal, plus accrued and unpaid interest. These redemption options are considered clearly and closely related to the Notes and are not accounted for separately upon issuance.2026 Notes.

~~Debt Discounts~~Interest Expense and ~~Issuance~~Financing Costs

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

In connection with the ~~debt financing for the King Acquisition,~~May 2017 note issuances, we incurred ~~$38~~approximately $20 million of ~~issuance~~discounts and financing costs that were capitalized and recorded within ~~“Current portion of long-term debt, net” and~~ “Long-term debt, net” in our ~~Condensed Consolidated Balance Sheet. The amortization of these capitalized costs was not material to our~~ condensed consolidated ~~statement of operations for~~balance sheet.

For the three and six months ended June 30, ~~2016.~~

~~We classified~~2017, interest expense was $36 million and ~~presented unamortized~~$71 million, respectively; amortization of the debt discount and deferred financing costs ~~associated with~~was $2 million and $9 million, respectively; and commitment fees for the ~~Term Loan, Tranche A Term Loans,~~Revolver were not material. For the three and the Notes as a reduction of their respective gross carrying amounts for all periods presented in accordance with a recent accounting standard that became effective on January 1, 2016. Refer to Note 15 for further discussionsix months ended June 30, 2016, interest expense was $55 million and $107 million, respectively; amortization of the ~~recent accounting standard.~~debt discount and deferred financing costs was $8 million and $13 million, respectively; and commitment fees for the Revolver were not material.

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

At June 30, 2016

Gross Carrying Amount

Unamortized
Discount and Deferred
Financing Costs

Net Carrying
Amount

Term Loan

$
319

$
(3)

$
316

Tranche A Term Loans

2,534

(36)

2,498

2021 Notes

1,500

(20)

1,480

2023 Notes

750

(11)

739

Total debt

$
5,103

$
(70)

$
5,033

Less: current portion of long-term debt

(64)

8

(56)

Total long-term debt

$
5,039

$
(62)

$
4,977

	At June 30, 2017
	Gross Carrying Amount		Unamortized Discount and Deferred Financing Costs		Net Carrying Amount
2017 TLA	$	990	$	(9)	$	981
2021 Notes	650		(5)		645
2022 Notes	400		(4)		396
2023 Notes	750		(10)		740
2026 Notes	850		(9)		841
2027 Notes	400		(6)		394
2047 Notes	400		(10)		390
Total long-term debt	$	4,440	$	(53)	$	4,387

At December 31, 2015

Gross Carrying
Amount

Unamortized
Discount and Deferred
Financing Costs

Net Carrying
Amount

Term Loan

$
1,869

$
(11)

$
1,858

2021 Notes

1,500

(22)

1,478

2023 Notes

750

(12)

738

Total long-term debt

$
4,119

$
(45)

$
4,074

For the three and six months ended June 30, 2016: interest expense was $55 million and $107 million, respectively; amortization of the debt discount for the Credit Facilities and Notes was $6 million and $10 million, respectively; and commitment fees for the Original Revolver and the 2015 Revolving Credit Facility were not material. For the three and six months ended June 30, 2015: interest expense was $48 million and $97 million, respectively; amortization of the debt discount for the Credit Facilities and Notes was $2 million and $3 million, respectively; and commitment fees for the Original Revolver and the 2015 Revolving Credit Facility were not material.

	At December 31, 2016
	Gross Carrying Amount		Unamortized Discount and Deferred Financing Costs		Net Carrying Amount
2016 TLA	$	2,690	$	(27)	$	2,663
2021 Notes	650		(5)		645
2023 Notes	750		(11)		739
2026 Notes	850		(10)		840
Total long-term debt	$	4,940	$	(53)	$	4,887

As of June 30, ~~2016,~~2017, the scheduled maturities and contractual principal repayments of our debt for each of the five succeeding years are as follows (amounts in millions):

For the year ending December 31,
2016 (remaining six months)	$	32
2017	64
2017 (remaining six months)			$	—
2018	64		—
2019	112		—
2020	2,581		—
2021			1,640
Thereafter	2,250		2,800
Total	$	5,103	$	4,440

AsWith the exception of the 2023 Notes, using Level 2 inputs (i.e., observable market prices in less-than-active markets), the carrying values of our debt instruments approximated their fair value as of June 30, ~~2016, and December 31, 2015, the carrying value of the Term Loan and Tranche A Term Loans approximates the fair value, based on Level 2 inputs (observable market prices in less than active markets),~~2017, as the interest ~~rate is variable over the selected interest period and is~~rates are similar to current rates at which we can borrow ~~funds. Based~~funds over the selected interest periods. At June 30, 2017, based on Level 2 inputs, the fair value of the 2023 Notes was $809 million.

At December 31, 2016, the carrying value of the 2016 TLA approximated its fair value, based on Level 2 inputs. At December 31, 2016, based on Level 2 inputs, the fair values of the 2021 Notes, ~~and~~ 2023 Notes, and 2026 Notes were ~~$1,571~~$635 million, $818 million, and ~~$811~~$808 million, ~~respectively, as of June 30, 2016. Based on Level 2 inputs, the fair values of the 2021 Notes and 2023 Notes were $1,571 million and $795 million, respectively, as of December 31, 2015.~~

~~Debt Repayments~~

On February 2, 2016, the Board of Directors authorized debt repayments of up to $1.5 billion of our outstanding debt during 2016. For the six months ended June 30, 2016, we have made prepayments to reduce our total outstanding term loans by $1.3 billion.respectively.

8. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) at June 30, ~~2016~~2017 and ~~2015,~~2016, were as follows (amounts in millions):

For the Six Months Ended June 30, 2016

Foreign currency
translation
adjustments

Unrealized gain
(loss) on forward
contracts

Unrealized gain
(loss) on available-
for-sale securities

Total

Balance at December 31, 2015

$
(630)

$
(4)

$
1

$
(633)

Other comprehensive income (loss) before reclassifications

(20)

2

—

(18)

Amounts reclassified from accumulated other comprehensive income (loss)

—

2

—

2

Balance at June 30, 2016

$
(650)

$
—

$
1

$
(649)

	For the Six Months Ended June 30, 2017
	Foreign currency translation adjustments		Unrealized gain (loss) on forward contracts		Unrealized gain (loss) on available- for-sale securities		Total
Balance at December 31, 2016	$	(659)	$	29	$	1	$	(629)
Other comprehensive income (loss) before reclassifications	11		(28)		1		(16)
Amounts reclassified from accumulated other comprehensive income (loss) into earnings	16		(9)		(2)		5
Balance at June 30, 2017	$	(632)	$	(8)	$	—	$	(640)

For the Six Months Ended June 30, 2015

Foreign currency
translation
adjustments

Unrealized gain
(loss) on forward
contracts

Unrealized gain (loss)
on available-for-sale
securities

Total

Balance at December 31, 2014

$
(304)

$
—

$
1

$
(303)

Other comprehensive income (loss) before reclassifications

(245)

8

(3)

(240)

Amounts reclassified from accumulated other comprehensive income (loss)

—

(2)

—

(2)

Balance at June 30, 2015

$
(549)

$
6

$
(2)

$
(545)

	For the Six Months Ended June 30, 2016
	Foreign currency translation adjustments		Unrealized gain (loss) on forward contracts		Unrealized gain (loss) on available- for-sale securities		Total
Balance at December 31, 2015	$	(630)	$	(4)	$	1	$	(633)
Other comprehensive income (loss) before reclassifications	(20)		2		—		(18)
Amounts reclassified from accumulated other comprehensive income (loss) into earnings	—		2		—		2
Balance at June 30, 2016	$	(650)	$	—	$	1	$	(649)

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

Currently, we have three reportable segments. 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~~chief operating decision maker (“CODM”), the manner in which we assess operating performance and allocate resources, and the availability of separate financial information. Currently, we have three reportable operating segments (see Note 1 of the Notes to Condensed Consolidated Financial Statements). ~~We do not aggregate operating segments in determining and disclosing our reportable segments.~~

The CODM reviews segment performance exclusive ofof: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled ~~games, stock-based~~games; share-based compensation ~~expense,~~expense; amortization of intangible assets as a result of purchase price ~~accounting, and~~accounting; fees and other expenses (including legal fees, expenses, and accruals) related to ~~financings~~acquisitions, associated integration activities, and ~~acquisitions.~~financings; certain restructuring costs; and other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.

Our operating segments are also consistent with our internal organization structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments. As discussed in Note 1, commencing with the second quarter of 2017, we made changes to our operating segments which reflect the changes in our organization and reporting structure. Our MLG business, which was previously included in the non-reportable “Other segments,” is now presented within the Blizzard reportable operating segment. Prior period amounts have been revised to reflect this change. The change had no impact on consolidated net revenues or operating income.

Information on the ~~operating~~reportable segments and reconciliations of total segment net revenues and total segment operating income to consolidated net revenues from external customers and consolidated income before income tax expense for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 are presented below (amounts in millions):

For the Three Months Ended June 30,

2016

2015

2016

2015

Net revenues

Operating income and income before
income tax expense

Activision

$
332

$
313

$
88

$
57

Blizzard

738

385

333

117

King

484

—

176

—

Reportable segments total

1,554

698

597

174

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

Other segments (1)

55

61

(9)

(1)

Net effect from recognition (deferral) of deferred net revenues and related cost of revenues

(39)

285

(108)

181

Stock-based compensation expense

—

—

(41)

(21)

Amortization of intangible assets

—

—

(203)

(1)

Fees and other expenses related to acquisitions (2)

—

—

(4)

—

Consolidated net revenues / operating income

$
1,570

$
1,044

$
232

$
332

Interest and other expense (income), net

65

50

Consolidated income before income tax expense

$
167

$
282

	For the Six Months Ended June 30, 2016								For the Three Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
	Net revenues				Operating income and income before income tax expense				Net revenues				Operating income and income before income tax expense
Activision	$	692	$	616	$	187	$	121	$	316	$	332	$	87	$	88
Blizzard	1,032		737		419		256		566		741		225		329
King	691		—		243		—		480		484		164		176
Reportable segments total	2,415		1,353		849		377		1,362		1,557		476		593

Reconciliation to consolidated net revenues / consolidated income before income tax expense:
Other segments (1)	102		109		(9)		(1)		56		52		(5)		(5)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues	508		860		261		545		213		(39)		105		(108)
Stock-based compensation expense	—		—		(85)		(44)
Share-based compensation expense									—		—		(39)		(41)
Amortization of intangible assets	—		—		(285)		(3)		—		—		(194)		(203)
Fees and other expenses related to acquisitions (2)	—		—		(38)		—
Fees and other expenses related to the King Acquisition (2)									—		—		(5)		(4)
Other non-cash charges (4)									—		—		1		—
Consolidated net revenues / operating income	$	3,025	$	2,322	$	693	$	874	$	1,631	$	1,570	$	339	$	232
Interest and other expense (income), net					117		100						46		65
Consolidated income before income tax expense					$	576	$	774					$	293	$	167

	For the Six Months Ended June 30,
	2017		2016		2017		2016
	Net revenues				Operating income and income before income tax expense
Activision	$	532	$	692	$	111	$	187
Blizzard	1,009		1,038		384		413
King	954		691		330		243
Reportable segments total	2,495		2,421		825		843

Reconciliation to consolidated net revenues / consolidated income before income tax expense:
Other segments (1)	119		96		(3)		(3)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues	742		508		501		261
Share-based compensation expense	—		—		(73)		(85)
Amortization of intangible assets	—		—		(384)		(285)
Fees and other expenses related to the King Acquisition (2)	—		—		(9)		(38)
Restructuring costs (3)	—		—		(11)		—
Other non-cash charges (4)	—		—		(15)		—
Consolidated net revenues / operating income	$	3,356	$	3,025	$	831	$	693
Interest and other expense (income), net					85		117
Consolidated income before income tax expense					$	746	$	576

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

(2) Reflects fees and other expenses, such as legal, banking and professional services fees, primarily related to the King Acquisition and associated integration activities, inclusive of related debt financings.

(3) Reflects restructuring charges incurred, primarily severance costs.

(4) Reflects a non-cash accounting charge to reclassify certain cumulative translation gains (losses) into earnings due to the substantial liquidation of certain of our foreign entities.

Geographic information presented below for the three and six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, is based on the location of the paying customer. Net revenues from external customers by geographic region were as follows (amounts in millions):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Net revenues by geographic region:
Americas	$	860	$	551	$	1,613	$	1,255	$	858	$	860	$	1,787	$	1,613
EMEA (1)	507		388		1,028		852		538		507		1,092		1,028
Asia Pacific	203		105		384		215		235		203		477		384
Total consolidated net revenues	$	1,570	$	1,044	$	3,025	$	2,322	$	1,631	$	1,570	$	3,356	$	3,025

(1) EMEA consists of the Europe, Middle East, and Africa geographic regions.

The Company’s net revenues in the U.S. were ~~48%~~46% and ~~50%~~48% of consolidated net revenues for the three months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The Company’s net revenues in the U.K. were 10% ~~and 14%~~ of consolidated net revenues for both the three months ended June 30, ~~2016~~2017 and ~~2015, respectively.~~2016. No other country’s net revenues exceeded 10% of consolidated net revenues for the three months ended June 30, ~~2016~~2017 or ~~2015.~~2016.

The Company’s net revenues in the U.S. were 47% of consolidated net revenues for both the six months ended June 30, 2017 and ~~52%~~2016. The Company’s net revenues in the U.K. were 10% and 11% of consolidated net revenues for the six months ended June 30, ~~2016~~2017 and ~~2015, respectively. The Company’s net revenues in the U.K. were 11% and 13% of consolidated net revenues for the six months ended June 30,~~ 2016, ~~and 2015,~~ respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for the six months ended June 30, ~~2016~~2017 or ~~2015.~~2016.

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015		2017		2016		2017		2016
Net revenues by platform:
Console	$	650	$	559	$	1,415	$	1,317	$	568	$	650	$	1,182	$	1,415
PC ~~(1)~~	411		370		811		755		508		411		1,072		811
Mobile and ancillary ~~(2)~~(1)	454		54		697		141		493		454		969		697
Other ~~(3)~~(2)	55		61		102		109		62		55		133		102
Total consolidated net revenues	$	1,570	$	1,044	$	3,025	$	2,322	$	1,631	$	1,570	$	3,356	$	3,025

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

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

~~(3)~~(2) Net revenues from Other include revenues from ~~MLG,~~our Studios and Distribution ~~businesses.~~businesses, as well as revenues from MLG.

Long-lived assets by geographic region at June 30, ~~2016,~~2017 and December 31, ~~2015,~~2016, were as follows (amounts in millions):

	At June 30, 2016		At December 31, 2015		At June 30, 2017		At December 31, 2016
Long-lived assets (1) by geographic region:
Americas	$	147	$	138	$	153	$	154
EMEA	98		42		76		87
Asia Pacific	15		9		17		17
Total long-lived assets by geographic region	$	260	$	189	$	246	$	258

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

10. Income Taxes

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

The income tax expense of ~~$40~~$50 million for the three months ended June 30, ~~2016,~~2017, reflects an effective tax rate of ~~24%~~17%, which is higher than the effective tax rate of 10% for the three months ended June 30, 2016. The increase is due to a decrease in excess tax benefits from share-based payments and an increase in reserves for uncertain tax positions, partially offset by a higher mix of foreign earnings taxed at relatively lower statutory rates.

The income tax expense of $77 million for the six months ended June 30, 2017, reflects an effective tax rate of 10%, which is lower than the effective tax rate of ~~25%~~11% for the ~~three~~six months ended June 30, ~~2015.~~2016. The decrease is due to ~~the~~an increase in excess tax benefits from share-based payments and a higher mix of foreign earnings taxed at relatively lower statutory rates, ~~as compared to domestic earnings.~~

~~The income~~partially offset by an increase in reserves for uncertain tax expense of $113 million for the six months ended June 30, 2016, reflects an effective tax rate of 20%, which is lower than the effective tax rate of 22% for the six months ended June 30, 2015. The decrease is primarily due to the net benefit related to the settlement of an income tax audit during the first quarter of 2016 and the mix of foreign earnings taxed at relatively lower statutory rates as compared to domestic earnings.positions.

The effective tax rate of ~~24%~~17% and 10% for the three and six months ended June 30, ~~2016 differs from~~2017, respectively, is lower than the USU.S. statutory rate of 35%, primarily due to ~~the tax benefit from~~ foreign earnings taxed at ~~relatively~~ lower statutory rates, the recognition of excess tax benefits from share-based payments, and the recognition of federal and California research and development credits, partially offset by ~~increases to the Company’s reserve~~an increase in reserves for uncertain tax positions.

The effective tax rate of 20% for the six months ended June 30, 2016 differs from the U.S. statutory rate of 35%, primarily due to the tax benefit from foreign earnings taxed at relatively lower statutory rates, the recognition of federal and California research and development credits, and the net benefit related to the settlement of an income tax audit during the first quarter of 2016, partially offset by certain nondeductible costs incurred during the period and increases to the Company’s reserve for uncertain tax positions.

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

The Internal Revenue Service (“IRS”) is currently examining Activision Blizzard’s federal tax returns for the 2009, 2010, and 2011 tax years. During the second quarter of 2015, the Company transitioned the review of its transfer pricing methodology from the advanced pricing agreement review process to the IRS examination team. Their review could result in a different allocation of profits and losses under the Company’s transfer pricing agreements. Such allocation could have a positive or negative impact on our provision for uncertain tax positions for the period in which such a determination is reached and the relevant periods thereafter. ~~In addition, as~~The Company also has several state level and non-U.S. audits pending.

As part of purchase price accounting for the King Acquisition, the Company assumed ~~$77~~$74 million of uncertain tax positions, primarily related to the transfer pricing ofon King tax years occurring prior to the King Acquisition. The Company is currently in negotiations with the relevant jurisdictions and taxing authorities with respect to King’s transfer pricing, which could result in a different allocation of profits and losses between the relevant jurisdictions.

Vivendi Games’ results for the period from January 1, 2008 through July 9, 2008 are included in the consolidated federal and certain foreign state and local income tax returns filed by Vivendi or its affiliates, while Vivendi Games’ results for the period from July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by Activision Blizzard. IRS Appeals proceedings concerning Vivendi Games’ tax return for the 2008 tax year were concluded during July 2016, but that year remains open to examination by other major taxing authorities. The ~~Company is in~~resolution of the ~~process of analyzing the~~2008 IRS Appeals ~~closing agreements and does~~process did not ~~anticipate~~have a ~~significant~~material impact to ~~its~~the Company’s condensed consolidated financial statements.

Certain of our subsidiaries are under examination or investigation or may be subject to examination or investigation by tax authorities in various jurisdictions, including France. These proceedings may lead to adjustments or proposed adjustments to our taxes or provisions for uncertain tax positions. ~~The outcome of such~~Such proceedings may have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations in the period or periods in which the matters are resolved or in which appropriate tax provisions are taken into account in our financial statements. If we were to receive a materially adverse assessment from a taxing jurisdiction, we would plan to vigorously contest it and consider all of our options, including the pursuit of judicial remedies.

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

In 2013, in connection with a share repurchase from Vivendi (the “Purchase Transaction”), we assumed certain tax attributes, generally consisting of net operating loss (“NOL”) carryforwards of approximately $760 million, which represent a potential future tax benefit of approximately $266 million. The utilization of such NOL carryforwards will be subject to certain annual limitations and will begin to expire in 2021. The Company also obtained indemnification from Vivendi against losses attributable to the disallowance of claimed utilization of such NOL carryforwards of up to $200 million in unrealized tax benefits in the aggregate, limited to taxable years ending on or prior to December 31, 2016. No benefit for these tax attributes or indemnification was recorded upon the close of the Purchase Transaction. For the six months ended June 30, 2016, we utilized $196 million of the NOL, which resulted in a tax benefit of $69 million, and a corresponding reserve of $69 million was established. As of June 30, 2016, an indemnification asset of $175 million has been recorded in “Other Assets,” and, correspondingly, the same amount has been recorded as a reduction to the consideration paid for the shares repurchased in “Treasury Stock.”

