Edgar Filing: Activision Blizzard, Inc.

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the Quarterly Period Ended September 30, 2013

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

For the transition period from to

Commission File Number 1-15839

ACTIVISION BLIZZARD, INC.

(Exact name of registrant as specified in its charter)

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

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

(310) 255-2000
(Registrant’s telephone number, including area code)

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

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

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

Large Accelerated Filer x		Accelerated Filer o

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

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

The number of shares of the registrant’s Common Stock outstanding at October 30, 2013 was 695,432,548.

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Table of Contents

	Cautionary Statement	3

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

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

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

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

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

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

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION	47

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	49

Item 6.	Exhibits	50

SIGNATURE		51

EXHIBIT INDEX		52

CERTIFICATIONS

Table of Contents

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains, or incorporates by reference, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical fact and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those relating to product releases; (3) statements of future financial or operating performance; (4) statements about the impact of the recently consummated transactions described herein; and (5) statements of assumptions underlying such statements. Activision Blizzard, Inc. (“Activision Blizzard”) generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plans,” “believes,” “may,” “expects,” “intends,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risk, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict. Our actual results could differ materially. Risks and uncertainties that may affect our future results include, but are not limited to, sales levels of Activision Blizzard’s titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment, Activision Blizzard’s ability to predict consumer preferences, including interest in specific genres such as first-person action, massively multiplayer online games and “toys to life”, and preferences among hardware platforms, the seasonal and cyclical nature of the interactive game market, changing business models, including digital delivery of content, competition including from used games and other forms of entertainment, possible declines in software pricing, product returns and price protection, product delays, adoption rate and availability of new hardware (including peripherals) and related software, particularly during the ongoing console transition, rapid changes in technology and industry standards, litigation risks and associated costs, protection of proprietary rights, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, the identification of suitable future acquisition opportunities and potential challenges associated with geographic expansion, capital market risks, the possibility that expected benefits related to the recently consummated transactions with Vivendi S.A. may not materialize as expected, the amount of our debt and the limitations imposed by the covenants in the agreements governing our debt, 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, 2012, as amended, and this Quarterly Report on Form 10-Q. The forward-looking statements contained herein are based upon information available to us as of the date of this Quarterly Report on Form 10-Q and we assume no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions, except share data)

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

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

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

Commitments and contingencies (Note 13)

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

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2013			2012		2013			2012

Net revenues
Product sales	$	332		$	536	$	2,049		$	2,208
Subscription, licensing, and other revenues	359			305		1,016			880
Total net revenues	691			841		3,065			3,088

Costs and expenses
Cost of sales — product costs	111			146		551			633
Cost of sales — online subscriptions	43			62		154			201
Cost of sales — software royalties and amortization	16			19		116			107
Cost of sales — intellectual property licenses	5			10		56			37
Product development	140			125		387			384
Sales and marketing	144			131		367			346
General and administrative	162			121		347			413
Total costs and expenses	621			614		1,978			2,121

Operating income	70			227		1,087			967

Interest and other investment income (expense), net	(4		)	1		(1		)	4

Income before income tax expense	66			228		1,086			971

Income tax expense	10			2		249			176

Net income	$	56		$	226	$	837		$	795

Earnings per common share
Basic	$	0.05		$	0.20	$	0.73		$	0.70
Diluted	$	0.05		$	0.20	$	0.73		$	0.70

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

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

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in millions)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012

Net income	$	56	$	226	$	837	$	795

Other comprehensive income (loss):
Foreign currency translation adjustment	80		49		43		(3		)
Unrealized gains on investments, net of deferred income taxes of $0 million for the periods ended September 30, 2013 and $1 million for the periods ended September 30, 2012	—		1		1		1
Other comprehensive income (loss)	$	80	$	50	$	44	$	(2	)

Comprehensive income	$	136	$	276	$	881	$	793

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in millions)

	For the Nine Months Ended
	September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	837		$	795
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	203			20
Depreciation and amortization	68			69
Amortization and write-off of capitalized software development costs and intellectual property licenses (1)	140			123
Stock-based compensation expense (2)	76			83
Excess tax benefits from stock awards	(14		)	(4		)
Changes in operating assets and liabilities:
Accounts receivable, net	498			450
Inventories, net	(103		)	(145		)
Software development and intellectual property licenses	(212		)	(218		)
Other assets	99			228
Deferred revenues	(1,008		)	(639		)
Accounts payable	(56		)	(141		)
Accrued expenses and other liabilities	(144		)	(252		)
Net cash provided by operating activities	384			369

