Activision Blizzard Announces Better-Than-Expected and Record Second Quarter 2016 Financial Results

Company Increases CY 2016 Revenues and EPS Outlook

Record Q2 Revenues, Growing More Than 50% Year-over-Year

Record Quarterly Digital Revenues of Over $1 Billion

Record Q2 Operating Cash Flow, Up More Than 250% Year-over-Year

Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the second quarter of 2016.

Second Quarter (in millions, except EPS)

2016

PriorOutlook*

2015

GAAP Net Revenues $ 1,570 $ 1,425 $ 1,044 GAAP EPS $ 0.17 $ 0.10 $ 0.29 Non-GAAP (redefined) EPS $ 0.45 $ 0.36 $ 0.31

For the quarter ended June 30, 2016, Activision Blizzard’s net revenues presented in accordance with Generally Accepted Accounting Principles (“GAAP”) were a Q2 record $1.57 billion, as compared with $1.04 billion for the second quarter of 2015, an increase of 50%. GAAP net revenues from digital channels were an all-time quarterly record of $1.14 billion, up 23% quarter-over-quarter and 101% year-over-year. GAAP earnings per diluted share were $0.17, as compared with $0.29 for the second quarter of 2015, down year-over-year primarily due to purchase price accounting related to the acquisition of King Digital Entertainment. On a Non-GAAP (redefined) basis, the company’s earnings per diluted share were a Q2 record $0.45, as compared with $0.31 for the second quarter of 2015, an increase of 45%.

Second Quarter (in millions, except EPS)

2016

PriorOutlook*

2015

Non-GAAP (as previously defined) Net Revenues $ 1,609 $ 1,375 $ 759 Non-GAAP (as previously defined) EPS $ 0.54 $ 0.38 $ 0.13

* GAAP and “Non-GAAP (as previously defined)” outlook was previously provided in the May 5, 2016 earnings release. “Non-GAAP (redefined)” outlook is what would have been provided on May 5, 2016 if the company were providing outlook based on the redefined methodology at that time. “Non-GAAP (redefined)” includes the net effect of revenue deferrals accounting treatment on certain of our online enabled products, which was expected to be $0.02 per diluted share in the outlook that was provided in the May 5, 2016 earnings release.

On a Non-GAAP (as previously defined) basis, the company’s net revenues were a Q2 record $1.61 billion, as compared with $759 million for the second quarter of 2015, an increase of 112%. Non-GAAP (as previously defined) net revenues from digital channels were an all-time quarterly record of $1.40 billion, up 76% quarter-over-quarter and 129% year-over-year. Non-GAAP (as previously defined) earnings per diluted share were a Q2 record $0.54, as compared with $0.13 for the second quarter of 2015, an increase of 315%. Note that we are providing these Non-GAAP (as previously defined) measures for comparability one last time this quarter.

Activision Blizzard generated a Q2 record $479 million in operating cash flow for the quarter ended June 30, 2016, up 255% year-over-year. For the trailing twelve months ended June 30, 2016, operating cash flow totaled $1.64 billion, a 17% increase year-over-year.

Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP, non-GAAP (redefined) and non-GAAP (as previously defined) results.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, said, “With Overwatch’s incredibly successful launch, Call of Duty’s record first half performance, and Candy Crush’s continued growth as key drivers of our overall performance, we delivered a record Q2. We exceeded our non-GAAP (as previously defined) outlook by $234 million in revenues and $0.16 in earnings per share, and raised our full-year outlook.”

Kotick added, “The lynchpin of our current success and our future growth is our talent. Our teams have the unique combination of passion, entrepreneurial spirit and inspired creativity. The success of Overwatch, our newest franchise, is a testament to this talent. I’m grateful to our over 10,000 employees, each of whom embodies these characteristics of our culture.”

Selected Business Highlights:

Audience Reach

Activision Blizzard had 491 million Monthly Active Users (MAUs)A in the quarter.
Blizzard had the biggest quarterly online player community in its history, with MAUsA of 33 million, up 29% quarter-over-quarter and 13% year-over-year. This reflects the successful launch of Overwatch® and strength across the broader portfolio, including Hearthstone®: Heroes of Warcraft™, which had record quarterly MAUsA, and World of Warcraft®, which had double-digit MAUA growth quarter-over-quarter and year-over-year.
On May 24, 2016, Blizzard launched Overwatch which now has over 15 million players globally, including box and digital sales, internet game room players, and multi-user console households. In China, Overwatch broke the previous record set by Diablo® III as the fastest-selling PC game in the market’s history.1 Overwatch also currently holds the number one position in Korean Internet Game Rooms with over 30% share of play time.2
Activision had the biggest second quarter online player community in its history, with MAUsA of 49 million, up 11% year-over-year. Activision continues to have four of the top ten games on current-generation consoles life-to-date, including Call of Duty®: Black Ops III at No. 1.3
King MAUsA of 409 million declined in the quarter as expected due to seasonal trends and launch timing. King had three of the top-15-grossing titles in the U.S. mobile app stores for the tenth quarter in a row.4

Deep Engagement

Activision Blizzard’s deep game experiences drove nearly 10 billion hours of play time during Q2.
Players have spent about 500 million hours playing Blizzard’s Overwatch, with additional content updates ahead.
Blizzard’s Hearthstone: Heroes of Warcraft had record total quarterly time spent with the launch of the Whispers of the Old Gods™ expansion.
King’s time spent per MAUA was up quarter-over-quarter and year-over-year.
Activision and its partners at Bungie launched an update in April for Destiny which drove strong reengagement, with an increase in MAUsA and time spent per MAUA month-over-month.
Activision Blizzard’s esports network, Major League Gaming, debuted the Enhanced Viewer Experience (EVE) which provides viewers with match statistics, up-to-the-minute leaderboards and situational insights live as the competition unfolds. MLG also announced a partnership with Facebook that includes broadcast of the “ESR” (Esports Report) on the social network platform. MLG’s inaugural broadcast on Facebook was the June Call of Duty World League event, the Anaheim Open. Since the December acquisition, MLG’s reach on Facebook is up 700%.
With the growth of the Call of Duty World League, Call of Duty esports viewership increased by more than 5 times year-over-year to 33 million views of the Stage 1 events. This year’s major events are yet to come.

