Income Taxes	6 Months Ended
Jun. 30, 2014
Income Taxes
Income Taxes	11. Income Taxes The Company accounts for its provision for income taxes in accordance with ASC 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the 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 our earnings, changes in projected results for various jurisdictions, changes in 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 $56 million for the three months ended June 30, 2014 reflected an effective tax rate of 21.5%, which is lower than the effective tax rate of 24.7% for the three months ended June 30, 2013. The income tax expense of $139 million for the six months ended June 30, 2014 reflected an effective tax rate of 21.8%, which is lower than the effective tax rate of 23.5% for the six months ended June 30, 2013. These decreases are primarily due to a deferred tax benefit recognized in the current year in foreign jurisdictions, partially offset by the expiration of the federal research credit. The effective tax rate of 21.5% and 21.8% for the three and six months ended June 30, 2014, respectively, differed from the U.S. statutory rate of 35.0%, primarily due to the amount of foreign earnings taxed at relatively lower statutory rates, as compared to domestic earnings taxed at relatively higher statutory rates, and recognition of California research and development credits and federal domestic production deductions, partially offset by increases to the Company's reserve for uncertain tax positions. The overall effective income tax rate for the year could be different from the effective tax rate for the three and six months ended June 30, 2014 and will be dependent, in part, on our profitability for the remainder of the year. Our effective income tax rates for the remainder of 2014 and future periods will depend on a variety of other 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 our pre-tax income is lower than anticipated in foreign regions, where taxes are levied at relatively lower statutory rates, and/or our pre-tax income is higher than anticipated in the United States, where taxes are levied at relatively higher statutory rates. The Internal Revenue Service (“IRS”) is currently examining Activision Blizzard's federal tax returns for the 2008 and 2009 tax years and during the second quarter of 2014, the Company was notified that our tax returns for the 2010 and 2011 tax years will be subject to examination. Additionally, the IRS is currently reviewing the Company's application for an advanced pricing agreement (“APA”) covering tax years 2010 through 2016. An APA is an agreement between a taxpayer and a taxing authority on an appropriate intercompany HYPERLINK "http://en.wikipedia.org/wiki/Transfer_pricing" \o "Transfer pricing" transfer pricing methodology for a specific period of time. If ongoing discussions with the IRS result in a mutually acceptable APA, this could result in a different allocation of profits and losses under the Company's transfer pricing agreements. Such allocation could have an impact on the Company's provision for uncertain tax positions for the period in which such an agreement is reached and the relevant periods thereafter. In addition, Vivendi Games' tax returns for the 2005 through 2008 tax years are under examination by the Internal Revenue Service. 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. 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 $237 million. The utilization of such NOL carryforwards will be subject to certain annual limitations and will begin to expire in 2021. The Company also obtained indemnification from Vivendi against losses attributable to the disallowance of claimed utilization of such NOL carryforwards of up to $200 million in unrealized tax benefits in the aggregate, limited to taxable years ending on or prior to December 31, 2016. No benefit for these tax attributes or indemnification was recorded upon the close of the Purchase Transaction, as the benefit from these tax attributes did not meet the “more-likely-than-not” standard. For the six months ended June 30, 2014, we utilized $147 million of the NOL, which resulted in a benefit of $52 million, and a corresponding reserve was established as the position did not meet the “more-likely-than-not” standard. In addition, for the six months ended June 30, 2014, an indemnification asset of $52 million has been recorded in “Other Assets”, and, correspondingly, the same amount has been recorded as a reduction to the consideration paid for the shares repurchased in “Treasury Stock” (see Note 1 of the Notes to Condensed Consolidated Financial Statements for details about the share repurchase).

Income Taxes

6 Months Ended

Jun. 30, 2014

11. Income Taxes

The Company accounts for its provision for income taxes in accordance with ASC 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the 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 our earnings, changes in projected results for various jurisdictions, changes in 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 $56 million for the three months ended June 30, 2014 reflected an effective tax rate of 21.5%, which is lower than the effective tax rate of 24.7% for the three months ended June 30, 2013. The income tax expense of $139 million for the six months ended June 30, 2014 reflected an effective tax rate of 21.8%, which is lower than the effective tax rate of 23.5% for the six months ended June 30, 2013. These decreases are primarily due to a deferred tax benefit recognized in the current year in foreign jurisdictions, partially offset by the expiration of the federal research credit.

The effective tax rate of 21.5% and 21.8% for the three and six months ended June 30, 2014, respectively, differed from the U.S. statutory rate of 35.0%, primarily due to the amount of foreign earnings taxed at relatively lower statutory rates, as compared to domestic earnings taxed at relatively higher statutory rates, and recognition of California research and development credits and federal domestic production deductions, partially offset by increases to the Company's reserve for uncertain tax positions.

The overall effective income tax rate for the year could be different from the effective tax rate for the three and six months ended June 30, 2014 and will be dependent, in part, on our profitability for the remainder of the year. Our effective income tax rates for the remainder of 2014 and future periods will depend on a variety of other 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 our pre-tax income is lower than anticipated in foreign regions, where taxes are levied at relatively lower statutory rates, and/or our pre-tax income is higher than anticipated in the United States, where taxes are levied at relatively higher statutory rates.

The Internal Revenue Service (“IRS”) is currently examining Activision Blizzard's federal tax returns for the 2008 and 2009 tax years and during the second quarter of 2014, the Company was notified that our tax returns for the 2010 and 2011 tax years will be subject to examination. Additionally, the IRS is currently reviewing the Company's application for an advanced pricing agreement (“APA”) covering tax years 2010 through 2016. An APA is an agreement between a taxpayer and a taxing authority on an appropriate intercompany HYPERLINK "http://en.wikipedia.org/wiki/Transfer_pricing" \o "Transfer pricing" transfer pricing methodology for a specific period of time. If ongoing discussions with the IRS result in a mutually acceptable APA, this could result in a different allocation of profits and losses under the Company's transfer pricing agreements. Such allocation could have an impact on the Company's provision for uncertain tax positions for the period in which such an agreement is reached and the relevant periods thereafter.

In addition, Vivendi Games' tax returns for the 2005 through 2008 tax years are under examination by the Internal Revenue Service. 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.

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 $237 million. The utilization of such NOL carryforwards will be subject to certain annual limitations and will begin to expire in 2021. The Company also obtained indemnification from Vivendi against losses attributable to the disallowance of claimed utilization of such NOL carryforwards of up to $200 million in unrealized tax benefits in the aggregate, limited to taxable years ending on or prior to December 31, 2016. No benefit for these tax attributes or indemnification was recorded upon the close of the Purchase Transaction, as the benefit from these tax attributes did not meet the “more-likely-than-not” standard. For the six months ended June 30, 2014, we utilized $147 million of the NOL, which resulted in a benefit of $52 million, and a corresponding reserve was established as the position did not meet the “more-likely-than-not” standard. In addition, for the six months ended June 30, 2014, an indemnification asset of $52 million has been recorded in “Other Assets”, and, correspondingly, the same amount has been recorded as a reduction to the consideration paid for the shares repurchased in “Treasury Stock” (see Note 1 of the Notes to Condensed Consolidated Financial Statements for details about the share repurchase).

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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