11. Computation of Basic/Diluted Earnings Per Common Share

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2016

2015

2016

2015

Numerator:

Consolidated net income

$
127

$
212

$
463

$
606

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

—

—

(2)

(4)

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

(1)

(2)

(1)

(5)

Numerator for basic and diluted earnings per common share — income available to common shareholders

$
126

$
210

$
460

$
597

Denominator:

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

739

727

737

725

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

Employee stock options and awards

11

8

11

9

Denominator for diluted earnings per common share - weighted-average common shares outstanding plus dilutive common shares under the treasury stock method

750

735

748

734

Basic earnings per common share

$
0.17

$
0.29

$
0.62

$
0.82

Diluted earnings per common share

$
0.17

$
0.29

$
0.61

$
0.81

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
Numerator:
Consolidated net income	$	243	$	151	$	669	$	514
Less: Distributed earnings to unvested share-based awards that participate in earnings	—		—		—		(2)
Less: Undistributed earnings allocated to unvested share-based awards that participate in earnings	—		(1)		—		(1)
Numerator for basic and diluted earnings per common share—income available to common shareholders	$	243	$	150	$	669	$	511

Denominator:
Denominator for basic earnings per common share—weighted-average common shares outstanding	754		739		752		737
Effect of potential dilutive common shares under the treasury stock method:
Employee stock options and awards	10		14		11		14
Denominator for diluted earnings per common share—weighted-average common shares outstanding plus dilutive common shares under the treasury stock method	764		753		763		751
Basic earnings per common share	$	0.32	$	0.20	$	0.89	$	0.69
Diluted earnings per common share	$	0.32	$	0.20	$	0.88	$	0.68

Certain of our unvested restricted stock ~~rights (including certain restricted stock~~ units ~~and performance shares) met~~meet the definition of participating securities as they participate in earnings based on their rights to dividends or dividend equivalents. Therefore, we are required to use the two-class method in our computation of basic and diluted earnings per common share. For both the three and six months ended June 30, 2017, on a weighted-average basis, we had outstanding unvested restricted stock units of less than 1 million shares of common stock that are participating in earnings. For both the three and six months ended June 30, 2016, on a weighted-average basis, we had outstanding unvested restricted stock ~~rights with respect to~~units of 3 million shares of common stock that are participating in earnings. For the three and six months ended June 30, 2015, on a weighted-average basis, we had outstanding unvested restricted stock rights with respect to 9 million and 10 million shares of common stock, respectively, that are participatingparticipated in earnings.

~~Certain~~The vesting of certain of our employee-related restricted stock ~~rights~~units and options are ~~contingently issuable~~contingent upon the satisfaction of pre-defined performance measures. These shares are included in the weighted-average dilutive common shares only if the performance measures are met as of the end of the reporting period. Approximately 9 million shares are not included in the computation of diluted earnings per share for both the three and six months ended June 30, 2017 as their respective performance measures had not yet been met. Approximately 10 million shares are not included in the computation of diluted earnings per share for both the three and six months ended June 30, 2016 as their respective performance measures had not yet been met. Approximately 3 million shares are not included in the computation of diluted earnings per share for the three and six months ended June 30, 2015, as their respective performance measures had not yet been met.

Potential common shares are not included in the denominator of the diluted earnings per common share calculation when the inclusion of such shares would be anti-dilutive. Therefore, options to acquire 4less than 1 million and 5 million shares of common stock were not included in the calculation of diluted earnings per common share for the three and six months ended June 30, ~~2016,~~2017, respectively, and options to acquire ~~1 million and 6~~4 million shares of common stock were not included in the calculation of diluted earnings per common share for both the three and six months ended June 30, ~~2015, respectively,~~2016, as the effect of their inclusion would be anti-dilutive.

12. Capital Transactions

Repurchase Program

On February ~~3, 2015,~~2, 2017, our Board of Directors authorized a stock repurchase program under which we ~~may~~are authorized to repurchase up to ~~$750 million~~$1 billion of our common stock during the two-year period from February ~~9, 2015~~13, 2017 through February ~~8, 2017.~~12, 2019. As of June 30, ~~2016,~~2017, we have not repurchased any shares under this program.

Dividends

On February 2, 2017, our Board of Directors approved a cash dividend of $0.30 per common share. On May 10, 2017, we made an aggregate cash dividend payment of $226 million to shareholders of record at the close of business on March 30, 2017. On May 26, 2017, we made related dividend equivalent payments of less than $1 million to certain holders of restricted stock units.

On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common ~~share, payable on May 11, 2016, to shareholders of record at the close of business on March 30, 2016.~~share. On May 11, 2016, we made an aggregate cash dividend payment of $192 million to ~~such~~ shareholders ~~and~~of record at the close of business on March 30, 2016. On May 27, 2016, we made related dividend equivalent payments of $3 million to certain holders of restricted stock ~~rights.~~

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

13. Commitments and Contingencies

Legal Proceedings

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

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

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

14. Acquisitions

King Digital Entertainment ~~plc~~

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

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

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


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

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

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

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

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

	February 23, 2016		Estimated useful lives
Tangible assets and liabilities assumed:
Cash and cash equivalents	$	1,151
Accounts receivable	162
Other current assets	72
Property and equipment	57		2 - 7 years
Deferred income tax assets, net	27
Other assets	47
Accounts payable	(9)
Accrued ~~expense~~expenses and other liabilities	(272)
Other liabilities	~~(113)~~(110)
Deferred income tax liabilities, net	(52)
Intangible assets
Internally-developed franchises	845		3 - 5 years
Customer base	609		2 years
Developed software	580		3 - 4 years
~~Trademark~~Trade name	46		7 years

Goodwill	~~2,678~~2,675
Total purchase price	$	5,828

During the six months ended June 30, 2016, the Company incurred $38 million of expenses related to the King Acquisition, which are included within “General and administrative” in the ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations.~~operations. In connection with the debt financing that occurred on the King Closing Date, we incurred $38 million of ~~issuance~~discounts and financing costs that were capitalized and recorded within “Long-term debt, net” on our ~~Condensed Consolidated Balance Sheet. The amortization of these capitalized costs was not material to our~~ condensed consolidated ~~statement of operations for the three and six months ended June 30, 2016.~~balance sheet.

~~Stock-Based~~Share-Based Compensation

In connection with the King Acquisition, a majority of the outstanding King options and awards that were unvested as of the King Closing Date were converted into equivalent options and awards with respect to shares of the Company’s common stock, using an equity award exchange ratio calculated in accordance with the ~~Transaction Agreement.~~transaction agreement. As a result, replacement ~~equity~~stock options and equity awards of 10 million and 3 million, respectively, were ~~issued in connection with the King Acquisition.~~issued. The portion of the fair value related to pre-combination services of $76 million was included in the purchase price, while the remaining fair value will be recognized over the remaining service periods. As of ~~June 30,~~December 31, 2016, the future expense for the converted King unvested stock options and equity awards was approximately ~~$71~~$40 million, which will be recognized over a weighted average service period of approximately ~~2.0~~1.6 years.

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

Identifiable Intangible Assets Acquired and Goodwill

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

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

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

~~Contingent Liabilities Assumed~~

As a result of the King Acquisition, we assumed contingent liabilities related to contingent consideration associated with King’s previous acquisitions of Nonstop Games Oy and Z2Live, Inc. The remaining contingent consideration for Non Stop Games Oy is linked to amounts generated from games launched by Nonstop Games Oy over a specified period. The range of the potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is from $0 million to $84 million. The remaining contingent consideration for Z2Live, Inc., is linked to amounts generated from specific games launched by Z2Live, Inc. within a defined period. The potential range of undiscounted future payments that the Company could be required to make under the contingent consideration arrangement is from $0 million to $75 million. The fair value of the contingent consideration arrangement at the King Closing date and as of June 30, 2016, for Nonstop Games Oy and Z2Live, Inc. was immaterial.

King Net Revenue and Earnings

The amount of net revenue and earnings attributable to King in the Company’s condensed consolidated statement of operations during the three and six months ended June 30, 2016, the period of the King Acquisition, are included in the table below. The amounts presented represent the net revenues and earnings after adjustments for purchase price accounting, inclusive of amortization of intangible assets, share-based payments, and deferral of revenues and related cost of revenues.

	For the Three Months Ended		For the Six Months Ended
(in millions)	June 30, 2016		June 30, 2016		For the Three Months Ended June 30, 2016		For the Six Months Ended June 30, 2016

Net revenues	$	458	$	641	$	458	$	641
Net loss	$	(49)	$	(99)	$	(49)	$	(99)

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Company and King for the six months ended June 30, 2016, on a pro forma basis, as though the acquisition had occurred on January 1, 2015. The 2016 pro forma financial information presented includes the effects of adjustments related to amortization charges from acquired intangible assets, employee compensation from replacement equity awards issued in the King Acquisition and the ~~profit sharing~~profit-sharing bonus plan established as part of the King Acquisition, and interest expense from the new debt, among other adjustments. We also adjusted for Activision Blizzard and King non-recurring acquisition related costs of approximately $64 million for the six months ended June 30, 2016.

~~Non-recurring acquisition related costs for the three months ended June 30, 2016, were not material.~~

The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the King Acquisition, and any borrowings undertaken to finance the King Acquisition, had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in millions)	2016		2015		2016		2015		For the Three Months Ended June 30, 2016		For the Six Months Ended June 30, 2016

Net revenues	$	1,570	$	1,540	$	3,305	$	3,389	$	1,570	$	3,305
Net income	$	140	$	168	$	470	$	548	$	140	$	470
Basic earnings per common share	$	0.19	$	0.23	$	0.63	$	0.74	$	0.19	$	0.63
Diluted earnings per common share	$	0.19	$	0.22	$	0.62	$	0.73	$	0.19	$	0.62

15. Recently ~~issued accounting pronouncements~~Issued Accounting Pronouncements

~~Revenue recognition~~Recently Adopted Accounting Pronouncements

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

~~Stock-based compensation~~

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

~~Consolidations~~

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

~~Debt Issuance Costs~~

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

~~Internal-Use Software~~

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

Inventory

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

~~Business Combinations~~

In September 2015, the FASB issued new guidance related to business combinations. The new standard requires that the cumulative impact of a measurement period adjustment, including the impact on prior periods, on provisional amounts recorded at the acquisition date as a result of the business combination be recognized in the reporting period the adjustment is identified. The standard also requires separate presentation on the face of the income statement, or disclosure in the notes, of the portion of the amount recorded in current period earnings by line item. Prior to the issuance of the standard, such adjustments to provisional amounts were recognized retrospectively. We adopted this new standard as of January 1, ~~2016,~~2017, and applied it prospectively. ~~No measurement~~The adoption of this guidance did not have a material impact on our financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Revenue Recognition

In May 2014, the FASB issued new accounting guidance related to revenue recognition. The new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance, providing a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. We anticipate adopting the accounting standard on January 1, 2018, using the modified retrospective method, which recognizes the cumulative effect upon adoption as an adjustment to retained earnings at the adoption date.

As previously disclosed, we believe the adoption of the new revenue recognition standard may have a significant impact on the accounting for our sales of our games with significant online functionality for which we do not have vendor-specific objective evidence (“VSOE”) for unspecified future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements is required. This requirement will be eliminated under the new standard. Accordingly, we will be required to recognize as revenue a portion of the sales price upon delivery of the software, as compared to the current requirement of recognizing the entire sales price ratably over an estimated offering period. We expect this difference to primarily impact revenues from our Call of Duty franchise. Many of our other franchises, such as Destiny, Overwatch, World of Warcraft, and Candy Crush, are hosted service arrangements and we do not expect any significant impact on the accounting for our sales of these games. Nonetheless, this difference may have a material impact on our consolidated financial statements upon adoption of the new guidance.

We are continuing to evaluate the additional impacts of this new accounting guidance on our financial statements and related disclosures.

Leases

In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current U.S. GAAP guidance on this topic. The new standard, among other things, requires a lessee to classify a lease as either an operating or financing lease, and lessees will need to recognize a lease liability and a right-of-use asset for their leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment for initial direct costs, lease incentives received, and any prepaid lease payments. Operating leases will result in a straight-line expense pattern, while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease accounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will require application of the new guidance at the beginning of the earliest comparative period ~~adjustments occurred as~~presented. We are evaluating the impact of ~~and for the six months ended June 30, 2016.~~this new accounting guidance on our financial statements. Currently, we do not plan to early adopt this new standard.

Financial Instruments

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

~~Leases~~Statement of Cash Flows-Restricted Cash

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

~~Share-Based Payments~~

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

• ~~requires that all excess tax benefits and tax deficiencies be recorded as income tax expense or benefit~~restricted cash in the statement of ~~operations and~~cash flows. The new standard requires that ~~the tax effects~~a statement of ~~exercised or vested awards should be treated as discrete items in~~cash flows explain any change during the ~~reporting~~ period in ~~which they occur;~~

• ~~requires excess tax benefits from share-based payments to~~total cash, cash equivalents, and restricted cash. Therefore, restricted cash will be ~~reported as operating activities~~included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash ~~flows; and~~

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

flows. The new standard is effective for fiscal years beginning after December 15, ~~2016.~~2018, and should be applied retrospectively. Early adoption is permitted.

We ~~intend~~are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements. We expect there would be a significant impact to ~~early adopt~~the condensed consolidated statements of cash flows for 2016, as this ~~standard during~~period includes, as an investing activity, the ~~three months ending September 30, 2016. Upon adoption, we intend~~$3.6 billion movement in restricted cash resulting from the transfer of cash into escrow at December 31, 2015 to ~~continue to estimate~~facilitate the ~~number~~King Acquisition and the subsequent release of ~~awards~~ that ~~are expected to vest using an estimated forfeiture rate.~~

~~If we had adopted~~cash in 2016 in connection with the King Acquisition. Under this standard in the current quarter, we would have recorded $24 million and $51 million of windfall tax benefits as a reduction to income tax expense in our consolidated statement of operations for the three and six months ended June 30, 2016, respectively. Under the new standard, the ~~weighted-average number of dilutive shares outstanding~~restricted cash balance would ~~have increased by approximately 3 million for~~be included in the ~~three~~beginning and ~~six months~~ ending ~~June 30, 2016. As a result, the diluted earnings per common share~~total cash, cash equivalents, and restricted cash balances and, hence, would ~~have increased $0.03 and $0.07 for the three and six months ended June 30, 2016, respectively. Further, as the new standard requires excess tax benefits from share-based payments~~not be ~~reported~~included as an ~~operating~~investing activity onin the statement of cash ~~flows, net cash provided~~flows.

Goodwill

In January 2017, the FASB issued new guidance which eliminates Step 2 from the goodwill impairment test. Instead, if any entity forgoes a Step 0 test, an entity will be required to perform its annual or interim goodwill impairment test by ~~operating activities would have increased by $52 million~~comparing the fair value of a reporting unit, as determined in Step 1 from the goodwill impairment test, with its carrying amount and recognize an impairment charge, if any, for the ~~six months ended June 30, 2016, with a corresponding decrease in~~amount by which the ~~net cash provided by financing activities.~~carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new standard is effective for fiscal years beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our consolidated financial statements.

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

Business Overview

Activision Blizzard, Inc. is a leading global developer and publisher of interactive ~~entertainment.~~entertainment content and services. We develop and distribute content and services across all of the major gaming platforms, including video game consoles, personal computers (“PC”), and mobile devices. The terms “Activision Blizzard,” the “Company,” “we,” “us,” and “our” are used to refer collectively to Activision Blizzard, Inc., and its subsidiaries.

~~Activision Blizzard is~~The Company was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. We are the result of the 2008 business combination ~~(“Business~~(the “Business Combination”) by and among the Company (then known as Activision, Inc.), ~~Sego Merger Corporation, a wholly-owned subsidiary of Activision, Inc.,~~ Vivendi S.A. (“Vivendi”), ~~VGAC LLC, a~~and Vivendi Games, Inc., an indirect wholly-owned subsidiary of ~~Vivendi, and Vivendi Games, Inc. (“Vivendi Games”), a wholly-owned subsidiary of VGAC LLC. As a result of~~Vivendi. In connection with the consummation of the Business Combination, Activision, Inc., was renamed Activision Blizzard, Inc.

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

The King Acquisition

On ~~November 2, 2015,~~February 23, 2016 (the “King Closing Date”), we ~~and~~acquired King Digital Entertainment, a leading interactive mobile entertainment company (“King”), ~~entered into a transaction agreement (the “Transaction Agreement”) under the terms~~by purchasing all of ~~which we would acquire King~~its outstanding shares (the “King Acquisition”). We made this acquisition because we believe that the addition of King’s highly complementary mobile business positions us as a global leader in interactive entertainment across mobile, console, and King would become a wholly-owned subsidiary of the Company. On February 23, 2016 (the “King Closing Date”), we completed the King Acquisition under the terms of the Transaction Agreement and purchased all of the outstanding shares of KingPC platforms, as well as positioning us for ~~$18.00 cash per share.~~future growth. The aggregate purchase price of ~~King was~~ approximately $5.8 billion ~~which~~ was ~~paid on the King Closing Date and~~ funded primarily with $3.6 billion of existing cash and $2.2 billion of cash from new debt issued by the Company. King’s results of operations since the King Closing Date are included in our condensed consolidated financial statements.

~~We made this acquisition because~~Our Segments

As part of the continued implementation of our esports strategy, we ~~believe~~instituted changes to our internal organization and reporting structure such that the ~~addition of King’s highly-complementary mobile~~Major League Gaming (“MLG”) business ~~positions the Company~~now operates as a ~~global leader in interactive entertainment across mobile, console,~~division of Blizzard Entertainment, Inc. (“Blizzard”). As such, commencing with the second quarter of 2017, MLG, which was previously a separate operating segment, is now a component of the Blizzard operating segment. MLG will be responsible for the operations of the Overwatch LeagueTM, along with other esports events, and ~~PC platforms,~~will also continue to serve as ~~well as positioning us~~a multi-platform network for ~~future growth.~~

~~Reportable Segments~~Activision Blizzard esports content.

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

(i) Activision Publishing, Inc.

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

(ii) Blizzard Entertainment, Inc.

Blizzard ~~Entertainment, Inc. (“Blizzard”)~~ is a ~~leader~~leading global developer and publisher of interactive software products and entertainment content, particularly in ~~online~~ PC ~~gaming,~~gaming. Blizzard primarily delivers content through retail channels or digital downloads, including ~~the subscription-based massively multi-player online role-playing game category, in terms~~subscriptions, full-game sales, and in-game purchases, as well as licenses of ~~both subscriber base and revenues generated through its World of Warcraft~~® ~~franchise.~~software to third-party or related-party companies that distribute Blizzard products. Blizzard also ~~develops, markets, and sells role-playing action and strategy games for the PC, console, mobile, and tablet platforms, including games in the multiple-award winning Diablo~~®~~, StarCraft~~®~~, Hearthstone~~®~~: Heroes of Warcraft™, and Heroes of the Storm~~® ~~franchises. On May 24, 2016, Blizzard added a new franchise, Overwatch®, a team-based first-person shooter available on the PC and console platforms. In addition, Blizzard~~ maintains a proprietary online gaming service ~~Battle.net~~®, which facilitates digital distribution ~~and~~of Blizzard content, online social connectivity across all Blizzard games, and the creation of user-generated content for Blizzard’s games. Commencing with the second quarter of 2017, Blizzard ~~distributes its products and generates revenues worldwide through various means, including subscriptions, sales~~also includes the activities of prepaid subscription cards, in-game purchases and services, retail sales of physical “boxed” products, online download sales of PC products, purchases and downloads via third-party console, mobile, and tablet platforms, and licensing of softwareour MLG business, which is devoted to ~~third-party or related party companies that distribute Blizzard products.~~esports.

Blizzard’s key product franchises include: World of Warcraft®, a subscription-based massive multi-player online role-playing game (“MMORPG”) for the PC; StarCraft®, a real-time strategy PC franchise; Diablo®, an action role-playing franchise for the PC and console platforms; Hearthstone®, an online collectible card franchise for the PC and mobile platforms; Heroes of the Storm®, a free-to-play team brawler for the PC; and Overwatch®, a team-based first-person shooter for the PC and console platforms.

(iii) King Digital Entertainment ~~plc~~

King ~~Digital Entertainment~~ is a leading global developer and publisher of interactive ~~mobile~~ entertainment ~~company that develops~~content and ~~distributes games~~services, particularly on mobile platforms, such as Android and ~~iOS along with games that can be played~~iOS. King also distributes its content and services on online social platforms, such as Facebook and the king.com websites. ~~King has four established~~King’s games are free-to-play, ~~franchises:~~however, players can acquire in-game virtual items, either with virtual currency the players purchase, or directly using real currency.

~~(iv)~~ Other

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

Business Results and Highlights

~~For~~Financial Results

During the three months ended June 30, ~~2016, Activision Blizzard had~~2017:

· consolidated net revenues increased 4% to $1.63 billion and consolidated operating income increased 46% to $339 million, as compared to consolidated net revenues of ~~$1.6~~$1.57 billion ~~as compared to net revenues~~and consolidated operating income of ~~$1.0 billion~~$232 million for ~~the same period in 2015. For~~ the three months ended June 30, ~~2016, Activision Blizzard had earnings per diluted share of $0.17,~~2016;

· revenues from digital online channels increased 15% to $1.31 billion, as compared to ~~earnings per diluted share of $0.29~~$1.14 billion for the ~~same period in 2015.~~

~~For the six~~three months ended June 30, ~~2016, Activision Blizzard had net revenues of $3.0 billion,~~2016;

· operating margin was 20.8%, as compared to net revenues of $2.3 billion for the same period in 2015. For the six months ended June 30, 2016, Activision Blizzard had earnings per diluted share of $0.61, as compared to earnings per diluted share of $0.81 for the same period in 2015.