Player Investment

Activision Blizzard GAAP revenues from in-game content reached a record of over $900 million this quarter. Activision Blizzard non-GAAP (as previously defined) revenues from in-game content reached a record of over $1 billion this quarterB. In-game content continues to be a rapidly growing part of the business.
Blizzard had its biggest segment revenue quarter and first half year, ever. Blizzard's quarterly segment operating income nearly tripled vs. the second quarter last year. Additionally, Blizzard had record second quarter GAAP revenues and record quarterly non-GAAP revenues (as previously defined) in China. Blizzard’s overall performance was driven in particular by Overwatch’s outstanding launch, World of Warcraft’s strong pre-expansion momentum, with Legion pre-purchases tracking in-line with the previous expansion, and Hearthstone: Heroes of Warcraft’s double digit revenue growth year-over-year.
Activision had its biggest segment operating income second quarter and first half year, ever, with continued momentum on Call of Duty, including on catalog sales, Season Pass, map packs and micro-transactions, and continued engagement on Destiny.
Gross bookingsC for King’s Candy Crush™ franchise grew quarter-over-quarter and year-over-year. In addition, King’s average revenue per paying user grew quarter-over-quarter and year-over-year, also driving year-over-year growth in King’s mobile gross bookingsC.

Company Outlook:

On July 12, 2016, Activision released the third of four map packs for Call of Duty: Black Ops III, delivering four multiplayer maps in addition to an all-new Zombies experience, available first on PlayStation 4.
On August 2, 2016, Blizzard launched its Summer Games content for Overwatch. The content includes a new soccer-like game mode and includes a variety of new Summer Games-themed cosmetic content in loot boxes.
From August 5 to August 7, 2016, MLG will host a Call of Duty World League event in Orlando with a $100,000 prize pool.
On August 11, 2016, Blizzard plans to release a new adventure for Hearthstone: Heroes of Warcraft. The adventure, One Night in Karazhan™, will offer single-player content and the ability to earn new cards for multiplayer duels.
On August 30, 2016, Blizzard is expected to launch its highly anticipated World of Warcraft expansion, Legion™. World of Warcraft remains the No. 1 subscription‐based MMORPG in the world.
From September 2 to September 4, 2016, Activision will host fans at Call of Duty XP. Thousands of fans will enjoy hands-on Call of Duty: Infinite Warfare™ play, the first Call of Duty VR experience, exhibits, developer panels, a surprise musical guest, and more. Call of Duty XP will also host the finals for the Call of Duty World League Championships, where teams from around the world will compete for a $3 million prize pool.
On September 20, Activision and Bungie plan to release Rise of Iron, a large new expansion for the Destiny universe. The expansion will include a new location, a new Raid, a new Strike, more quests, weapons, and gear, and a new competitive multiplayer mode.
On October 16, 2016, Activision is expected to release Skylanders®: Imaginators, an innovative new title. For the first time ever, players will be able to create their own Skylanders characters. Skylanders™ Academy, a new TV series celebrating the beloved kids franchise is expected to premiere on Netflix this fall.
On November 4, 2016, Activision is expected to launch the highly anticipated Call of Duty: Infinite Warfare. This is the first release on a three-year development cycle from award-winning studio, Infinity Ward. Fans will also have the opportunity to purchase Legacy and Digital Deluxe Editions including a remastered copy of Call of Duty: Modern Warfare®, one of the most beloved games of the franchise.
Blizzard’s tenth BlizzCon® will be returning to the Anaheim Convention Center on Friday, November 4, and Saturday, November 5. Thousands of tickets again sold out in a matter of minutes, but online access via the purchase of a BlizzCon Virtual Ticket is again available for this year’s show.
King is expected to have one additional non-Candy Crush franchise release coming towards the end of the year.
Based on its year-to-date results, Activision Blizzard is raising its full-year net revenues and earnings per share outlook. The company’s third-quarter and full-year net revenues and earnings per share outlook are as follows:

(in millions, except EPS)

GAAP Outlook

Non-GAAP Outlook (redefined)

Impact of GAAP deferralsD

CY 2016

Net Revenues $ 6,400 $ 6,400 $ 75 EPS $ 0.87 $ 1.83 $ 0.07 Fully Diluted Shares* 765 765

Q3 2016

Net Revenues $ 1,490 $ 1,490 $ 45 EPS $ 0.06 $ 0.39 $ 0.01 Fully Diluted Shares* 760 760

* Fully diluted weighted average shares include participating securities and dilutive options on a weighted average basis.

As referenced on our July 29, 2016 call, if you would like to calculate Non-GAAP (as previously defined) revenues and EPS, in order to do year-over-year comparisons, you would add the impact of GAAP deferrals to GAAP Revenues and to Non-GAAP (redefined) EPS. See footnote D for further explanation.

Currency Assumptions for 2016 Outlook:

$1.11 USD/Euro for current outlook (vs. average of $1.11 for 2015 and $1.33 for 2014)
$1.31 USD/British Pound Sterling for current outlook (vs. average of $1.53 for 2015 and $1.65 for 2014)

Debt Repayment and Cash Dividend

In the quarter ended June 30, 2016, we made prepayments to reduce our total outstanding term loans by $816 million. Furthermore, the company paid a cash dividend of $0.26 per common share, a 13% increase year-over-year, in May 2016 to shareholders of record at the close of business on March 30, 2016, totaling $195 million.

Conference Call

Today at 4:30 p.m. EDT, Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter ended June 30, 2016 and management’s outlook for the remainder of the calendar year. The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call via live Webcast or to listen to the call live by dialing into 866-598-9332 in the U.S. with passcode 5764728.