Cash flows from investing activities:
Proceeds from maturities of available-for-sale investments	295			305
Proceeds from sales of available-for-sale investments	60			—
Purchases of available-for-sale investments	(26		)	(382		)
Capital expenditures	(58		)	(46		)
Decrease (increase) in restricted cash	(9		)	(22		)
Deposit into escrow	(71		)	—
Net cash provided by (used in) investing activities	191			(145		)

Cash flows from financing activities:
Proceeds from issuance of common stock to employees	92			30
Tax payment related to net share settlements of restricted stock rights	(19		)	(5		)
Excess tax benefits from stock awards	14			4
Repurchase of common stock	—			(315		)
Dividends paid	(216		)	(204		)
Net cash used in financing activities	(129		)	(490		)

Effect of foreign exchange rate changes on cash and cash equivalents	39			10

Net increase (decrease) in cash and cash equivalents	485			(256		)

Cash and cash equivalents at beginning of period	3,959			3,165

Cash and cash equivalents at end of period	$	4,444		$	2,909

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

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

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2013

(Unaudited)

(Amounts in millions)

											Accumulated
					Additional						Other			Total
	Common Stock				Paid-In			Retained			Comprehensive			Shareholders’
	Shares		Amount		Capital			Earnings			Income (Loss)			Equity

Balance at December 31, 2012	1,112		$	—	$	9,450		$	1,893		$	(26	)	$	11,317

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

Balance at September 30, 2013	1,124		$	—	$	9,608		$	2,513		$	18		$	12,139

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

Table of Contents

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of business and basis of consolidation and presentation

Description of Business

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

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

On October 11, 2013, we repurchased 429 million shares of our common stock, pursuant to the stock purchase agreement (the “Stock Purchase Agreement”) we entered into on July 25, 2013 with Vivendi and ASAC II LP (“ASAC”), an exempted limited partnership established under the laws of the Cayman Islands, acting by its general partner, ASAC II LLC. Pursuant to the terms of the Stock Purchase Agreement, we acquired all of the capital stock of Amber Holding Subsidiary Co., a Delaware corporation and wholly-owned subsidiary of Vivendi (“New VH”), which was the direct owner of 429 million shares of our common stock, for a cash payment of $5.83 billion, or $13.60 per share, before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the transaction (collectively, the “Purchase Transaction”). Immediately following the completion of the Purchase Transaction, ASAC purchased from Vivendi 172 million shares of the Company’s common stock, pursuant to the Stock Purchase Agreement, for a cash payment of $2.34 billion, or $13.60 per share (the “Private Sale”). Refer to Note 16 of the Notes to Condensed Consolidated Financial Statements for further information regarding the Purchase Transaction and Private Sale.

At September 30, 2013, Vivendi owned approximately 61% of our outstanding common stock. As a result of the Purchase Transaction and the Private Sale, Vivendi’s ownership was reduced to approximately 12% of our outstanding common stock as of October 11, 2013.

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

Activision Publishing, Inc.

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

Blizzard Entertainment, Inc.

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

Table of Contents

Activision Blizzard Distribution

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

Basis of Consolidation and Presentation

Activision Blizzard prepared the accompanying unaudited condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission for interim reporting. As permitted under those rules and regulations, certain notes or other information that are normally required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted if they substantially duplicate the disclosures contained in the annual audited consolidated financial statements. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, as amended. 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.

The accompanying condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated. The condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. 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. Actual results could differ from these estimates and assumptions.

Certain reclassifications have been made to prior period 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.