~~Net revenues~~with 14.8% for the three months ended June 30, 2016, ~~include a~~with the higher margin being primarily due to an increased percentage of revenues coming from higher-margin online digital channels;

· consolidated net ~~effect~~income increased 61% to $243 million, as compared to $151 million for the three months ended June 30, 2016;

· consolidated net income included $13 million of ~~$39~~excess tax benefits from share-based payments, as compared to $24 million for the three months ended June 30, 2016; and

· our diluted earnings per common share increased 60% to $0.32, as compared to $0.20 for the three months ended June 30, 2016.

During the six months ended June 30, 2017:

· consolidated net revenues increased 11% to $3.36 billion and consolidated operating income increased 20% to $831 million, as compared to consolidated net revenues of $3.03 billion and consolidated operating income of $693 million for the six months ended June 30, 2016;

· revenues from ~~additional deferral of net revenues. Net revenues~~digital online channels increased 30% to $2.69 billion, as compared to $2.07 billion for the six months ended June 30, 2016;

· operating margin was 24.8%, as compared with 22.9% for the six months ended June 30, 2016, ~~include~~with the higher margin being primarily due to an increased percentage of revenues coming from higher-margin online digital channels;

· cash flows generated from operating activities were $676 million, a decrease of 20%, as compared to $840 million for the six months ended June 30, 2016;

· consolidated net ~~effect~~income increased 30% to $669 million, as compared to $514 million for the six months ended June 30, 2016;

· consolidated net income included $82 million of ~~$508~~excess tax benefits from share-based payments, as compared to $51 million ~~from recognition of deferred net revenues.~~ for the six months ended June 30, 2016; and

· our diluted earnings per common share increased 29% to $0.88, as compared to $0.68 for the six months ended June 30, 2016.

Since certain of our games are hosted or include online functionality that represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable, we initially defer the software-related revenues from the sale of these games and recognize the attributable revenues ~~attributable to these games~~ over ~~their~~the relevant estimated service periods, which are generally less than a year.

~~Also,~~ Net revenues for the three and six months ended June 30, ~~2016, as~~2017 include a ~~result~~net effect of ~~the King Acquisition, our net revenues include $458~~$213 million and ~~$641~~$742 million, respectively, from the recognition of deferred net revenues. Operating income for the three and ~~our~~six months ended June 30, 2017 includes a net ~~income includes $(49)~~effect of $105 million and ~~$(99)~~$501 million, respectively, from ~~King’s operations, respectively, after adjustments for purchase price accounting, inclusive~~the recognition of ~~amortization of intangible assets, share-based payments, and deferral of~~deferred net revenues and related cost of revenues. Our earnings under accounting principles generally accepted in the United States of America (“U.S. GAAP”) are expected to be down versus prior-year as the expected results will be impacted by accounting charges associated with the King Acquisition, which include, among other things, integration and acquisition-related costs, the amortization of intangible assets resulting from purchase price accounting adjustments, share-based payments, and the related tax impact from the King Acquisition. The majority of these GAAP accounting charges will not impact the economics or operating cash flows of our business, although they will have a material impact on our 2016 GAAP results.

On February 2, 2016, our Board of Directors declared a cash dividend of $0.26 per common share, payable on May 11, 2016, to shareholders of record at the close of business on March 30, 2016. On May 11, 2016, we made an aggregate cash dividend payment of $192 million to such shareholders, and on May 27, 2016, we made related dividend equivalent payments of $3 million to certain holders of restricted stock rights.Release Highlights

~~Activision Blizzard Recent~~Games and ~~Upcoming Product Releases~~

~~We have recently~~digital downloadable content that were released ~~or expect to release~~during the ~~following titles and games, among other titles:~~three months ended June 30, 2017 include:

· ~~Blizzard released~~Activision’s ~~Whispers of the Old Gods™,~~ ~~the third expansion to~~ ~~Hearthstone~~: ~~Heroes of Warcraft~~~~, on April 26, 2016.~~

· ~~Activision released~~ ~~Call of Duty: Black Ops III Eclipse~~Continuum, the second downloadable content pack for Call of Duty: ~~Black Ops III,~~Infinite Warfare™ ~~on the PS4 on April 19, 2016, and on Xbox One and PC on May 19, 2016.~~;

· ~~Blizzard released~~ ~~Overwatch~~~~, its team-based first-person shooter, on May 24, 2016.~~

· ~~King released~~ ~~Farm Heroes Super Saga~~~~™, the sequel to the original~~ ~~Farm Heroes Saga,~~ ~~on PC on June 14, 2016, and on mobile platforms on June 28, 2016.~~

· ~~Activision released~~Activision’s Call of Duty: Black Ops III ~~Descent~~Zombies Chronicles, ~~the third~~a downloadable content pack ~~for~~of remastered zombies maps from Call of Duty: World at War, Call of Duty: Black Ops, and Call of Duty: Black Ops ~~III,~~II ~~on the PS4 on July 12, 2016, and expects to release it on Xbox One and PC in August 2016.~~;

· ~~Blizzard expects to release~~Activision’s ~~One Night in Karazhan~~Crash Bandicoot™ N. Sane Trilogy™, a ~~new adventure~~remastered version for ~~Hearthstone: Heroes~~PlayStation 4 of ~~Warcraft~~~~, on August 11, 2016.~~

· ~~Blizzard expects to release~~ ~~World of Warcraft: Legion~~™,the ~~sixth expansion for Blizzard’s acclaimed massively multiplayer online role-playing game, on August 30, 2016.~~first three Crash Bandicoot games;

· ~~Activision expects~~Blizzard’s Journey to ~~release~~Un’Goro™, the latest expansion to ~~Destiny: Rise of Iron~~,Hearthstone ~~a large expansion in the~~ ~~Destiny~~ ~~universe available for the PS4~~; and ~~Xbox One, on September 20, 2016.~~

· ~~Activision expects to release~~Blizzard’s ~~Skylanders Imaginators~~Rise of the Necromancer™, ~~the next iteration in the Skylanders franchise, on October 13, 2016.~~a downloadable content pack for Diablo III.

· ~~Activision expects to release~~ ~~Call of Duty: Infinite Warfare~~ ~~and~~ ~~Infinite Warfare Legacy Edition~~~~, featuring~~ ~~Modern Warfare Remastered~~~~, on the PS4, Xbox One, and PC on November 4, 2016.~~

Monthly Active ~~Users (“MAUs”)~~Users: Measuring the Size of Our User Base

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

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

	June 30, 2016	March 31, 2016	December 31, 2015	September 30, 2015	June 30, 2015	March 31, 2015	June 30, 2017	March 31, 2017	December 31, 2016	September 30, 2016	June 30, 2016	March 31, 2016
Activision	49	55	55	46	45	50	47	48	51	46	49	55
Blizzard	33	26	26	28	29	21	46	41	41	42	33	26
King	409	463	449	474	501	550	314	342	355	394	409	463
Total	491	544	530	548	575	621	407	431	447	482	491	544

Average MAUs decreased by 5324 million, or ~~10%~~6%, for the quarter ended June 30, ~~2016,~~2017, as compared to the quarter ended March 31, 2017. The decrease in King’s average MAUs is due to decreases across franchises reflecting the maturity of released titles, as well as a decrease in Bubble Witch 3 Saga MAUs during the current quarter given the title launched in the prior quarter. The increase in Blizzard’s average MAUs is due primarily to higher MAUs for the Hearthstone and Heroes of the Storm franchises, in part due to content and feature releases during the quarter.

Average MAUs decreased by 84 million, or 17%, for the quarter ended June 30, 2017, as compared to the quarter ended June 30, 2016. The decrease in King’s average MAUs is due to decreases across King’s franchises that are largely attributable to less engaged users leaving the ~~performance of more mature titles, seasonality, and product launch timing~~. ~~The decrease in Activision’s average MAUs is due to the timing of slate releases, with the launch of~~ ~~Call of Duty: Black Ops III~~ ~~in November 2015, which contributed to higher average MAUs for the quarter ended March 31, 2016. The~~network. This decrease is partially offset by the increase in Blizzard’s average MAUs, ~~due to~~driven by the release of Overwatch in May ~~2016.~~2016, along with higher MAUs for the Hearthstone and Heroes of the Storm franchises.

Average MAUs decreased by 84 million, or 15%, for the quarter ended June 30, 2016, as compared to the quarter ended June 30, 2015. Activision’s and Blizzard’s average MAUs grew year-over-year, driven by the Call of Duty franchise and the release of ~~Overwatch.~~ ~~King’s average MAUs declined year-over-year due to the performance of more mature titles, partially offset by the release of new titles during the past twelve months, most notably~~ ~~Candy Crush Jelly Saga~~™.

Management’s Overview of Business Trends

~~Digital Online Channel Revenues~~Interactive Entertainment and Mobile Gaming Growth

~~We provide~~Our business participates in the global interactive entertainment industry. Games have become an increasingly popular form of entertainment, and we estimate the total industry has grown, on average, 19% annually over the last four calendar years. The industry continues to benefit from additional players entering the market as interactive entertainment becomes more commonplace across age groups and as more developing regions increasingly gain access to this form of entertainment.

Further, the wide adoption of smart phones globally and the free-to-play business model on those platforms has increased the total addressable market for gaming significantly. Smart phones and associated free-to-play games have introduced gaming to new age groups and new regions and allowed gaming to occur more widely outside the home. Mobile gaming is now estimated to be larger than console and PC gaming and continues to grow at a significant rate. King is a leading developer of mobile and free-to-play games. In addition, our ~~products~~other business units have mobile efforts underway that present the opportunity for us to drive additional player investment from our franchises.

Opportunities to Expand Franchises Outside of Games

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

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

According to Activision Blizzard internal estimates, overall industry digital gaming revenues for the six months ended June 30, 2016, increased by approximately 30% as compared to the same period in 2015, with mobile growth at 51%. The primary drivers of the increase in digital gaming revenues were increases in microtransaction purchases and consumer purchases of full games or downloadable content, or via ~~digital channels. In addition~~microtransactions. Given the passion our players have for our franchises, we believe there are emerging opportunities to ~~increasing microtransaction purchases within free-to-play games, the increase includes microtransaction purchases within purchased~~drive player investment outside of game ~~software,~~purchases. These opportunities include esports, film and television, and consumer products. Our efforts to build these additional opportunities are still relatively nascent, but we view them as ~~publishers offer increasingly new opportunities for monetization within their games to extend and enlarge the monetization cycle. Digital revenues are an important~~potentially significant sources of future revenues.

As part of our ~~business,~~efforts to take advantage of the esports opportunity, and as announced in July 2017, we ~~continue~~completed the sale of the first Overwatch LeagueTM teams for major global cities to ~~focus on~~seven entrepreneurs and ~~develop products, such as downloadable content, that can be delivered via digital channels.~~leaders from esports and traditional sports. The ~~amount of our digital revenues in any period may fluctuate depending in part on~~Overwatch League is the timing and nature of our specific product releases. Our sales of digital downloadable content are driven in part by sales of, and engagement by players in, our retail products. As such, lower revenues in our retail distribution channels in the current year may impact our revenues through digital online channels in the subsequent year.first major global professional esports league with city-based teams.

For the three months ended June 30, 2016, revenues through digital online channels increased by $572 million, as compared to the same period in 2015, and represented 73% of our total consolidated net revenues, as compared to 55% for the same period in 2015. The digital online channel revenues for the three months ended June 30, 2016 include a net effect of $261 million from additional deferral of net revenues.

For the six months ended June 30, 2016, revenues through digital online channels increased by $917 million, as compared to the same period in 2015, and represented 68% of our total consolidated net revenues, as compared to 50% for the same period in 2015. The digital online channel revenues for the six months ended June 30, 2016 include a net effect of $132 million from additional deferral of net revenues.

Concentration of ~~Top Titles~~Sales Among the Most Popular Franchises

The concentration of retail revenues among key titles has continued as a trend in the overall interactive software industry. According to The NPD Group, the top 10 titles accounted for ~~33%~~32% of the retail sales in the U.S. interactive entertainment industry in ~~2015.~~2016. Similarly, a significant portion of our revenues ~~has~~have historically been derived from video games based on a few popular franchises and these video games were responsible for a disproportionately high percentage of our profits. For example, the Call of Duty, Candy Crush, World of Warcraft, ~~Skylanders,~~ and ~~Destiny~~Overwatch franchises, ~~combined~~collectively, accounted for ~~71%~~69% of our consolidated net revenues, and a significantly higher percentage of our operating income, for ~~2015. As~~2016.

The top titles in the industry are also becoming more consistent as players and revenues concentrate more heavily in established franchises. Each of the top 10 console franchises in 2016 was a ~~result, successful competition against these titles can significantly impact our performance.~~previously established franchise. Similarly, according to U.S rankings for the Apple App Store and Google Play Store, per App Annie Intelligence as of June 2017, the top 10 mobile games have an average tenure of 26 months.

WeIn addition to investing in and developing sequels and content for our top titles, we are continually exploring additional ~~investments~~ways to expand those franchises. Further, we invest in ~~existing~~new properties in an effort to develop the future top franchises. In 2014, we released Hearthstone and ~~future franchises. During~~Destiny, in 2015, we released Heroes of the Storm, ~~as well as~~ ~~Call of Duty Online~~and in ~~China and on May 24,~~ 2016, we released Overwatch.

There is no guarantee these investments will result in established franchises. Additionally, ~~on February 23, 2016, we completed the King Acquisition, diversifying~~to diversify our portfolio of key franchises and ~~increasing~~increase our presence in the mobile market. We see similar concentration of key titles accounting for a disproportionate amount of digital sales in that market. According to the U.S. ranking for the Apple App Store, per App Annie Intelligence, seven mobile titles remained in the top 10 ranking of gross sales for all four quarters during 2015.market, on February 23, 2016, we acquired King.

Overall, we do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of our, and the industry’s, revenues and profits in the near future. Accordingly, our ability to maintain our top franchises and our ability to successfully compete against our competitors’ top franchises can significantly impact our performance.

Recurring Revenue Business Models

Increased consumer online connectivity has allowed us to offer players new investment opportunities and to shift our business to a more recurring and year-round model. Offering downloadable content and microtransactions, in addition to full games, allows our players to access and invest in new content throughout the year. This incremental content not only provides additional high-margin revenue, it can also increase engagement. Also, mobile games, and free-to-play games more broadly, are generally less seasonal.

Consolidated Statements of Operations Data

The following table sets forth condensed consolidated statements of operations data for the periods indicated in dollars and as a percentage of total net revenues, except for cost of revenues, which are presented as a percentage of associated revenues (amounts in millions):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,							For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016				2015			2017			2016			2017			2016
Net revenues
Product sales	$	501	32%	$	528	51%	$	1,145		38%	$	1,311	56%	$	481	29%	$	501	32%	$	989	29%	$	1,145	38%
Subscription, licensing and other revenues	1,069		68	516		49	1,880			62	1,011		44
Subscription, licensing, and other revenues														1,150		71	1,069		68	2,367		71	1,880		62
Total net revenues	1,570		100	1,044		100	3,025			100	2,322		100	1,631		100	1,570		100	3,356		100	3,025		100

Costs and expenses:
Cost of revenues - product sales (1) :
Cost of revenues—product sales:
Product costs	149		30	147		28	318			28	349		27	130		27	149		30	273		28	318		28
Software royalties, amortization, and intellectual property licenses	80		16	70		13	208			18	211		16	75		16	80		16	163		16	208		18
Cost of revenues - subscription, licensing, and other revenues (1):
Cost of revenues—subscription, licensing, and other revenues:
Game operations and distribution costs	241		23	61		12	383			20	120		12	236		21	241		23	468		20	383		20
Software royalties, amortization, and intellectual property licenses	128		12	19		4	180			10	30		3	120		10	128		12	242		10	180		10
Product development	249		16	149		14	424			14	294		13	252		15	249		16	478		14	424		14
Sales and marketing	322		21	164		16	490			16	256		11	308		19	322		21	554		17	490		16
General and administrative	169		11	102		10	329			11	188		8	171		10	169		11	347		10	329		11
Total costs and expenses	1,338		85	712		68	2,332			77	1,448		62	1,292		79	1,338		85	2,525		75	2,332		77

Operating income	232		15	332		32	693			23	874		38	339		21	232		15	831		25	693		23

Interest and other expense (income), net	65		4	50		5	117			4	100		5	46		3	65		4	85		3	117		4

Income before income tax expense	167		11	282		27	576			19	774		33	293		18	167		11	746		22	576		19

Income tax expense	40		3	70		7	113			4	168		7	50		3	16		1	77		2	62		2

Net income	$	127	8%	$	212	20%	$		463	15%	$	606	26%	$	243	15%	$	151	10%	$	669	20%	$	514	17%

~~(1) In periods prior to the three months ended June 30, 2016, we presented cost of revenues in~~Consolidated Net Revenues

The following table summarizes our consolidated ~~statements of operations~~net revenues and the increase/(decrease) in four financial statement captions: “Cost of sales - product costs,” “ Cost of sales - online,” “Cost of sales - software royalties and amortization,” and “Cost of sales - intellectual property licenses.” In our Condensed Consolidated Statements of Operationsdeferred net revenues recognized for the three and six months ended June 30, 2017 and 2016 ~~we revised the presentation to more clearly align our costs of revenues with the associated revenue captions as follows:~~(amounts in millions):

	For the Three Months Ended June 30,							For the Six Months Ended June 30,
	2017		2016		Increase / (decrease)		% Change	2017		2016		Increase / (decrease)		% Change
Consolidated net revenues	$	1,631	$	1,570	$	61	4%	$	3,356	$	3,025	$	331	11%
Net effect from recognition (deferral) of deferred net revenues	213		(39)		252			742		508		234

~~Cost of~~Consolidated Net Revenues

Q2 2017 vs. Q2 2016

The increase in consolidated net revenues ~~- product sales:~~for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was primarily due to:

~~(i)~~· ~~“Product costs” -~~higher revenues recognized from Overwatch, which was released in May 2016; and

· higher revenues recognized from World of Warcraft, driven by the release of World of Warcraft: Legion™ in August 2016, with no comparable release in 2015.

The increase was partially offset by lower revenues recognized from the Call of Duty franchise, primarily due to the performance of Call of Duty: Infinite Warfare (which, when referred to herein, is inclusive of Call of Duty: Modern Warfare® Remastered), which was released in November 2016, as compared to the performance of Call of Duty: Black Ops III, the comparable 2015 title.

YTD Q2 2017 vs. YTD Q2 2016

The increase in consolidated net revenues for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to:

· higher revenues recognized from Overwatch;

· higher revenues from King titles, driven by the Candy Crush franchise, as the current period includes King revenues for the ~~manufacturing cost~~full year-to-date period, while the comparable prior period only included King revenues for the partial period following the King Closing Date; and

· higher revenues recognized from World of ~~goods produced~~Warcraft, driven by the release of World of Warcraft: Legion™ in August 2016, with no comparable release in 2015.

The increase was partially offset by lower revenues recognized from the Call of Duty franchise, primarily due to the performance of Call of Duty: Infinite Warfare, as compared to the performance of Call of Duty: Black Ops III.

Change in Deferred Revenues Recognized

Q2 2017 vs. Q2 2016

The increase in net deferred revenues recognized for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was primarily due to higher deferred revenues recognized from Overwatch. The increase was partially offset by lower deferred revenues recognized from Call of Duty: Infinite Warfare, as compared to Call of Duty: Black Ops III.

YTD Q2 2017 vs. YTD Q2 2016

The increase in net deferred revenues recognized for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to:

· net deferred revenues recognized from Overwatch in 2017 as compared to a net deferral of revenues in the comparable prior period due to Overwatch’s release in May 2016; and ~~sold during the reporting period. This generally includes product costs, manufacturing royalties, net~~

· higher deferred revenues recognized from World of ~~volume discounts, personnel-related costs, warehousing, and distribution costs. We generally recognize volume discounts when they are earned (typically in connection with the achievement~~Warcraft, driven by deferred revenues recognized from World of ~~unit-based milestones)~~Warcraft: Legion.

~~(ii)~~ ~~“Software royalties, amortization, and intellectual property licenses” - includes~~The increase was partially offset by lower deferred revenues recognized from the ~~amortization~~Call of ~~capitalized software costs and royalties attributable~~Duty franchise, primarily due to ~~product sales revenues. These are costs capitalized on~~ the ~~balance sheet until the respective games are released, at which time the capitalized costs are amortized. Also included is amortization~~performance of ~~intangible assets recognized in purchase accounting attributable~~Call of Duty: Infinite Warfare, as compared to ~~product sales revenues.~~Call of Duty: Black Ops III.

Foreign Exchange Impact

~~Cost~~Changes in foreign exchange rates had a negative impact of $28 million and $61 million on Activision Blizzard’s consolidated net revenues ~~- subscription, licensing,~~for the three and ~~other revenues:~~

~~(i)~~ ~~“Game operations and distribution costs” - includes costs to operate our games, such~~six months ended June 30, 2017, respectively, as ~~customer service, internet bandwidth and server costs, platform provider fee, and payment provider fees.~~

~~Prior periods have been reclassified to conform~~compared to the ~~current presentation.~~impact on net revenues for the three and six months ended June 30, 2016. The changes are primarily due to changes in the value of the U.S. dollar relative to the Euro and British pound.