About Activision Blizzard

Activision Blizzard, Inc., a member of the S&P 500, is the world's most successful standalone interactive entertainment company. We delight nearly 500 million monthly active users around the world through franchises including Activision's Call of Duty®, Destiny and Skylanders®, Blizzard Entertainment's World of Warcraft®, StarCraft®, Diablo®, Hearthstone®: Heroes of Warcraft™ and Overwatch®, and King's Candy Crush™, Pet Rescue™ and Farm Heroes™. The company is one of the Fortune ʺ100 Best Companies To Work For®ʺ. Headquartered in Santa Monica, California, Activision Blizzard has operations throughout the world, and its games are played in 196 countries. More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.

1 NetEase2 Gametrics.com3 Based on data from the NPD Group and GfK Chart-Track4 U.S. ranking for Apple App Store and Google Play Store, per App Annie Intelligence for second quarter 2016

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

B The difference between the GAAP and non-GAAP measurement represents the net effect of accounting treatment from revenue deferrals on certain of our online enabled products. In-game content is defined as content and services that can be purchased once the player starts playing a game, e.g. DLC such as map packs, micro-transactions such as loot boxes or gold bars, and value added services such as paid character boosts. It does not include subscriptions.

C Gross bookings is an operating metric that represents the total cash spent by players in the period for the purchase of virtual items. King uses gross bookings to evaluate its results of operations, generate future operating plans and assess performance. Gross bookings is the total price paid by players, which includes indirect taxes (sales tax or value added tax etc.), platform providers fees, and King’s share of revenues.

D Net effect of accounting treatment from revenue deferrals on certain of our online enabled products. Some of our games’ online functionality represents an essential component of gameplay and, as a result, a more-than-inconsequential separate deliverable. As a result, we recognize revenues attributed to these game titles over their estimated service periods, which is generally less than a year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized. Impact from changes in deferrals refers to the net effect from revenue deferrals accounting treatment for the purposes of revenues, and together with the related cost of revenues deferrals treatment and the related tax impacts for the purposes of EPS. Internally, management excludes the impact of this change in deferred revenues and related cost of revenues when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers. In addition, management believes excluding the change in deferred revenues and the related cost of revenues provides a much more timely indication of trends in our operating results.

Non-GAAP (as previously defined) and Non-GAAP (redefined) Financial Measures: We provide Non-GAAP (as previously defined) financial measures and Non-GAAP (redefined) financial measures in this earnings release. The only difference between the two measures is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. We have reported our second quarter of 2016 results under Generally Accepted Accounting Principles (“GAAP”), Non-GAAP (as previously defined) and Non-GAAP (redefined). We have provided our outlook for the third quarter and full year of 2016 under GAAP, and Non-GAAP (redefined). This is the last quarter we will report Non-GAAP (as previously defined) financial measures. In accordance with the updated Compliance and Disclosure Interpretations issued by the SEC staff on May 17, 2016, going forward, we will only be providing results and outlook using GAAP and Non-GAAP (redefined).

Non-GAAP (redefined) Financial Measures: As a supplement to our financial measures presented in accordance with Generally Accepted Accounting Principles (“GAAP”), Activision Blizzard presents certain non-GAAP measures of financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than, the financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the company’s results of operations as determined in accordance with GAAP.

Activision Blizzard provides net income (loss), earnings (loss) per share and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) certain items. When relevant, the Company also provides constant FX information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. In addition, Activision Blizzard provides EBITDA (defined as GAAP net income (loss) before interest (income) expense, income taxes, depreciation and amortization) and adjusted EBITDA (defined as non-GAAP operating margin (see non-GAAP financial measure below) before depreciation). The non-GAAP financial measures exclude the following items, as applicable in any given reporting period and our outlook:

expenses related to stock-based compensation;
the amortization of intangibles from purchase price accounting;
fees and other expenses related to the King acquisition, inclusive of related debt financings, and future refinancing of long-term debt, including penalties and the write off of unamortized discount and deferred financing costs; and
the income tax adjustments associated with any of the above items. We derive the income tax adjustments commensurate with the non-GAAP income before income tax expenses.

In the future, Activision Blizzard may also consider whether other items should also be excluded in calculating the non-GAAP financial measures used by the company. Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard’s financial and operating performance. In particular, the measures facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard by excluding certain items that may not be indicative of the company’s core business, operating results or future outlook. Internally, management uses these non-GAAP financial measures, along with others, in assessing the company’s operating results, and measuring compliance with the requirements of the company’s debt financing agreements, as well as in planning and forecasting.

Activision Blizzard’s non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net income, non-GAAP earnings per share, non-GAAP operating margin, and non-GAAP or adjusted EBITDA do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard’s performance in relation to other companies.

Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard’s GAAP, as well as non-GAAP, results and outlook, and by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.

Cautionary Note Regarding Forward-looking Statements: The statements contained in this press release that are not historical facts are forward-looking statements, including, but not limited to, statements about (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 related to product releases; (3) statements of future financial or operating performance; (4) statements relating to the acquisition of King and expected impact of that transaction, including without limitation, the expected impact on Activision Blizzard, Inc.'s future financial results; (5) statements about potential future debt refinancing or other capital structure changes; and (6) statements of assumptions underlying such statements. The company generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “plans,” “believes,” “may,” “might,” “expects,” “intends,” “intends as,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risk, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict.

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

The forward-looking statements in this press release are based on information available to the company 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.