Results of Adjustments

During the six months ended June 30, 2013, we identified through our internal processes that, in previous years, we erroneously under-accrued for certain indirect taxes for two countries in our Europe region. We performed an evaluation under SEC Staff Accounting Bulletin No. 108 and concluded the effect of this error was immaterial to prior years’ financial statements as well as the projected full-year 2013 financial statements. As such, during the six months ended June 30, 2013, we recorded an adjustment in our condensed consolidated statements of operations which reduced “Total net revenues” by $8 million, “Interest and other investment income (expense), net” by $1 million, “Income before income tax expense” by $9 million, and “Net income” by $7 million. This adjustment reduced net revenues and income from operations before income tax expense by $8 million and $9 million, respectively, in each of our Blizzard segment, Europe region, and online subscriptions platform, as presented in Note 9 of the Notes to Condensed Consolidated Financial Statements. The adjustment increased “Accrued expenses and other liabilities” on our condensed consolidated balance sheet by $9 million and represents a correction of an error. Operating cash flows will be impacted by $9 million in the period we settle the liability. The adjustment related to prior periods’ net income as follows: (i) approximately $1 million for the quarter ended March 31, 2013; (ii) approximately $1 million for each quarter of 2012 (totaling approximately $4 million for the year ended December 31, 2012); (iii) approximately $2 million for the year ended December 31, 2011; and (iv) less than $1 million for the year ended December 31, 2010. Earnings per basic and diluted share were affected by less than $0.01 as a result of recording this adjustment.

During the six months ended June 30, 2012, we identified through our internal processes that, in previous years, we erroneously over-recognized revenues for a country in our Europe region. We performed an evaluation under SEC Staff Accounting Bulletin No. 108 and concluded the effect of this error was immaterial to prior years’ financial statements as well as the projected full-year 2012 financial statements. As such, during the six months ended June 30, 2012, we recorded an adjustment in our condensed consolidated statements of operations which reduced “Total net revenues” by $11 million and “Net income” by $8 million. This adjustment reduced net revenues and income from operations before income tax expense by $11 million in each of our Blizzard segment, Europe region, and online subscriptions platform, as presented in Note 9 of the Notes to Condensed Consolidated Financial Statements. The adjustment increased “Deferred revenues” on our condensed consolidated balance sheet by $11 million and represents a correction of an error. There was no impact to operating cash flows. The adjustment related to prior periods’ net income as follows: (i) approximately $1 million for the quarter ended March 31, 2012; (ii) less than $1 million for each quarter of 2011 (totaling approximately $3 million for the year ended December 31, 2011); (iii) approximately $2 million for the year ended December 31, 2010; and (iv) approximately $3 million for periods prior to the year ended December 31, 2010. Earnings per basic and diluted share were affected by less than $0.01 as a result of recording this adjustment.

Table of Contents

2. Inventories, net

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

	At September 30, 2013		At December 31, 2012
Finished goods	$	201	$	151
Purchased parts and components	112		58
Inventories, net	$	313	$	209

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		At
	September 30,		December 31,
	2013		2012
Internally developed software costs	$	200	$	159
Payments made to third-party software developers	201		134
Total software development costs	$	401	$	293

Intellectual property licenses	$	12	$	41

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

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Amortization of capitalized software development costs and intellectual property licenses	$	15	$	22	$	123	$	121
Write-offs and impairments	—		—		26		8

4. Intangible assets, net

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

	At September 30, 2013
	Estimated	Gross
	useful	carrying		Accumulated			Net carrying
	lives	amount		amortization			amount
Acquired definite-lived intangible assets:
License agreements and other	3 - 10 years	$	98	$	(89	)	$	9
Internally-developed franchises	11 - 12 years	309		(260		)	49
Total definite-lived intangible assets		$	407	$	(349	)	$	58

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

Table of Contents

	At December 31, 2012
	Estimated	Gross
	useful	carrying		Accumulated			Net carrying
	lives	amount		amortization			amount
Acquired definite-lived intangible assets:
License agreements and other	3 - 10 years	$	98	$	(88	)	$	10
Internally-developed franchises	11 - 12 years	309		(251		)	58
Total definite-lived intangible assets		$	407	$	(339	)	$	68

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

Amortization expense of intangible assets was $3 million and $9 million for the three and nine months ended September 30, 2013, respectively. Amortization expense of intangible assets was $3 million and $7 million for the three and nine months ended September 30, 2012, respectively.

At September 30, 2013, future amortization of definite-lived intangible assets is estimated as follows (amounts in millions):

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

5. Goodwill

The changes in the carrying amount of goodwill by operating segment for the nine months ended September 30, 2013 are as follows (amounts in millions):

	Activision			Blizzard		Total

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

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

The tax benefit credited to goodwill represents the tax deduction resulting from the exercise of stock options that were outstanding and vested at the consummation of the Business Combination and included in the purchase price of the Company, to the extent that the tax deduction did not exceed the fair value of those options. Conversely, to the extent that the tax deduction did exceed the fair value of those options, the tax benefit is credited to additional paid-in capital.