Operating Segment Results

Currently, we have three reportable segments. 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~~chief operating decision maker (“CODM”), the manner in which we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments in determining and disclosing our reportable segments.

. The CODM reviews segment performance exclusive ofof: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled ~~games, stock-based~~games; share-based compensation ~~expense,~~expense; amortization of intangible assets as a result of purchase price ~~accounting, and~~accounting; fees and other expenses (including legal fees, expenses, and accruals) related to ~~financings~~acquisitions, associated integration activities, and ~~acquisitions.~~financings; certain restructuring costs; and other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.

Our operating segments are also consistent with our internal organization structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments. As discussed in the “Business Overview” above, commencing with the second quarter of 2017, we made changes to our operating segments which reflect the changes in our organization and reporting structure. Our MLG business, which was previously included in the non-reportable “Other segments,” is now presented within the Blizzard reportable operating segment. Prior period amounts have been revised to reflect this change. This change had no impact on consolidated net revenues or operating income.

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2016

2015

Increase /
(Decrease)

2016

2015

Increase /
(Decrease)

Segment net revenues:

Activision

$
332

$
313

$
19

$
692

$
616

$
76

Blizzard

738

385

353

1,032

737

295

King

484

—

484

691

—

691

Reportable segments net revenues total

1,554

698

856

2,415

1,353

1,062

Reconciliation to consolidated net revenues:

Other segments (1)

55

61

102

109

Net effect from recognition (deferral) of deferred net revenues

(39)

285

508

860

Consolidated net revenues

$
1,570

$
1,044

$
3,025

$
2,322

Segment income (loss) from operations:

Activision

$
88

$
57

$
31

$
187

$
121

$
66

Blizzard

333

117

216

419

256

163

King

176

—

176

243

—

243

Reportable segment income from operations total

597

174

423

849

377

472

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

Other segments (1)

(9)

(1)

(9)

(1)

Net effect from recognition (deferral) of deferred net revenues and related cost of revenues

(108)

181

261

545

Stock-based compensation expense

(41)

(21)

(85)

(44)

Amortization of intangible assets

(203)

(1)

(285)

(3)

Fees and other expenses related to acquisitions (2)

(4)

—

(38)

—

Consolidated operating income

232

332

693

874

Interest and other expense (income), net

65

50

117

100

Consolidated income before income tax expense

$
167

$
282

$
576

$
774

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017		2016		Increase / (Decrease)		2017		2016		Increase / (Decrease)
Segment net revenues:
Activision	$	316	$	332	$	(16)	$	532	$	692	$	(160)
Blizzard	566		741		(175)		1,009		1,038		(29)
King	480		484		(4)		954		691		263
Reportable segments net revenues total	1,362		1,557		(195)		2,495		2,421		74

Reconciliation to consolidated net revenues:
Other segments (1)	56		52				119		96
Net effect from recognition (deferral) of deferred net revenues (2)	213		(39)				742		508
Consolidated net revenues	$	1,631	$	1,570			$	3,356	$	3,025

Segment income (loss) from operations:
Activision	$	87	$	88	$	(1)	$	111	$	187	$	(76)
Blizzard	225		329		(104)		384		413		(29)
King	164		176		(12)		330		243		87
Reportable segment income from operations total	476		593		(117)		825		843		(18)

Reconciliation to consolidated operating income and consolidated income before income tax expense:
Other segments (1)	(5)		(5)				(3)		(3)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues	105		(108)				501		261
Share-based compensation expense	(39)		(41)				(73)		(85)
Amortization of intangible assets	(194)		(203)				(384)		(285)
Fees and other expenses related to the King Acquisition (2)	(5)		(4)				(9)		(38)
Restructuring costs (3)	—		—				(11)		—
Other non-cash charges (4)	1		—				(15)		—
Consolidated operating income	339		232				831		693
Interest and other expense (income), net	46		65				85		117
Consolidated income before income tax expense	$	293	$	167			$	746	$	576

(1) ~~“Other segments” includes~~Other segments include other income and expenses from operating segments managed outside the reportable segments, including our ~~MLG,~~ Studios and Distribution businesses. Other segments also ~~includes~~include unallocated corporate income and expenses.

(3) Reflects restructuring charges incurred, primarily severance costs.

(4) Reflects a non-cash accounting charge to reclassify certain cumulative translation losses into earnings due to the substantial liquidation of certain of our foreign entities.

Segment Net Revenues

Activision

~~Activision~~Q2 2017 vs. Q2 2016

The decrease in Activision’s net revenues ~~increased~~ for the three ~~and six~~months ended June 30, 2017, as compared to the three months ended June 30, 2016, ~~as compared to 2015,~~was primarily due to ~~higher~~lower revenues from Call of Duty: ~~Black Ops III~~~~, which was released in the fourth quarter of 2015, and its digital content, as compared to~~ ~~Call of Duty: Advanced~~Infinite Warfare, which was released in the fourth quarter of ~~2014. The increase was partially offset by lower revenues from the Destiny franchise, as the expansion pack,~~ ~~The Dark Below~~~~, was released in the three months ended June 30, 2015, with no comparable release in 2016, and lower revenues from the Skylanders franchise.~~

~~Blizzard~~

~~Blizzard’s net revenues increased for the three and six months ended June 30,~~ 2016, as compared to Call of Duty: Black Ops III, the comparable 2015 ~~primarily due to~~title.

The decrease was partially offset by:

· revenues from the ~~Overwatch,~~ ~~a new team-based first-person shooter released on May 24, 2016, and increased revenue from~~ ~~Hearthstone: Heroes~~Call of ~~Warcraft,~~Duty: Black Ops III ~~which benefited from its release on iPhone and Android smartphones in April 2015. These increases were partially offset by lower revenues from~~downloadable content pack, ~~Diablo III: Reaper of Souls~~Zombies ChroniclesTM~~in China,~~, which was released ~~during the three months ended June 30, 2015,~~in May 2017, with no comparable prior year release, ~~in 2016,~~as well as continued in-game microtransactions from Call of Duty: Black Ops III; and ~~lower~~

· revenues from~~Heroes of the Storm~~ ~~due to~~ the release of the ~~Founders’ Pack, a digital bundle containing in-game add on content, during the three months ended~~Crash Bandicoot N. Sane Trilogy in June ~~30, 2015, with no comparable release~~2017.

YTD Q2 2017 vs. YTD Q2 2016

The decrease in ~~2016. Additionally,~~Activision’s net revenues for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to the ~~increased~~same drivers and partially offsetting factors as those for the three months ended June 30, 2017 discussed above.

Blizzard

Q2 2017 vs. Q2 2016

The decrease in Blizzard’s net revenues ~~were~~for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was primarily due to lower revenues from Overwatch, which was released in May 2016. The decrease was partially offset by ~~lower revenues from~~ ~~World~~the prior-year negative impact of ~~Warcraft~~ ~~due to a smaller subscriber base and~~ a reserve established in the second quarter of 2016 due to a ~~value added~~value-added tax (VAT) ~~audit.~~audit, with no comparable reserve established for the three months ended June 30, 2017.

YTD Q2 2017 vs. YTD Q2 2016

The decrease in Blizzard’s net revenues for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to lower revenues from Overwatch, partially offset by higher revenues from World of Warcraft.

King

Q2 2017 vs. Q2 2016

King’s net revenues ~~represent~~for the three months ended June 30, 2017, were comparable to net revenues for the three months ended June 30, 2016. This was driven by slight declines in revenues across King’s various franchises, partially offset by higher revenues from the ~~King Closing Date through June 30, 2016. The revenues were primarily driven by the Candy Crush~~Bubble Witch franchise ~~which included~~due to the release of ~~Candy Crush Jelly~~Bubble Witch 3 Saga ~~in January 2016.~~at the beginning of 2017.

YTD Q2 2017 vs. YTD Q2 2016

The increase in King’s net revenues for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to the current period including King revenues for the full year-to-date period, while the comparable prior period only included King revenues for the partial period following the King Closing Date.

Segment Income from Operations

Activision

~~Activision~~Q2 2017 vs. Q2 2016

Activision’s operating income ~~increased~~ for the three months ended June 30, 2017, was comparable to the three months ended June 30, 2016, despite the decrease in revenues discussed above. This was driven by:

· an increased percentage of revenues coming from higher-margin online digital channels;

· lower product development costs from the Skylanders franchise, as we do not have a new release title planned for 2017; and

· offset by, higher sales and marketing costs for the Destiny franchise given the expected Destiny 2 release in September 2017, with no comparable release in the prior year.

YTD Q2 2017 vs. YTD Q2 2016

The decrease in Activision’s operating income for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, ~~as compared to 2015,~~was primarily due to the lower revenues discussed above. The decrease was also due to higher ~~revenues,~~sales and marketing costs for the Destiny franchise given the expected Destiny 2 release in September 2017, with no comparable release in the prior year.

The decrease was partially offset by:

· lower product development costs, driven by lower costs for the Skylanders franchise and lower accrued bonuses; and

· lower sales and marketing ~~spending, and~~costs for the ~~allocation of~~Skylanders franchise, as we do not have a ~~portion of general and administrative corporate costs~~new release title planned for 2017.

Blizzard

Q2 2017 vs. Q2 2016

The decrease in Blizzard’s operating income for the three months ended June 30, 2017, as compared to ~~King following~~ the ~~King Closing Date.~~three months ended June 30, 2016, was primarily due to the lower revenues discussed above. This was partially offset by ~~increased product development~~lower sales and marketing costs for ~~current and upcoming releases.~~Overwatch given its launch in May 2016.

~~Blizzard~~YTD Q2 2017 vs. YTD Q2 2016

The decrease in Blizzard’s operating income ~~increased~~ for the ~~three and~~six months ended June 30, 2017, as compared to the six months ended June 30, 2016, ~~as compared to 2015,~~was primarily due to higher ~~revenues.~~product development costs resulting from lower capitalization of software development costs due to the timing of game development cycles. This was partially offset by ~~higher~~lower sales and marketing ~~spending to support the current and upcoming product releases.~~costs for Overwatch given its launch in May 2016.

King

~~King~~Q2 2017 vs. Q2 2016

The decrease in King’s operating income for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was primarily due to slightly higher product development and sales and marketing costs, partially offset by lower professional services fees.

YTD Q2 2017 vs. YTD Q2 2016

The increase in King’s operating income for the six months ended June 30, ~~2016 represents~~2017, as compared to the ~~operating income from the acquisition close date through~~six months ended June 30, ~~2016.~~2016, was primarily due to the current period including King’s results of operations for the full year-to-date period, while the comparable prior period only included King’s results of operations for the partial period following the King Closing Date.

Foreign Exchange Impact

Changes in foreign exchange rates had a ~~positive impact of $1 million and a~~ negative impact of ~~$12~~$18 million and $33 million on ~~Activision Blizzard’s~~reportable segment net revenues for the three and six months ended June 30, ~~2016,~~2017, respectively, as compared to the ~~same periods in~~impact on reportable segment net revenues for the ~~previous year.~~three and six months ended June 30, 2016. The changes are primarily due to changes in the value of the ~~United States (“~~U.S.”) dollar relative to the ~~euro~~Euro and British pound.

Consolidated Results

Net Revenues by Distribution Channel

The following table details our consolidated net revenues by distribution channel for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (amounts in millions):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2016

2015

Increase /
(decrease)

2016

2015

Increase /
(decrease)

Net revenues by distribution channel

Digital online channels (1)

$
1,141

$
569

$
572

$
2,067

$
1,150

$
917

Retail channels

374

414

(40)

856

1,063

(207)

Other (2)

55

61

(6)

102

109

(7)

Total consolidated net revenues

$
1,570

$
1,044

$
526

$
3,025

$
2,322

$
703

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017		2016		Increase / (decrease)		2017		2016		Increase / (decrease)
Net revenues by distribution channel
Digital online channels (1)	$	1,309	$	1,141	$	168	$	2,694	$	2,067	$	627
Retail channels	260		374		(114)		529		856		(327)
Other (2)	62		55		7		133		102		31
Total consolidated net revenues	$	1,631	$	1,570	$	61	$	3,356	$	3,025	$	331

The increase/(decrease) in deferred revenues recognized by distribution channel for the three and six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, was as follows (amounts in millions):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,

	2016		2015		Increase / (decrease)		2016		2015		Increase / (decrease)		For the Three Months Ended June 30,						For the Six Months Ended June 30,
													2017		2016		Increase / (decrease)		2017		2016		Increase / (decrease)
Increase/(decrease) in deferred revenues recognized by distribution channel:
Digital online channels (1)	$	(261)	$	(42)	$	(219)	$	(132)	$	1	$	(133)	$	31	$	(261)	$	292	$	350	$	(132)	$	482
Retail channels	222		327		(105)		640		859		(219)		180		222		(42)		385		640		(255)
Net (deferral) / recognition impact on consolidated net revenues	$	(39)	$	285	$	(324)	$	508	$	860	$	(352)
Other (2)													2		—		2		7		—		7
Net effect from recognition (deferral) of deferred net revenues													$	213	$	(39)	$	252	$	742	$	508	$	234

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

(2) Net revenues from Other include revenues from our ~~MLG,~~ Studios and Distribution ~~businesses.~~businesses, as well as revenues from MLG.

Digital Online Channel Net Revenues

Net Revenues

Q2 2017 vs. Q2 2016

The increase in net revenues from digital online channels for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was primarily due to:

· higher revenues recognized from Overwatch, which was released in May 2016; and

· higher revenues recognized from World of Warcraft, driven by the release of World of Warcraft: Legion in August 2016, with no comparable release in 2015.

YTD Q2 2017 vs. YTD Q2 2016

The increase in net revenues from digital online channels for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, ~~as compared to 2015,~~ was primarily due ~~to: new~~to the same drivers as those for the three months ended June 30, 2017 discussed above. The increase was also due to higher revenues from King titles, ~~following the King Closing Date, primarily~~ driven by the Candy Crush ~~franchise; higher~~franchise, as the current period includes King’s revenues ~~recognized from~~ for the full year-to-date period, while the comparable prior period only included King’s revenues for the partial period following the King Closing Date.

~~Call of Duty: Black Ops III~~~~, which was released~~Change in ~~the fourth quarter of 2015, and its digital content, as compared to~~ ~~Call of Duty: Advanced Warfare~~Deferred Revenues Recognized~~, which was released in the fourth quarter of 2014; higher revenues recognized from~~ ~~Hearthstone: Heroes of Warcraft;~~ ~~and revenues from~~ ~~Overwatch,~~ ~~which was released on May 24, 2016.~~

Q2 2017 vs. Q2 2016

The increase ~~was partially offset by lower~~in net deferred revenues recognized ~~from~~ ~~World of Warcraft~~ ~~due to the smaller subscriber base and the release of~~ ~~World of Warcraft: Warlords of Draenor~~®~~in November 2014, with no comparable release in 2015. Net revenues~~ from digital online channels for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was ~~also impacted by a reserve established in the second quarter of 2016~~primarily due to ~~a VAT audit.~~higher deferred revenues recognized from Overwatch.

YTD Q2 2017 vs. YTD Q2 2016

The ~~decrease~~increase in net deferred revenues recognized from digital online channels for the ~~three and~~six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to:

· net deferred revenues recognized from Overwatch in 2017, as compared to ~~2015, was primarily attributed to the~~a net deferral of revenues ~~associated with~~in the comparable prior period, due to Overwatch’s release in May 2016;

· higher deferred revenues recognized from the Call of Duty franchise (the weaker performance of ~~Overwatch~~ Call of Duty: Infinite Warfare digital content in the current period as compared to Call of Duty: Blacks Ops III in the prior period has resulted in less deferrals of revenues from digital content in 2017 as compared to 2016 and, ~~lower~~as a result, higher deferred revenues recognized in the current period); and

· higher deferred revenues recognized from World of Warcraft, ~~primarily associated with~~ ~~World of Warcraft: Warlords of Draenor~~~~, which was released in November 2014. This was partially offset by: increased~~driven by deferred revenues recognized from ~~Call~~World of ~~Duty: Black Ops III~~ Warcraft: Legion~~as compared to~~ ~~Call of Duty: Advanced Warfare;~~ ~~increased deferred revenues recognized from~~ ~~Hearthstone: Heroes of Warcraft;~~ ~~and lower deferral of revenues from the Destiny franchise due to the release of~~ ~~Destiny: House of Wolves~~~~, the second expansion pack, in May 2015, with no comparable release in the current period.~~.

Retail Channel Net Revenues

Net Revenues

Q2 2017 vs. Q2 2016

The decrease in net revenues from retail channels for the three ~~and six~~months ended June 30, 2017, as compared to the three months ended June 30, 2016, ~~as compared to 2015,~~ was primarily due to lower revenues recognized from the ~~Destiny~~Call of Duty franchise, asprimarily due to the performance of ~~Destiny~~Call of Duty: Infinite Warfare, which was released in November 2016, as compared to the ~~third quarter~~performance of ~~2014, with no comparable full-game release in 2015, and lower revenues from the Skylanders franchise. This was partially offset by higher revenues recognized from~~ Call of Duty: Black Ops III, the comparable 2015 title. The decrease was partially offset by revenues from the release of the Crash Bandicoot N. Sane Trilogy in June 2016, which ~~was released~~had no comparable prior year release.

YTD Q2 2017 vs. YTD Q2 2016

The decrease in net revenues from retail channels for the ~~fourth quarter of 2015,~~six months ended June 30, 2017, as compared to ~~Call of Duty: Advanced Warfare~~~~, which~~the six months ended June 30, 2016, was ~~released~~primarily due to the same drivers and partially offsetting factors as those for the three months ended June 30, 2017 discussed above.

Change in ~~the fourth quarter of 2014.~~Deferred Revenues Recognized

Q2 2017 vs. Q2 2016

The decrease in net deferred revenues recognized from retail channels for the three ~~and six~~months ended June 30, 2017, as compared to the three months ended June 30, 2016, ~~as compared to 2015,~~ was primarily ~~attributed to the deferral of revenues associated with the release of~~ ~~Overwatch~~ ~~and lower deferred revenues recognized from the Destiny franchise~~ due to ~~the timing of the full game release. This was partially offset by increased~~lower deferred revenues recognized from Call of Duty: ~~Black Ops III~~ Infinite Warfare, as compared to Call of Duty: ~~Advanced Warfare~~Black Ops III. ~~and~~The decrease was partially offset by net deferred revenues recognized from ~~Guitar Hero~~Overwatch ® ~~Live~~~~, which was released~~in 2017, as compared to a net deferral of revenues in the ~~fourth quarter of 2015.~~comparable prior period, due to Overwatch’s release in May 2016.

YTD Q2 2017 vs. YTD Q2 2016

The decrease in net deferred revenues recognized from retail channels for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to the same drivers and partially offsetting factors as those for the three months ended June 30, 2017 discussed above.

Net Revenues by Geographic Region

The following table details our consolidated net revenues by geographic region for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (amounts in millions):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2016

2015

Increase /
(decrease)

2016

2015

Increase /
(decrease)

Geographic region net revenues:

Americas

$
860

$
551

$
309

$
1,613

$
1,255

$
358

EMEA (1)

507

388

119

1,028

852

176

Asia Pacific

203

105

98

384

215

169

Consolidated net revenues

$
1,570

$
1,044

$
526

$
3,025

$
2,322

$
703

~~The increase/(decrease) in deferred revenues recognized by geographic region for the three and six months ended June 30, 2016 and 2015 was as follows (amounts in millions):~~

	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
													2017		2016		Increase / (decrease)		2017		2016		Increase / (decrease)
	2016		2015		Increase / (decrease)		2016		2015		Increase / (decrease)

Increase/(decrease) in deferred revenues recognized by geographic region:
Geographic region net revenues:
Americas	$	24	$	198	$	(174)	$	317	$	548	$	(231)	$	858	$	860	$	(2)	$	1,787	$	1,613	$	174
EMEA (1)	17		113		(96)		211		309		(98)		538		507		31		1,092		1,028		64
Asia Pacific	(80)		(26)		(54)		(20)		3		(23)		235		203		32		477		384		93
Net (deferral) / recognition impact on consolidated net revenues	$	(39)	$	285	$	(324)	$	508	$	860	$	(352)
Consolidated net revenues													$	1,631	$	1,570	$	61	$	3,356	$	3,025	$	331

(1) EMEA consists of the Europe, Middle East, and Africa geographic regions.

InAmericas

Q2 2017 vs. Q2 2016

Net revenues in the Americas ~~and EMEA, net revenues increased~~region for the three ~~and six~~ months ended June 30, 2017, were comparable to the three months ended June 30, 2016. Net revenues were comparable as the lower revenues recognized from the Call of Duty franchise, primarily due to the performance of Call of Duty: Infinite Warfare, which was released in November 2016, as compared to ~~2015. This was primarily due to: new revenues from King titles since~~ the ~~King Closing Date, with the revenues primarily driven by the Candy Crush franchise; higher revenues recognized from~~performance of Call of Duty: Black Ops III, ~~which was released in~~ the ~~fourth quarter of~~comparable 2015 ~~and its digital content, as compared to~~title, were partially offset by higher revenues recognized from ~~Call of Duty: Advanced Warfare~~Overwatch, which was released in May 2016.