(Tables to Follow)

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in millions, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2016 2015 2016 2015 Net revenues Product sales $ 501 $ 528 $ 1,145 $ 1,311 Subscription, licensing and other revenues1 1,069 516 1,880 1,011 Net revenues 1,570 1,044 3,025 2,322 Costs and expenses Cost of revenues - product sales: Product costs 149 147 318 349 Software royalties, amortization, and intellectual property licenses 80 70 208 211 Cost of revenues - subscription, licensing, and other: Game operations and distribution costs 241 61 383 120 Software royalties, amortization, and intellectual property licenses 128 19 180 30 Product development 249 149 424 294 Sales and marketing 322 164 490 256 General and administrative 169 102 329 188 Total costs and expenses 1,338 712 2,332 1,448 Operating income 232 332 693 874 Interest and other expense (income), net 65 50 117 100 Income before income tax expense 167 282 576 774 Income tax expense 40 70 113 168 Net income $ 127 $ 212 $ 463 $ 606 Basic earnings per common share 2 $ 0.17 $ 0.29 $ 0.62 $ 0.82 Weighted average common shares outstanding 739 727 737 725 Diluted earnings per common share 2 $ 0.17 $ 0.29 $ 0.61 $ 0.81 Weighted average common shares outstanding assuming dilution 750 735 748 734 1

Subscription, licensing and other revenues represent revenues from World of Warcraft subscriptions, licensing royalties from our products and franchises, value-added services, downloadable content, microtransactions, and other miscellaneous revenues.

2 The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. We had, on a weighted-average basis, participating securities of approximately 3 million for the three and six months ended June 30, 2016, and 9 million and 10 million for the three and six months ended June 30, 2015, respectively. For the three and six months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate earnings per common share, assuming dilution, was $126 million and $460 million, respectively, as compared to total net income of $127 million and $463 million, respectively, for the same period. For the three and six months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate earnings per common share, assuming dilution, was $210 million and $597 million, respectively, as compared to total net income of $212 million and $606 million, respectively, for the same period. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in millions) June 30, 2016 December 31, 2015 Assets Current assets Cash and cash equivalents $ 2,271 $ 1,823 Accounts receivable, net 462 679 Inventories, net 94 128 Software development 287 336 Other current assets 306 421 Total current assets 3,420 3,387 Cash in escrow — 3,561 Software development 150 80 Property and equipment, net 260 189 Deferred income taxes, net 405 275 Other assets 320 177 Intangible assets, net 2,281 482 Goodwill 9,771 7,095 Total assets $ 16,607 $ 15,246 Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 176 $ 284 Deferred revenues 1,238 1,702 Accrued expenses and other liabilities 721 625 Current portion of long-term debt, net 56 — Total current liabilities 2,191 2,611 Long-term debt, net 4,977 4,074 Deferred income taxes, net 50 10 Other liabilities 835 483 Total liabilities 8,053 7,178 Shareholders' equity Common stock — — Additional paid-in capital 10,425 10,242 Treasury stock (5,588 ) (5,637 ) Retained earnings 4,366 4,096 Accumulated other comprehensive loss (649 ) (633 ) Total shareholders’ equity 8,554 8,068 Total liabilities and shareholders’ equity $ 16,607 $ 15,246 ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES (Amounts in millions, except per share data) Three Months Ended June 30, 2016 Net Revenues

Cost of Revenues- Product Sales:Product Costs

Cost of Revenues- Product Sales:SoftwareRoyalties andAmortization

Cost of Revenues- Subs/Lic/Other:Game Operations andDistribution Costs

Cost of Revenues- Subs/Lic/Other:SoftwareRoyalties andAmortization

ProductDevelopment

Sales andMarketing

General andAdministrative

Total Costsand Expenses

GAAP Measurement $ 1,570 $ 149 $ 80 $ 241 $ 128 $ 249 $ 322 $ 169 $ 1,338 Stock-based compensation1 — — (6 ) — (1 ) (13 ) (4 ) (17 ) (41 ) Amortization of intangible assets2 — — (1 ) — (122 ) — (78 ) (2 ) (203 ) Fees and other expenses related to acquisitions3 — — — — — — — (4 ) (4 ) Non-GAAP (redefined) Measurement $ 1,570 $ 149 $ 73 $ 241 $ 5 $ 236 $ 240 $ 146 $ 1,090 Net effect of deferred revenues and related cost of revenues4 $ 39 $ (44 ) $ (34 ) $ 7 $ 2 $ — $ — $ — $ (69 ) Non-GAAP (as previously defined) Measurement6 $ 1,609 $ 105 $ 39 $ 248 $ 7 $ 236 $ 240 $ 146 $ 1,021

OperatingIncome

Net Income

Basic Earningsper Share

Diluted Earningsper Share

GAAP Measurement $ 232 $ 127 $ 0.17 $ 0.17 Stock-based compensation1 41 41 0.06 0.06 Amortization of intangible assets2 203 203 0.27 0.27 Fees and other expenses related to acquisitions3 4 5 0.01 0.01 Income tax impacts from items above5 — (35 ) (0.05 ) (0.05 ) Non-GAAP (redefined) Measurement $ 480 $ 341 $ 0.46 $ 0.45 Net effect of deferred revenues and related cost of revenues4 $ 108 $ 63 $ 0.08 $ 0.09 Non-GAAP (as previously defined) Measurement6 $ 588 $ 404 $ 0.54 $ 0.54 1 Includes expenses related to stock-based compensation. 2 Reflects amortization of intangible assets from purchase price accounting. 3 Reflects fees and other expenses related to the acquisition of King Digital Entertainment ("King Acquisition"), inclusive of related debt financings. 4 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes. 5 Reflects the income tax impact associated with the above items. We derive the income tax impacts commensurate with the non-GAAP income before income tax expenses. 6

We have provided Non-GAAP (as previously defined) financial measures and Non-GAAP (redefined) financial measures in this earnings release. The only difference between the two measures is the inclusion (Non-GAAP (redefined)) or exclusion (Non-GAAP (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. We reported our second quarter of 2016 results under GAAP, Non-GAAP (as previously defined) and Non-GAAP (redefined). This is the last quarter we will report Non-GAAP (as previously defined) financial measures and going forward, we will only be providing GAAP and Non-GAAP (redefined) results.