Table of Contents

6. Fair value measurements

Fair Value Measurements on a Recurring Basis

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

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

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

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

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

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

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

Table of Contents

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

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

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

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

Foreign Currency Forward Contracts Not Designated as Hedges

We transact business in various currencies other than the U.S. dollar and have significant international sales and expenses denominated in currencies other than the U.S. dollar, subjecting us to currency exchange rate risks. To mitigate our risk from foreign currency fluctuations we periodically enter into currency derivative contracts, principally forward contracts with maturities of twelve months or less. All foreign currency contracts are backed, in amount and by maturity, by an identified economic underlying item. In recent years, Vivendi has been our principal counterparty for our currency derivative contracts, but in connection with the Purchase Transaction described in Note 1 of the Notes to Condensed Consolidated Financial Statements, we terminated our cash management services agreement with Vivendi as of October 31, 2013. Further, we have not had any outstanding currency derivative contracts with Vivendi as counterparty since July 3, 2013. If we enter into similar contracts in the future, we expect that the counterparties for any such transactions will be large and reputable commercial or investment banks. We did not have any foreign currency contracts at September 30, 2013. The gross notional amount of outstanding foreign currency contracts was $355 million at December 31, 2012. The fair value of foreign currency contracts is estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the relevant period and was not material as of December 31, 2012.

Table of Contents

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

Fair Value Measurements on a Non-Recurring Basis

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

7. Debt

Unsecured Senior Notes

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

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

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

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

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

Table of Contents

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

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

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

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

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

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

Supplemental Cash Flow Information

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

Deferred Financing Costs

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

Table of Contents

8. Accumulated other comprehensive income (loss)

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

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

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

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

9. Operating segments and geographic region

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

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

Table of Contents

	Three months ended September 30,
	2013		2012		2013			2012
	Net revenues				Income (loss) from operations before income tax expense
Activision	$	319	$	283	$	41		$	(14	)
Blizzard	282		414		88			168
Distribution	56		54		(1		)	—
Operating segments total	657		751		128			154

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

Consolidated net revenues / operating income	$	691	$	841	70			227
Interest and other investment income (expense), net					(4		)	1

Consolidated income before income tax expense					$	66		$	228

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

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

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

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

Table of Contents

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

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Net revenues by geographic region:
North America	$	344	$	403	$	1,643	$	1,567
Europe	290		333		1,180		1,220
Asia Pacific	57		105		242		301
Total consolidated net revenues	$	691	$	841	$	3,065	$	3,088

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

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Net revenues by platform:
Console	$	296	$	227	$	1,634	$	1,430
Online subscriptions(1)	205		226		714		701
Other(2)	55		62		300		320
PC	79		272		274		471
Total platform net revenues	635		787		2,922		2,922
Distribution	56		54		143		166
Total consolidated net revenues	$	691	$	841	$	3,065	$	3,088

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

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

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

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

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

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

Table of Contents

10. Income taxes

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

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

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

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

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

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

Table of Contents

11. Computation of basic/diluted earnings per common share

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

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

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

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

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

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

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

Our unvested restricted stock rights, which consist of restricted stock units, restricted stock awards, and performance shares, are considered participating securities, as they generally have non-forfeitable rights to dividends or dividend equivalents during the contractual period of the award. As such, we are required to use the two-class method in our computation of basic and diluted earnings per common share. For the three and nine months ended September 30, 2013, we had outstanding unvested restricted stock rights with respect to 24 million and 25 million shares of common stock on a weighted-average basis, respectively. For the three and nine months ended September 30, 2012, we had outstanding unvested restricted stock rights with respect to 27 million and 23 million shares of common stock on a weighted-average basis, respectively.

Potential common shares are not included in the denominator of the diluted earnings per common share calculation when inclusion of such shares would be anti-dilutive. Therefore, options to acquire 2 million and 8 million shares of common stock were not included in the calculation of diluted earnings per common share for the three and nine months ended September 30, 2013, respectively, and options to acquire 24 million and 20 million shares of common stock were not included in the calculation of diluted earnings per common share for the three and nine months ended September 30, 2012, respectively.

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

Table of Contents

12. Capital transactions

Stock Purchase Agreement

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

Repurchase Program

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

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

Dividend

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

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

13. Commitments and contingencies

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

Legal Proceedings

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

The outcomes of legal proceedings and other claims are subject to significant uncertainties, many of which are outside 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, or liquidity.