YTD Q2 2017 vs. YTD Q2 2016

The increase in net revenues in the ~~fourth quarter of 2014; and~~Americas region for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to:

· higher revenues from King titles, driven by the Candy Crush franchise, as the current period includes King’s revenues for the full year-to-date period, while the comparable prior period only included King’s revenues for the partial period following the King Closing Date;

· higher revenues recognized from Overwatch~~which was released in May 2016. These were partially offset by: lower revenues recognized from the Destiny franchise, as~~ ~~Destiny~~ ~~debuted in September 2014 but had no comparable full-game release in 2015; lower~~; and

· higher revenues recognized from World of Warcraft~~due to a smaller subscriber base and~~, driven by the release of World of Warcraft: Legion ~~Warcraft: Warlords of Draenor~~ in ~~November 2014,~~August 2016, with no comparable release in ~~2015; and~~2015.

The increase was partially offset by lower revenues recognized from the ~~Skylanders franchise. Additionally, in~~ Call of Duty franchise, primarily due to the performance of Call of Duty: Infinite Warfare, as compared to the performance of Call of Duty: Black Ops III.

EMEA ~~the~~

Q2 2017 vs. Q2 2016

The increase in net revenues in the EMEA region for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was ~~partially offset by~~primarily due to:

· the prior-year negative impact of a reserve established in the second quarter of 2016 due to a ~~VAT audit.~~

~~In Asia Pacific, net revenues increased~~value-added tax (VAT) audit, with no comparable reserve established for the three ~~and six~~ months ended June 30, ~~2016, as compared to 2015. This was primarily due to: new revenues from King titles since the King Closing Date, with the revenues primarily driven by the Candy Crush franchise;~~2017; and

· higher revenues recognized from ~~Hearthstone: Heroes of Warcraft;~~ Overwatch.~~and revenues recognized from~~ ~~Overwatch,~~ ~~which~~

The increase was ~~released in May 2016. These were~~ partially offset by lower revenues recognized from the ~~Diablo~~Call of Duty franchise, primarily due to the ~~timing~~performance of ~~releases. Additionally,~~Call of Duty: Infinite Warfare, as compared to the performance of Call of Duty: Black Ops III.

YTD Q2 2017 vs. YTD Q2 2016

The increase in net revenues in the EMEA region for the six months ended June 30, ~~2016,~~2017, as compared to the ~~increase in net revenues was partially offset by lower revenues recognized from~~ ~~World of Warcraft~~ ~~due to a smaller subscriber base and the release of~~ ~~World of Warcraft: Warlords of Draenor~~ ~~in November 2014, with no comparable release in 2015.~~

~~In Americas and EMEA, the decrease in deferred revenues recognized for the three and~~ six months ended June 30, 2016, was primarily due to the same drivers and partially offsetting factors as those for Americas region discussed above for the six months ended June 30, 2017.

Asia Pacific

Q2 2017 vs. Q2 2016

The increase in net revenues in the Asia Pacific region for the three months ended June 30, 2017, as compared to ~~2015,~~the three months ended June 30, 2016, was primarily ~~attributed to: the deferral of revenues associated with the release of~~ ~~Overwatch~~~~; lower deferred revenues recognized from the Destiny franchise~~ due to ~~the timing of the full game release; and lower deferred~~higher revenues recognized from ~~World of Warcraft~~Overwatch.~~, primarily associated with~~ ~~World of Warcraft: Warlords of Draenor~~~~, which was released~~

YTD Q2 2017 vs. YTD Q2 2016

The increase in ~~November 2014. This was partially offset by increased deferred~~net revenues ~~recognized from~~ ~~Call of Duty: Black Ops III~~ in the Asia Pacific region for the six months ended June 30, 2017, as compared to ~~Call of Duty: Advanced Warfare~~ ~~and increased deferred revenues recognized from~~ ~~Hearthstone: Heroes of Warcraft~~.

~~In Asia Pacific,~~ the ~~decrease in deferred revenues recognized for the three and~~ six months ended June 30, 2016, ~~as compared to 2015,~~ was primarily ~~attributed~~due to ~~the deferral of revenues related to the release of~~ ~~Overwatch,~~ ~~offset by increased deferred~~higher revenues recognized from ~~Hearthstone: Heroes of Warcraft~~ Overwatch.~~and lower deferral of revenues from the Diablo franchisedue to timing of title releases.~~

~~Foreign Exchange Impact~~

Changes in foreign exchange rates had a positive impact of $1 million and a negative impact of $21 million on our consolidated net revenues for the three and six months ended June 30, 2016, respectively, as compared to the same period in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and British pound.

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 months ended June 30, 2016 and 2015 (amounts in millions):~~

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2016

2015

Increase/
(Decrease)

2016

2015

Increase/
(Decrease)

Platform net revenues:

Console

$
650

$
559

$
91

$
1,415

$
1,317

$
98

PC (1)

411

370

41

811

755

56

Mobile and ancillary (2)

454

54

400

697

141

556

Other (3)

55

61

(6)

102

109

(7)

Total consolidated net revenues

$
1,570

$
1,044

$
526

$
3,025

$
2,322

$
703

~~The increase/(decrease) in deferred revenues recognized~~ by platform for the three and six months ended June 30, ~~2016~~2017 and ~~2015 was as follows~~2016 (amounts in millions):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2016

2015

Increase /
(decrease)

2016

2015

Increase /
(decrease)

Increase/(decrease) in deferred revenues recognized by platform:

Console

$
210

$
283

$
(73)

$
648

$
808

$
(160)

PC (1)

(219)

28

(247)

(121)

78

(199)

Mobile and ancillary (2)

(30)

(26)

(4)

(19)

(26)

7

Net (deferral) / recognition impact on consolidated net revenues

$
(39)

$
285

$
(324)

$
508

$
860

$
(352)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2017

2016

Increase/
(Decrease)

2017

2016

Increase/
(Decrease)

Platform net revenues:

Console

  $
568

  $
650

  $
(82)

  $
1,182

  $
1,415

  $
(233)

PC

508

411

97

1,072

811

261

Mobile and ancillary (1)

493

454

39

969

697

272

Other (2)

62

55

7

133

102

31

Total consolidated net revenues

  $
1,631

  $
1,570

  $
61

  $
3,356

  $
3,025

  $
331

(1)   Net revenues from ~~PC includes revenues that were historically shown as “Online.”~~
~~(2)~~         ~~Net~~Mobile and ancillary include revenues from mobile ~~and ancillary includes revenues from handheld, mobile, and tablet~~ devices, as well as non-platform-specific game-related revenues, such as standalone sales of toys and accessories ~~products~~ from our Skylanders franchise and other physical merchandise and accessories.

~~(3)~~(2)   Net revenues from Other include revenues from ~~MLG,~~our Studios and Distribution ~~businesses.~~businesses, as well as revenues from MLG.
Console
Q2 2017 vs. Q2 2016

~~Net~~The decrease in net revenues from the console ~~increased~~platform for the three ~~and six~~months ended June 30, 2017, as compared to the three months ended June 30, 2016, was primarily due to lower revenues recognized from the Call of Duty franchise, primarily due to the performance of Call of Duty: Infinite Warfare, which was released in November 2016, as compared to ~~2015, primarily due to higher revenues recognized from~~the performance of Call of Duty: Black Ops III, ~~which~~the comparable 2015 title. The decrease was ~~released in the fourth quarter of 2015, and its digital content, as compared to~~partially offset by:
·                  higher revenues recognized from ~~Call of Duty: Advanced Warfare~~Overwatch, which was released in May 2016; and
·                  revenues from the ~~fourth quarter~~release of ~~2014,~~the Crash Bandicoot N. Sane Trilogy in June 2017.
YTD Q2 2017 vs. YTD Q2 2016
The decrease in net revenues from the console platform for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to the same drivers and ~~revenues recognized from~~ ~~Guitar Hero~~® ~~Live~~~~, which~~partially offsetting factors as those for the three months ended June 30, 2017 discussed above. The decrease was ~~released in the fourth quarter of 2015, with no comparable release in 2014. These increases were offset~~also driven by lower revenues recognized from the Destiny ~~franchise as~~ franchise.
~~Destiny~~ PC~~was released~~
Q2 2017 vs. Q2 2016
The increase in ~~the third quarter of 2014, with no comparable full-game release in 2015, and lower~~net revenues from the ~~Diablo franchise due to the timing of title releases.~~
~~Net revenues from~~ PC ~~increased~~platform for the three ~~and six~~months ended June 30, 2017, as compared to the three months ended June 30, 2016, ~~as compared to 2015,~~was primarily due toto:
·                  higher revenues recognized from ~~King titles since the King Closing Date, from revenues recognized on~~ Overwatch~~which was released in May 24, 2016, from~~; and
·                  higher ~~revenues recognized on~~ ~~Hearthstone: Heroes of Warcraft~~~~, and from revenues recognized on~~ ~~StarCraft II: Legacy of the Void~~~~™ which was released in the fourth quarter of 2015. These were partially offset by lower~~ revenues recognized from World of Warcraft~~due to a smaller subscriber base and~~, driven by the release of World of Warcraft: ~~Warlords of Draenor~~ Legionin ~~the fourth quarter of 2014,~~August 2016, with no comparable release in 2015. ~~Additionally, the~~
YTD Q2 2017 vs. YTD Q2 2016
The increase in net revenues ~~was partially offset by a reserve established in the second quarter of 2016 due to a VAT audit.~~
Net revenues from mobile and ancillary increased for the three and six months ended June 30, 2016, as compared to 2015, primarily due to new revenues from King titles since the King Closing Date, which were primarily driven by the Candy Crush franchise, and higher revenues recognized from ~~Hearthstone: Heroes of Warcraft,~~ ~~which was released on iPhone and Android smartphones in April 2015. These were partially offset by lower revenues~~ from the ~~Skylanders franchise.~~
~~Deferred revenues recognized from console decreased for the three and six months ended June 30, 2016, as compared to 2015, primarily due to the deferral of revenues related to the release of~~ ~~Overwatch~~ and lower deferred revenue recognized from the Destiny franchise due to the timing of the full game and additional content releases. The decrease is partially offset by increased deferred revenues recognized from ~~Call of Duty: Black Ops III~~~~, and its digital content, as compared to~~ ~~Call of Duty: Advanced Warfare,~~ ~~and deferred revenues recognized from~~ ~~Guitar Hero Live~~~~, which was released in the fourth quarter of 2015, with no comparable release in 2014~~.
~~Deferred revenues recognized from~~ PC ~~decreased for the three and six months ended June 30, 2016, as compared to 2015, primarily due to the deferral of revenues related to the release of~~ ~~Overwatch,~~ ~~and lower deferred revenues recognized from~~ ~~World of Warcraft~~~~. The decrease is partially offset by lower deferral of revenues from~~ ~~Diablo III~~ ~~due to timing of title releases. Additionally,~~platform for the six months ended June 30, ~~2016,~~2017, as compared to ~~2015,~~ the ~~decrease is partially offset by higher deferred revenues recognized from~~ ~~Hearthstone: Heroes of Warcraft,~~ ~~from revenues recognized from~~ ~~StarCraft II: Legacy of~~six months ended June 30, 2016, was primarily due to the ~~Void~~~~, which was released in the fourth quarter of 2015, and from lower deferrals of revenues on~~ ~~Heroes of the Storm~~.
~~Deferred revenues recognized from mobile and ancillary decreased~~same drivers as those for the three months ended June 30, 2017 discussed above.
Mobile and Ancillary
Q2 2017 vs. Q2 2016 ~~as compared to 2015, primarily due to deferrals of revenue from King titles, most notably the Candy Crush franchise. The decrease is partially offset by higher deferred revenues recognized from~~ ~~Hearthstone: Heroes of Warcraft.~~

~~Deferred~~The increase in net revenues ~~recognized~~ from mobile and ancillary ~~increased~~for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was primarily due to higher revenues from the Bubble Witch franchise, driven by the release of Bubble Witch 3 Saga.
YTD Q2 2017 vs. YTD Q2 2016
The increase in net revenues from mobile and ancillary for the six months ended June 30, ~~2016,~~2017, as compared to ~~2015,~~the six months ended June 30, 2016, was primarily due to higher ~~deferred~~ revenues ~~recognized from~~ ~~Hearthstone: Heroes of Warcraft,~~ ~~partially offset by deferrals of revenue~~ from King ~~titles.~~titles, driven by the Candy Crush franchise, as the current period includes King’s revenues for the full year-to-date period, while the comparable prior period only included King’s revenues for the partial period following the King Closing Date.
Costs and Expenses

Cost of Revenues

The following tables detail the components of cost of revenues in dollars and as a percentage of associated net revenues for the three and six months ended June 30, ~~2016~~2017 and ~~2015~~2016 (amounts in millions):

Three Months
Ended June 30,
2016

% of associated
net revenues

Three Months
Ended June 30,
2015

% of associated
net revenues

Increase
(Decrease)

Three Months
Ended June 30,
2017

% of associated
net revenues

Three Months
Ended June 30,
2016

% of associated
net revenues

Increase
(Decrease)

Cost of revenues - product sales:

Cost of revenues—product sales:

Product costs

$
149

30%

$
147

28%

$
2

  $
130

27%

  $
149

30%

  $
(19)

Software royalties, amortization, and intellectual property licenses

80

16

70

13

10

75

16

80

16

(5)

Cost of revenues - subscription, licensing, and other revenues:

Cost of revenues—subscription, licensing, and other revenues:

Game operations and distribution costs

241

23

61

12

180

236

21

241

23

(5)

Software royalties, amortization, and intellectual property licenses

128

12

19

4

109

120

10

128

12

(8)

Total cost of revenues

$
598

38%

$
297

28%

$
301

  $
561

34%

  $
598

38%

  $
(37)

Six Months
Ended June 30,
2016

% of associated
net revenues

Six Months
Ended June 30,
2015

% of associated
net revenues

Increase
(Decrease)

Cost of revenues - product sales:

Product costs

$
318

28%

$
349

27%

$
(31)

Software royalties, amortization, and intellectual property licenses

208

18

211

16

(3)

Cost of revenues - subscription, licensing, and other revenues:

Game operations and distribution costs

383

20

120

12

263

Software royalties, amortization, and intellectual property licenses

180

10

30

3

150

Total cost of revenues

$
1,089

36%

$
710

30%

$
379

Six Months
Ended June 30,
2017

% of associated
net revenues

Six Months
Ended June 30,
2016

% of associated
net revenues

Increase
(Decrease)

Cost of revenues—product sales:

Product costs

$
273

28%

$
318

28%

$
(45)

Software royalties, amortization, and intellectual property licenses

163

16

208

18

(45)

Cost of revenues—subscription, licensing, and other revenues:

Game operations and distribution costs

468

20

383

20

85

Software royalties, amortization, and intellectual property licenses

242

10

180

10

62

Total cost of revenues

$
1,146

34%

$
1,089

36%

$
57

~~Total cost~~Cost of ~~revenues for the three and six months ended June 30,~~Revenues—Product Sales:
Q2 2017 vs. Q2 2016 ~~increased as compared to the same period~~
The decrease in ~~2015, reflective of the increase in consolidated net revenues.~~
~~Product~~product costs ~~remained relatively flat~~ for the three months ended June 30, ~~2016, when~~2017, as compared to the ~~same period in 2015, despite the lower product sales. This was driven primarily by the release of~~ ~~Overwatch~~ ~~on the console platforms, which had relatively higher product costs compared to other Blizzard titles.~~
~~Product costs decreased for the six~~three months ended June 30, 2016, ~~when compared to the same period in 2015,~~was primarily due toto:
·                  lower product ~~sales. This was partially offset by~~costs associated with the ~~release of~~ ~~Overwatch~~ ~~on the console platforms,~~Skylanders franchise, which tends to have relatively higher product costs ~~compared to other Blizzard titles.~~given the hardware components; and

·                  a relative increase in revenues coming from digital online channels, which typically have relatively lower product costs.
Software royalties, amortization, and intellectual property licenses related to product sales ~~increased~~were comparable for the three months ended June 30, 2017 and the three months ended June 30, 2016.
YTD Q2 2017 vs. YTD Q2 2016
The decrease in product costs for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to ~~higher~~the decrease in product sales for the period. This was partially offset by increased product costs resulting from the increased revenues of our relatively lower-margin Distribution business.
The decrease in software royalties, amortization, and intellectual property licenses related to product sales for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to:
·                  lower developer royalties and software amortization associated with ~~Call~~the Destiny franchise, due to the timing of ~~Duty: Black Ops III~~releases; and
·                  lower software amortization associated with Guitar Hero® Live, which was released in ~~the fourth quarter~~October 2015, with no comparable release in 2016.
The decrease was partially offset by software amortization from World of ~~2015, as compared to~~ ~~Call of Duty: Advanced Warfare~~Warcraft: Legion, which was released in ~~the fourth quarter of 2014, and software amortization associated~~August 2016, with ~~recently released titles without prior comparable titles in the previous period, including~~ ~~Guitar Hero Live~~ ~~and~~ ~~Starcraft II: Legacy of the Void~~~~. These were partially offset by lower software amortization from the Destiny franchise, as~~ ~~Destiny~~ ~~was released in the third quarter of 2014, but had~~ no comparable ~~full-game~~ release in 2015.
Cost of Revenues—Subscription, Licensing, and Other Revenues:
Q2 2017 vs. Q2 2016

Game operations and distribution costs, ~~increased for the three~~ and six months ended June 30, 2016, when compared to the same periods in 2015, primarily due to increased online costs and platform provider fees associated with revenues included since the King Closing Date and increased expenditures to support our growing online activity across our titles.
~~Software~~software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues ~~increased~~for the three months ended June 30, 2017, were comparable to the three months ended June 30, 2016.
YTD Q2 2017 vs. YTD Q2 2016
The increase in game operations and distribution costs for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to higher online costs and platform provider fees associated with revenues from King, as the current period includes King’s costs for a full year-to-date period, while the comparable prior period only included King’s revenues and associated costs for the partial period following the King Closing Date.
The increase in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, was primarily due to a full year-to-date period amortization of internally-developed franchise intangible assets acquired in the King ~~Acquisition.~~Acquisition, while the comparable prior period only included a partial period of amortization of internally-developed franchise intangible assets following the King Closing Date.

Product Development (amounts in millions)

June 30, 2016

% of
consolidated
net revenues

June 30, 2015

% of
consolidated
net revenues

Increase
(Decrease)

June 30, 2017

% of
consolidated
net revenues

June 30, 2016

% of
consolidated
net revenues

Increase
(Decrease)

Three Months Ended

$
249

16%

$
149

14%

$
100

  $
252

15%

  $
249

16%

  $
3

Six Months Ended

$
424

14%

$
294

13%

$
130

  $
478

14%

  $
424

14%

  $
54

Q2 2017 vs. Q2 2016

Product development costs ~~increased~~ for the three ~~and~~months ended June 30, 2017, were comparable to the three months ended June 30, 2016.
YTD Q2 2017 vs. YTD Q2 2016
The increase in product development costs for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, ~~as compared to 2015,~~was primarily ~~from~~due to:
·                  higher Blizzard product development costs ~~associated with~~to support current and future releases and lower capitalization of software development costs due to the timing of game development cycles; and
·                  increased costs related to King, as the current period includes a full year-to-date period of costs, while the comparable prior period only included King’s ~~titles, along with increased~~costs for the partial period following the King Closing Date.
The increase was partially offset by lower Activision product development costs, ~~from Activision’s current and upcoming releases.~~driven by lower accrued bonuses.
Sales and Marketing (amounts in millions)

June 30, 2016

% of
consolidated
net revenues

June 30, 2015

% of
consolidated
net revenues

Increase
(Decrease)

June 30, 2017

% of
consolidated
net revenues

June 30, 2016

% of
consolidated
net revenues

Increase
(Decrease)

Three Months Ended

$
322

21%

$
164

16%

$
158

  $
308

19%

  $
322

21%

  $
(14)

Six Months Ended

$
490

16%

$
256

11%

$
234

  $
554

17%

  $
490

16%

  $
64

Q2 2017 vs. Q2 2016

~~Sales~~The decrease in sales and marketing expenses for the three months ended June 30, 2017, as compared to the three months ended June 30, 2016, was primarily due to lower sales and marketing costs ~~increased~~for Overwatch given it launched in May 2016. The decrease was partially offset by higher sales and marketing costs for the ~~three~~Destiny franchise given the expected Destiny 2 release in September 2017, with no comparable release in the prior year.
YTD Q2 2017 vs. YTD Q2 2016
The increase in sales and marketing expenses for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, ~~as compared to 2015,~~was primarily ~~driven by the~~due to:
·                  increased amortization of the customer base intangible assets acquired in the King Acquisition and increased sales and marketing ~~spending~~costs to support King’s titles, as the current period includes a full year-to-date period of costs, while the comparable prior period only included King’s costs for the partial period following the King Closing Date; and ~~increased spending on~~
·                  higher sales and marketing ~~activity to support~~costs for the Destiny franchise given the expected ~~Overwatch~~Destiny 2 ~~. These increases were~~release in September 2017, with no comparable release in the prior year.
The increase was partially offset by lower ~~spending on~~sales and marketing costs for ~~Guitar Hero Live~~ Overwatch~~and~~ ~~Heroes of the Storm~~. given it launched in May 2016.
General and Administrative (amounts in millions)

June 30, 2016

% of
consolidated
net revenues

June 30, 2015

% of
consolidated
net revenues

Increase
(Decrease)

June 30, 2017

% of
consolidated
net revenues

June 30, 2016

% of
consolidated
net revenues

Increase
(Decrease)

Three Months Ended

$
169

11%

$
102

10%

$
67

  $
171

10%

  $
169

11%

  $
2

Six Months Ended

$
329

11%

$
188

8%

$
141

  $
347

10%

  $
329

11%

  $
18

~~General and administrative expenses increased for~~Q2 2017 vs. Q2 2016
For the three months ended June 30, ~~2016, as compared to 2015, primarily due to King’s~~2017, general and administrative ~~costs, which are included from the King Closing Date, and higher personnel bonuses due~~expenses were comparable to ~~Blizzard’s performance for~~ the three months ended June 30, 2016.
YTD Q2 2017 vs. YTD Q2 2016 ~~as compared to 2015.~~

~~General~~The increase in general and administrative expenses ~~increased~~ for the six months ended June 30, ~~2016,~~2017, as compared to ~~2015,~~the six months ended June 30, 2016, was primarily due to:
·                  increased personnel costs to ~~King’s general~~support the growth of our business and ~~administrative costs, which are~~expanding areas of opportunity; and
·                  the inclusion in the current period of a non-cash accounting charge to reclassify certain losses included ~~from the King Closing Date, and higher professional and transaction related fees~~in our cumulative translation adjustments into earnings due to the substantial liquidation of certain of our foreign entities.
The increase was partially offset by lower transaction costs, as the six months ended June 30, 2016 included the King ~~Acquisition, which closed on February 23, 2016.~~Acquisition.