The GAAP, non-GAAP (redefined), and non-GAAP (as previously defined) earnings per share information is presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. For the three months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (redefined) earnings per common share, assuming dilution, was $340 million, as compared to total net income of $341 million, for the same period. For the three months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (as previously defined) earnings per common share, assuming dilution, was $402 million, as compared to total net income of $404 million, for the same period. For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 739 million, participating securities of approximately 3 million, and dilutive shares of 11 million during the three months ended June 30, 2016.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

Six Months Ended June 30, 2016 Net Revenues

Cost of Revenues- Product Sales:Product Costs

Cost of Revenues- Product Sales:SoftwareRoyalties andAmortization

Cost of Revenues- Subs/Lic/Other:Game Operations andDistribution Costs

Cost of Revenues- Subs/Lic/Other:SoftwareRoyalties andAmortization

ProductDevelopment

Sales andMarketing

General andAdministrative

Total Costsand Expenses

GAAP Measurement $ 3,025 $ 318 $ 208 $ 383 $ 180 $ 424 $ 490 $ 329 $ 2,332 Stock-based compensation1 — — (14 ) — (1 ) (23 ) (7 ) (40 ) (85 ) Amortization of intangible assets2 — — (2 ) (1 ) (168 ) — (111 ) (3 ) (285 ) Fees and other expenses related to acquisitions3 — — — — — — — (38 ) (38 ) Non-GAAP (redefined) Measurement $ 3,025 $ 318 $ 192 $ 382 $ 11 $ 401 $ 372 $ 248 $ 1,924 Net effect of deferred revenues and related cost of revenues4 $ (508 ) $ (127 ) $ (122 ) $ 3 $ (1 ) $ — $ — $ — $ (247 ) Non-GAAP (as previously defined) Measurement6 $ 2,517 $ 191 $ 70 $ 385 $ 10 $ 401 $ 372 $ 248 $ 1,677

OperatingIncome

Net Income

Basic Earningsper Share

Diluted Earningsper Share

GAAP Measurement $ 693 $ 463 $ 0.62 $ 0.61 Stock-based compensation1 85 85 0.12 0.11 Amortization of intangible assets2 285 285 0.38 0.38 Fees and other expenses related to acquisitions3 38 41 0.06 0.05 Income tax impacts from items above5 — (92 ) (0.12 ) (0.12 ) Non-GAAP (redefined) Measurement $ 1,101 $ 782 $ 1.06 $ 1.04 Net effect of deferred revenues and related cost of revenues4 $ (261 ) $ (205 ) $ (0.28 ) $ (0.27 ) Non-GAAP (as previously defined) Measurement6 $ 840 $ 577 $ 0.78 $ 0.77 1 Includes expenses related to stock-based compensation. 2 Reflects amortization of intangible assets from purchase price accounting. 3 Reflects fees and other expenses related to the acquisition of King Digital Entertainment ("King Acquisition"), inclusive of related debt financings. 4 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes. 5 Reflects the income tax impact associated with the above items. We derive the income tax impacts commensurate with the non-GAAP income before income tax expenses. 6

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. For the six months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (redefined) earnings per common share, assuming dilution, was $778 million, as compared to total net income of $782 million, for the same period. For the six months ended June 30, 2016, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (as previously defined) earnings per common share, assuming dilution, was $573 million, as compared to total net income of $577 million, for the same period. For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 737 million, participating securities of approximately 3 million, and dilutive shares of 11 million during the six months ended June 30, 2016.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

Three Months Ended June 30, 2015 Net Revenues

Cost of Revenues- Product Sales:Product Costs

Cost of Revenues- Product Sales:SoftwareRoyalties andAmortization

Cost of Revenues- Subs/Lic/Other:Game Operations andDistribution Costs

Cost of Revenues- Subs/Lic/Other:SoftwareRoyalties andAmortization

ProductDevelopment

Sales andMarketing

General andAdministrative

Total Costsand Expenses

GAAP Measurement $ 1,044 $ 147 $ 70 $ 61 $ 19 $ 149 $ 164 $ 102 $ 712 Stock-based compensation1 — — (2 ) — (1 ) (6 ) (2 ) (10 ) (21 ) Amortization of intangible assets2 — — (1 ) — — — — — (1 ) Non-GAAP (redefined) Measurement $ 1,044 $ 147 $ 67 $ 61 $ 18 $ 143 $ 162 $ 92 $ 690 Net effect of deferred revenues and related cost of revenues3 $ (285 ) $ (66 ) $ (57 ) $ 8 $ 11 $ — $ — $ — $ (104 ) Non-GAAP (as previously defined) Measurement5 $ 759 $ 81 $ 10 $ 69 $ 29 $ 143 $ 162 $ 92 $ 586

OperatingIncome

Net Income

Basic Earningsper Share

Diluted Earningsper Share

GAAP Measurement $ 332 $ 212 $ 0.29 $ 0.29 Stock-based compensation1 21 21 0.03 0.03 Amortization of intangible assets2 1 1 — — Income tax impacts from items above4 — (5 ) (0.01 ) (0.01 ) Non-GAAP (redefined) Measurement $ 354 $ 229 $ 0.31 $ 0.31 Net effect of deferred revenues and related cost of revenues3 $ (181 ) $ (136 ) $ (0.18 ) $ (0.18 ) Non-GAAP (as previously defined) Measurement5 $ 173 $ 93 $ 0.13 $ 0.13 1 Includes expenses related to stock-based compensation. 2 Reflects amortization of intangible assets from purchase price accounting. 3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes. 4 Reflects the income tax impact associated with the above items. We derive the income tax impacts commensurate with the non-GAAP income before income tax expenses. 5

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. For the three months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (redefined) earnings per common share, assuming dilution, was $226 million, as compared to total net income of $229 million, for the same period. For the three months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (as previously defined) earnings per common share, assuming dilution, was $92 million, as compared to total net income of $93 million, for the same period. For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 727 million, participating securities of approximately 9 million, and dilutive shares of 8 million during the three months ended June 30, 2015.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except per share data)