Table of Contents

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

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

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

Table of Contents

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

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

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

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

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

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

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

14. Related party transactions

As part of the Business Combination, we entered into various transactions and agreements, including cash management services agreements, a tax sharing agreement and an investor agreement with Vivendi and its subsidiaries. In connection with the consummation of the Purchase Transaction, we terminated the cash management arrangements with Vivendi and amended our investor agreement with Vivendi. We are also party to music royalty and music distribution agreements with subsidiaries and other affiliates of Vivendi, none of which were impacted by the Purchase Transaction. None of these services, transactions and agreements with Vivendi and its affiliates were material, either individually or in the aggregate, to the condensed consolidated financial statements as a whole.

Table of Contents

15. Recently issued accounting pronouncements

Indefinite-lived intangible assets impairment

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

Balance sheet offsetting disclosures

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

Reclassification of accumulated other comprehensive loss

In February 2013, the FASB issued an accounting standards update requiring new disclosures about reclassifications from accumulated other comprehensive loss to net income. These disclosures may be presented on the face of the statements or in the notes to the consolidated financial statements. This update is effective for fiscal years beginning after December 15, 2012. We adopted this guidance and provided the required disclosures in Note 8 of the Notes to Condensed Consolidated Financial Statements.

Accounting for cumulative translation adjustments

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

Presentation of unrecognized tax benefits

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

16. Subsequent events

Purchase Transaction and Private Sale

On October 11, 2013, we completed the Purchase Transaction described in Note 1 of the Notes to Condensed Consolidated Financial Statements, resulting in the repurchase of 429 million shares of our common stock for a cash payment of $5.83 billion, or $13.60 per share, before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the transaction. The Purchase Transaction was funded with a combination of $1.2 billion cash on hand, $2.5 billion from the bank financing described below, and $2.25 billion from the Notes. The repurchased shares will be recorded as “Treasury Stock” in our condensed consolidated balance sheet.

Pursuant to the Stock Purchase Agreement, immediately following the completion of the Purchase Transaction, ASAC completed the Private Sale, purchasing 172 million shares of the Company’s common stock from Vivendi for a cash payment of $2.34 billion. Robert A. Kotick, our Chief Executive Officer, and Brian G. Kelly, the Chairman of our Board of Directors, are affiliates of ASAC II LLC. Concurrently with the signing of the Stock Purchase Agreement, Mr. Kotick and Mr. Kelly each entered into waiver and acknowledgement letters with us, which provide, among other things, for the waiver by Mr. Kotick and Mr. Kelly of their rights to any change in control payments or benefits under their employment agreements with us, our 2008 Incentive Plan, any award agreements in respect to awards granted thereunder, or any other benefit plans and arrangements, in each case in connection with or as a consequence of the transactions contemplated by the Stock Purchase Agreement.

Table of Contents

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

In connection with the Purchase Transaction, we assumed certain tax attributes of New VH, which generally consist of New VH’s net operating loss (“NOL”) carryforwards of approximately $676 million, which represent a potential future tax benefit of approximately $245 million. The Company also obtained indemnification from Vivendi against losses attributable to the potential nonexistence or the disallowance of claimed utilization of such NOL carryforwards of up to $200 million in unrealized tax benefits in the aggregate, limited to taxable years ending on or prior to December 31, 2016. No benefit for these tax attributes or indemnification was recorded upon the close of the Purchase Transaction as it is not more-likely-than-not that the tax position is realizable.

Financing Credit Facilities

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

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

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

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

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

Table of Contents

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

Recently Completed Transactions

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

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

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

Business Overview

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

Activision Publishing, Inc.

Blizzard Entertainment, Inc.

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

Table of Contents

Activision Blizzard Distribution

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

Business Highlights

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

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

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

· In both North America and Europe, Activision had the two of the top-five best-selling games with Skylanders Giants™ and Call of Duty: Black Ops II; and

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

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

During the nine months ended September 30, 2013, Activision Publishing released, among other titles, four downloadable map packs for Call of Duty: Black Ops II — Call of Duty: Black Ops II Revolution, Call of Duty: Black Ops II Uprising, Call of Duty: Black Ops II Vengeance, and Call of Duty: Black Ops II Apocalypse; and also The Walking Dead: Survival Instinct.

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

Activision Blizzard Upcoming Product Releases

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

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

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

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

Management’s Overview of Business Trends

Onl