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

June 30, 2016

% of
consolidated
net revenues

June 30, 2015

% of
consolidated
net revenues

Increase
(Decrease)

June 30, 2017

% of
consolidated
net revenues

June 30, 2016

% of
consolidated
net revenues

Increase
(Decrease)

Three Months Ended

$
65

4%

$
50

5%

$
15

  $
46

3%

  $
65

4%

  $
(19)

Six Months Ended

$
117

4%

$
100

5%

$
17

  $
85

3%

  $
117

4%

  $
(32)

~~Interest~~The decrease in interest and other expense (income), net ~~increased~~ for the three and six months ended June 30, ~~2016,~~2017, as compared to the same periods in 2015, primarily due to increased interest expense associated with the $2.3 billion Tranche A Term Loans that were funded at the King Closing Date. This increase was partially offset by lower interest expense related to our existing term loan as a result of having a lower principal balance during the three and six months ended June 30, 2016, ~~because~~was primarily due to our lower total outstanding debt and lower interest rates on our current debt instruments as a result of ~~voluntary prepayments of $500 million, $250 million, and $800 million made on February 25, 2016, March 31,~~our refinancing activities in 2016 and ~~May 26, 2016, respectively.~~2017.
The decreases were partially offset by write-offs of unamortized discount and deferred financing costs as a result of our debt refinancing and paydown activities. See further discussion below under “Liquidity and Capital Resources.”

Income Tax Expense (amounts in millions)

June 30, 2016

% of pretax
income

June 30, 2015

% of pretax
income

Increase
(Decrease)

June 30, 2017

% of pretax
income

June 30, 2016

% of pretax
income

Increase
(Decrease)

Three Months Ended

$
40

24%

$
70

25%

$
(30)

  $
50

17%

  $
16

10%

  $
34

Six Months Ended

$
113

20%

$
168

22%

$
(55)

  $
77

10%

  $
62

11%

  $
15

The ~~Company accounts~~income tax expense of $50 million for ~~its provision for income taxes in accordance with ASC 740,~~ ~~Income Taxes~~~~, which requires~~the three months ended June 30, 2017, reflects an ~~estimate of the annual~~ effective tax rate of 17%, which is higher than the effective tax rate of 10% for the ~~full year~~three months ended June 30, 2016. The increase is due to ~~be applied to the interim period, taking into account year-to-date amounts~~a decrease in excess tax benefits from share-based payments and ~~projected results~~an increase in reserves for uncertain tax positions, partially offset by a higher mix of foreign earnings taxed at relatively lower statutory rates.
The income tax expense of $77 million for the ~~full year.~~six months ended June 30, 2017, reflects an effective tax rate of 10%, which is lower than the effective tax rate of 11% for the six months ended June 30, 2016. The ~~provision~~decrease is due to an increase in excess tax benefits from share-based payments and a higher mix of foreign earnings taxed at relatively lower statutory rates, partially offset by an increase in reserves for ~~income taxes represents~~uncertain tax positions.
The effective tax rate of 17% and 10% for the three and six months ended June 30, 2017, respectively, is lower than the U.S. statutory rate of 35%, primarily due to foreign earnings taxed at lower statutory rates, the recognition of excess tax benefits from share-based payments, and the recognition of federal ~~foreign, state,~~ and ~~local income taxes.~~ California research and development credits, partially offset by an increase in reserves for uncertain tax positions.
Our effective tax rate differs from the statutory U.S. income tax rate due to the effect of state and local income taxes, tax rates in foreign jurisdictions, and certain nondeductible expenses. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of pre-tax income or loss by jurisdiction; changes in the mix of income by tax jurisdiction (as taxes are levied at relatively lower statutory rates in foreign regions and relatively higher statutory rates in the U.S.); research and development credits; changes in enacted tax laws and regulations, rulings, and interpretations thereof, including with respect to tax credits, and state and local income taxes; developments in tax audits and other matters; recognition of excess tax benefits and tax deficiencies from share-based payments; and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition, or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.

~~The~~Further information about our income ~~tax expense of $40 million for the three months ended June 30, 2016, reflects an effective tax rate of 24%, which~~taxes is lower than the effective tax rate of 25% for the three months ended June 30, 2015. The decrease is due to the mix of foreign earnings taxed at relatively lower statutory rates as compared to domestic earnings.
The income tax expense of $113 million for the six months ended June 30, 2016, reflects an effective tax rate of 20%, which is lower than the effective tax rate of 22% for the six months ended June 30, 2015. The decrease is primarily due to the net benefit related to the settlement of an income tax audit during the first quarter of 2016 and the mix of foreign earnings taxed at relatively lower statutory rates as compared to domestic earnings.
The effective tax rate of 24% for the three months ended June 30, 2016 differs from the US statutory rate of 35%, primarily due to the tax benefit from foreign earnings taxed at relatively lower statutory rates and the recognition of federal and California research and development credits, partially offset by increases to the Company’s reserve for uncertain tax positions.
The effective tax rate of 20% for the six months ended June 30, 2016, differs from the U.S. statutory rate of 35%, primarily due to the tax benefit from foreign earnings taxed at relatively lower statutory rates, the recognition of federal and California research and development credits and the net benefit related to the settlement of an income tax audit during the first quarter of 2016, partially offset by certain nondeductible costs incurred during the period and increases to the Company’s reserve for uncertain tax positions.
~~The overall effective income tax rate for the year will be dependent~~provided in ~~part on our profitability for the remainder~~Note 10 of the ~~year, as well as the other factors described above.~~
The Internal Revenue Service (“IRS”) is currently examining Activision Blizzard’s federal tax returns for the 2009, 2010, and 2011 tax years. During the second quarter of 2015, the Company transitioned the review of its transfer pricing methodology from the advanced pricing agreement review processnotes to the IRS examination team. Their review could result in a different allocation of profits and losses under the Company’s transfer pricing agreements. Such allocation could have a positive or negative impact on our provision for uncertain tax positions for the period in which such a determination is reached and the relevant periods thereafter. In addition, as part of purchase price accounting for the King Acquisition, the Company assumed $77 million of uncertain tax positions primarily related to the transfer pricing of King tax years occurring prior to the King Acquisition. The Company is currently in negotiations with the relevant jurisdictions and taxing authorities, which could result in a different allocation of profits and losses between the relevant jurisdictions.
~~Vivendi Games’ results for the period from January 1, 2008 through July 9, 2008 are~~condensed consolidated financial statements included in the consolidated federal and certain foreign state and local income tax returns filed by Vivendi or its affiliates, while Vivendi Games’ results for the period from July 10, 2008 through December 31, 2008 are included in the consolidated federal and certain foreign, state and local income tax returns filed by Activision Blizzard. IRS Appeals proceedings concerning Vivendi Games’ tax return for the 2008 tax year were concluded during July 2016, but that year remains open to examination by other major taxing authorities. The Company is in the processItem 1 of ~~analyzing the IRS Appeals closing agreements and does not anticipate a significant impact to its consolidated financial statements.~~this Quarterly Report on Form 10-Q.
Certain of our subsidiaries are under examination or investigation or may be subject to examination or investigation by tax authorities in various jurisdictions, including France. These proceedings may lead to adjustments or proposed adjustments to our taxes or provisions for uncertain tax positions. The outcome of such proceedings may have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations in the period or periods in which the matters are resolved or in which appropriate tax provisions are taken into account in our financial statements.   If we were to receive a materially adverse assessment from a taxing jurisdiction, we would plan to vigorously contest it and consider all of our options, including the pursuit of judicial remedies.
The final resolution of the Company’s global tax disputes is uncertain. There is significant judgment required in the analysis of disputes, including the probability determination and estimation of the potential exposure. Based on current information, in the opinion of the Company’s management, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations, except as noted above. However, an unfavorable resolution of the Company’s global tax disputes could have a material adverse effect on our consolidated financial position, liquidity, or results of operations in the period or periods in which the matters are ultimately resolved or in which appropriate tax provisions are taken into account in our financial statements.
In 2013, in connection with a share repurchase from Vivendi (the “Purchase Transaction”), we assumed certain tax attributes, generally consisting of net operating loss (“NOL”) carryforwards of approximately $760 million, which represent a potential future tax benefit of approximately $266 million. The utilization of such NOL carryforwards will be subject to certain annual limitations and will begin to expire in 2021. The Company also obtained indemnification from Vivendi against losses attributable to the disallowance of claimed utilization of such NOL carryforwards of up to $200 million in unrealized tax benefits in the aggregate, limited to taxable years ending on or prior to December 31, 2016. No benefit for these tax attributes or indemnification was recorded upon the close of the Purchase Transaction. For the six months ended June 30, 2016, we utilized $196 million of the NOL, which resulted in a tax benefit of $69 million, and a corresponding reserve of $69 million was established. As of June 30, 2016, an indemnification asset of $175 million has been recorded in “Other Assets,” and, correspondingly, the same amount has been recorded as a reduction to the consideration paid for the shares repurchased in “Treasury Stock.”
Liquidity and Capital Resources

~~Sources of Liquidity (amounts in millions)~~

June 30, 2016

December 31, 2015

Increase
(Decrease)

Cash and cash equivalents

$
2,271

$
1,823

$
448

Short-term investments

14

8

6

$
2,285

$
1,831

$
454

Percentage of total assets

14%

12%

For the Six Months Ended June 30,

2016

2015

Increase
(Decrease)

Cash flows provided by operating activities

$
788

$
344

$
444

Cash flows used in investing activities

(1,113)

(144)

(969)

Cash flows provided by (used in) financing activities

798

(360)

1,158

Effect of foreign exchange rate changes

(25)

(272)

247

Net increase (decrease) in cash and cash equivalents

$
448

$
(432)

$
880

~~Cash Flows Provided By Operating Activities~~
~~The primary drivers of cash flows provided by operating activities typically include the collection of customer receivables generated by the sale of~~We believe our ~~products and digital and subscription revenues, partially offset by: payments~~ability to vendors for the manufacturing, distribution, and marketing of our products; payments for customer service support for our consumers; payments to third-party developers and intellectual property holders; payments for interest on our debt; payments for software development; payments for tax liabilities; and payments to our workforce.
Cash flows provided by operating activities were higher for the six months ended June 30, 2016, as compared to the same period in 2015, despite the lower net income in the current period primarily due to the release of ~~Overwatch~~ on May 24, 2016, with no comparable release in the prior year, which generated operating cash flows but for which the impact to net income is largely deferred into future periods due to the online functionality of the product and the operating cash flows of King, which are included from the King Closing date. Additionally, net income for the six months ended June 30, 2016 includes higher non-cash reconciling items, primarily from the amortization of the acquired intangibles in the King Acquisition, that are excluded in determining thegenerate cash flows from ~~operations.~~
~~Cash Flows Used In Investing Activities~~
~~The primary drivers of cash flows used in investing~~operating activities ~~typically include the net effect of capital expenditures, changes in restricted cash balances, as well as cash used for acquisitions.~~
Cash flows used in investing activities were $1.1 billion for the six months ended June 30, 2016, as compared to $144 million for the six months ended June 30, 2015. The increase in the cash used was primarily due to the $2.2 billion cash outflow for the King Acquisition in excess of the cash already in escrow, net of the $1.15 billion cash acquired. The increase in cash used also included higher capital expenditures of $71 million compared to $49 million in 2015.
~~Cash Flows Provided By (Used In) Financing Activities~~
~~The primary drivers of cash flows used in financing activities typically include the proceeds from, and repayments~~is one of our ~~long-term debt,~~fundamental financial strengths. In the near term, we expect our business to remain strong and ~~transactions involving our common stock, such as the issuance of shares of common stock~~ to ~~employees, the repurchase of our common stock, and the payment of dividends.~~
~~Cash flows provided by financing activities were higher during the six months ended June 30, 2016, as compared~~continue to the same period in 2015, primarily due to $2.6 billion of proceeds received from debt financing. These were partially offset by higher partial repayment of our Term Loan in 2016 of $1.6 billion, as compared to the $250 million partial repayment of our Term Loan in 2015, higher payment of dividends of $195 million compared to $170 million in 2015, and payment of debt discount and financing costs.
~~Other Liquidity and Capital Resources~~
generate significant operating cash flows. Our primary sources of liquidity, which are ~~typically~~available to us to fund cash outflows such as our anticipated dividend payments, share repurchases, and scheduled debt maturities, include our cash and cash equivalents, short- and long-term investments, and cash flows provided by operating activities. ~~In addition, as described below, we have availability of $250 million, subject to certain restrictions, under a secured revolving credit facility.~~ With our cash and cash equivalents and short-term investments of ~~$2.3~~$3.3 billion at June 30, ~~2016,~~2017, and the expected cash flows provided by our operating activities, we believe that we have sufficient liquidity to meet daily operations infor the foreseeable future. We also believe that we have sufficient working capital ($~~1.2~~2.6 billion at June 30, ~~2016)~~2017) to finance our operational and financing requirements for at least the next ~~twelve months, including: purchases~~12 months. Additionally, we have the availability of inventory and equipment; the development, production, marketing, and sale of new products; provision of customer service for our subscribers; acquisition of intellectual property rights for future products from third parties; and payments related to debt obligations.a $250 million revolving credit facility.

As of June 30, ~~2016, and December 31, 2015,~~2017, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was ~~$1.6~~$2.1 billion, ~~and $0.5~~as compared to $1.9 billion ~~respectively.~~as of December 31, 2016. If the cash and cash equivalents held outside of the U.S. isare 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.

Furthermore, our cash provided from operating activities is somewhat impacted by seasonality. Working capital needs are impacted by weekly sales, which are generally highest in the fourth quarter due to seasonal and holiday-related sales patterns. On a continuing basis, we consider various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures, joint ventures, share repurchases, and other structural changes. These transactions may result in future cash proceeds or payments.
~~Debt~~Sources of Liquidity (amounts in millions)

June 30, 2017

December 31, 2016

Increase
(Decrease)

Cash and cash equivalents

$
3,278

$
3,245

$
33

Short-term investments

8

13

(5)

$
3,286

$
3,258

$
28

Percentage of total assets

20%

19%

For the Six Months Ended June 30,

2017

2016

Increase
(Decrease)

Net cash provided by operating activities

$
676

$
840

$
(164)

Net cash used in investing activities

(41)

(1,113)

1,072

Net cash (used in) provided by financing activities

(652)

746

(1,398)

Effect of foreign exchange rate changes

50

(25)

75

Net increase in cash and cash equivalents

$
33

$
448

$
(415)

Net Cash Provided by Operating Activities

The primary drivers of net cash flows associated with our operating activities include the collection of customer receivables generated from the sale of our products and services. These collections are typically partially offset by: payments to vendors for the manufacturing, distribution, and marketing of our products; payments for customer service support for our consumers; payments to third-party developers and intellectual property holders; payments for interest on our debt; payments for software development; payments for tax liabilities; and payments to our workforce.
~~Unsecured Notes~~Net cash provided by operating activities for the six months ended June 30, 2017 was $676 million, as compared to $840 million for the six months ended June 30, 2016. The decrease was primarily due to the timing of the launches of our games, as the prior period included cash flows from the launch of Overwatch in May 2016, with no comparable launch in the current period. The decrease was partially offset by:
·                  higher net income for the six months ended June 30, 2017, as compared to the six months ended June 30, 2016, along with larger adjustments to net income for non-cash charges, which were primarily associated with the amortization of the acquired intangibles in the King Acquisition; and
·                  changes in our working capital due to the timing of collections and payments.
Net Cash Used in Investing Activities
The primary drivers of net cash flows associated with investing activities typically include capital expenditures, changes in restricted cash balances, and cash used for acquisitions.
Net cash used in investing activities for the six months ended June 30, 2017 was $41 million, as compared to $1.1 billion for the six months ended June 30, 2016. The decrease in the cash used was primarily due to cash used for the King Acquisition in the six months ended June 30, 2016, with no comparable transaction in the current period.
Net Cash (Used in) Provided by Financing Activities
The primary drivers of net cash flows associated with financing activities typically include the proceeds from, and repayments of, our long-term debt and transactions involving our common stock, including the issuance of shares of common stock to employees upon the exercise of stock options, as well as the payment of dividends.
Net cash used in financing activities for the six months ended June 30, 2017 was $652 million, as compared to net cash provided by financing activities of $746 million for the six months ended June 30, 2016. The change was primarily attributed to our debt financing activities. For the six months ended June 30, 2017, we had net debt repayments of $500 million, as compared to approximately $950 million of net debt proceeds for the six months ended June 30, 2016. The cash flows used in financing activities for the six months ended June 30, 2017 were partially offset by higher proceeds from stock option exercises of $130 million, as compared to $60 million for the six months ended June 30, 2016.
Effect of Foreign Exchange Rate Changes
Changes in foreign exchange rates had a positive impact of $50 million and a negative impact of $25 million on our cash and cash equivalents for the six months ended June 30, 2017 and 2016, respectively. The change was primarily due to changes in the value of the U.S. dollar relative to the British pound and the Euro.
Debt
As of December 31, 2016, our total outstanding debt was $4.9 billion, bearing interest at a weighted average rate of 2.92%.