Six Months Ended June 30, 2015 Net Revenues

Cost of Revenues- Product Sales:Product Costs

Cost of Revenues- Product Sales:SoftwareRoyalties andAmortization

Cost of Revenues- Subs/Lic/Other:Game Operations andDistribution Costs

Cost of Revenues- Subs/Lic/Other:SoftwareRoyalties andAmortization

ProductDevelopment

Sales andMarketing

General andAdministrative

Total Costsand Expenses

GAAP Measurement $ 2,322 $ 349 $ 211 $ 120 $ 30 $ 294 $ 256 $ 188 $ 1,448 Stock-based compensation1 — — (5 ) — (2 ) (14 ) (4 ) (19 ) (44 ) Amortization of intangible assets2 — — (3 ) — — — — — (3 ) Non-GAAP (redefined) Measurement $ 2,322 $ 349 $ 203 $ 120 $ 28 $ 280 $ 252 $ 169 $ 1,401 Net effect of deferred revenues and related cost of revenues3 $ (860 ) $ (176 ) $ (173 ) $ 7 $ 27 $ — $ — $ — $ (315 ) Non-GAAP (as previously defined) Measurement5 $ 1,462 $ 173 $ 30 $ 127 $ 55 $ 280 $ 252 $ 169 $ 1,086

OperatingIncome

Net Income

Basic Earningsper Share

Diluted Earningsper Share

GAAP Measurement $ 874 $ 606 $ 0.82 $ 0.81 Stock-based compensation1 44 44 0.06 0.06 Amortization of intangible assets2 3 3 — — Income tax impacts from items above4 — (13 ) (0.01 ) (0.01 ) Non-GAAP (redefined) Measurement $ 921 $ 640 $ 0.87 $ 0.86 Net effect of deferred revenues and related cost of revenues3 $ (545 ) $ (431 ) $ (0.59 ) $ (0.58 ) Non-GAAP (as previously defined) Measurement5 $ 376 $ 209 $ 0.28 $ 0.28 1 Includes expenses related to stock-based compensation. 2 Reflects amortization of intangible assets from purchase price accounting. 3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effects of taxes. 4 Reflects the income tax impact associated with the above items. We derive the income tax impacts commensurate with the non-GAAP income before income tax expenses. 5

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. For the six months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (redefined) earnings per common share, assuming dilution, was $630 million, as compared to total net income of $640 million, for the same period. For the six months ended June 30, 2015, net income attributable to Activision Blizzard, Inc. common shareholders used to calculate non-GAAP (as previously defined) earnings per common share, assuming dilution, was $205 million, as compared to total net income of $209 million, for the same period. For purposes of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 725 million, participating securities of approximately 10 million, and dilutive shares of 9 million during the six months ended June 30, 2015. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the Three and Six Months Ended June 30, 2016 and 2015 (Amounts in millions) Three Months Ended June 30, 2016 June 30, 2015

$ Increase(Decrease)

% Increase(Decrease)

Amount % of Total1 Amount % of Total1 Net Revenues by Distribution Channel Digital online channels2 $ 1,141 73 % $ 569 55 % $ 572 101 % Retail channels 374 24 414 40 (40 ) (10 ) Other3 55 4 61 6 (6 ) (10 ) Total consolidated net revenues 1,570 100 1,044 100 526 50 Change in deferred revenues4 Digital online channels2 261 42 Retail channels (222 ) (327 ) Total changes in deferred revenues 39 (285 ) Non-GAAP (as previously defined) Net Revenues by Distribution Channel5 Digital online channels2 1,402 87 611 81 791 129 Retail channels 152 9 87 11 65 75 Other3 55 3 61 8 (6 ) (10 ) Total non-GAAP (as previously defined) net revenues5 $ 1,609 100 % $ 759 100 % $ 850 112 % Six Months Ended June 30, 2016 June 30, 2015

$ Increase(Decrease)

% Increase(Decrease)

Amount % of Total1 Amount % of Total1 Net Revenues by Distribution Channel Digital online channels2 $ 2,067 68 % $ 1,150 50 % $ 917 80 % Retail channels 856 28 1,063 46 (207 ) (19 ) Other3 102 3 109 5 (7 ) (6 ) Total consolidated net revenues 3,025 100 2,322 100 703 30 Change in deferred revenues4 Digital online channels2 132 (1 ) Retail channels (640 ) (859 ) Total changes in deferred revenues (508 ) (860 ) Non-GAAP (as previously defined) Net Revenues by Distribution Channel5 Digital online channels2 2,199 87 1,149 79 1,050 91 Retail channels 216 9 204 14 12 6 Other3 102 4 109 7 (7 ) (6 ) Total non-GAAP (as previously defined) net revenues5 $ 2,517 100 % $ 1,462 100 % $ 1,055 72 % 1 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. 2

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

3 Net revenues from Other include revenues from our Major League Gaming, studios, and distribution businesses. 4 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products, including the effect of taxes. 5

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES FINANCIAL INFORMATION For the Three and Six Months Ended June 30, 2016 and 2015 (Amounts in millions) Three Months Ended June 30, 2016 June 30, 2015

$ Increase(Decrease)

% Increase(Decrease)

Amount % of Total1 Amount % of Total1 Net Revenues by Platform Console $ 650 41 % $ 559 54 % $ 91 16 %

PC2

411 26 370 35 41 11 Mobile and ancillary3 454 29 54 5 400 NM Other4 55 4 61 6 (6 ) (10 ) Total consolidated net revenues 1,570 100 1,044 100 526 50 Change in deferred revenues5 Console (210 ) (283 ) PC2 219 (28 ) Mobile and ancillary3 30 26 Total changes in deferred revenues 39 (285 ) Non-GAAP (as previously defined) Net Revenues by Platform6 Console 440 27 276 36 164 59 PC2 630 39 342 45 288 84 Mobile and ancillary3 484 30 80 11 404 NM Other4 55 3 61 8 (6 ) (10 ) Total non-GAAP (as previously defined) net revenues6 $ 1,609 100 % $ 759 100 % $ 850 112 % Six Months Ended June 30, 2016 June 30, 2015

$ Increase(Decrease)

% Increase(Decrease)