On ~~September 19,~~February 3, 2017, we entered into a sixth amendment (the “Sixth Amendment”) to our credit agreement, which was originally executed on October 11, 2013 (as amended thereafter and from time to time, the “Credit Agreement”). The Sixth Amendment: (i) provided for a new tranche of term loans “A” in an aggregate principal amount of $2.55 billion (the “2017 TLA”) and (ii) released each of our subsidiary guarantors from their respective guarantees provided under the Credit Agreement. All proceeds of the 2017 TLA, together with additional cash on hand of $139 million, were used to fully retire the term loans then outstanding (the “2016 TLA”) under the Credit Agreement, including all accrued and unpaid interest thereon. The terms of the 2017 TLA, other than the absence of the subsidiary guarantees, are generally the same as the terms of the 2016 TLA. The fees incurred as a result of the Sixth Amendment were not material. The 2017 TLA will mature on August 23, 2021.
On May 26, 2017, in a public underwritten offering, we issued ~~at par, $1.5 billion~~three series of ~~5.625%~~unsecured senior notes—$400 million of 2.6% unsecured senior notes due ~~September 2021 (the “2021 Notes”) and $750~~June 2022, $400 million of ~~6.125%~~3.4% unsecured senior notes due ~~September 2023 (the “2023 Notes”~~June 2027, and $400 million of 4.5% unsecured senior notes due June 2047. The proceeds from these unsecured senior notes, together with cash on hand, were used to make a prepayment of $1.2 billion on our 2017 TLA.
During the ~~2021 Notes,~~six months ended June 30, 2017, we reduced our total outstanding long-term debt by $500 million. This included $139 million of cash used to retire the ~~“Notes”). Interest~~2016 TLA, as discussed above, along with a prepayment on the ~~Notes is payable semi-annually in arrears on March 15 and September 15~~2017 TLA of ~~each year, commencing on March 15, 2014. As of June 30, 2016, the Notes had a carrying value of $2.25 billion.~~
We may redeem the 2021 Notes on or after September 15, 2016 and the 2023 Notes on or after September 15, 2018, in whole or in part on any one or more occasions, at specified redemption prices, plus accrued and unpaid interest. At any time prior to September 15, 2016, with respect to the 2021 Notes, and at any time prior to September 15, 2018, with respect to the 2023 Notes, we may also redeem some or all of the Notes by paying a “make-whole premium,” plus accrued and unpaid interest. In addition, upon the occurrence of one or more qualified equity offerings, we may also redeem up to 35% of the aggregate principal amount of each of the 2021 Notes and 2023 Notes outstanding with the net cash proceeds from such offerings.$361 million. The Notes are repayable, in whole or in part and at the option of the holders, upon the occurrence of a change in control and a ratings downgrade, at a purchase price equal to 101% of principal, plus accrued and unpaid interest.
~~Credit Facilities~~
~~Term Loan.~~ On October 11, 2013, we entered into a credit agreement (the “Credit Agreement”) for a $2.5 billion secured term loan facility maturing in October 2020 (the “Term Loan”), and a $250 million secured revolving credit facility m(the “Original Revolver”). A portion of the Original Revolver could be used to issue letters of credit of up to $50 million, subject to the availability of the Original Revolver.
As of June 30, 2016, the outstanding balance of our Term Loan was $319 million. Borrowings under the Term Loan bear interest, payable on a quarterly basis, at an annual rate equal to an applicable margin plus, at our option, (A) a base rate determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as its “prime rate,” (b) the federal funds rate plus 0.5%, and (c) the London InterBank Offered Rate (“LIBOR”) for an interest period of one month plus 1.00%, or (B) LIBOR. LIBOR borrowings under the Term Loan are subject to a LIBOR floor of 0.75%. At June 30, 2016, the Term Loan bore interest at 3.25%. In certain circumstances, our applicable interest rate under the Term Loan will increase.
In addition to paying interest on outstanding principal balances under the Term Loan, we were required to pay the lenders a commitment fee on unused commitments under the Original Revolver. We are also required to pay customary letter of credit fees, if any, and agency fees.
~~The terms of the Credit Agreement require quarterly principal repayments of 0.25% of the Term Loan’s original principal amount, with the balance due on the maturity date. On February 11, 2014, we~~prepayment made ~~a voluntary repayment of $375 million~~ on our ~~Term Loan.   This repayment~~2017 TLA satisfied the remaining required quarterly principal repayments for the entire term of the Credit Agreement. On February 11, 2015, we made an additional voluntary repayment of $250 million on our Term Loan. On February 25, March 31, and May 26, 2016, we made additional voluntary repayments of $500 million, $250 million, and $800 million, respectively, on our Term Loan. The 2016 repayments reduced our expected future contractual interest payments by approximately $42 million annually, based on the interest rate of 3.25% at June 30, 2016. Amounts borrowed under the Term Loan and repaid may not be re-borrowed.

~~Tranche A Term Loans.~~   In conjunction with the King Acquisition, the Company entered into three Amendments to the Credit Agreement (the “Amendments”). The Amendments, among other things, provided for incremental term loans in the form of Tranche A Term Loans in an aggregate principal amount of approximately $2.3 billion. The proceeds were issued and provided on February 23, 2016, upon successful closingAs a result of the King Acquisition, and were used to fund the King Acquisition. On March 31, 2016, we entered into a fourth amendment to the Credit Agreement which provided for an incremental Tranche A Term Loan in the aggregate principal amount of $250 million, and theabove activities, our total ~~proceeds from the incremental borrowing were used to make the March 31, 2016 voluntary prepayment on our Term Loan as discussed above.~~
The Tranche A Term Loans are scheduled to mature on October 11, 2020, and bear interest, at the Company’s option, at either (a) a base rate equal to the highest of (i) the federal funds rate, plus 0.5% (ii)��the prime commercial lending rate of Bank of America, N.A., and (iii) the LIBOR for an interest period of one month beginning on such day plus 1.00%, or (b) LIBOR, in each case, plus an applicable interest margin. LIBOR is subject to a floor of 0% and the base rate is subject to an effective floor of 1.00%. The applicable interest margin for Tranche A Term Loans ranges from 1.50% to 2.25% for LIBOR borrowings and from 0.50% to 1.25% for base rate borrowings and is determined by reference to a pricing grid based on the Company’s Consolidated Total Net Debt Ratio (as defined in the Credit Agreement).
The Tranche A Term Loans require quarterly principal payments of 0.625% of their stated principal amount commencing June 30, 2016, with increases to 1.250% starting on June 30, 2019 and 3.125% starting on June 30, 2020, with the remaining balance payable on the Tranche A Term Loans’ scheduled maturity date of October 11, 2020. Voluntary prepayments of the Tranche A Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty.
The Tranche A Term Loans are subject to a financial maintenance covenant requiring the Company to maintain a maximum Consolidated Total Net Debt Ratio (as defined in the Credit Agreement) of 4.00 to 1.00, which will decrease to 3.50 to 1.00 (I) after the sixth full fiscal quarter after the Tranche A Term Loans are made or (II) if the Collateral Suspension (as defined in the Credit Agreement) occurs prior to the date falling 18 months after the Tranche A Term Loans are made, on the later of (x) the last day of the fourth full fiscal quarter after the Tranche A Term Loans are made and (y) the last day of the fiscal quarter in which the Collateral Suspension occurs.
The Tranche A Term Loans are secured by the same collateral and guaranteed by the same guarantors that secure and guarantee the Term Loan. The other terms of the Tranche A Term Loans are also generally the same as the terms of the Term Loan. At June 30, 2016, the Tranche A Term Loans bore interest at 2.46%. In certain circumstances, our applicable interest rate under the Tranche A Term Loans will increase.
~~2015 Revolving Credit Facility.~~ As part of the Amendments, upon the closing of the King Acquisition, the Company’s Original Revolver under the Credit Agreement in an aggregate principal amount of $250 million was replaced with a new revolving credit facility under the Credit Agreement in the same aggregate principal amount (the “2015 Revolving Credit Facility” and, together with the Term Loan and Tranche A Term Loans, the “Credit Facilities”).
Borrowings under the 2015 Revolving Credit Facility may be borrowed, repaid, and re-borrowed by the Company and are available for working capital and other general corporate purposes. Up to $50 million of the 2015 Revolving Credit Facility may be used for letters of credit.
The 2015 Revolving Credit Facility is scheduled to mature on October 11, 2020. The interest rate options available to the Company for borrowings under the 2015 Revolving Credit Facility are the same as those available to the Company for the Tranche A Term Loans. Additionally, the 2015 Revolving Credit Facility is subject to the same financial maintenance covenant and is secured by the same collateral and guaranteed by the same guarantors that secure and guarantee the Tranche A Term Loans. The other terms of the 2015 Revolving Credit Facility are generally the same as the terms of the Original Revolver. To date, we have not drawn on the 2015 Revolving Credit Facility.
~~Fees associated with the closing of the Term Loan, Tranche A Term Loans, and the Notes are recorded as~~outstanding debt discount, which reduces their respective carrying values and is amortized over their respective terms. Amortization expense is recorded within “Interest and other expense (income), net” in our Condensed Consolidated Statement of Operations.
In connection with the debt financing for the King Acquisition, we incurred $38 million of issuance costs that were capitalized and recorded within “Current portion of long-term debt, net” and “Long term debt, net” in our Condensed Consolidated Balance Sheet. The amortization of these capitalized costs was not material to our condensed consolidated statement of operations for the six months ended June 30, 2016.
Agreements governing our indebtedness, including the indenture governing the Notes and the Credit Agreement, impose operating and financial restrictions on our activities under certain conditions. These restrictions may require us to comply with or maintain certain financial tests and ratios. In addition, the indenture and the Credit Agreement limit or prohibit our ability to, among other things: incur additional debt or make additional guarantees; pay distributions or dividends and repurchase stock; make other restricted payments, including without limitation certain restricted investments; create liens; enter into agreements that restrict dividends from subsidiaries; engage in transactions with affiliates; and enter into mergers, consolidations, or sales of substantially all of our assets.
~~The Company was in compliance with the terms of the Notes and Credit Facilities~~ as of June 30, ~~2016.~~2017 was $4.4 billion, bearing interest at a weighted average rate of 3.52%. A summary of our debt as of June 30, 2017, is as follows (amounts in millions):

At June 30, 2017

Gross Carrying
Amount

Unamortized
Discount and
Deferred Financing
Costs

Net Carrying
Amount

2017 TLA

$
990

$
(9)

$
981

2021 Notes

650

(5)

645

2022 Notes

400

(4)

396

2023 Notes

750

(10)

740

2026 Notes

850

(9)

841

2027 Notes

400

(6)

394

2047 Notes

400

(10)

390

Total long-term debt

$
4,440

$
(53)

$
4,387

A summary of our debt as of December 31, 2016, was as follows (amounts in millions):

At December 31, 2016

Gross Carrying
Amount

Unamortized
Discount and
Deferred Financing
Costs

Net Carrying
Amount

2016 TLA

$
2,690

$
(27)

$
2,663

2021 Notes

650

(5)

645

2023 Notes

750

(11)

739

2026 Notes

850

(10)

840

Total long-term debt

$
4,940

$
(53)

$
4,887

Refer to Note 7 of the notes to condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for further disclosures regarding our debt obligations.
~~Debt Repayments~~Dividends

On February 2, ~~2016, the~~2017, our Board of Directors ~~authorized net debt repayments~~approved a cash dividend of up$0.30 per common share. On May 10, 2017, we made an aggregate cash dividend payment of $226 million to ~~$1.5 billion~~shareholders of ~~our outstanding debt during 2016. For~~record at the ~~six months ended June~~close of business on March 30, ~~2016,~~2017. On May 26, 2017, we ~~have~~ made ~~prepayments~~related dividend equivalent payments of less than $1 million to ~~reduce our total outstanding term loans by $1.3 billion.~~certain holders of restricted stock units.

Capital Expenditures

For the year ending December 31, ~~2016,~~2017, we anticipate total capital expenditures of approximately ~~$155~~$135 million, primarily for leasehold improvements, computer hardware, and software purchases. During the ~~first~~ six months ~~of 2016, we made aggregate~~ended June 30, 2017, capital expenditures ~~of $71~~were $52 million.

Off-Balance Sheet Arrangements

At June 30, ~~2016,~~2017 and December 31, ~~2015,~~2016, Activision Blizzard had no significant relationships with unconsolidated entities or financial parties, often referred to as “structured finance” or “special purpose” entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

~~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 U.S. GAAP. We also are focused on our “disclosure controls and procedures,” which as defined by the Securities and Exchange Commission (the “SEC”), are generally those controls and procedures designed to ensure that financial and non-financial information required to be disclosed in our reports filed with the SEC is reported within the time periods specified in the SEC’s rules and forms, and that such information is communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Our Disclosure Committee, which operates under the Board of Directors-approved Disclosure Committee Charter and Disclosure Controls & Procedures Policy, includes senior management representatives and assists executive management in its oversight of the accuracy and timeliness of our disclosures, as well as in implementing and evaluating our overall disclosure process. As part of our disclosure process, senior finance and operational representatives from all of our corporate divisions and business units prepare quarterly reports regarding their current-quarter operational performance, future trends, subsequent events, internal controls, changes in internal controls, and other accounting and disclosure relevant information. These quarterly reports are reviewed by certain key corporate finance executives. These corporate finance representatives also conduct quarterly interviews on a rotating basis with the preparers of selected quarterly reports. The results of the quarterly reports and related interviews are reviewed by the Disclosure Committee. Finance representatives also conduct interviews with our senior management team, our legal counsel and other appropriate personnel involved in the disclosure process, as appropriate. Additionally, senior finance and operational representatives provide internal certifications regarding the accuracy of information they provide that is utilized in the preparation of our periodic public reports filed with the SEC. Financial results and other financial information also are reviewed with the Audit Committee of the Board of Directors on a quarterly basis. As required by applicable regulatory requirements, the principal executive and financial officers review and make various certifications regarding the accuracy of our periodic public reports filed with the SEC, our disclosure controls and procedures, and our internal control over financial reporting. With the assistance of the Disclosure Committee, we will continue to assess and monitor, and make refinements to, our disclosure controls and procedures, and our internal control over financial reporting.
Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. ~~GAAP.~~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~~they 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~~Deliverables;
·                  Allowances for Returns and Price ~~Protection, Doubtful Accounts, and~~Protection;
·                  Allowance for Inventory ~~Obsolescence~~Obsolescence;
·                  Software Development ~~Costs and Intellectual Property Licenses~~Costs;
·                  Income ~~Taxes~~Taxes;
·                  Fair Value Estimates (including Business Combinations and Assessment of Impairment of Assets); and
·                  ~~Stock-Based Compensation~~Share-Based Payments.

During the six months ended June 30, ~~2016,~~2017, there were no significant changes to the above critical accounting policies and ~~estimates, but we did expand the accounting policy disclosure for revenue recognition to include virtual currency as noted below.~~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, ~~2015,~~2016, for a more complete discussion of our critical accounting policies and estimates.
~~Microtransaction Revenues~~
Microtransaction revenues are derived from the sale of virtual goods and currencies to our players to enhance their gameplay experience. Proceeds from the sales of virtual goods and currencies are initially recorded in deferred revenues. Proceeds from the sales of virtual currencies are recognized as a player uses the virtual goods purchased with the virtual currency. We categorize our virtual goods as either consumable or durable. Consumable virtual goods represent goods that can be consumed by a specific player action; accordingly, we recognize revenues from the sale of consumable virtual goods as the goods are consumed. Durable virtual goods represent goods that are accessible to the player over an extended period of time. We recognize revenues from the sale of durable virtual goods ratably over the period of time the goods are available to the player, which is generally the estimated service period of the game.
Recently Issued Accounting Pronouncements

~~Revenue recognition~~
~~In May 2014, the FASB~~Below are recently issued ~~new~~ accounting ~~guidance related~~pronouncements that were most significant to ~~revenue recognition. The new standard will replace~~our accounting policy activities. For a detailed discussion of all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years and interim periods within those years beginning after Decemberrelevant recently issued accounting pronouncements, see Note 15 ~~2017, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as~~ of the ~~date of adoption. We are evaluating the adoption method as well as the impact of this new accounting guidance on our financial statements.~~
~~Stock-based compensation~~
~~In June 2014, the FASB issued new guidance related~~notes to stock compensation. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. We adopted this new standard as of January 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material impact on our condensed consolidated financial ~~statements.~~statements included in Item 1 of this Quarterly Report on Form 10-Q.

~~Consolidations~~Recently Adopted Accounting Pronouncements
In February 2015, the FASB issued new guidance related to consolidations. The new standard amends certain requirements for determining whether a variable interest entity must be consolidated. We adopted this new standard as of January 1, 2016. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
~~Debt Issuance Costs~~
In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs in financial statements. The new standard requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. We adopted this change in accounting principle as of January 1, 2016, and applied it retrospectively for each period presented. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
~~Internal-Use Software~~
In April 2015, the FASB issued new guidance related to internal-use software. The new standard relates to a customer’s accounting for fees paid in cloud computing arrangements. The amendment provides guidance for customers to determine whether such arrangements include software licenses. If a cloud arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. We adopted this standard as of January 1, 2016, and applied it prospectively. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

Inventory

In July 2015, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued new guidance related to the measurement of inventory which requires inventory within the scope of the guidance to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard is effective for fiscal years beginning after December 15, 2016, and should be applied prospectively. Early adoption is permitted. We are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements.
~~Business Combinations~~
In September 2015, the FASB issued new guidance related to business combinations. The new standard requires that the cumulative impact of a measurement period adjustment, including the impact on prior periods, made to provisional amounts recorded at the acquisition date as a result of the business combination be recognized in the reporting period during which the adjustment is identified. The standard also requires separate presentation on the face of the income statement, or disclosure in the notes, of the portion of the amount recorded in current period earnings by line item. Prior to the issuance of the standard, such adjustments to provisional amounts were recognized retrospectively. We adopted this new standard as of January 1, ~~2016,~~2017, and applied it prospectively. ~~No measurement period adjustments occurred as~~The adoption of ~~and for the three months ended March 31, 2016.~~this guidance did not have a material impact on our financial statements.
Recent Accounting Pronouncements Not Yet Adopted
~~Financial Instruments~~Revenue Recognition

In ~~January 2016,~~May 2014, the FASB issued new accounting guidance related to ~~the recognition and measurement of financial assets and financial liabilities.~~revenue recognition. The new standard ~~amongst other things, generally requires companies~~will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance, providing a unified model to ~~measure investments~~determine when and how revenue is recognized. The core principle is that a company should recognize revenue upon the transfer of promised goods or services to customers in ~~other entities, except~~an amount that reflects the consideration to which the company expects to be entitled to in exchange for those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new standard also simplifies the impairment assessment of equity investments without readily determinable fair values. The new standard isgoods or services. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, ~~2017, and~~2017. We anticipate adopting the ~~guidance should be applied by means of a cumulative-effect~~accounting standard on January 1, 2018, using the modified retrospective method, which recognizes the cumulative effect upon adoption as an adjustment to retained earnings at the ~~balance sheet as~~adoption date.
As previously disclosed, we believe the adoption of the ~~beginning~~new revenue recognition standard may have a significant impact on the accounting for our sales of our games with significant online functionality for which we do not have vendor-specific objective evidence (“VSOE”) for unspecified future updates and ongoing online services provided. Under the current accounting standards, VSOE for undelivered elements is required. This requirement will be eliminated under the new standard. Accordingly, we will be required to recognize as revenue a portion of the fiscal year of adoption. The amendments related to equity investments without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist assales price upon delivery of the ~~date~~software, as compared to the current requirement of ~~adoption.~~ recognizing the entire sales price ratably over an estimated offering period. We expect this difference to primarily impact revenues from our Call of Duty franchise. Many of our other franchises, such as Destiny, Overwatch, World of Warcraft, and Candy Crush, are hosted service arrangements and we do not expect any significant impact on the accounting for our sales of these games. Nonetheless, this difference may have a material impact on our consolidated financial statements upon adoption of the new guidance.
We are ~~evaluating~~continuing to evaluate the ~~impact~~additional impacts of this new accounting guidance on our financial ~~statements.~~statements and related disclosures.
Leases

In February 2016, the FASB issued new guidance related to the accounting for leases. The new standard will replace all current U.S. GAAP guidance on this topic. The new standard, ~~amongst~~among other things, requires a lessee to classify a lease as either ~~a finance~~an operating or ~~operating~~financing lease, ~~in which~~and lessees will need to recognize a ~~right-of-use asset~~lease liability and a ~~lease liability~~right-of-use asset for their leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment ~~such as~~ for initial direct ~~costs.~~costs, lease incentives received, and any prepaid lease payments. Operating leases will result in a straight-line expense pattern, while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease accounting. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and will require application of the new guidance at the beginning of the earliest comparative period presented. We are evaluating the impact of this new accounting guidance on our financial statements. Currently, we do not plan to early adopt this new standard.

~~Share-Based Payments~~Statement of Cash Flows-Restricted Cash

In ~~March~~November 2016, the FASB issued new guidance ~~in an effort~~related to ~~simplify accounting for share-based payments. The new standard, amongst other things:~~
·                  ~~requires that all excess tax benefits and tax deficiencies be recorded as income tax expense or benefit~~the classification of restricted cash in the statement of ~~operations and~~cash flows. The new standard requires that ~~the tax effects~~a statement of ~~exercised or vested awards should be treated as discrete items in~~cash flows explain any change during the ~~reporting~~ period in ~~which they occur;~~
·                  ~~requires excess tax benefits from share-based payments to~~total cash, cash equivalents, and restricted cash. Therefore, restricted cash will be ~~reported as operating activities~~included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash ~~flows; and~~
·                  permits an accounting policy election to either estimate the number of awards that are expected to vest using an estimated forfeiture rate, as currently required, or account for forfeitures when they occur.
flows. The new standard is effective for fiscal years beginning after December 15, ~~2016.~~2018, and should be applied retrospectively. Early adoption is permitted.