Amount % of Total1 Amount % of Total1 Net Revenues by Platform Console $ 1,415 47 % $ 1,317 57 % $ 98 7 % PC2 811 27 755 33 56 7 Mobile and ancillary3 697 23 141 6 556 NM Other4 102 3 109 5 (7 ) (6 ) Total consolidated net revenues 3,025 100 2,322 100 703 30 Change in deferred revenues5 Console (648 ) (808 ) PC2 121 (78 ) Mobile and ancillary3 19 26 Total changes in deferred revenues (508 ) (860 ) Non-GAAP (as previously defined) Net Revenues by Platform6 Console 767 30 509 35 258 51

PC2

932 37 677 46 255 38

Mobile and ancillary3

716 28 167 11 549 NM

Other4

102 4 109 7 (7 ) (6 ) Total non-GAAP (as previously defined) net revenues6 $ 2,517 100 % $ 1,462 100 % $ 1,055 72 % 1 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. 2 Net revenues from PC include revenues that were historically shown as “Online.” 3 Net revenues from mobile and ancillary include revenues from handheld, mobile and tablet devices, as well as non-platform specific game related revenues such as standalone sales of toys and accessories products from the Skylanders franchise and other physical merchandise and accessories. 4 Net revenues from Other include revenues from our Major League Gaming, studios, and distribution businesses. 5 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products, including the effect of taxes. 6

$ Increase(Decrease)

% Increase(Decrease)

Amount % of Total1 Amount % of Total1 Net Revenues by Geographic Region Americas $ 860 55 % $ 551 53 % $ 309 56 % EMEA2 507 32 388 37 119 31 Asia Pacific 203 13 105 10 98 93 Total consolidated GAAP net revenues 1,570 100 1,044 100 526 50 Change in deferred revenues3 Americas (24 ) (198 ) EMEA2 (17 ) (113 ) Asia Pacific 80 26 Total changes in net revenues 39 (285 ) Non-GAAP (as previously defined) Net Revenues by Geographic Region4 Americas 836 52 353 47 483 137 EMEA2 490 30 275 36 215 78 Asia Pacific 283 18 131 17 152 116 Total non-GAAP (as previously defined) net revenues4 $ 1,609 100 % $ 759 100 % $ 850 112 % Six Months Ended June 30, 2016 June 30, 2015

$ Increase(Decrease)

% Increase(Decrease)

Amount % of Total1 Amount % of Total1 Net Revenues by Geographic Region Americas $ 1,613 53 % $ 1,255 54 % $ 358 29 % EMEA2 1,028 34 852 37 176 21 Asia Pacific 384 13 215 9 169 79 Total consolidated GAAP net revenues 3,025 100 2,322 100 703 30 Change in deferred revenues3 Americas (317 ) (548 ) EMEA2 (211 ) (309 ) Asia Pacific 20 (3 ) Total changes in net revenues (508 ) (860 ) Non-GAAP (as previously defined) Net Revenues by Geographic Region4 Americas 1,296 51 707 48 589 83 EMEA2 817 32 543 37 274 50 Asia Pacific 404 16 212 15 192 91 Total non-GAAP (as previously defined) net revenues4 $ 2,517 100 % $ 1,462 100 % $ 1,055 72 % 1 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. 2 EMEA consists of the Europe, Middle East, and Africa geographic regions. 3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products, including the effect of taxes. 4

$ Increase(Decrease)

% Increase(Decrease)

Amount % of Total1 Amount % of Total1 Segment net revenues: Activision2 $ 332 21 % $ 313 45 % $ 19 6 % Blizzard3 738 47 385 55 353 92 King4 484 31 — — 484 NM Reportable segments total 1,554 100 % 698 100 % 856 123 Reconciliation to consolidated net revenues: Other segments5 55 61

Net effect from deferral of net revenues6

(39 ) 285 Consolidated net revenues $ 1,570 $ 1,044 526 50 % Segment income (loss) from operations: Activision2 $ 88 $ 57 $ 31 54 % Blizzard3 333 117 216 185 King4 176 — 176 NM

Reportable segments total

597 174 423 NM Reconciliation to consolidated operating income and consolidated income before income tax expense Other segments5 (9 ) (1 )

Net effect from certain revenues deferrals accounting treatment6

(108 ) 181 Stock-based compensation expense (41 ) (21 ) Amortization of intangible assets (203 ) (1 )

Fees and other expenses related to acquisitions7

(4 ) — Consolidated operating income 232 332 (100 ) (30 ) Interest and other expense (income), net 65 50 Consolidated income before income tax expense $ 167 $ 282 (115 ) (41 )% Operating margin from total reportable segments 38.4 % 24.9 % Six Months Ended June 30, 2016 June 30, 2015

$ Increase(Decrease)

% Increase(Decrease)

Amount % of Total1 Amount % of Total1 Segment net revenues: Activision2 $ 692 29 % $ 616 46 % $ 76 12 % Blizzard3 1,032 43 737 54 295 40 King4 691 29 — — 691 NM Reportable segments total 2,415 100 % 1,353 100 % 1,062 78 Reconciliation to consolidated net revenues: Other segments5 102 109 Net effect from deferral of net revenues6 508 860 Consolidated net revenues $ 3,025 $ 2,322 703 30 % Segment income (loss) from operations: Activision2 $ 187 $ 121 $ 66 55 % Blizzard3 419 256 163 64 King4 243 — 243 NM Reportable segments total 849 377 472 125 Reconciliation to consolidated operating income and consolidated income before income tax expense Other segments5 (9 ) (1 ) Net effect from certain revenues deferrals accounting treatment6 261 545 Stock-based compensation expense (85 ) (44 ) Amortization of intangible assets (285 ) (3 ) Fees and other expenses related to acquisitions7 (38 ) — Consolidated operating income 693 874 (181 ) (21 ) Interest and other expense (income), net 117 100 Consolidated income before income tax expense $ 576 $ 774 (198 ) (26 )% Operating margin from total reportable segments 35.2 % 27.9 % 1 The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. 2 Activision Publishing (“Activision”) — publishes interactive entertainment products and content. 3 Blizzard Entertainment, Inc. (“Blizzard”) — publishes interactive entertainment products and online subscription-based games. 4 King Digital Entertainment plc (“King”) — publishes interactive mobile entertainment products. 5 Other includes other income and expenses from operating segments managed outside the reportable segments, including our Major League Gaming, studios, and distribution businesses. Other also includes unallocated corporate income and expenses. 6 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effect of taxes. 7 Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings. Our 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. The CODM reviews segment performance exclusive of the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled products, stock-based compensation expense, amortization of intangible assets as a result of purchase price accounting, and fees and other expenses related to financings and acquisitions. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES EBITDA and Adjusted EBITDA For the Trailing Twelve Months Ended June 30, 2016 (Amounts in millions)