We ~~intend~~are evaluating the impact, if any, of adopting this new accounting guidance on our financial statements. We expect there would be a significant impact to ~~early adopt~~the condensed consolidated statements of cash flows for 2016, as this ~~standard during~~period includes, as an investing activity, the ~~three months ending September 30, 2016. Upon adoption, we intend~~$3.6 billion movement in restricted cash resulting from the transfer of cash into escrow at December 31, 2015 to ~~continue to estimate~~facilitate the ~~number~~King Acquisition and the subsequent release of ~~awards~~ that ~~are expected to vest using an estimated forfeiture rate.~~
~~If we had adopted~~cash in 2016 in connection with the King Acquisition. Under this standard in the current quarter, we would have recorded $24 million and $51 million of windfall tax benefits as a reduction to income tax expense in our consolidated statement of operations for the three and six months ended June 30, 2016, respectively. Under the new standard, the ~~weighted-average number of dilutive shares outstanding~~restricted cash balance would ~~have increased by approximately 3 million for~~be included in the ~~three~~beginning and ~~six months~~ ending ~~June 30, 2016. As a result, the diluted earnings per common share~~total cash, cash equivalents, and restricted cash balances and, hence, would ~~have increased $0.03 and $0.07 for the three and six months ended June 30, 2016, respectively. Finally, as the new standard requires excess tax benefits from share-based payments~~not be ~~reported~~included as an ~~operating~~investing activity onin the statement of cash flows, net cash provided by operating activities would have increased by $52 million for the six months ended June 30, 2016, with a corresponding decrease in the net cash provided by financing activities.flows.
Item 3.       Quantitative and Qualitative Disclosures about Market Risk

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

Foreign Currency Exchange Rate Risk

We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates. Revenues and related expenses generated from our international operations are generally denominated in their respective local currencies. Primary currencies include ~~euros,~~Euros, British pounds, Australian dollars, South Korean won, Chinese yuan, and Swedish krona. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency-denominated transactions ~~results~~will result in reduced revenues, operating expenses, net income and cash flows from our international operations. Similarly, our revenues, operating expenses, net income, and cash flows will increase for our international operations if the U.S. dollar weakens against foreign currencies. Since we have significant international sales, but incur the majority of our costs in the ~~U.S.,~~United States, the impact of foreign currency fluctuations, particularly the strengthening of the U.S. dollar, may have an asymmetric and disproportional impact on our business. We monitor currency volatility throughout the year.
To mitigate our foreign currency risk resulting from our foreign currency-denominated monetary assets, liabilities, and earnings and our foreign currency risk related to functional currency-equivalent cash flows resulting from our intercompany transactions, we periodically enter into currency derivative contracts, ~~which are~~ principally forward contracts. These forward contracts generally have a maturity of less than one year. The counterparties for our currency derivative contracts are large and reputable commercial or investment banks.

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

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

Foreign Currency Forward Contracts Not Designated as Hedges
For foreign currency forward contracts entered into to mitigate risk from foreign currency-denominated monetary assets, liabilities, and earnings that are not designated as hedging instruments under ASC 815, changes in the estimated fair value of these derivatives are recorded within “General and administrative expenses” and “Interest and other expense (income), net” in our Condensed Consolidated Statements of Operations, consistent with the nature of the underlying transactions.

At June 30, 2017 and December 31, 2016, ~~the gross notional amount of~~we did not have any outstanding foreign currency forward contracts not designated as hedges was approximately $260 million. The fair value of these foreign currency forward contracts was $6 million as of June 30, 2016, and recorded in “Other current assets” in our Condensed Consolidated Balance Sheet.hedges.

At December 31, 2015, the gross notional amount of outstanding foreign currency forward contracts not designated as hedges was approximately $489 million. The fair value of these foreign currency forward contracts was $11 million as of December 31, 2015, and recorded in “Other current assets” in our Condensed Consolidated Balance Sheet.
~~For the three and six months ended June 30, 2016 and 2015, pre-tax net gains associated with these forward contracts were not material.~~
Foreign Currency Forward Contracts Designated as Hedges (“Cash Flow Hedges”)

For foreign currency forward contracts entered into to hedge forecasted intercompany cash flows which are subject to foreign currency risk and which we designated as cash flow hedges in accordance with ASC Topic 815, we assessAt June 30, 2017, the ~~effectiveness~~gross notional amount of these cash flow hedges at inception and on an ongoing basis to determine if the hedges are effective at providing offsetting changes in cash flows of the hedged items. We record the effective portion of changes in the estimatedoutstanding Cash Flow Hedges was approximately $356 million. The fair value of these ~~derivatives in “Accumulated other comprehensive income (loss)” and subsequently reclassify the related amount~~contracts, all of accumulated other comprehensive income (loss) to earnings within “General and administrative expense” when the hedged item impacts earnings. Cash flows from these foreign currency forward contracts are classified in the same category as the cash flows associated with the hedged item in the condensed consolidated statements of cash flows. We measure hedge ineffectiveness, if any, and if it is determined that a derivative has ceased to be a highly effective hedge, we will discontinue hedge accounting for the derivative.
The gross notional amount of all outstanding foreign currency forward contracts designated as cash flow hedges was approximately $443 million at June 30, 2016, and $381 million at December 31, 2015. These foreign currency forward contractswhich have remaining maturities of 12 months or ~~less. During the three and six months ended June 30, 2016 and 2015, there~~less, was ~~no ineffectiveness relating to these hedges.~~$9 million of net unrealized losses. At June 30, ~~2016,~~2017, we had approximately $1 million of net ~~unrealized~~realized but unrecognized gains ~~or losses related to these~~recorded within “Accumulated other comprehensive income (loss)” associated with contracts ~~are expected to~~that had settled but were deferred and will be amortized into earnings, along with the associated hedged revenues. Such amounts will be reclassified into earnings within the next ~~twelve~~12 months.
At December 31, 2016, the gross notional amount of outstanding Cash Flow Hedges was approximately $346 million. The fair value of these contracts was $22 million of net unrealized gains as of December 31, 2016.

During the three and six months ended June 30, 2017 and 2016, there was no ineffectiveness relating to our Cash Flow Hedges and ~~2015,~~ the amount of pre-tax net realized gains associated with these contracts that were reclassified out of “Accumulated other comprehensive income (loss)” ~~due to maturity of these contracts~~and into earnings was not material.

In the absence of ~~the~~ hedging activities ~~described above,~~ for the six months ended June 30, ~~2016,~~2017, a hypothetical adverse foreign currency exchange rate movement of 10% would have resulted in ~~potential declines~~a theoretical decline of our net income of approximately ~~$52~~$63 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~~this manner and actual results may differ materially.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and variable rate debt under ~~the~~our Credit ~~Facilities.~~Agreement. We do not currently use derivative financial instruments to manage interest rate risk. As of June 30, 2017, and December 31, 2016, a hypothetical interest rate change on our variable rate debt of one percent (100 basis points) would ~~change~~have changed interest expense on an annual basis by approximately ~~$29 million. Because we have a LIBOR floor in our Term Loan~~$10 million and ~~Tranche A Term Loan, our interest expense only increases when the underlying interest rate increases and it is at a level that exceeds the LIBOR floor.~~$27 million, respectively. This estimate does not include a change in interest income from our investment portfolio that may result from such a hypothetical interest rate change, nor does it include the effects of other actions that we may take in the future to mitigate this risk, or any changes in our financial structure. Refer to Note 7 of the notes to condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for disclosures regarding interest rates associated with our debt obligations.

Our investment portfolio consists primarily of money market funds and government securities with high credit quality and short average maturities. Because short-term securities mature relatively quickly and must be reinvested at the then-current market rates, interest income on a portfolio consisting of cash, cash equivalents, or short-term securities is more subject to market fluctuations than a portfolio of longer-term securities. Conversely, the fair value of such a portfolio is less sensitive to market fluctuations than a portfolio of longer-term securities. At June 30, ~~2016,~~2017, our ~~$2.27~~$3.28 billion of cash and cash equivalents was comprised primarily of money market funds.
The Company has determined that, based on the composition of our investment portfolio as of June 30, ~~2016,~~2017, 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.~~Procedures

Our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act ~~is (i)~~is: (1) recorded, processed, summarized, and reported within the time periods specified in the ~~SEC’s~~Securities and Exchange Commission’s rules and forms, and ~~(ii)~~(2) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.

Evaluation of Disclosure Controls and ~~Procedures.~~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 30, ~~2016,~~2017, 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 30, ~~2016,~~2017, 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 our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial ~~Reporting.~~Reporting

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated any changes in our internal control over financial reporting atthat occurred during the fiscal quarter ended June 30, ~~2016, the end of the period covered by this report.~~2017. Based on this evaluation, the principal executive officer and principal financial officer concluded that, at June 30, ~~2016,~~2017, there have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Year-End Assessment of Internal Control over Financial Reporting.~~PART II. OTHER INFORMATION
On February 23, 2016, we completed our acquisition of King Digital Entertainment plc. The acquired business constituted approximately 7% of total assets and 21% of net revenues of the consolidated financial statement amounts as of and for the six months ended June 30, 2016. We are in the process of evaluating the existing controls and procedures of the acquired business and integrating the acquired business into our internal control over financial reporting. In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is contemplated, we expect to exclude the acquired business from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2016.
~~Part II.~~~~Other Information~~

Item 1.       Legal Proceedings
SEC regulations govern disclosure of legal proceedings in periodic reports and ASC Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable estimate of the potential loss is within a range of amounts, the minimum of the range of potential loss is accrued, unless a higher amount within the range is a better estimate than any other amount within the range. Moreover, even if an accrual is not required, we provide additional disclosure related to litigation and other claims when it is reasonably possible (~~i.e.~~~~, more than remote) that the outcomes of such litigation and other claims include potential material adverse impacts on us.~~
The outcomes of legal proceedings and other claims are subject to significant uncertainties, many of which are outside of our control. There is significant judgment required in the analysis of these matters, including the probability determination and whether a potential exposure can be reasonably estimated. In making these determinations, we, in consultation with outside counsel, examine the relevant facts and circumstances on a quarterly basis assuming, as applicable, a combination of settlement and litigated outcomes and strategies. Moreover, legal matters are inherently unpredictable and the timing of development of factors on which reasonable judgments and estimates can be based can be slow. As such, there can be no assurance that the final outcome of any legal matter will not materially and adversely affect our business, financial condition, results of operations, profitability, cash flows, or liquidity.

We are party to routine claims, suits, investigations, audits, and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.
Item 1A.    Risk Factors

Various risks associated with our business are described in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Item 6.       Exhibits

The exhibits listed on the accompanying Exhibit Index are hereby incorporated by reference into this Quarterly Report on Form 10-Q.
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 ~~4, 2016~~3, 2017

ACTIVISION BLIZZARD, INC.

/s/ ~~DENNIS DURKIN~~SPENCER NEUMANN

/s/ STEPHEN WEREB
~~Dennis Durkin~~Spencer Neumann

Stephen Wereb
Chief Financial Officer and

Chief Accounting Officer and
Principal Financial Officer of

Principal Accounting Officer of
Activision Blizzard, Inc.

Activision Blizzard, Inc.
EXHIBIT INDEX

Exhibit Number

Exhibit

3.1

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

3.2

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

~~10.1~~4.1

~~Fourth Amendment to the Credit Agreement,~~Indenture, dated as of ~~October 11, 2013, by and among~~May 26, 2017, between Activision Blizzard, Inc., and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the ~~guarantors from time~~Company’s Form 8-K, filed May 26, 2017).
4.2
Supplemental Indenture, dated as of May 26, 2017, between Activision Blizzard, Inc. and Wells Fargo Bank, National Association, as trustee, including forms of certificates for the Company’s 2.600% Notes due 2022, 3.400% Notes due 2027 and 4.500% Notes due 2047 (incorporated by reference to ~~time party thereto,~~Exhibit 4.2 of the ~~lenders from time~~Company’s Form 8-K, filed May 26, 2017).
10.1*
Employment Agreement, dated May 5, 2017, between Activision Blizzard, Inc. and Spencer Neumann (incorporated by reference to ~~time party thereto, Bank~~Exhibit 10.2 of ~~America, N.A.,~~the Company’s Form 8-K, filed May 11, 2017).
10.2*
Employment Agreement, dated May 5, 2017, between Activision Blizzard, Inc. and Thomas Tippl (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K, filed May 11, 2017).
10.3*
Notice of Stock Option Award, dated as ~~administrative agent~~of May 8, 2017, to Michael Morhaime.
10.4*
Employment Agreement, dated May 10, 2017, between Activision Blizzard, Inc. and ~~collateral agent,~~Dennis Durkin (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K, filed May 11, 2017).
10.5*
Employment Agreement, dated May 10, 2017, between Activision Blizzard, Inc. and ~~the several other agents party thereto~~Collister Johnson (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed ~~April 1, 2016)~~May 11, 2017).

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~~Spencer Neumann 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~~Spencer Neumann 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

XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

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

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) ~~Condensed Consolidated Balance Sheets~~condensed consolidated balance sheets at June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, (ii) ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations for the three and six months ended June 30, ~~2016~~2017 and June 30, ~~2015,~~2016, (iii) ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Comprehensive Income (Loss)~~comprehensive income (loss) for the three and six months ended June 30, ~~2016~~2017 and June 30, ~~2015,~~2016, (iv) ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Cash Flows~~cash flows for the six months ended June 30, ~~2016~~2017 and June 30, ~~2015;~~2016; (v) ~~Condensed Consolidated Statement~~condensed consolidated statement of ~~Changes~~changes in ~~Shareholders’ Equity~~shareholders’ equity for the six months ended June 30, ~~2016;~~2017; and (vi) ~~Notes~~notes to ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

6462

Delaware		95-4803544

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

3100 Ocean Park Boulevard, Santa Monica, CA		90405

(Address of principal executive offices)		(Zip Code)

Large Accelerated Filer x		Accelerated Filer o

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

~~(Do not check if a smaller reporting company)~~		Emerging growth company o

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

Components of comprehensive income:
Net income	—	—		—	—		—		463		—			463
Other comprehensive income (loss)	—	—		—	—		—		—		(16		)	(16)
Issuance of common stock pursuant to employee stock options	4	—		—	—		60		—		—			60
Issuance of common stock pursuant to restricted stock rights	5	—		—	—		—		—		—			—
Restricted stock surrendered for employees’ tax liability	(2)	—		—	—		(74)		—		—			(74)
Tax benefit associated with employee stock awards	—	—		—	—		51		—		—			51
Stock-based compensation expense related to employee stock options and restricted stock rights	—	—		—	—		70		—		—			70
Stock-based compensation assumed in acquisition (see Note 14)	—	—		—	—		76		—		—			76
Dividends ($0.26 per common share)	—	—		—	—		—		(193)		—			(193)
Indemnity on tax attributes assumed in connection with the Purchase Transaction (see Note 10)	—	—		—	49		—		—		—			49

Balance at June 30, 2016	1,170	$	—	(429)	$	(5,588)	$	10,425	$	4,366	$	(649)		$	8,554

	Activision		Blizzard		King		Other		Total
Balance at December 31, 2015	$	6,905	$	178	$	—	$	12	$	7,095
Additions through acquisition	—		—		2,678		—		2,678
Other	(2)		—		—		—		(2)
Balance at June 30, 2016	$	6,903	$	178	$	2,678	$	12	$	9,771

			Fair Value Measurements at June 30, 2016 Using
	As of June 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance Sheet Classification
Financial Assets:
Recurring fair value measurements:
Money market funds	$	2,071	$	2,071	$	—	$	—	Cash and cash equivalents
Foreign government treasury bills	34		34		—		—		Cash and cash equivalents
Foreign currency forward contracts not designated as hedges	6		—		6		—		Other current assets
Foreign currency forward contracts designated as hedges	5		—		5		—		Other current assets
Auction rate securities (“ARS”)	9		—		—		9		Other assets
Total recurring fair value measurements	$	2,125	$	2,105	$	11	$	9

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

	At June 30, 2016
	Gross Carrying Amount		Unamortized Discount and Deferred Financing Costs		Net Carrying Amount
Term Loan	$	319	$	(3)	$	316
Tranche A Term Loans	2,534		(36)		2,498
2021 Notes	1,500		(20)		1,480
2023 Notes	750		(11)		739
Total debt	$	5,103	$	(70)	$	5,033
Less: current portion of long-term debt	(64)		8		(56)
Total long-term debt	$	5,039	$	(62)	$	4,977

	Three Months Ended June 30, 2016		% of associated net revenues	Three Months Ended June 30, 2015		% of associated net revenues	Increase (Decrease)		Three Months Ended June 30, 2017		% of associated net revenues	Three Months Ended June 30, 2016		% of associated net revenues	Increase (Decrease)

Cost of revenues - product sales:
Cost of revenues—product sales:
Product costs	$	149	30%	$	147	28%	$	2	$	130	27%	$	149	30%	$	(19)
Software royalties, amortization, and intellectual property licenses	80		16	70		13	10		75		16	80		16	(5)
Cost of revenues - subscription, licensing, and other revenues:
Cost of revenues—subscription, licensing, and other revenues:
Game operations and distribution costs	241		23	61		12	180		236		21	241		23	(5)
Software royalties, amortization, and intellectual property licenses	128		12	19		4	109		120		10	128		12	(8)
Total cost of revenues	$	598	38%	$	297	28%	$	301	$	561	34%	$	598	38%	$	(37)

	Six Months Ended June 30, 2016		% of associated net revenues	Six Months Ended June 30, 2015		% of associated net revenues	Increase (Decrease)

Cost of revenues - product sales:
Product costs	$	318	28%	$	349	27%	$	(31)
Software royalties, amortization, and intellectual property licenses	208		18	211		16	(3)
Cost of revenues - subscription, licensing, and other revenues:
Game operations and distribution costs	383		20	120		12	263
Software royalties, amortization, and intellectual property licenses	180		10	30		3	150
Total cost of revenues	$	1,089	36%	$	710	30%	$	379

	Six Months Ended June 30, 2017		% of associated net revenues	Six Months Ended June 30, 2016		% of associated net revenues	Increase (Decrease)
Cost of revenues—product sales:
Product costs	$	273	28%	$	318	28%	$	(45)
Software royalties, amortization, and intellectual property licenses	163		16	208		18	(45)
Cost of revenues—subscription, licensing, and other revenues:
Game operations and distribution costs	468		20	383		20	85
Software royalties, amortization, and intellectual property licenses	242		10	180		10	62
Total cost of revenues	$	1,146	34%	$	1,089	36%	$	57

	June 30, 2016		% of consolidated net revenues	June 30, 2015		% of consolidated net revenues	Increase (Decrease)
									June 30, 2017		% of consolidated net revenues	June 30, 2016		% of consolidated net revenues	Increase (Decrease)
Three Months Ended	$	249	16%	$	149	14%	$	100	$	252	15%	$	249	16%	$	3
Six Months Ended	$	424	14%	$	294	13%	$	130	$	478	14%	$	424	14%	$	54

	June 30, 2016		% of pretax income	June 30, 2015		% of pretax income	Increase (Decrease)
									June 30, 2017		% of pretax income	June 30, 2016		% of pretax income	Increase (Decrease)
Three Months Ended	$	40	24%	$	70	25%	$	(30)	$	50	17%	$	16	10%	$	34
Six Months Ended	$	113	20%	$	168	22%	$	(55)	$	77	10%	$	62	11%	$	15

	June 30, 2016		December 31, 2015		Increase (Decrease)

Cash and cash equivalents	$	2,271	$	1,823	$	448
Short-term investments	14		8		6
	$	2,285	$	1,831	$	454

Percentage of total assets	14%		12%

	June 30, 2017		December 31, 2016		Increase (Decrease)
Cash and cash equivalents	$	3,278	$	3,245	$	33
Short-term investments	8		13		(5)
	$	3,286	$	3,258	$	28
Percentage of total assets	20%		19%

/s/ ~~DENNIS DURKIN~~SPENCER NEUMANN		/s/ STEPHEN WEREB

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

Exhibit Number		Exhibit


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

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

~~10.1~~4.1		~~Fourth Amendment to the Credit Agreement,~~Indenture, dated as of ~~October 11, 2013, by and among~~May 26, 2017, between Activision Blizzard, Inc., and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the ~~guarantors from time~~Company’s Form 8-K, filed May 26, 2017).

4.2		Supplemental Indenture, dated as of May 26, 2017, between Activision Blizzard, Inc. and Wells Fargo Bank, National Association, as trustee, including forms of certificates for the Company’s 2.600% Notes due 2022, 3.400% Notes due 2027 and 4.500% Notes due 2047 (incorporated by reference to ~~time party thereto,~~Exhibit 4.2 of the ~~lenders from time~~Company’s Form 8-K, filed May 26, 2017).

10.1*		Employment Agreement, dated May 5, 2017, between Activision Blizzard, Inc. and Spencer Neumann (incorporated by reference to ~~time party thereto, Bank~~Exhibit 10.2 of ~~America, N.A.,~~the Company’s Form 8-K, filed May 11, 2017).

10.2*		Employment Agreement, dated May 5, 2017, between Activision Blizzard, Inc. and Thomas Tippl (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K, filed May 11, 2017).

10.3*		Notice of Stock Option Award, dated as ~~administrative agent~~of May 8, 2017, to Michael Morhaime.

10.4*		Employment Agreement, dated May 10, 2017, between Activision Blizzard, Inc. and ~~collateral agent,~~Dennis Durkin (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K, filed May 11, 2017).

10.5*		Employment Agreement, dated May 10, 2017, between Activision Blizzard, Inc. and ~~the several other agents party thereto~~Collister Johnson (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K, filed ~~April 1, 2016)~~May 11, 2017).

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~~Spencer Neumann 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~~Spencer Neumann 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		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.