Trailing TwelveMonths Ended

September 30,2015 December 31,2015 March 31,2016 June 30,2016 June 30,2016 GAAP Net Income $ 127 $ 159 $ 336 $ 127 $ 749 Interest Expense, net 51 50 52 66 219 Provision for income taxes 18 42 73 40 173 Depreciation and amortization 25 30 107 233 395 EBITDA 221 281 568 466 1,536 Stock-based compensation expense1 28 22 44 41 135 Fees and other expenses related to acquisitions2 — 5 34 4 43 Adjusted EBITDA (redefined) $ 249 $ 308 $ 646 $ 511 $ 1,714 Change in deferred net revenues and related cost of revenues3 $ 26 $ 554 $ (369 ) $ 108 $ 319 Adjusted EBITDA (as previously defined)4 $ 275 $ 862 $ 277 $ 619 $ 2,033 1 Includes expenses related to stock-based compensation. 2 Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings. 3 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effect of taxes. 4

We have provided Adjusted EBITDA (as previously defined) and Adjusted EBITDA (redefined) in this earnings release. The only difference between the two measures is the inclusion (Adjusted EBITDA (redefined)) or exclusion (Adjusted EBITDA (as previously defined)) of the impact from revenue deferrals accounting treatment on certain of our online enabled products. This is the last quarter we will report Adjusted EBITDA (as previously defined) and going forward, we will only be providing Adjusted EBITDA (redefined).

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION (Amounts in millions) Three Months Ended June 30, September 30, December 31, March 31, June 30,

Year over Year% Increase(Decrease)

2015 2015 2015 2016 2016 Cash Flow Data Operating Cash Flow $ 135 $ (181 ) $ 1,029 $ 309 $ 479 255 % Capital Expenditures 28 46 16 27 44 57 Non-GAAP Free Cash Flow1 107 (227 ) 1,013 282 435 307 Operating Cash Flow - TTM2 1,394 1,358 1,192 1,292 1,636 17 Capital Expenditures - TTM2 94 112 111 117 133 41 Non-GAAP Free Cash Flow - TTM2 $ 1,300 $ 1,246 $ 1,081 $ 1,175 $ 1,503 16 % 1 Non-GAAP free cash flow represents operating cash flow minus capital expenditures. 2 TTM represents trailing twelve months. Operating Cash Flow for the three months ended March 31, 2015, three months ended December 31, 2014, and three months ended September 30, 2014 was $209 million, $1,195 million, and $(145) million, respectively. Capital Expenditures for the three months ended March 31, 2015, three months ended December 31, 2014, and three months ended September 30, 2014 was $21 million, $17 million, and $28 million, respectively. ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES Outlook for the Three Months Ending September 30, 2016 and Year Ending December 31, 2016 GAAP to Non-GAAP (redefined) Reconciliation (Amounts in millions, except per share data) Outlook for the Outlook for the Three Months Ending Year Ending September 30, 2016 December 31, 2016 Net Revenues1 $ 1,490 $

6,400

Change in deferred revenues2 $ 45 $

Earnings Per Diluted Share (GAAP) $ 0.06 $ 0.87

Excluding the impact of:

Stock-based compensation3 0.06 0.24 Amortization of intangible assets4 0.26 0.92 Fees and other expenses related to acquisitions5 0.12 0.18 Income tax impacts from items above6 (0.11 ) (0.39 ) Earnings Per Diluted Share (Non-GAAP redefined) $ 0.39 $ 1.83 Net effect of deferred net revenues and related cost of revenues on Earnings Per Diluted Share7 $ 0.01 $ 0.07 1 Net Revenues represents the revenue outlook for both GAAP and Non-GAAP (redefined) as they are measured the same. 2 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues on certain of our online enabled products. 3 Reflects expenses related to stock-based compensation. 4 Reflects amortization of intangible assets from purchase price accounting, including intangible assets from the King Acquisition. 5

Reflects fees and other expenses related to the King Acquisition, inclusive of related debt financings, and debts refinancing, as well as anticipated costs associated with potential future debt refinancings.

6 Reflects the income tax impacts associated with the above items. The outlook for the year ending December 31, 2016 is benefited by $0.07 from the adoption of a new accounting standard on share based payments. The new standard requires that all excess tax benefits and tax deficiencies from stock-based compensation be recorded as an income tax expense or benefit that is treated as discrete items in the reporting period in which they occur. The $0.07 relates to the excess tax benefits on share based payments for the six months ended June 30, 2016. Due to the inherent uncertainties in share price and option exercise behavior, we do not forecast excess tax benefits or tax deficiencies. 7 Reflects the net effect from deferral of revenues and (recognition) of deferred revenues, along with related cost of revenues, on certain of our online enabled products, including the effect of taxes.

The per share adjustments and the GAAP and non-GAAP earnings per share information are presented as calculated. Therefore the sum of these measures, as presented, may differ due to the impact of rounding.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160804006430/en/

Activision Blizzard, Inc.Amrita AhujaSVP, Investor Relations(310) 255-2075Amrita.Ahuja@Activision.comorMary OsakoSVP, Global Communications(424) 322-5166Mary.Osako@Activision.com

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